Nuveen Churchill Direct Lending Corp.

Welcome to Naveen 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.

Good morning, and welcome to Naveen Churchill Direct Lending Corp's second quarter 2024 earnings call. Today, I'm joined by NCVL's Chairman, President, and CEO, Ken Kinsell, and Chief Financial Officer and Treasurer, Shai Vickness, as well as Robert 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 and 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. 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 statement. 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 seems no obligation to update any forward-looking statements at any time. Our earnings release, 10Q, and supplemental earnings presentation are available on the investor and news sections of our website at ncdl.com. Now, I'd like to turn the call over to Ken.

Thank you, Ilona, and 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 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 45 cents per share and our 10 cents 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. And 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. 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, long-standing 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, and 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. And our CFO confidence appears to remain high given the significant add-on M&A activity that we are seeing on a daily basis. 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. And 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. The other was our discipline in managing NCDL's leverage profile, which I 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. Q2 represented one of the strongest quarters in the history of our firm in terms of loan origination. And 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 spend 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. 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 4.8 times, interest coverage of 2.2 times 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. 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. 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. 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 platforms. 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 enables us to maintain a rigorous investment process and maintain strong credit discipline. 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. And 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. 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 US middle market private equity funds and sits on over 240 advisory boards. We have been and continue to be a trusted and established investor 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. And now, I'll hand it over to Shai to discuss our financial results in more detail.