Nuveen Churchill Direct Lending Corp. — FY2023 Form 10-K
Reporting period: Fiscal year ended December 31, 2023; comparisons are primarily with FY2022. This is an annual report, not a separate fourth-quarter report. The company is an externally managed BDC focused mainly on senior secured lending to U.S. middle-market, private equity-owned companies.
Financial and portfolio highlights
| Metric | FY2023 / Dec. 31, 2023 | FY2022 / Dec. 31, 2022 |
|---|---|---|
| Total investment income | $161.8 million | $82.5 million |
| Net investment income | $84.0 million | $45.5 million |
| Net realized investment gain (loss) | $(8.0) million | $(0.3) million |
| Net change in unrealized investment gains (losses), including tax provision | $(0.1) million | $(27.9) million |
| Net increase in net assets from operations | $75.9 million | $17.3 million |
| Net assets | $747.9 million | $525.0 million |
| NAV per share | $18.13 | $18.32 |
| Investments at fair value | $1,641.7 million | $1,200.4 million |
| Secured borrowings, gross | $951.9 million | $705.4 million |
| Cash and cash equivalents | $67.4 million | $39.3 million |
| Operating cash flow | $(369.5) million | $(427.8) million |
| Financing cash flow | $397.7 million | $431.9 million |
- Investment income more than doubled, mainly from higher benchmark rates and a larger portfolio. Average portfolio cost grew from $1.23 billion to $1.67 billion; purchases were $589.0 million and principal repayments and sales were $146.4 million.
- Weighted average portfolio yield at cost rose to 11.72% from 10.61%. At year-end, 94.61% of debt investments were floating-rate, and 94.43% had interest-rate floors.
- Portfolio fair value comprised 86.95% first-lien term loans, 11.17% subordinated debt and 1.88% equity investments. The largest portfolio-company exposure was 1.53% of fair value.
- The weighted average internal risk rating remained 4.14. No loans were on non-accrual at year-end, versus one loan at $8.9 million fair value in 2022. Ratings 7 and 8 represented 1.68% and 0.36% of portfolio fair value, respectively, in 2023.
- Annual interest and debt financing expense increased to $61.2 million from $25.7 million. Average daily borrowings increased to $816.2 million from $566.2 million, while the average borrowing rate rose to 7.23% from 4.29%.
- Asset coverage was 178.57%, above the 150% regulatory minimum. Available borrowing capacity under facilities was approximately $215.0 million at year-end. The company also reported $142.4 million of uncalled investor commitments then; these were drawn in January 2024.
- Cash and restricted cash increased by $28.1 million during 2023. Operating cash use primarily reflected investment purchases, funded in part through borrowings and share issuance.
- Distributions declared for 2023 totaled $2.41 per share, including supplemental distributions; $81.2 million was declared from investment company taxable income and net capital gain, if any.
Material changes, outlook and notable events
- Net investment income rose to $84.0 million from $45.5 million. The investment portfolio expanded, and higher base rates lifted yields and income. The company reported a modest net unrealized loss in 2023, compared with a $27.9 million net unrealized loss in 2022, as prior losses on two underperforming positions partly reversed and market spreads tightened.
- The $8.0 million realized loss in 2023 was attributed mainly to final realization of an underperforming debt investment and a portfolio-company restructuring; equity-investment realizations partly offset the losses.
- Management described private-credit conditions as attractive, noting increased M&A activity and financing demand, but said it was monitoring portfolio companies amid elevated rates and economic uncertainty. It reported no broad-based deterioration at the time of filing and gave no quantified earnings or distribution guidance.
- The company completed its IPO on January 29, 2024, issuing 5.5 million shares at $18.05 and receiving approximately $99.3 million. It also issued 7.9 million shares in January for approximately $142.4 million of final private-capital drawdowns; no investor commitments remained undrawn afterward.
- Post-IPO, the base management fee was reduced from 1.25% to 0.75% of Average Total Assets for five quarters beginning with Q1 2024, then steps up to 1.00%. Income and capital-gains incentive fees were waived for those five quarters. Thereafter, the income fee has a three-year lookback and cap.
- A $298.1 million 2023 debt securitization closed in December. A further securitization was priced in February 2024; its expected March closing remained subject to customary conditions as described in the filing.
- Principal risks include borrower stress from high interest rates and inflation, defaults and restructurings, leverage and funding costs, illiquid private-credit valuations, PIK income that may not convert to cash, and the risk that affiliate conflicts or allocation constraints affect investment opportunities. Most portfolio investments are Level 3 fair-value measurements, making valuations dependent on estimates and assumptions.
Investor facts to verify
- Review the audited financial statements and debt disclosures for total borrowings, facility availability, covenants, and the effect of floating-rate costs on net investment income.
- Assess portfolio credit quality beyond the headline non-accrual figure, including watch-list exposures, restructurings, PIK loans, unfunded commitments and the $8.0 million realized loss.
- Examine Level 3 valuation assumptions and the gap between investment amortized cost ($1,666.2 million) and fair value ($1,641.7 million), as well as the effect of valuations on NAV.
- Check post-IPO NAV, distributions, fee-waiver timing and the final terms and closing status of the 2024 securitization. The filing reported a February 23, 2024 share price of $16.95, a 6.51% discount to December 31 NAV.
- Consider distribution sustainability: RIC qualification requires distributions, while accrued PIK and other non-cash income may create distribution needs without matching cash receipts.