Nuveen Churchill Direct Lending Q2 2024 Earnings Report

Nuveen Churchill Direct Lending EPS Results

• Actual EPS: $0.57
• Consensus EPS: $0.57
• Beat/Miss: Met Expectations
• One Year Ago EPS: N/A

Nuveen Churchill Direct Lending Revenue Results

• Actual Revenue: $55.09 million
• Expected Revenue: $54.30 million
• Beat/Miss: Beat by +$790.00 thousand
• YoY Revenue Growth: N/A

Nuveen Churchill Direct Lending Announcement Details

• Quarter: Q2 2024
• Date: 8/7/2024
• Time: Before Market Opens
• Conference Call Date: Wednesday, August 7, 2024
• Conference Call Time: 11:00AM ET

Nuveen Churchill Direct Lending (NYSE:NCDL) (NYSE:NCDL) is a closed-end management investment company that seeks to provide shareholders with attractive risk-adjusted returns through a diversified portfolio of direct lending instruments. Established in early 2022, NCDL focuses on privately negotiated debt investments in middle-market companies, primarily within the United States. The fund offers investors access to a segment of the credit markets that has historically been less correlated with public debt markets, aiming to capture yield premiums associated with private lending.

The fund’s investment strategy centers on senior secured loans, unitranche financings and selectively structured mezzanine debt. By targeting companies with established cash flows and proven business models, NCDL aims to preserve capital while seeking current income. Its portfolio is diversified across industries such as healthcare, business services, industrials and consumer products, helping to mitigate concentration risk and enhance overall portfolio stability.

Nuveen Churchill Direct Lending is sub-advised by Churchill Asset Management, an affiliate of Nuveen, which itself is a leading global investment manager. Churchill brings deep credit research capabilities and direct lending expertise, leveraging its established relationships with corporate borrowers, sponsors and financial intermediaries to source proprietary investment opportunities. Nuveen’s broader platform supports the fund with risk management, compliance and distribution resources.

The fund is organized as a publicly traded trust and intends to utilize leverage to enhance total return potential, within the parameters approved by its board of trustees. Investors in NCDL gain exposure to a specialized segment of private credit, backed by the combined resources and experience of Nuveen and Churchill Asset Management.

Nuveen Churchill Direct Lending Q2 2024 Earnings Call Transcript

Key Takeaways

• Positive Sentiment: Record deployment — $360 million of new originations in Q2 (over 95% first‑lien senior loans), one of the firm’s strongest quarters and part of a deliberate rotation into traditional middle‑market senior loans.
• Positive Sentiment: Strong income and payouts — net investment income of $0.57 per share funded the $0.45 regular dividend plus a $0.10 special dividend (first of four), implying an approximately 12.3% annualized yield on quarter‑end NAV.
• Positive Sentiment: Conservative portfolio and liquidity — highly diversified 198‑company portfolio with top‑10 = 14.4%, ~91% first‑lien exposure, weighted average internal risk rating 4.1, debt‑to‑equity 1.04x (target 1.0–1.25x), and roughly $360 million of available liquidity.
• Negative Sentiment: NAV pressure from credit events — NAV declined ~1% to $18.03 due to unrealized losses on two investments placed on non‑accrual (three non‑accruals total), representing 0.49% of portfolio fair value with timelines for resolution still unclear.

Presentation

[Operator]

Welcome to Nuveen Churchill Direct Lending Corp.'s second quarter 2024 earnings call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the management team's prepared remarks. As a reminder, this conference call is being recorded for replay purposes. I'd like to turn the call over to Alona Gornick, Senior Investment Strategist at Churchill Asset Management. Alona, please go ahead.

[Alona Gornick, Senior Investment Strategist at Churchill Asset Management]

Good morning, welcome to Nuveen Churchill Direct Lending Corp's second quarter 2024 earnings call. Today, I'm joined by NCDL's Chairman, President, and CEO, Ken Kencel, and Chief Financial Officer and Treasurer, Shai Vichness, as well as Michael Pond, Head of Investor Relations for Retail and Wealth here at Churchill. Following our prepared remarks, we will be available to take your questions. Today's call may include forward-looking statements. Such statements involve known and unknown risks, uncertainties, and other factors, undue reliance should not be placed thereon. These forward-looking statements are not historical facts, but rather are based on current expectations, estimates, and projections about the Company, our current and prospective portfolio investments, our industry, our beliefs and opinions, and our assumptions.

