Nuveen Churchill Direct Lending NYSE: NCDL reported lower first-quarter earnings as declining base rates and one-time refinancing costs weighed on net investment income, while management said the company’s middle-market portfolio remained resilient despite market volatility and negative headlines around private credit.
The business development company reported net investment income of $0.41 per share for the first quarter of 2026, down from $0.44 per share in the fourth quarter of 2025. Chairman, President and CEO Ken Kencel said the result included approximately $0.02 per share of one-time interest and debt financing expenses. Excluding those non-recurring items, net investment income was $0.43 per share.
“Despite the headline noise and market volatility, we are pleased with the overall performance of our investment portfolio and our financial performance to start the year,” Kencel said.
The board declared a second-quarter distribution of $0.38 per share, made up of a regular quarterly distribution of $0.36 per share and a supplemental distribution of $0.02 per share. CFO and Treasurer Shai Vichness said the company generated approximately $0.05 per share of incremental earnings above the regular distribution during the quarter and is distributing $0.02 of that excess through the supplemental payout.
Net Asset Value Declines as Spreads Widen
Net asset value was $17.50 per share as of March 31, compared with $17.72 per share at Dec. 31, 2025. Management attributed the decline primarily to spread widening that affected valuations, as well as lower fair values for certain underperforming portfolio companies.
Total GAAP net income was $0.18 per share, compared with $0.32 per share in the prior quarter. Vichness said first-quarter net income included $0.23 per share of net realized and unrealized losses. Net realized losses of $0.07 per share were mainly tied to the restructuring of two underperforming debt positions, partially offset by gains from full or partial repayments and investment sales. Net unrealized losses of $0.16 per share reflected benchmark spread widening and valuation declines in certain underperforming portfolio companies, partially offset by reversals of unrealized losses on restructured debt positions.
Total investment income fell to $46.3 million from $50 million in the fourth quarter. Vichness said the decline was primarily driven by lower portfolio yields as loan contracts reset to lower base rates, along with tighter spreads that had been seen during the fourth quarter of 2025.
Originations Rise, Portfolio Remains Focused on First-Lien Loans
Gross originations totaled $82.9 million in the first quarter, up from $69.4 million in the fourth quarter, while gross investment fundings were $85.4 million, compared with $80.4 million in the prior quarter. Sales and repayments totaled $65 million, representing a 3.3% repayment rate, below the prior quarter’s 4.2% and the company’s long-range assumption of 5% per quarter.
Kencel said investment activity was primarily focused on senior secured first-lien loans and the company remained focused on its “core traditional middle market pipeline.” Vichness said $70.2 million of the $82.9 million in first-quarter gross originations was deployed into senior loans. The remaining deployment included subordinated debt and equity, with $10.6 million invested in equity positions across seven names.
As of March 31, first-lien loans represented 89.7% of the portfolio, while junior debt and equity made up 7.5% and 2.8%, respectively. Vichness said the allocation strategy remains to target a portfolio of roughly 90% senior loans, with the balance in junior debt and equity. He added that the company has intentionally increased its equity allocation in recent quarters to seek capital appreciation, while taking that allocation from junior debt.
Credit Metrics Remain Stable; One New Non-Accrual Added
Management emphasized portfolio diversification and credit quality throughout the call. NCDL had 236 portfolio companies at quarter-end, up from 227 at the end of 2025. The top 10 portfolio companies represented 13.2% of fair value, while the largest exposure was 1.6% of the total portfolio. The average position size was 0.4%.
The company added one new non-accrual investment during the first quarter, with a total cost of $7.2 million and fair value of $5 million. At quarter-end, NCDL had five names on non-accrual, representing 1.3% of the portfolio at cost and 0.6% at fair value, compared with 1.2% at cost and 0.5% at fair value at the end of the fourth quarter.
The weighted average internal risk rating was 4.3 at March 31, compared with an original rating of 4.0 at origination for all investments. The company’s watchlist, defined as names with an internal risk rating of 6 or worse, was 8.4% of fair value, up slightly from 8.1% in the prior quarter.
Kencel said portfolio company performance remains “resilient and healthy,” with total net leverage of 5.1 times and interest coverage of 2.3 times on traditional middle-market first-lien loans. He said those metrics reflect conservative structuring and relatively low attachment points targeted during underwriting.
Management Sees Wider Spreads and Improving Deal Activity
Kencel said 2026 began with market volatility, negative private credit headlines and geopolitical tensions, citing concerns around AI disruption and software exposure, increased redemption activity in non-traded BDCs and the conflict in the Middle East. He said management believes there is a “significant disconnect” between media narratives and the underlying fundamentals in private credit, particularly within NCDL’s portfolio.
The company said direct lending spreads have begun to widen after several quarters of stability in the 450 to 475 basis point range for traditional first-lien loans. In the Q&A portion of the call, Kencel said current spreads are more like 500 to 525 basis points, “maybe even 550,” attributing the change in part to a pullback by larger retail-oriented private credit lenders.
He said the pullback by large private BDCs and retail-dominated lenders in the upper middle market could create opportunities for Churchill to finance slightly larger companies while maintaining traditional covenants, reasonable leverage and better pricing.
“The competitive dynamics that I think today are probably about as good as we’ve seen in the last several years,” Kencel said.
Kencel also said deal activity slowed earlier in the first quarter but has since improved, with momentum in new M&A activity particularly over the last several weeks. At the Churchill platform level, the number of deals reviewed in the first quarter was down sequentially from the strong fourth quarter of 2025, but up 13% year over year.
Debt Costs Fall After CLO Refinancing
NCDL’s investment portfolio had a fair value of $2 billion at quarter-end, consistent with the prior quarter. Gross debt to equity was 1.32 times at March 31, compared with 1.27 times at year-end 2025. Net debt to equity, net of cash, was 1.26 times, compared with 1.20 times at the end of the fourth quarter.
Vichness said the company remains focused on maintaining leverage toward the upper end of its target range of 1.0 to 1.25 times debt to equity by redeploying capital received from repayments.
In February, NCDL refinanced its CLO-II transaction, reducing borrowing costs on that deal from SOFR plus 250 basis points to SOFR plus 144 basis points and securing a five-year reinvestment period. The company’s total weighted average cost of debt declined to SOFR plus 186 basis points as of March 31, compared with SOFR plus 203 basis points at year-end 2025.
Management also addressed software and artificial intelligence risk, saying software businesses represented less than 3% of NCDL’s total investment portfolio at fair value as of March 31. Kencel said the company has historically passed on many software deals because of rapid innovation in the sector, higher leverage attachment points and limited room for error.
Looking ahead, Vichness said the earnings outlook appears “relatively stable,” citing a higher-for-longer interest rate environment and wider spreads on new originations as supportive factors, offset by lower repayment-related fee acceleration if M&A activity remains below historical assumptions.
About Nuveen Churchill Direct Lending NYSE: NCDL
Nuveen Churchill Direct Lending 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.
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