NCDL

Business Context and Reporting Period

Nuveen Churchill Direct Lending Corp. (NCDL) is a closed-end, externally managed business development company (BDC) and regulated investment company (RIC). The company invests primarily in senior secured loans to private equity-owned U.S. middle market companies. This report covers the quarterly period ended June 30, 2024. The company completed its initial public offering (IPO) on January 29, 2024, and its common stock trades on the NYSE under the symbol "NCDL."

Key Financial Metrics

Material Changes vs. Prior Period

• Investment Income Growth: Total investment income increased significantly compared to the prior year periods ($55.1M vs. $37.1M for Q2; $106.7M vs. $71.1M for YTD), driven primarily by a larger deployed capital base ($2.0B vs. $1.4B at cost).
• Expense Increases: Total expenses before waivers rose to $27.2M (Q2) and $53.5M (YTD) from $18.5M and $34.8M in the prior year, respectively. This was due to higher interest and debt financing expenses resulting from increased borrowings and higher average interest rates (7.73% vs. 7.17% for Q2).
• Unrealized Losses: The company recorded a net change in unrealized loss of $12.1M for Q2 and $8.0M for YTD, primarily attributable to fair value decreases in two underperforming portfolio companies.
• Realized Gains/Losses: For the six months ended June 30, 2024, the company reported a net realized loss of $2.6M, contrasting with a net realized gain of $6.7M in the prior year period. The loss was driven by the realization of an underperforming debt position in Q1.
• Portfolio Composition: First-lien term loans now represent 90.61% of the portfolio at fair value, up from 86.95% at year-end 2023.

Guidance, Outlook, and Risks

• Fee Waivers: The Adviser is waiving the incentive fee on income and capital gains for the first five quarters following the IPO (through March 31, 2025). For the six months ended June 30, 2024, $7.5 million in incentive fees were waived.
• Market Outlook: Management notes that while spreads have tightened in the first half of 2024 due to competition and healthy CLO issuance, the private credit environment remains attractive. Prepayment activity is increasing due to M&A activity and refinancing.
• Asset Quality: As of June 30, 2024, three portfolio companies were on non-accrual status with an aggregate fair value of $9.8 million (0.49% of total investments). The weighted average internal risk rating of the portfolio was 4.11.
• Liquidity: The company maintains adequate liquidity with $289.99 million available under its credit facilities (Wells Fargo, SMBC, and Revolving Credit Facility) and $71.0 million in cash and cash equivalents.
• Share Repurchases: The company is executing a 10b5-1 share repurchase plan to buy back shares trading below NAV. As of June 30, 2024, it had repurchased 292,310 shares for approximately $5.1 million.
• Risks: Key risks include interest rate volatility, credit deterioration in the portfolio, liquidity constraints in credit markets, and the impact of geopolitical conditions on the global economy.

Investor Verification Checklist

• Non-Accrual Status: Verify the specific identity and financial status of the three portfolio companies currently on non-accrual status.
• Fee Waiver Expiration: Confirm the timeline for the expiration of the incentive fee waiver (March 31, 2025) and its potential impact on future net investment income.
• Share Repurchase Progress: Monitor the remaining capacity under the $99.3 million share repurchase plan and the average price paid relative to NAV.
• Debt Maturities: Review the contractual maturities of the $1.03 billion in secured borrowings, noting that significant portions of CLO debt mature beyond 5 years, while revolving facilities mature sooner.
• Unfunded Commitments: Assess the $211.1 million in unfunded commitments to delayed draw loans and equity investments against available liquidity.