Nuveen Churchill Direct Lending(NCDL) - 2024 Q2 - Earnings Call Transcript

Financial Data and Key Metrics Changes - The company reported net investment income of $0.57 per share, exceeding both the regular quarterly distribution of$0.45 per share and a special distribution of $0.10 per share, resulting in an annualized dividend yield of approximately 12.3$0.37 per share, impacted by $0.20 per share of net realized and unrealized losses [19] - The debt-to-equity ratio at the end of the quarter was 1.04x, consistent with prior guidance [19] - Net asset value per share decreased by approximately 1$18.03, primarily due to unrealized losses on two nonaccrual investments [20] Business Line Data and Key Metrics Changes - The company experienced significant investment activity with $360 million in new originations, over 95$196 million quarter-over-quarter, largely due to record high new originations [21] - The portfolio consisted of nearly 200 investments, with the top 10 investments representing only 14.4% of the total portfolio [12][22] Market Data and Key Metrics Changes - Credit quality remains strong despite inflationary pressures, with a weighted average internal risk rating of 4.1 and a watch list at a manageable level of 3.8% of fair value [11][26] - The average position size in the portfolio is 0.5%, which serves as a key risk mitigation tool [23] - The company noted modest spread compression in the first half of the year, but remains insulated from pricing pressures in the broadly syndicated loan market [6][42] Company Strategy and Development Direction - The company focuses on a high level of portfolio diversification across various metrics, emphasizing credit quality and rigorous investment processes [13][14] - The strategy includes prioritizing core middle market senior loan investments, which are believed to provide strong long-term risk mitigation characteristics [10][16] - The company aims to maintain a disciplined approach to underwriting, avoiding riskier investments and focusing on high-quality businesses [15][38] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism about the U.S. economic environment, noting resilience and a lack of evidence for an imminent recession in their core middle market portfolio [7][34] - The company anticipates strong performance in the second half of 2024, supported by a robust pipeline of investment opportunities [13][30] - Management highlighted the importance of deep relationships with private equity sponsors, which provide a competitive advantage in sourcing deals [16][39] Other Important Information - The company has a share repurchase program with approximately $92.8 million remaining under the program as of quarter end [27] - The second lockup release saw 35% of nonaffiliated pre-IPO shares released, nearly quadrupling the public float since the IPO [28] Q&A Session Summary Question: Outlook for new investments in the second half of the year - Management indicated a robust pipeline and continued strong origination activity, with optimism for new deal activity to grow as a percentage of overall investments [30][32] Question: Economic outlook and revenue/EBITDA growth across portfolio companies - Management reported positive revenue and EBITDA growth across the majority of portfolio companies, indicating a healthy portfolio [34] Question: Insights on nonaccruals and resolution timelines - Management stated that they are actively working with sponsors and borrowers to resolve nonaccruals, but no specific timelines were provided [36][37] Question: Timeline for rotating out of upper middle market loans - Management confirmed a robust pipeline of traditional middle market opportunities and indicated that the rotation strategy is progressing well [37] Question: Competition from other direct lenders in the middle market - Management noted that while there is competition, established players with strong relationships are benefiting from market consolidation, and new entrants are less impactful in the core middle market [43][45]