Nuveen Churchill Direct Lending(NCDL) - 2024 Q4 - Earnings Call Transcript

Financial Data and Key Metrics Changes - For the full year 2024, the company generated a return on equity (ROE) of 12.4% on net investment income and paid total distributions of $2.10 per share, resulting in an attractive yield of 11.6$0.56 per share, which fully covered the regular distribution and previously declared special dividend totaling $0.55 per share [10][29] - The net asset value per share increased to$18.18 at December 31, 2024, up from $18.15 at the end of Q3 2024 [12][33] Business Line Data and Key Metrics Changes - Investment activity during Q4 was primarily focused on senior secured first lien loans, with new originations totaling$163 million for the quarter [11][18] - The investment portfolio had a fair value of $2.08 billion at the end of Q4, compared to$2.05 billion at the end of Q3 [34] - First lien debt represented over 90% of the fair value of the overall portfolio, maintaining a steady focus on traditional middle market senior loans [19][41] Market Data and Key Metrics Changes - The company noted that credit quality remains strong, with only 1 portfolio company on nonaccrual status, representing 0.1% of the total portfolio at fair value [9][24] - The direct lending market accounted for approximately 90% of middle market new leveraged buyout (LBO) volume, indicating a strong position in the core middle market [14][70] Company Strategy and Development Direction - The company aims to continue focusing on the core middle market direct lending space, leveraging long-standing relationships and extensive commitments to identify attractive investment opportunities [12][26] - The company plans to optimize its capital structure and balance sheet, having issued 300 million of unsecured notes in January 2025 [9][47] - The strategy includes a supplemental dividend program to distribute excess earnings while retaining capital to grow net asset value [31][58] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the company's positioning as a leader in the core middle market direct lending space, despite competitive dynamics in the private credit market [12][13] - The economic environment is viewed as healthy and resilient, with expectations of increased M&A activity in 2025 [15][26] - Management is actively monitoring potential impacts from policy changes but does not expect a material impact on performance due to the diversification of the portfolio [16][26] Other Important Information - The company had a record year of investment activity in 2024, investing over 13 billion across approximately 400 transactions [18][34] - The company’s share repurchase program has utilized approximately $57 million, with$42 million remaining [51][52] - The final lockup release for pre-IPO shareholders occurred on January 24, 2025, increasing the number of shares available for trading [52] Q&A Session Summary Question: Details on supplemental dividends after the last $0.10 dividend - Management indicated that approximately 50% of excess earnings would form the basis of the supplemental dividend, focusing on distributing most earnings while retaining some capital for reinvestment [58] Question: Expected repricing impact on overall yield - Management estimated that around 70-75% of the portfolio has already repriced, with limited further repricing expected [62][64] Question: Anticipated changes in PIK income ratio for 2025 - Management expects PIK income to remain in the low single-digit percentage range, primarily driven by junior capital positions [66][69] Question: Sustainability of direct lenders' dominance in the middle market - Management believes direct lenders will continue to dominate the core middle market due to their ability to deliver full financing commitments quickly and maintain deep relationships [72][74]