[Alona Gornick, Senior Investment Strategist at Churchill Asset Management]

These statements are not guarantees of future performance and are subject to risks, uncertainties, and other factors, some of which are beyond our control and difficult to predict. Actual results may differ materially from those expressed or forecasted in the forward-looking statements. We ask that you refer to the Company's most recent filings with the SEC for important risk factors. Any forward-looking statements made today do not guarantee future performance and undue reliance should not be placed on them. The Company assumes no obligation to update any forward-looking statements at any time. Our earnings release 10-Q and supplemental earnings presentation are available on the investor and news sections of our website at ncdl.com. I'd like to turn the call over to Ken.

[Ken Kencel, Chairman, President, and CEO at Nuveen Churchill Direct Lending Corp]

Thank you, Alona. Thank you everyone for joining us on the call today. I'd like to start by taking a few minutes to discuss NCDL's results for the second quarter, and then I'll provide some thoughts on the current market and economic environment and our outlook for the coming months. After that, I'll hand the call over to Shai for a more detailed discussion of our performance. Overall, I'm very pleased with the momentum we've maintained since our last call. Our performance continues to be strong as we delivered net investment income that exceeded both our regular quarterly distribution of $0.45 per share and our $0.10 per share special distribution. Investment activity picked up significantly during the second quarter with $360 million of new originations, over 95% of which were first lien senior secured loans.

[Ken Kencel, Chairman, President, and CEO at Nuveen Churchill Direct Lending Corp]

We delivered an attractive 12.3% annualized dividend yield to shareholders. Our investment portfolio performed well this quarter, largely due to the continued strength of our senior loan investments. Net asset value per share declined modestly quarter-over-quarter, primarily driven by unrealized losses on two investments that we placed on non-accrual, which we will speak about later on in the call. Looking ahead, we are optimistic about NCDL's positioning as a leader in the core middle market, given our longstanding track record, deep network of sponsor relationships, and extensive strong LP commitments across the broader Churchill platform. Looking at the overall market, credit quality remains strong despite the higher-for-longer rate environment and inflationary pressures on borrowers.

[Ken Kencel, Chairman, President, and CEO at Nuveen Churchill Direct Lending Corp]

While we are seeing modest spread compression during the first half of the year, we believe that our focus on the core middle market enables us to remain largely insulated from the pricing pressure, increased volatility, and generally weaker terms we see in the broadly syndicated loan market. As a result, we believe that the risk-adjusted returns available to scaled, highly selective managers like Churchill with deep, longstanding private equity relationships in the core middle market are among the most attractive in the private credit market today. The U.S. economic environment remains healthy and resilient, we believe that will continue in the near term. We have yet to see evidence in our core middle market portfolio of an imminent recession or pullback in spending and CapEx investment. Our CFO confidence appears to remain high, given the significant add-on M&A activity that we are seeing on a daily basis.

[Ken Kencel, Chairman, President, and CEO at Nuveen Churchill Direct Lending Corp]

We also monitor on a daily basis the liquidity of borrowers in our portfolio and have been pleased to see how companies have generally navigated this higher rate environment quite well. Moreover, we believe interest coverage is going to be a tailwind going into the back half of the year as we start to see the Fed move to reduce interest rates as inflation pressures subside. Our deep relationships in the middle market private equity community provide us with strong insights on potential headwinds. While underwriting selectivity will always be at the forefront, we feel quite positive heading into the second half of the year with respect to both deal flow generation and the health of our underlying borrowers. When looking at the second quarter results, there are two factors that help bolster our performance. One was the level of deployment we experienced in the quarter.

[Ken Kencel, Chairman, President, and CEO at Nuveen Churchill Direct Lending Corp]

The other was our discipline in managing NCDL's leverage profile, which Shai will discuss in more detail. NCDL's deployment of capital during the second quarter was very strong. This was a meaningful uplift compared to Q1. In fact, Q2 represented one of the strongest quarters in the history of our firm in terms of loan origination. That resurgence of activity, particularly in the senior lending area, which represented over 95% of our origination activity, was responsible for much of our success. In fact, as a result of the strong level of senior lending activity, first lien senior loans increased to nearly 91% of the fair value of the overall portfolio, the highest level it's been in the past year. We will continue to prioritize opportunities to deploy capital in core middle-market senior loan investments as we pursue portfolio growth and diversification as a public company.

