Nuveen Churchill Direct Lending Corp. Form 10-Q Summary
Business context and reporting period
Quarterly report for the period ended June 30, 2021. The company is a closed-end, externally managed, non-diversified business development company that primarily invests in senior secured loans to U.S. middle-market companies. The financial statements are unaudited and include consolidated wholly owned subsidiaries.
Financial condition and key metrics
| Metric | Three months ended June 30, 2021 | Six months ended June 30, 2021 |
|---|---|---|
| Total investment income | $7.6 million | $13.8 million |
| Net investment income | $3.8 million | $6.7 million |
| Net realized gain on investments | $(0.1) million | $0.04 million |
| Net unrealized appreciation | $1.6 million | $2.5 million |
| Net increase in net assets from operations | $5.4 million | $9.3 million |
| Net investment income per share | $0.36 | $0.70 |
- Net assets were $230.5 million at June 30, 2021, compared with $157.6 million at December 31, 2020.
- NAV per share was $19.07, compared with $18.74 at year-end 2020.
- Cash and cash equivalents were $34.4 million, plus $0.05 million of restricted cash.
- Gross secured borrowings were $298.0 million; borrowings reported on the balance sheet were $294.5 million net of deferred financing costs.
- Asset coverage was 177.3%, compared with 182.0% at December 31, 2020, and exceeded the 150% regulatory requirement.
- The investment portfolio had a fair value of $502.1 million, consisting of 96.1% first-lien term loans, 3.3% subordinated debt and 0.6% equity investments. All portfolio investments were classified as Level 3.
- The weighted average yield on debt and income-producing investments was 6.48% at fair value and 6.46% at cost. Approximately 97.2% of debt investments had floating rates.
- Net cash used in operating activities during the first six months was $149.0 million, primarily reflecting $212.7 million of investment purchases. Financing activities provided $170.8 million.
Material changes versus the prior comparable period
- Six-month investment income increased to $13.8 million from $5.5 million, primarily due to substantially greater investment activity and portfolio growth.
- Six-month net investment income increased to $6.7 million from $1.9 million.
- The company reported a $9.3 million increase in net assets from operations, compared with a $5.5 million decrease in the prior-year period. The improvement reflected $2.5 million of unrealized appreciation versus $7.6 million of unrealized depreciation in 2020.
- Investment fair value increased to $502.1 million from $335.3 million at December 31, 2020. The number of portfolio companies increased to 74 from 61 at year-end.
- Capital commitments totaled $505.9 million, with $274.7 million remaining undrawn. The company issued $70.0 million of common shares during the first six months.
- Secured borrowings increased to $298.0 million from $192.2 million at December 31, 2020, while available borrowing capacity decreased to $124.8 million from $245.4 million.
- Quarterly distributions increased to $0.31 per share declared in June 2021 from $0.30 per share declared in March 2021.
Guidance, outlook, risks and unusual items
- Management expects investment income to grow as the portfolio expands through additional capital drawdowns, but no formal earnings or distribution guidance was provided.
- Management attributed valuation gains to tighter credit spreads, improving portfolio-company performance and reduced COVID-19 effects. COVID-19 remains a material uncertainty that could impair portfolio-company liquidity, interest payments, valuations and covenant compliance.
- No loans were on non-accrual status at June 30, 2021. However, $48.4 million of unfunded delayed-draw commitments remained outstanding, compared with $29.5 million at year-end 2020.
- The company relies heavily on Level 3 valuation estimates for illiquid private-company investments; actual realization values could differ materially from reported fair values.
- Borrowings and most portfolio loans use LIBOR-based rates. The planned phaseout of LIBOR could require contract amendments, reduce investment income or increase borrowing costs.
- The Subscription Facility had $23.0 million outstanding and was scheduled to mature on September 10, 2021.
- The Adviser provided $0.3 million of expense support during the first six months; cumulative unreimbursed expense support was $2.6 million and may become payable subject to contractual conditions.
- Subsequent to quarter-end, the company issued 1,564,928 shares for $30.0 million on July 26, 2021.
- No material legal proceedings or defaults were reported. Management concluded that disclosure controls were effective and reported no material changes in internal control over financial reporting.
Important facts for investors to verify
- Reconcile gross debt, net secured borrowings, available facility capacity and the 177.3% asset-coverage ratio.
- Assess the sustainability of distributions relative to net investment income, taxable income and cash available after debt service and new investment funding.
- Review the $48.4 million of unfunded commitments and the remaining $274.7 million of investor capital commitments.
- Evaluate concentration and credit quality, including the 92.7% of portfolio fair value rated internal risk rating 4 and the 7.3% rated ratings 5 or 6.
- Review Level 3 valuation assumptions, particularly market yields, credit-performance discounts and EBITDA multiples.
- Monitor LIBOR transition provisions, floating-rate sensitivity and the maturity or refinancing of the Subscription Facility.
- Confirm subsequent share issuance, future fundraising activity and any changes in NAV or leverage after June 30, 2021.