Nuveen Churchill Direct Lending Corp. Q3 FY2024 earnings call

• Ken Kencel started by discussing Q3 results, noting strong net investment income, portfolio performance, and the strength of the private credit markets. He highlighted the rotation from higher-priced upper middle market positions to traditional middle market with wider spreads.
• Shai Vichness detailed financial results, including net income of $0.67 per share in Q3 vs $0.37 in Q2, driven by net realized and unrealized gains. He discussed origination activity, credit quality (no new non-accruals, watch list at 5.6% of portfolio), leverage (debt-to-equity ratio 1.11 times), and the share repurchase program (utilized ~$14 million, with ~$86 million remaining).
• Key operational highlights include $226 million in gross originations, $203 million in gross investments funding, and continued focus on traditional middle market senior loans with 90.1% of the portfolio in first lien loans.

In the third quarter of 2024, Nuveen Churchill Direct Lending Corp. (NCDL) generated net investment income of $0.58 per share, which was up from $0.57 per share in the second quarter. Total investment income increased by $5.2 million or 9% quarter-over-quarter, driven by higher interest income from strong deployment and leverage utilization. The net asset value per share increased to $18.15 from $18.03 as of June 30. The investment portfolio had a fair value of $2.05 billion as of September 30, compared to $1.99 billion at the end of Q2. New originations for the quarter totaled $226 million in gross originations and $203 million in gross investments funding. Senior lending represented 98% of NCDL’s origination activity, and first lien debt remained at approximately 90% of the portfolio’s fair value.

• NCDL expects to continue deploying capital primarily into traditional middle market transactions as it completes the portfolio rotation.
• Leverage ratio is targeted to remain within 1 to 1.25 times, currently at 1.11 times.
• The company is optimistic about continued strong performance into 2025,受益于 deal flow generation and healthy underlying borrowers, with anticipation of increased M&A activity as rates reduce.

• Increased competition in the private credit market leading to spread compression in Q3, albeit at a slower pace than Q2.
• Macroeconomic uncertainties and potential interest rate fluctuations that could impact borrowers and investment terms.
• Credit quality risks if market conditions deteriorate, although current credit quality remains strong with no new non-accruals and low non-accrual levels.

Q: Brian Mckenna asked about white space across the Churchill platform to further penetrate the middle market and ways to leverage relationships for NCDL.

A: Ken Kencel responded that there is continued white space, with a 30% increase in firms doing new deals, and an ongoing allocation to new private equity funds adding 7-10 new LP relationships annually. 75% of senior lending activity is with firms having LP relationships.

Q: Maxwell Fritscher inquired about amendment activity in the quarter and spreads for junior debt.

A: Shai Vichness said amendment activity didn't pick up much quarter-over-quarter, with repricing of existing transactions moderating. Ken Kencel commented junior debt pricing is stable, running around 13.75%-14% and highly curated from LP relationships.

Q: Derek Hewett asked about the size of the upper middle market portfolio rotated and yield differential between strategies.

A: Shai Vichness stated the upper middle market portfolio is circa $200 million (10% of total), and the yield premium for traditional middle market vs BSL is around 200 basis points, with new floating rate loans at ~500 basis points over SOFR.

Q: Paul Johnson asked about the increase in the watch list and new companies on watch list.

A: Shai Vichness said the portfolio is in good shape, with no new non-accruals. The watch list movement is due to proactive portfolio management, with no major trends or themes, and company-specific idiosyncrasies.

Q: Brian Mckenna asked about the stock repurchase plan, including Q3 and October activity and repurchase structure.

A: Shai Vichness said the repurchase program is active, with ~$14 million utilized by October 31, and increasing purchases as the discount to NAV widens, with ~$86 million remaining in the program.