[Ken Kencel, Chairman, President, and CEO at Nuveen Churchill Direct Lending Corp]

We feel this asset class provides strong long-term risk mitigation characteristics, including floating rates, generally lower leverage, and traditional financial covenants. Like I mentioned earlier, our credit quality remains strong and healthy. As Shai will cover later on in the call, our weighted average internal risk rating remains at 4.1 versus an original rating of 4.0 for all of our investments, and our watch list remains a very manageable level of 3.8% of fair value. Overall, we are pleased with the fundamentals across the portfolio, with portfolio company net leverage of 4.8x, interest coverage of 2.2x on first lien loans, and a weighted average asset yield of 11.4%. These metrics are a direct result of conservative structuring and relatively low attachment points that we target when underwriting new transactions.

[Ken Kencel, Chairman, President, and CEO at Nuveen Churchill Direct Lending Corp]

This conservative approach has served us well in the elevated rate environment. That said, we did add two new non-accruals this quarter. However, within our highly diversified portfolio of nearly 200 investments, non-accruals represented just 0.49% of the fair value of the portfolio as of quarter-end. We view these two new non-accruals as idiosyncratic in nature, and we are in conversations with both companies and their private equity owners as we work toward a favorable outcome for our shareholders. As you heard at the top of the call, we generated record deployments in the quarter, which has resulted in continued improvement in the diversification of our portfolio. This has been achieved with continued selectivity, facilitated by the significant proprietary deal flow our sourcing engine is able to generate from the breadth and depth of our PE relationships.

[Ken Kencel, Chairman, President, and CEO at Nuveen Churchill Direct Lending Corp]

We now have 198 companies in our portfolio, and our top 10 investments represent only 14.4% of the total portfolio. This diversification is critical as we seek to maintain exceptional credit quality and originate additional attractive investment opportunities. From a forward-looking perspective, we believe NCDL is well-positioned for strong performance in the second half of 2024, particularly given our standing as one of the largest and most active BDCs focused on the core middle market. Our outlook is underpinned and enabled by NCDL's approach to portfolio construction and management. Three key factors are worth highlighting. First, NCDL has a strong focus on a high level of portfolio diversification across a number of key metrics. We are not simply looking to diversify at the sector level.

[Ken Kencel, Chairman, President, and CEO at Nuveen Churchill Direct Lending Corp]

We have constructed a defensive portfolio that is balanced across multiple measures, whether you're looking at sponsor, position size, or industry. We've achieved this level of diversification across all our different vehicles across our investment platform, and it represents a consistent commitment embedded in Churchill's DNA. It has been essential to our success throughout our history, and it is a key reason why I'm optimistic about NCDL's longer-term prospects. Second, we have a rigorous investment process that puts credit quality above all else. As we look for opportunities to underwrite, we focus on high-quality, market-leading businesses that operate in recession-resistant industries with leading market positions and high barriers to entry backed by top-tier private equity sponsors. Our strong deal flow and unique sourcing model enable us to maintain a rigorous investment process and maintain strong credit discipline.

[Ken Kencel, Chairman, President, and CEO at Nuveen Churchill Direct Lending Corp]

As an example, we do not invest in ARR loans, which we believe rely heavily on more volatile enterprise value multiples as well as business transition execution and less on underlying true cash flow, which is needed to ultimately service the debt. We're also carefully attuned to the interest burden facing both our existing portfolio companies as well as new borrowers. This consideration influences our conservative approach to structuring new transactions with lower overall leverage and tighter covenant packages. This discipline is crucial, particularly in an environment where spreads are tighter in terms of more aggressive. That is why we're willing and able to walk away from certain deals that we assess as too risky. This brings us to a very important third factor that is especially important, our highly differentiated origination and sourcing model. We enjoy strong private equity LP relationships.

[Ken Kencel, Chairman, President, and CEO at Nuveen Churchill Direct Lending Corp]

Over nearly two decades, Churchill has worked with more than 280 middle-market private equity firms. In fact, today, Churchill has commitments to over 300 leading U.S. middle market private equity funds and sits on over 240 advisory boards. We have been, and continue to be, a trusted and established investor in the core middle market with deep long-term relationships, which provides NCDL with a strong information and sourcing advantage. This advantage was very much evident during the past quarter that saw us generate record investment activity across our platform. We believe we'll continue to see similar dynamics as we move through the balance of the year. Overall, we remain highly optimistic about NCDL's longer-term outlook, as we believe we are well-positioned to take advantage of a growing private credit market opportunity.

