NCDL - Earnings call transcript Q2 2024 | Nuveen Churchill Direct Lending Corp.

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Operator

Welcome to the Nuveen Churchill Direct Lending Corp.

Second Quarter 2024 Earnings Call. [Operator Instructions] 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

to Direct welcome Corp. and morning, Nuveen Lending Churchill Good

Treasurer, joined Call. Chairman, and Second for well Retail and Churchill. Investor Earnings here Head I'm Robert Chief Vichness; by Paun, as Officer & Kencel; Quarter XXXX Relations Ken Today, NCDL's of as CEO, President Financial at Wealth Shai and

other These the placed control estimates be or reliance and Following may statements our not some are difficult results most performance our about call uncertainties differ not investments, These opinions be and Actual thereon. are include of future in to statements. assumptions. forward-looking will based risks company, our are for may involve factors, the unknown portfolio historical take known undue to with to prepared and you other available remarks, and factors, forward-looking recent uncertainties predict. are and We beyond important Such those rather guarantees and our our on facts, industry, current the should and but we Today's and prospective current your filings company's and and the our statements expectations, materially questions. are not expressed ask subject factors. refer risks, to SEC that forecasted forward-looking risk which statements of from statements. beliefs projections

no The any assumes guarantee and at reliance undue company be to forward-looking not on performance today future forward-looking do them. made Any statements should not update time. placed statements obligation any

at and ncdl.com. supplemental are Investor on our presentation available website earnings section Our XX-Q News and earnings release, the of

to Now call Ken. I'd like over the turn to

Kenneth Kencel

our some I'd call the a by to taking NCDL's few to and provide for joining for Thank you, Alona, start thank and us discussion current for like I'll quarter, I'll over After more results on discuss and detailed then hand minutes for the on second everyone, coming today. -- you, our thoughts outlook hand a call to performance. and economic that, Shai of the environment market I'll the months. the

our very last pleased I'm since we've maintained call. Overall, with the momentum

second continues that exceeded both $X.XX as picked and to delivered special per Our distribution up XX% net new were loans, share quarter and of shareholders. be originations, we lien the delivered our XX.X% performance strong yield $XXX over senior activity Investment during first of annualized our to distribution. quarterly with $X.XX of million per we which regular investment an attractive significantly dividend share income secured

this driven declined senior investments call. Net quarter, continued Our about which in to by largely will primarily our speak placed investments. of investment on strength losses modestly loan quarter-over-quarter on unrealized well we share nonaccrual, the later per on value portfolio performed we X the due asset that

a LP ahead, deep strong sponsor track as are of optimistic in our the Looking the about Churchill network we leader given record, market, across commitments long-standing positioning middle extensive, an relationships broader core NCDL's platform.

overall environment remains quality the longer the Credit pressures strong despite at market. Looking borrowers. and for inflationary on higher rate

remain year, generally loan volatility largely our the seeing modest pressure, we believe the core to market enables focus see broadly market. during the spread weaker first middle on While insulated we the increased we of half are syndicated terms that in and us the compression from pricing

most like market believe Churchill selective private today. middle to the highly returns attractive result, market in private scaled, the that core equity we risk-adjusted are credit the in As a deep, available managers relationships with the long-standing among

continue resilient, near healthy economic and The environment will believe and term. U.S. the that remains we in

we given of recession activity spending basis. portfolio have M&A our a core middle the to to on see that in And our imminent pullback add-on confidence an and We appears or investment. in seeing high daily yet CapEx market CFO evidence are significant remain

as have companies be to believe half subside. to this is into a have to and daily the monitor environment We year quite borrowers see the of coverage back of inflation a been rates basis, in going see portfolio liquidity going how start our higher we reduce well. Moreover, the pressures navigated on interest we generally tailwind pleased as rate the interest also Fed to move

the health private underwriting strong underlying of us borrowers. will second respect in we to relationships feel flow equity at and quite deep middle positive into be deal heading always half Our provide headwinds. potential both with year market the of And on our community forefront, generation insights the while the with selectivity the

the looking that quarter. deployment factors experienced help the at of was bolster level performance. in results, X second are When we the there our quarter One

other discuss our NCDL's a deployment the Shai leverage was very second This meaningful strong. uplift of during capital detail. QX. managing to in was NCDL's The profile, will which compared discipline was in more quarter

