Nuveen Churchill Direct Lending(NCDL) - 2021 Q3 - Quarterly Report

PART I FINANCIAL INFORMATION Item 1. Consolidated Financial Statements (Unaudited) This section presents Nuveen Churchill Direct Lending Corp.'s unaudited consolidated financial statements as of September 30, 2021, covering financial position, operations, cash flows, and investments Consolidated Statements of Assets and Liabilities As of September 30, 2021, total assets grew to $683.0 million from $353.5 million at year-end 2020, driven by a significant increase in investments at fair value, with total liabilities also increasing to $370.1 million from $195.8 million primarily due to higher secured borrowings, consequently nearly doubling total net assets to $313.0 million and raising net asset value (NAV) per share to $19.27 from $18.74 Consolidated Statement of Assets and Liabilities Highlights (in thousands) | Metric | September 30, 2021 | December 31, 2020 | | :--- | :--- | :--- | | Total Investments, at fair value | $655,805 | $335,259 | | Total Assets | $683,015 | $353,460 | | Total Liabilities | $370,051 | $195,819 | | Total Net Assets | $312,964 | $157,641 | | Net Asset Value per Share | $19.27 | $18.74 | Consolidated Statements of Operations For the nine months ended September 30, 2021, total investment income surged to $23.7 million from $8.5 million in the prior-year period, driven by higher interest income, leading to net investment income increasing to $12.6 million from $3.3 million and a net increase in net assets from operations of $17.9 million, a significant turnaround from a net decrease of $0.9 million in the same period of 2020, largely due to a positive swing in the change in unrealized appreciation of investments Statement of Operations Summary (in thousands) | Metric | Nine Months Ended Sep 30, 2021 | Nine Months Ended Sep 30, 2020 | | :--- | :--- | :--- | | Total Investment Income | $23,690 | $8,513 | | Net Expenses after Expense Support | $11,125 | $5,228 | | Net Investment Income | $12,565 | $3,285 | | Total Net Realized and Unrealized Gain (Loss) | $5,370 | $(4,207) | | Net Increase (Decrease) in Net Assets | $17,935 | $(922) | Consolidated Statements of Changes in Net Assets For the nine months ended September 30, 2021, net assets increased by $155.3 million to reach $313.0 million, primarily driven by $150.1 million from capital share transactions and a $17.9 million net increase from operations, partially offset by $12.7 million in shareholder distributions Changes in Net Assets for Nine Months Ended Sep 30, 2021 (in thousands) | Description | Amount | | :--- | :--- | | Net Assets, beginning of period | $157,641 | | Net Increase from Operations | $17,935 | | Shareholder Distributions | $(12,679) | | Net Increase from Capital Share Transactions | $150,067 | | Net Assets, end of period | $312,964 | Consolidated Statements of Cash Flows For the nine months ended September 30, 2021, net cash used in operating activities was $306.5 million, mainly for the purchase of investments, while net cash provided by financing activities was $309.0 million, driven by proceeds from the issuance of common shares ($150.0 million) and net secured borrowings ($168.0 million), resulting in a net increase in cash of $2.6 million Cash Flow Summary for Nine Months Ended Sep 30 (in thousands) | Cash Flow Activity | 2021 | 2020 | | :--- | :--- | :--- | | Net Cash Used in Operating Activities | $(306,481) | $(23,171) | | Net Cash Provided by Financing Activities | $309,046 | $44,206 | | Net Increase in Cash | $2,565 | $21,035 | Consolidated Schedules of Investments As of September 30, 2021, the company's investment portfolio had a fair value of $671.6 million, heavily concentrated in debt investments ($648.9 million), which represent 207.4% of net assets, with the portfolio diversified across various industries, and the vast majority of investments being non-controlled/non-affiliated first-lien term loans Portfolio Composition by Investment Type (Sep 30, 2021, in thousands) | Investment Type | Amortized Cost | Fair Value | % of Net Assets | | :--- | :--- | :--- | :--- | | Debt Investments | $648,678 | $648,923 | 207.4% | | Equity Investments | $5,629 | $6,882 | 2.2% | | Cash Equivalents | $15,776 | $15,776 | 5.1% | | Total Investments | $670,083 | $671,581 | 214.7% | - The portfolio is diversified across numerous industries, with the top three being Services: Business (19.0%), High Tech Industries (11.1%), and Beverage, Food & Tobacco (9.3%) by fair value[235] Notes to Consolidated Financial Statements (Unaudited) This section provides detailed explanations of the company's organization, significant accounting policies, fair value measurements, related-party transactions, debt facilities, commitments, net assets, financial highlights, and subsequent events, including key policies like valuing investments at fair value (mostly Level 3) and recognizing interest income on an accrual basis, along with significant related-party agreements and credit facilities for leverage Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses the company's financial condition and results of operations, highlighting its investment strategy focused on senior secured loans to U.S. middle-market companies, covering significant growth in the investment portfolio, revenue, and net assets driven by capital raises and investment activity, and detailing the impact of COVID-19, critical accounting policies, portfolio composition and quality, liquidity and capital resources, and related-party transactions - The company's investment objective is to generate income by investing primarily in senior secured loans to private equity-owned U.S. middle market companies with EBITDA between $10.0 million and $100.0 million[200] - The Fundraising Period for the company's private offering was extended by the Board from 18 months to 24 months, now ending on March 13, 2022[203] Results of Operations Summary (in thousands) | Metric | Nine Months Ended Sep 30, 2021 | Nine Months Ended Sep 30, 2020 | | :--- | :--- | :--- | | Total Investment Income | $23,690 | $8,513 | | Net Investment Income | $12,565 | $3,285 | | Net