[Ken Kencel, Chairman, President, and CEO at Nuveen Churchill Direct Lending Corp]

Now, I'll hand it over to Shai to discuss our financial results in more detail.

[Shai Vichness, CFO and Treasurer at Nuveen Churchill Direct Lending Corp]

Thank you, Ken, and thank you all for joining us to review our second quarter results. For the quarter, we earned $0.57 of net investment income per share, and in July, we paid regular and special dividends of $0.45 and $0.10 per share, respectively. In aggregate, this $0.55 dividend equates to an annualized dividend yield of approximately 12.3% based on our quarter-end NAV. As a reminder, the $0.10 special dividend that we paid in July is the 1st of 4 special dividends that we declared at the time of our IPO. The three remaining special dividends will be paid through the second quarter of 2025 to shareholders of record as of August 12 and November 11 of this year, and February 12, 2025.

[Shai Vichness, CFO and Treasurer at Nuveen Churchill Direct Lending Corp]

As discussed previously, we intend to operate with a supplemental dividend program that sees us paying out a portion of the excess earnings over and above our regular dividend, allowing us to deliver the benefits of higher returns in the current environment to shareholders as well as grow our NAV. Our total net income for the quarter was $0.37 per share, driven by $0.20 per share of net realized and unrealized losses. We generated approximately $0.02 per share of realized gains on repayments, which were offset by approximately $0.22 per share of unrealized losses, primarily on two underperforming investments that were placed on non-accrual during the quarter. Our debt-to-equity ratio at the end of the quarter was 1.04x, which is consistent with the guidance we provided at the time of our IPO.

[Shai Vichness, CFO and Treasurer at Nuveen Churchill Direct Lending Corp]

We were pleased with our ability to deploy capital and utilize leverage during the quarter. We remain on track to optimize leverage through the balance of the year with the goal of maintaining leverage within our target range of 1.0x to 1.25x. Our net asset value per share decreased by approximately 1% to $18.03 per share. The decrease was attributable to the unrealized losses on two new non-accruals during the quarter, offset by the excess earnings we generated in the quarter over and above the regular and special dividend that we paid. As Ken mentioned, the second quarter was a very strong one for us in terms of new origination. The fair value of our assets grew by approximately $196 million quarter-over-quarter.

[Shai Vichness, CFO and Treasurer at Nuveen Churchill Direct Lending Corp]

This increase was largely attributable to record-high new originations, which accounted for 11 of the transactions done during the quarter, totaling approximately $150 million. We continue to mine our portfolio for add-on financing opportunities, which allowed us to generate 25 deals in the form of incremental transactions for existing portfolio companies, totaling approximately $130 million. In addition, we saw drawdowns of roughly $26 million on our delayed draw term loans as our portfolio companies continue to be active in growing via acquisitions. Repayment activity significantly increased during the quarter, in line with the increase in volume that we saw, both on new transactions as well as repricing and refinancing activity. We had full repayments on eight deals totaling $80 million and partial prepayments for another $11 million.

[Shai Vichness, CFO and Treasurer at Nuveen Churchill Direct Lending Corp]

As the incumbent lender, we took advantage of our position, reinvesting in four of the eight deals that fully repaid during the quarter. Repayments in the 2nd quarter totaled 4.9%, a meaningful increase from the 2.2% we saw in the 1st quarter, and in line with our long-range assumption of 5% per quarter. Despite this uptick in repayment activity, our portfolio grew to 198 names as of quarter end, and it remains highly diversified, with the top 10 positions representing only 14.4% of the fair value of the portfolio and our largest exposure at only 1.6%. Our average position size is 1/2 of 1%, which we see as a key risk mitigation tool.

[Shai Vichness, CFO and Treasurer at Nuveen Churchill Direct Lending Corp]

In terms of new originations, the second quarter was our strongest quarter ever, which highlights the strength and durability of our platform. As Ken mentioned, we saw volume grow year-over-year to $360 million in par amount of new originations across 36 investments from the $110 million we committed in the second quarter of 2023, and up sequentially from the $207 million of gross commitments in Q1. Looking at asset selection during the quarter, our new originations were heavily weighted towards the traditional middle market senior loans, with only 16% of the investments made during the quarter going into the upper middle market.