In success. represented our activity the was much one strongest that for history senior particularly of origination responsible firm of area, origination. in of our in of of fact, QX in terms quarters activity the XX% which represented resurgence the over our And of loan lending

a of increased In the strong year. senior the loans the value the in nearly of first of senior portfolio, overall level activity, past the fact, highest lien as lending spend fair level result XX% of to of

diversification continue investments will to as senior a deploy capital market opportunities to in middle loan as we prioritize portfolio growth public pursue We core and company.

generally mitigation I remains lower strong quality covenants. earlier, long-term asset class including healthy. risk and mentioned floating Like provides leverage credit our traditional financial this feel rates, and We characteristics, strong

value. in our of As X.X X.X rating call, original list at Shai of of remains an our average a rating risk and remains our of manageable will cover all versus later watch internal very for investments, X.X% weighted the fair on level

new the served attachment environment. structuring conservative in approach transactions. quarter. of well fundamentals on a XX.X%. X.Xx we points target said, asset average weighted net underwriting add that coverage pleased rate This result did and new interest of lien first with conservative X X.Xx, company nonaccruals when These this has yield Overall, portfolio we relatively us the elevated of with a low are of That leverage across portfolio direct loans and metrics are the we

of these as in nonaccruals of investments, just as within we XXX idiosyncratic represented X.XX% their shareholders. our as conversations portfolio in portfolio nonaccruals with highly nature, fair new nearly owners end. However, for the companies outcome we both toward of work and are X value diversified equity We a and private the quarter favorable of our view

the breadth you the As proprietary is flow, at in has sourcing achieved selectivity generated able only of XXX and we depth is the continued opportunities. quality originate our and top the our portfolio. call, have portfolio, relationships. the now continued in We improvement This exceptional diversification our diversification by our of additional as the with from to we companies has heard generate significant maintain in total top and deal our of facilitated engine seek of which been critical investments represent resulted record quarter, portfolio. to This deployments in investment XX.X% PE the credit attractive XX

of well is market. believe second the for is the BDCs in core focused half most our From a standing we performance forward-looking strong particularly one of middle on positioned perspective, the XXXX, given NCDL largest and active

underpinned Our construction management. portfolio factors outlook and are worth to NCDL's enabled approach highlighting. by is and key Three

of across strong of number a portfolio focus diversification a has NCDL a high metrics. on key level First,

to looking simply level. diversify sector the not at are We

it We've you're whether or our a diversification defensive all of different multiple that achieved essential across our industry. optimistic embedded our It has why reason a is and at to this measures, consistent our a portfolio represents constructed Churchill's it investment and have NCDL's longer-term DNA. success throughout history, position sponsor, level looking in vehicles been across prospects. key about is balanced We commitment platform, size, I'm across

all else. a process puts credit that have rigorous investment above quality we Second,

positions we and underwrite, entry to recession-resistant opportunities for market-leading private that sponsors. focus look by barriers we high businesses to in operate As leading on with backed market top-tier high-quality, equity industries

rigorous maintain discipline. strong strong unique Our deal model enables investment and process sourcing credit and to maintain flow us a

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

origination market LP private strong enjoy Churchill nearly private with more sourcing Over Our differentiated firms. worked highly X model. relationships. We decades, than XXX middle and has equity equity

and sits over has Churchill leading over U.S. market advisory middle private funds today, boards. fact, XXX commitments In equity XXX to on

the a strong and We in to with and evident activity with middle past that to the core be market relationships, we'll have long-term established a been deep continue of NCDL similar see advantage dynamics saw through and which and This trusted provides us our investor was the generate during advantage. we investment very sourcing year. much as continue across record balance quarter the we believe platform, move information

highly believe a of market optimistic opportunity. private about remain well growing we positioned longer-term outlook we as NCDL's advantage to Overall, take we credit are