Increase (Decrease) in Net Assets | $17,935 | $(922) | Portfolio and Investment Activity The investment portfolio grew significantly, with total investments at amortized cost increasing from $338.7 million at year-end 2020 to $654.3 million as of September 30, 2021, driven by $417.6 million in new investment purchases, with the portfolio remaining heavily weighted towards first-lien term loans (86.8% of fair value) and maintaining stable asset quality, with 93.6% rated 'Performing - Stable Risk' (Rating 4) and a weighted average internal risk rating of 4.1 Investment Activity for Nine Months Ended Sep 30, 2021 (in thousands) | Activity | Amount | | :--- | :--- | | Total investments, beginning of period | $338,738 | | Purchase of investments | $417,621 | | Proceeds from repayments and sales | $(103,210) | | Total investments, end of period | $654,307 | Portfolio Asset Quality by Fair Value (Sep 30, 2021) | Rating Category | Fair Value (in thousands) | % of Portfolio | | :--- | :--- | :--- | | 4 - Performing - Stable Risk | $613,722 | 93.6% | | 5 - Performing - Management Notice | $24,101 | 3.7% | | 6 - Watch List - Low Maintenance | $17,982 | 2.7% | | Total | $655,805 | 100.0% | Liquidity and Capital Resources The company's liquidity is sourced from capital drawdowns, investment income, and credit facilities, with $208.5 million in uncalled capital commitments and $86.8 million available for borrowing across its three credit facilities as of September 30, 2021, while maintaining an asset coverage ratio of 186.9%, well above the 150% regulatory requirement, and total debt obligations of $360.1 million - As of September 30, 2021, the company had received capital commitments totaling $519.7 million, with $208.5 million remaining undrawn[256] Available Borrowing Capacity (Sep 30, 2021, in millions) | Facility | Amount Available | | :--- | :--- | | SPV I Financing Facility | $64.4 | | Subscription Facility | $8.0 | | SPV II Financing Facility | $14.5 | | Total Available | $86.9 | - The company's asset coverage ratio was 186.9% as of September 30, 2021, compliant with the 150% minimum requirement for BDCs[252] Item 3. Quantitative and Qualitative Disclosures About Market Risk The company is exposed to market risks, primarily valuation risk for its illiquid private investments and interest rate risk, with 96.14% of the loan portfolio having floating interest rates as of September 30, 2021, and an analysis showing that a 200 basis point increase in interest rates would result in a net positive impact of $350 thousand to annual net income, while a 100 basis point increase would have a negative impact of $1.6 million due to LIBOR floors on assets - The company's primary market risks are valuation risk for its illiquid portfolio and interest rate risk due to its floating-rate assets and liabilities[291][292] Interest Rate Sensitivity Analysis (in thousands) | Changes in Interest Rates | Impact on Net Income | | :--- | :--- | | -25 Basis Points | $621 | | +100 Basis Points | $(1,630) | | +200 Basis Points | $350 | | +300 Basis Points | $2,331 | Item 4. Controls and Procedures Management, including the CEO and CFO, evaluated the company's disclosure controls and procedures as of September 30, 2021, concluding that these controls were effective in ensuring timely recording, processing, and reporting of information required for SEC filings, with no material changes in internal control over financial reporting during the quarter - The Chief Executive Officer and Chief Financial Officer concluded that the company's disclosure controls and procedures were effective as of the end of the period[298] - No material changes to the internal control over financial reporting occurred during the most recently completed fiscal quarter[299] PART II OTHER INFORMATION Item 1. Legal Proceedings The company reports that it, along with its consolidated subsidiaries, the Adviser, and the Sub-Adviser, are not currently subject to any material legal proceedings, nor are any known to be threatened - The company is not currently subject to any material legal proceedings[301] Item 1A. Risk Factors This section highlights material changes to risk factors, focusing on the upcoming transition away from LIBOR, which could impact interest rates on portfolio loans and company borrowings, and introduces new risks related to corporate social responsibility (ESG) scrutiny and potential adverse effects from new tax legislation proposed by the Biden Administration - The company faces risks from the planned cessation of LIBOR after 2021 and 2023, which may require renegotiating credit agreements and could adversely affect interest income and borrowing costs[303][304][306] - The company is subject to increasing public scrutiny and potential regulatory initiatives related to environmental, social, and governance (ESG) activities, which could damage its brand and reputation[307] - Potential changes to U.S. tax rules, including proposals from the Biden Administration, could negatively affect the company's ability to qualify as a RIC and the tax consequences for its shareholders[308] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds The company states that, other than shares issued through its dividend reinvestment plan, it did not sell any unregistered securities during the period covered by the report - No unregistered securities were sold during the period, except as part of the dividend reinvestment plan[309] Item 3. Defaults Upon Senior Securities There were no defaults upon senior securities during the reporting period - None[310] Item 6. Exhibits This section lists the exhibits filed with the Form 10-Q, including CEO and CFO certifications and the Second Amended and Restated Investment Sub-Advisory Agreement, with other corporate governance documents incorporated by reference from previous filings - Exhibits filed include CEO and CFO certifications pursuant to the Securities Exchange Act of 1934 and the Sarbanes-Oxley Act of 2002[315] - The Second Amended and Restated Investment Sub-Advisory Agreement, dated October 7, 2021, was previously filed and is incorporated by reference[315]