[Shai Vichness, CFO and Treasurer at Nuveen Churchill Direct Lending Corp]

This is consistent with the guidance that we gave last quarter and at the time of our IPO, when we communicated our expectation that we would allocate more readily initially to the upper middle market and then rotate that portion of the portfolio into the traditional middle market segment, where spreads are meaningfully higher, and documentation terms are tighter. This strategy is evident when looking at the weighted average interest rate on new debt investments made during the quarter, which was up 20 basis points from the prior quarter. As Ken mentioned, spreads tightened further in Q2, but our continued focus on the traditional middle market segment allowed us to deliver an increase in this metric quarter-over-quarter. We would expect that to continue as we execute on our rotation strategy and invest in our robust pipeline of traditional middle market deals.

[Shai Vichness, CFO and Treasurer at Nuveen Churchill Direct Lending Corp]

The portfolio remains anchored in senior loans, which represented close to 91% of the portfolio at quarter end. The modest increase from the 89% senior loan allocation at the end of Q1 is consistent with the strategy that we laid out at the time of our IPO. We continue to opportunistically invest in junior debt and equity, which made up 4% and 1% of the investments made during the quarter and comprise 7.8% and 1.6% of the portfolio overall as of quarter-end. We remain committed to the target allocations that we communicated at the time of our IPO with a target of 85%-90% senior loans and the balance in junior debt and equity co-investments, with equity staying in the low single-digit percentage range.

[Shai Vichness, CFO and Treasurer at Nuveen Churchill Direct Lending Corp]

In terms of the credit quality of the portfolio, our weighted average internal risk rating remained steady quarter-over-quarter at 4.1, despite the two new non-accruals that I referenced earlier. This brought the total number of non-accrual assets at quarter end to three, representing just 0.49% of the fair value of the portfolio. The number of names on our watch list increased by two as well as a result of four downgrades and two upgrades. However, our watch list remains at a historically low level at only 3.8% of the portfolio fair value.

[Shai Vichness, CFO and Treasurer at Nuveen Churchill Direct Lending Corp]

Turning to our leverage strategy, we continue to keep a close eye on the unsecured debt market as we evaluate our long-term capital structure and are encouraged by the trends that we see in that market with healthy levels of issuance activity over the first half of the year. We remain incredibly well-positioned to take advantage of attractive investment opportunities and to fund our unfunded commitments and share repurchase program with over $360 million of liquidity available to us as of quarter-end. Further, we have no near-term maturities as we have constructed a diversified capital structure to date that is match-funded to our floating rate assets. We have been using a modest amount of liquidity to fund our share repurchase program, which commenced 60 days after our IPO.

[Shai Vichness, CFO and Treasurer at Nuveen Churchill Direct Lending Corp]

Through July 31st, we've utilized approximately $6.5 million, leaving approximately $92.8 million remaining under the program. We have now traded through our second lockup release, which saw 35% of non-affiliated pre-IPO shares released from lockup. As a reminder, at the time of our IPO, we put in place a thoughtful staggered lockup release schedule for our pre-IPO shareholders, coupled with the special dividends payable over four quarters that I mentioned earlier. Affiliated shareholders were locked up for a full year, and non-affiliated pre-IPO shareholders were locked up for 90, 180, and 270 days. With the second lockup release on July 23rd, we have now nearly quadrupled our public float since the IPO. I'll now turn it back to Ken for closing remarks.

[Ken Kencel, Chairman, President, and CEO at Nuveen Churchill Direct Lending Corp]

Thank you, Shai. I want to conclude our prepared remarks today by acknowledging the efforts of our team here at Churchill. I am pleased with our results for the quarter and the momentum we have achieved since our IPO. We're excited about the quarter ahead and our ability to deliver an attractive distribution yield to our NCDL shareholders. I will now turn the call over to the operator for Q&A.

[Operator]

Thank you. We will now be conducting a question-and-answer session. If you would like to ask a question, please press star one on your telephone keypad. A confirmation tone will indicate that your line is in the question queue. You may press star two if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment please, while we pull for questions. Our first question comes from Brian McKenna with JMP Securities. Please state your question.