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

Shaul Vichness

results. for our joining Thank quarter review thank all you you, Ken, and us to second

And share. we quarter, of dividend respectively. $X.XX dividends aggregate, July, dividend the For $X.XX earned this net paid in on to based XX.X% end and In investment $X.XX of an income annualized $X.XX yield NAV. special per approximately of quarter our we per share, and regular equates

will remaining XX special in through The we the XX, the XXXX that X first paid quarter dividends $X.XX that reminder, XXXX. shareholders dividends record X is and of of as a this of of second February paid IPO. to at special time our of As XX November special and of the dividend August the we declared year be July

operate paying as to us dividend, higher we as shareholders NAV. grow deliver program intend of excess supplemental dividend earnings As discussed regular us out our above our current with sees and the a portion to a the well the in over benefits allowing to of returns that previously, environment

approximately approximately losses, share Our realized nonaccrual on which per total income during per investments gains unrealized the on $X.XX quarter. of by primarily share net share repayments, generated unrealized and realized underperforming driven X for We the of was placed per that offset were $X.XX by share, per losses. $X.XX on were net $X.XX of quarter

and leverage target our within of range remain on optimize with the during the with the deploy IPO. the at guidance provided Our consistent quarter debt-to-equity to which with was ratio our leverage were ability utilize year X.X through maintaining of capital and of to we the the pleased X.XXx. the leverage of balance the time X.XXx, track our is at quarter, end of we goal We to

asset the over net per we was The generated losses Our approximately decrease new earnings the in nonaccruals during quarter per dividend share. paid. to we excess and that by attributable decreased $XX.XX offset value X the share the to unrealized and X% regular special on the above by quarter,

terms As $XXX which in second value The very done approximately strong Ken transactions the grew of a quarter attributable million quarter our record million. during of us increase new originations, XX one assets largely by origination. totaling mentioned, was $XXX new quarter-over-quarter. accounted for for was approximately the of to the This high fair

We ] which approximately XX companies transactions $XXX incremental generate opportunities, form continue to add-on million. in mine deals for portfolio financing us the totaling portfolio [ existing to for of our allowed

term $XX million active loans of to addition, on the our In drawdowns as acquisitions. draw our growing continue delayed be portfolio roughly in we companies saw

had increased as Repayment well in both in for significantly on volume the repricing and and saw repayments with another line X million. increase $XX partial as We deals during full we quarter, refinancing new totaling on million $XX activity activity. the transactions that prepayments

diversified representing and this of that lender, with uptick the Despite took X.X% portfolio positions from repayment portfolio during in only line activity, incumbent grew X of Repayments it second quarter the our our quarter. quarter the quarter. our the highly in saw names at in our deals exposure the fully XX.X% end X per totaled X.X%. X.X%, fair XX largest and in long-range a top position, with value XXX remains of X% the we of to as the in of advantage As reinvesting only first quarter the assumption increase and of meaningful repaid we the

see Our we average risk of one tool. as is position which mitigation key a size X%, half

which ever, In and the was quarter terms highlights quarter originations, of new strongest second durability our platform. strength the our of

and in up amount $XXX the gross Ken mentioned, quarter XXXX originations second XX in million volume in committed we of to grow $XXX of sequentially As saw year-over-year million investments of par we new $XXX million from from across the the QX. commitments

into selection with initially XX% to last heavily originations are of communicated that the middle time that during prior we we quarter. with of the portion the quarter, portfolio on is middle then rotate our senior was upper looking the which quarter, guidance made meaningfully where new the market upper quarter points loans the market going and evident readily into up the weighted made and XX spreads average higher Looking documentation expectation during investments when our more traditional This were middle the and market towards terms weighted investments tighter. from are would new rate during strategy debt interest consistent traditional the is middle at This basis our the segment that the of the asset the IPO, at only quarter we when market. gave at allocate

