Financial Data and Key Metrics Changes - NCDL reported a total annualized dividend yield of 12% for Q4 and a full-year yield of 13.3% [8] - Net investment income (NII) per share for Q4 was $0.66, with total net income of $0.73 per share [22][23] - Net asset value (NAV) per share increased to $18.13 from $17.96 in the previous quarter [25] - Debt-to-equity ratio at the end of the quarter was 1.26x, down from 1.35x in the previous quarter [24] Business Line Data and Key Metrics Changes - The investment portfolio grew to $1.6 billion, diversified across 179 companies, with the top 10 positions accounting for only 12.5% of the portfolio [14][27] - First lien loans made up 87% of the portfolio, with 86% of debt investments having at least one financial maintenance covenant [15][33] - The average yield on new investments was stable at 11.9% as of year-end [29] Market Data and Key Metrics Changes - Direct lending middle market LBO volume was 8x higher than syndicated loan volume in Q4 [19] - Purchase multiples in the core middle market remained strong at 11x to 12x EBITDA [20] - Prepayment activity increased to 4.4% in Q4, up from 1% in Q3 [28] Company Strategy and Development Direction - NCDL aims to re-lever the portfolio over 2024, targeting a leverage range of 1.0x to 1.25x [24] - The company focuses on maintaining a diversified portfolio by industry and avoiding highly cyclical sectors [35] - NCDL's investment strategy emphasizes downsize protection and overall credit quality, with a rigorous investment process [18] Management's Comments on Operating Environment and Future Outlook - Management noted strong fundamental market dynamics in private credit, with increased M&A activity expected in 2024 [19][60] - The quality of new deals remains high, with a conservative underwriting approach leading to strong interest coverage ratios [46][48] - Stability around interest rates is anticipated to unlock more M&A activity, with private equity firms looking to show liquidity [58][60] Other Important Information - NCDL was recognized as the most active direct lender in the U.S. for 2023 [12] - The company completed its IPO on January 25, raising just under $100 million [38] - A supplemental dividend program is in place to distribute excess earnings to shareholders [24] Q&A Session Summary Question: Can you talk about the credit environment? - Management observed a nice acceleration of deal activity in the second half of the year, with good quality new deals [45][46] Question: What is the pro forma leverage number post-IPO? - Pro forma leverage ratio tops out at roughly 0.8, with intentions to re-lever the portfolio over the year [49] Question: What drove the net gains in the portfolio? - The net gains were mostly spread-driven, with modest increases in valuations due to spread tightening [53] Question: Have you noticed any trends in PIK election or amendment activity? - Management has not seen significant PIK activity, focusing on cash generation capabilities [54][56] Question: What are the catalysts for unlocking more M&A activity? - Stability around interest rates and private equity firms raising new funds are expected to drive M&A activity [58][60] Question: Where are the most attractive opportunities from a sector perspective? - Attractive sectors include software-as-a-service, business services, and certain areas of healthcare, focusing on market-leading businesses [66]
Nuveen Churchill Direct Lending(NCDL) - 2023 Q4 - Earnings Call Transcript