[Brian McKenna, Analyst at JMP Securities]

Thanks. Good morning, everyone. It was great to see the strong pickup in origination activity in the quarter, but there are significantly more add-on deals versus new investments. What's the outlook for new investments, specifically into the back half of the year? We're more than one month into the 3rd quarter here. Any early read on the quarter in terms of origination activity or even how the pipeline is refilling for activity post-Labor Day?

[Ken Kencel, Chairman, President, and CEO at Nuveen Churchill Direct Lending Corp]

Thanks, Brian. It's a great question. I guess I would make a couple of comments overall. One is that we continue to be extremely busy on the origination side. I can tell you that, you know, normally you get a bit of a slowdown in the summer months, particularly in August. That has not been the case this year. We continue to have a very deep backlog, and our pipeline is very robust. You know, that continues, you know, as we look through August. Based upon what we're hearing in terms of sale processes and our companies being put up for sale, that pipeline looks quite robust as well. We are quite optimistic about, you know, the balance of Q3 and then into Q4.

[Ken Kencel, Chairman, President, and CEO at Nuveen Churchill Direct Lending Corp]

You know, I would say that we did see a lot of add-on activity. Obviously, we have a very large portfolio across, you know, across the firm. If you look at both our senior lending and junior capital equity co-invest, in over 400 companies, you know, across the platform. We are seeing a significant amount of add-on activity, which, well, you know, is obviously from our perspective is a good thing since we know the companies, we know their performance, and obviously the sponsors as well. I would expect that new deal activity, which was quite robust in the second quarter, will continue to grow as a percentage of our overall investment activity as we balance out the third quarter and into the fourth quarter. Good new deal activity.

[Ken Kencel, Chairman, President, and CEO at Nuveen Churchill Direct Lending Corp]

Pipeline obviously kicking off a lot as well. As I mentioned earlier, you know, we had a record quarter in Q2 in terms of investment activity, and that has not stopped. You know, we're, you know, we're busy, and we're seeing good quality and obviously remaining very selective.

[Brian McKenna, Analyst at JMP Securities]

Okay, that's great. Thanks, Ken. Just a bigger picture question. You know, there's clearly a lot of focus in the market today on the economic outlook into the back half of the year, you know, specifically, over the past several days. It would be great just to get a little bit more detail on what you're seeing across all your portfolios at Churchill today, not just at NCDL. You know, really, what kind of revenue and EBITDA growth are you seeing across portfolio companies? Are there any new or interesting trends going on? It's early, you know, anything just to know even over the past week or so.

[Ken Kencel, Chairman, President, and CEO at Nuveen Churchill Direct Lending Corp]

Yeah, obviously, it's a bit early to handicap, you know, the last few days in terms of assessing, you know, what that will really mean longer term. I can tell you that on a broader portfolio basis, we track, you know, the percentage of our portfolio companies showing revenue growth and EBITDA growth, and those metrics remain quite positive. In fact, EBITDA growth across our portfolio, the percentage of companies, portfolio companies, again, this is across all of our investments, ticked up during the quarter. You know, we're seeing the majority of those companies' reporting growth in EBITDA and revenue. From our perspective, we view it as a very, very positive sign.

[Ken Kencel, Chairman, President, and CEO at Nuveen Churchill Direct Lending Corp]

Health of the portfolio, as I mentioned during our call, remains very good. All of our loans start out with a risk rating 4.0, and the overall portfolio right now at NCDL is 4.1. We continue to see good quality in the portfolio, good underlying growth. Obviously, an emphasis and focus on, you know, strategic M&A add-on acquisitions as a way to enhance that. We feel very good about those metrics, not just at the NCDL level, but more broadly across our overall investment portfolio.

[Brian McKenna, Analyst at JMP Securities]

All right. I'll leave it there. Thanks for taking my question.

[Ken Kencel, Chairman, President, and CEO at Nuveen Churchill Direct Lending Corp]

Thanks. Thanks, Brian.

[Operator]

Our next question comes from Douglas Harter with UBS. Please state your question.

[Douglas Harter, Analyst at UBS]

Hi. I just had two quick questions for you. One, you talked about the non-accruals, two non-accruals. Do you have any possible insight into resolutions for those or any of the non-accruals that you happen to have on your books?

[Shai Vichness, CFO and Treasurer at Nuveen Churchill Direct Lending Corp]

Hey, Doug, it's Shai.