Ken on deliver strategy XX% metric middle remains the of continued portfolio is middle anchored segment further but at to out that to portfolio the our spreads an this end that pipeline which the on As the tightened our in market loans, to represented strategy with of focus expect traditional close would senior at The deals. IPO. the mentioned, execute invest us QX of increase modest continue quarter-over-quarter. increase end. our quarter in senior laid of time XX% We allocation QX, robust The loan our market and we rotation at the consistent in as traditional we allowed in from

we invest opportunistically to equity, of committed and remain co-investments the percentage portfolio the junior and the X.X% in equity during and overall target quarter with of X% in balance staying low and XX% with investments and quarter of made debt at and in single-digit the comprised senior to which IPO made junior loans X% continue up time X.X% end. as We to communicated of We of a that XX% allocations our the the debt the range. equity target

In downgrades number the just of fair internal despite quality at to at well quarter-over-quarter the total names of of nonaccruals I X and our by remained our average the nonaccrual referenced representing a end X watch credit quarter on of of the This brought steady terms number the earlier. assets X, X.XX% upgrades. increased X The as value list the of weighted as of portfolio, portfolio. result rating risk X new that X.X

low our list the level at portfolio remains X.X% watch However, only fair of historically a at value.

our Turning to leverage strategy.

with to and investment incredibly million attractive half program unsecured year. end. keep by structure as to our capital continue market the We debt that quarter a of close over eye we our on to are advantage liquidity remain encouraged the levels with share healthy activity repurchase opportunities the positioned that issuance We the to we as and of in of well of first market unfunded commitments and take over fund available long-term trends $XXX of us evaluate see

we have to floating is diversified constructed structure our no capital that have assets. match we Further, funded a near-term to date rate maturities as

We have Through million, to amount XX, commenced liquidity fund leaving a remaining share repurchase which our XX using of $XX.X days program, the utilized we've been under program. million our IPO. July $X.X approximately after approximately modest

traded nonaffiliated which shares saw lockup We the from pre-IPO released have release, through XX% now our lockup. second of

a up XXX a place release the thoughtful quarters for with for and X XX, XXX were time put earlier. payable locked shareholders days. shareholders As pre-IPO dividends nonaffiliated of mentioned schedule pre-IPO year shareholders, coupled our that were staggered for and we a IPO, full in I locked Affiliated the at over our reminder, lockup up special

float our quadrupled second lockup release have since we With XX, public July on the IPO. now the nearly

I'll for back remarks. Ken to closing now it turn

Kenneth Kencel

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

I call the over for the operator will turn to now Q&A.

Operator

comes first with [Operator Mckenna Our Securities. Instructions] Brian JMP from question

Brian Mckenna

pickup see new activity the origination to strong in investments. great versus the there add-on in significantly quarter, was but deals more are It

half And outlook into year? So specifically what's new the the than back here. then third investments, of quarter X the we're for month into more the

even origination the read So quarter the activity or pipeline for in any early on terms how activity is of refilling Labor Day? post

Kenneth Kencel

Brian. on bit particularly a be a That the case Thanks, that It's I we you in extremely origination months, question. this in that I been not of tell year. get -- has Great. the can a guess is to I normally, great of comments summer overall. side. busy make the One a would continue August. slowdown you couple

to our sale, through pipeline August. companies is sale And very, and very have we continues upon -- what looks well. very in pipeline for continue deep being based we're that of a robust We as quite through look hearing as and robust up put backlog, that and terms processes