[Douglas Harter, Analyst at UBS]

In regards-

[Shai Vichness, CFO and Treasurer at Nuveen Churchill Direct Lending Corp]

Thanks for the question. Yeah. Go ahead. Is there more?

[Douglas Harter, Analyst at UBS]

Sorry. I meant in regard to like, you know, a possible timeline for resolutions.

[Shai Vichness, CFO and Treasurer at Nuveen Churchill Direct Lending Corp]

Yeah. I look, I would say, thanks for the questions and for joining. It's obviously, you know, early in those processes. As we often do, you know, when we get into these situations, we work very closely with the sponsor and the borrowers to get to an attractive resolution for our shareholders. You know, we've spoken in the past about kind of our workout resources, which are robust, and are obviously involved here and active in trying to get to a resolution. No specific comments on timeline, but, you know, as we always do, you know, we're working hard to try to maximize value on the two new non-accruals and obviously anything else in the portfolio that's on that list.

[Douglas Harter, Analyst at UBS]

Great. Thanks. Just in regard to, do you have any insight in regards to the timeline or the pace of possibly rotating out of the upper middle market loans and into the more, you know, traditional middle market loans?

[Shai Vichness, CFO and Treasurer at Nuveen Churchill Direct Lending Corp]

Yeah. I mean, I think as you heard from Ken, both on the call and just in the last question, you know, we continue to enjoy a very robust pipeline of traditional middle market opportunities that we're seeing. Obviously, our, you know, rotating from the upper middle market deals that we invested in immediately post-IPO into the pipeline, is market-dependent. You know, based on, you know, how we've ramped in the most recent quarter and the pipeline that we're seeing, we're sort of well on our way with respect to that strategy. You can see it in the numbers in terms of the new, the yield on the new investments that we made during the quarter.

[Shai Vichness, CFO and Treasurer at Nuveen Churchill Direct Lending Corp]

Those were much more heavily weighted towards the traditional middle market, and we would expect that to continue.

[Shai Vichness, CFO and Treasurer at Nuveen Churchill Direct Lending Corp]

In the coming quarters.

[Ken Kencel, Chairman, President, and CEO at Nuveen Churchill Direct Lending Corp]

Yeah, I would just add to that, and I agree with all of that. I would add to that, you know, as we look at the market environment today, you know, we think that the fact that we are largely focused, you know, on the core middle market has enabled us to drive what we believe are the most attractive risk-adjusted returns. You know, we're talking about businesses where, you know, we get underlying financial covenants, generally lower leverage, pricing premium to be, you know, in that core middle market, and obviously directly originating those deals.

[Ken Kencel, Chairman, President, and CEO at Nuveen Churchill Direct Lending Corp]

I think that, you know, what we've continued to see in the second quarter and on an ongoing basis is that our model of being a very large and significant LP, as I mentioned during the call, in over 300 private equity funds, 240+ advisory board seats, it's a tremendous dynamic that continues to show itself as we drive attractive deal flow. It's a continuity that enables us to get a first look at transactions and, in many cases, a last look. It's I think the power of that very differentiated origination model continues to drive very attractive opportunities in the core middle market, where we are directly originating and we're seeing very good value.

[Douglas Harter, Analyst at UBS]

Great. Thanks for answering my questions.

[Operator]

Thank you. Just a reminder to the audience, if you'd like to ask a question, press star one on your phone. Our next question comes from Mark Hughes with Truist Securities. Please state your question.

[Mark Hughes, Analyst at Truist Securities]

Yeah, thanks. Good morning.

[Ken Kencel, Chairman, President, and CEO at Nuveen Churchill Direct Lending Corp]

Hey, Mark. How are you?

[Mark Hughes, Analyst at Truist Securities]

Pointed out that the overall portfolio, you're benefiting in terms of spreads from that migration to the core middle market. Within the middle market, what are you seeing in terms of spreads, say, on kind of a same-store basis?

[Ken Kencel, Chairman, President, and CEO at Nuveen Churchill Direct Lending Corp]

Yeah. You know, I would say if you looked back over the last, you know, six to nine months, we've seen spread come in a bit in the core middle market. Nowhere near as much as we saw in the broadly syndicated market. You saw much more significant spread compression in the BSL world, and that obviously was a direct result of funds flows into that BSL market. The reemergence really of the CLO market and the loan funds that, you know, caused spreads to tighten quite dramatically in the BSL world. You know, we've seen some more modest impact in our world. Roughly 25 basis points quarter-over-quarter. If you went back six months, I would say that's probably more like 50 basis points.