QX about -- balance across would at have very Obviously, that companies lot we our activity. a firm a the lending, add-on and capital, into -- the then of junior are you XXX if see QX. both over say we're equity quite optimistic platform. across did of portfolio we co-invest large in So the look I senior across we

which percentage grow of the would quarter investment overall a quarter as perspective, companies. balance We was we seeing robust expect to significant sponsors deal would are the well. quarter. obviously, quite add-on and performance into second I know -- activity we third of out our So good our their we activity the a the is as activity, new in as that will thing fourth since I and know continue amount obviously, which But a from the

activity. a deal kicking new as lot Pipeline, obviously, good well. off So

terms and stopped. obviously activity, had investment seeing we QX in remaining quality has record selective. in and mentioned I we're busy, that quarter earlier, and we're of We're -- As a good not very

Brian Mckenna

a clearly picture back over days. There's year, specifically on the of a lot market of focus the half outlook several economic the And great. Okay. past today That's the question. into the then bigger just in

to just it revenue you're today, be early, and And EBITDA would what past your are at And then trends growth going and get So any anything or but you just -- kind portfolio great across of week little new it's or detail to even what portfolios companies? NCDL a all are of so. on not seeing interesting over Churchill across just seeing there more really, bit on? the at know

Kenneth Kencel

to it's Obviously, our early in longer last that can quite of what days -- revenue term. will But the tell really showing a metrics we bit Yes. a of EBITDA broader companies handicap and those I growth terms growth the that on you mean basis, track percentage positive. few portfolio and what assessing that portfolio remain

portfolio In all again, our fact, across of companies, of the the -- is growth EBITDA ticked our company up during -- this percentage investments portfolio, during across quarter.

revenue. majority So reporting those EBITDA we're seeing the growth and of companies in

So the we during mentioned, very, it a call our positive as view very portfolio, Health as I good. perspective, remains very sign. from our of

of our is All loans X.X. now at and a right X.X the start DLC out rating portfolio with risk overall

M&A a So we to quality and an obviously, see good way that. the emphasis as growth, on portfolio, strategic good in underlying continue to enhance add-on acquisitions focus

overall So portfolio. more broadly we the not about but our good level, at about feel investment those very just across DLC -- metrics,

Operator

Harter from next Douglas our comes And with UBS. question

Douglas Harter

I questions for had So you. X quick

your nonaccruals. or -- any that nonaccruals to about have one, have nonaccruals book? those Do -- have So possible for of you for the into you talked resolution on any insight X you

Shaul Vichness

Yes. more? it's the there Thanks question. Doug, Is Shai. for

Douglas Harter

regard -- I resolutions. for a timeline to mean in like possible

Shaul Vichness

as in joining. would for I very involved do, get those attractive for the of get which in obviously and to and our resources, and we processes. shareholders. -- borrowers closely work active here into we to often in Look, an the resolution get to are And We've we trying workout past question sponsor say early resolution. situations, It's the thanks with Yes. through and the about kind are spoken for obviously robust the our

to But the new we portfolio working X anything timeline. no do, as comments specific we're try on else on obviously, always to to list. value -- on maximize the that and nonaccruals So in hard that's

Douglas Harter

do of middle Great. to regards pace loans? market just have more loans in insight out of market in rotating you timeline the upper any regard -- And the or middle possibly into traditional to the the

Shaul Vichness

traditional it Ken, I Yes. from middle question, you I on the that on Those just that opportunities call the a quarter mean the we're the in way of as we And the on to traditional enjoy last robust new we're in very to heard seeing, think we we're market, the and new that expect dependent. in the middle terms rotating the seeing, of recent our and sort continue can market towards that both the investments immediately -- from is during well into that pipeline more that respect IPO obviously, weighted But we coming based pipeline continue most of ramped post made the quarters. upper were much to on market in quarter. middle we've yield deals the invested numbers how strategy. with market are you would in the heavily pipeline the we in and see

Kenneth Kencel

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

it's and a at show private to on to we XXX-plus in ongoing we in the basis enables XXX mentioned itself call quarter a flow. model of the our advisory last many what over during get second -- as and look. look board to is -- and a significant being And to first I seats, us that continues an attractive cases, continue transactions it's see LP large that think in I funds, that as the deal equity that dynamic a continuity drive tremendous very

of So we directly I drive middle and good are seeing it's originating value. think differentiated power core to very that very attractive opportunities in market very model we're origination where the continues the --

Operator

Securities. Mark [Operator from with Truist Hughes Instructions] Our next question comes

Mark Hughes

overall out you're You that -- spread on But had terms you're terms seeing market, are that market. you middle benefiting same in migration portfolio core the pointed spreads, kind of middle of from the the the within of say, what of in basis? -- same-store

Kenneth Kencel

say over the would middle look months, if X I come the in spreads to bit Yes. you a seen back we much we've the market, as syndicated X broadly last near market. in core as in saw nowhere

in XXX you impact basis XX to a back significant or XXX BSL in of probably world, flows in compares We've roughly months, that of, spread the like the You more market And obviously that quite the basis quarter-over-quarter. BSL saw the But say result market CLO caused loan a BSL even into points. was seen funds in more have more the XX I modest world and if that that world. more call X it, points. and much of much some world. a spreads the points that dramatically tightened really went And that's our direct reemergence compression significant BSL compression basis funds would

terms in level deal of we're seeing. what and become has our even you -- modest think very basis, of relative the the selectivity, recently. And of relative opportunities that in nowhere to more through certainly middle I So compared value more we quality think we're on a saw with core the of happy the and -- activity BSL pronounced that BSL new to say think compression, I quality when near what world, market would

So middle underlying what in the about dynamics good and about spread the good seeing market. -- we're we feel and core in -- overall

Mark Hughes

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

Kenneth Kencel

interesting dynamic. number -- an I by are echoed know comments been these that it's peers. our have a So this And of

the a underwrite or we're dynamic core obviously are and million, now really $XXX $XXX the can million, they're investing firms are those in I per deal. playing hold see is upwards that letters that million, raising to there firms, world and be to so $XXX market, this the deal. $XXX seeing think middle firms per and of X market of for where and of $XXX what Churchill firms new scale million, us are X million that those right billion benefiting is which million, consolidating to going The of are largest in and issue consolidation. one, fund commitment handful that is from million -- that players -- fund, not $X that to We $XXX $XXX able players

impacting sponsor -- an on entrants think that environment relationships -- be not maybe the us favors the with quality that deep enabled relationships. players sponsors. you see line to impact firms have really long-standing companies, smaller community, in our compete where you really world. deals, would lower established do have market middle can't middle end might But They limited core less is the flow. of the along smaller and I for more really of with Obviously, to new that of of they're -- market, entrant. say has a new that established this But to middle are opportunities. market, I we, really in that kind we where front that the and the that's larger deal that So handful in

obviously of the market out this raising we that's raise in with feel world, mix the where of through capital balance us in larger that year we deals, continue first a it's firms platform. -- to that. handful our of good in plan, at very So had substantial the year. good the very a -- that half will stay core to terms middle about capital. continue raise to play it's of capital We significant We We things the enables and think that's

getting So number large-scale the access deals. players smaller quality to a of

playing end where the to at of the the got market. entrants And of then market less the terms kind and smaller generally end us. attractive see we structures of you've Newer larger

So we the we feel best believe driving we're and what returns. in in the the place right market risk-adjusted are

Operator

[Operator Instructions] the there you. over the reached session. to any closing are turn end Thank for to questions. now At question-and-answer if pause like have of this to would comments. remaining we Ken We'll time, floor I our back Kencel see

Kenneth Kencel

on us the Thank you, joining everyone, for today. call

Investor If everyone to summer, next earnings of speaking you have on and with enjoys to Relations very you the hope any team. I additional call. Thanks look questions, our the please our reach rest much. we out forward

Operator

Thank today's day. disconnect. conference. that may good Have parties with you. And All conclude a

Nuveen Churchill Direct Lending (NCDL) 7 Aug 242024 Q2 Earnings call transcript