[Ken Kencel, Chairman, President, and CEO at Nuveen Churchill Direct Lending Corp]

You know, that compares to a much more significant compression in the BSL world, you know, call it 150 or even 200 basis points. Modest compression. Nowhere near what we saw in the BSL world. I would say that quality in terms of new deal activity, and certainly when you think through that relative to our level of selectivity, we're very happy with the quality of what we're seeing. On a relative basis, I think the value of core middle market opportunities compared to BSL has become even more pronounced more recently. We feel good about what we're seeing and good about the overall underlying spread dynamics in, you know, in the core middle market.

[Mark Hughes, Analyst at Truist Securities]

Understood maybe a little pressure from the top down from the BSL market on the spreads, obviously, you're insulated as you described. How about competition from other direct lenders within the middle market? Is there more capacity out there, more dollars chasing those deals?

[Ken Kencel, Chairman, President, and CEO at Nuveen Churchill Direct Lending Corp]

You know, it's an interesting dynamic. These are comments that I know have been echoed by, you know, a number of our peers. I think what we're seeing is a dynamic where the largest scale players, you know, in the core middle market, and there are obviously five to eight of us or so, that really are, you know, playing and investing in this world. For firms that can underwrite and hold upwards of $400 million, $500 million, $600 million per deal, we see the market right now as consolidating, and that those firms, you know, those handful of firms of which Churchill is one, are benefiting from that consolidation.

[Ken Kencel, Chairman, President, and CEO at Nuveen Churchill Direct Lending Corp]

You know, the new players, firms that are raising $500 million, a $1 billion fund, they're not going to be able to issue commitment letters and to fund $300 million, $400 million, $500 million per deal. I think this is an environment that favors the established players with relationships. Obviously, you know, we, along with that handful of firms, you know, compete for opportunities. We have deep and long-standing relationships in the sponsor community, and that really has enabled us to, you know, be on the front line of that kind of, you know, that quality deal flow. New entrants are really not impacting in our world. I would say in the lower end of the middle market, that's where you might see that impact, where, you know, you have a new entrant.

[Ken Kencel, Chairman, President, and CEO at Nuveen Churchill Direct Lending Corp]

They really can't do the larger core middle market deals. They're really limited to more smaller middle market, smaller companies, maybe less established sponsors. In the world we play in, it's, you know, it's a handful of firms that continue to raise significant capital. You know, we obviously continue to raise substantial capital at our platform. Feel very good about that. Had a very good first half of the year in terms of capital raising that enables us to stay in the mix with the larger core middle market deals, and we think that's where things will play out through the balance of this year. Smaller number of large-scale players getting access to the quality deals. Newer entrants playing at the kind of smaller end of the market.

[Ken Kencel, Chairman, President, and CEO at Nuveen Churchill Direct Lending Corp]

You know, you've got the larger end of the market where we generally see terms and structures less attractive to us. We feel we're in the right place in the market and in driving what we believe are the best risk-adjusted returns.

[Mark Hughes, Analyst at Truist Securities]

Very good. Thank you.

[Operator]

Thank you. Once again, to ask a question, press star one on your phones now. We'll pause to see if there are any remaining questions. Thank you. At this time, we have reached the end of our question-and-answer session. I would now like to turn the floor back over to Ken Kencel for closing comments.

[Ken Kencel, Chairman, President, and CEO at Nuveen Churchill Direct Lending Corp]

Thank you, everyone for joining us on the call today. If you have any additional questions, please reach out to our investor relations team. I hope everyone enjoys the rest of the summer, and we look forward to speaking with you on our next earnings call. Thanks very much.

[Operator]

Thank you. With that, we conclude today's conference. All parties may disconnect. Have a good day.

Participants

Executives

• Ken Kencel, Chairman, President, and CEO
• Shai Vichness, CFO and Treasurer

Analysts

• Alona Gornick, Senior Investment Strategist at Churchill Asset Management
• Brian McKenna, Analyst at JMP Securities
• Douglas Harter, Analyst at UBS
• Mark Hughes, Analyst at Truist Securities