Nuveen Churchill Direct Lending Corp.

Welcome to Nuveen Churchill Direct Lending Corp's third quarter 2025 earnings call. At this time, all participants are in a listen-only mode. A question and answer session will follow management's prepared remarks. As a reminder, this conference call is being recorded for replay purposes. I would like to turn the conference over to Robert Pond, head of investor relations for NCDL. Robert, please go ahead.

Good morning and welcome to Naveen Churchill Direct Lending Corp's third quarter 2025 earnings call. Today I'm joined by NCDL's Chairman, President, and CEO, Ken Kinsell, and Chief Financial Officer, Shai Vickness. 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 statements. We ask that you refer to the company's most recent filings with the SEC for important risk fact Any forward-looking statements made today do not guarantee future performance, and undue reliance should not be placed on them. The company assumes no obligation to update any forward-looking statements at any time. Our earnings release, 10-Q, and supplemental earnings presentation are available on the investor relations section of our website at ncdl.com. Now I would like to turn the call over to Ken.

Thank you, Robert. Good morning, everyone, and thank you all for joining us today. Today I will start by discussing our results for the third quarter, and then I'll discuss current market conditions, our origination activity, portfolio positioning, and our forward outlook. Following my comments, I will hand the call over to Shai for a more detailed discussion of our financial performance. This morning, we reported net investment income of 43 cents per share during the third quarter, compared to 46 cents per share in the second quarter. Gross originations totaled approximately $29 million in the quarter, compared to $48 million in the second quarter of this year. Similar to the prior quarter, the decline quarter over quarter was intentional. as we continue to operate towards the higher end of our target leverage range. As I will discuss later in my prepared remarks, the Churchill platform continued to see strong asset growth and new originations during the quarter. Our investment portfolio remained healthy, and our portfolio companies continued to perform well, largely due to the strength of our senior loan investments. Net asset value was $17.85 per share as of September 30th, compared to $17.92 per share as of June 30th. The modest decline quarter over quarter was primarily due to a slight decrease in the fair value of certain underperforming portfolio companies. Turning to the current market environment, M&A activity continued its positive momentum in the third quarter. building on the rebound in market sentiment that began towards the end of the second quarter. Investment activity has now returned to a more normalized level, following the pause in activity after Liberation Day. Stabilizing market conditions and renewed sponsor confidence in the macro environment contributed to increased transaction execution. During the third quarter, the Federal Reserve began an interest rate cut cycle with a 25 basis point cut in September and another 25 basis point cut in October, with further rate cuts anticipated but not guaranteed. Against this backdrop, with a predominantly floating rate portfolio, NCDL and other private credit funds are interest rate sensitive. Partially offsetting this dynamic, NCDL has the benefit of a floating rate debt capital structure as well as a lower interest burden for our portfolio companies. We believe the latter should drive growth dynamics, as portfolio companies will have more capital and cash flow to reinvest into growth areas of their respective businesses. In addition, a lower interest rate environment typically encourages increased M&A activity due to lower financing costs for private equity-backed businesses. Despite the potential for further rate reductions, we continue to see an attractive risk return profile for private credit and direct lending, especially on a relative basis compared to other fixed income asset classes. We also witnessed significant market volatility in private credit funds, particularly BDC stock prices over the past several weeks, following significant media attention given to two large bankruptcies, We want to make it clear that NCDL and any other Churchill vehicles do not have any exposure to either of these two investments, Tricolor and First Brands. We also do not see any evidence of broad-based challenges across our portfolio. At Churchill, we focus on sponsor-backed businesses with significant equity cushions, and we have longstanding experience focusing on less cyclical, more defensive end markets that demonstrate resilience across market cycles. As we continue to end the year strong and look towards 2026, we remain optimistic about the long-term prospects of the company given our positioning as a leader in the core middle market. Our longstanding performance track record, deep network of sponsor relationships, and extensive LP commitments across the broader Churchill platform. And we remain intensively focused on continuing to invest in high-quality assets and deliver attractive, risk-adjusted returns to our shareholders. Now turning to our investment activity. As I mentioned earlier, our pipeline for new deal flow started to increase and return to a more normalized level in June of this year, following the temporary pause in April and May. During the third quarter, we continued to see an increase in transaction activity, particularly new deals for high quality assets that are in resilient, non-tariff exposed sectors. At the Churchill platform level, the number of deals reviewed in the third quarter increased 22% from the second quarter of this year. And in the first nine months of 2025, Churchill closed or committed $9.4 billion across 265 transactions, driven by a record-setting first quarter and a resurgence of activity in the third quarter. During the third quarter in NCDL, we continued to reduce allocation sizes to new deal flow, primarily due to the fact that we are operating at the high end of our target leverage range. With that said, we continue to benefit from attractive opportunities and activity at the Churchill platform level. Although the percentages of allocation to junior capital and equity were higher during the quarter, we remain focused on senior lending, which represents approximately 90% of the fair value of the overall portfolio. We also remain focused on the traditional core middle market, benefiting from our differentiated sourcing and long-term track record. We continue to target companies with $10 to $100 million of EBITDA, which we believe helps insulate us from the more aggressive structures and loosening terms prevalent in the upper middle market and broadly syndicated loan space. It is our view that risk-adjusted returns in this segment of the market remain among the most compelling in private credit, particularly for scaled highly selective managers with deep private equity relationships. We see the core middle market as a durable opportunity to generate great long-term value and enhance portfolio diversification for our investors. In terms of our portfolio and credit quality, the continued strength of our portfolio reflects healthy overall performance from our borrowers, as well as the quality of deal flow we've experienced over the last several years. In addition, our rigorous underwriting, high level of selectivity, and focus on diversification have been critical to minimizing losses and generating strong returns across multiple market cycles. That same discipline extends to today's shifting macro landscape. As of September 30th, our weighted average internal risk rating was 4.2, versus an original rating of 4.0 for all of our investments at the time of origination, and our watch list remains at a very manageable level of approximately 7% of fair value. Credit fundamentals within the NCBL portfolio remain strong, with portfolio company total net leverage of five times and interest coverage of 2.3 times on traditional middle market first lien loans. These metrics are a direct result of conservative structuring and relatively low attachment points that we target when underwriting new transactions. NCDL had two new non-accruals during the third quarter which were relatively smaller positions in the portfolio. Despite the slight increase in non-accruals this quarter, we believe our percentages continue to compare extremely well versus BDC industry averages. As of September 30th, non-accruals represent just 0.4% of our total investment portfolio on a fair value basis and 0.9% on a cost basis. We believe the strength of our platform, including experienced workout and portfolio management teams, will continue to drive favorable results. Portfolio diversification remains a key focus of ours within our overall investment portfolio. This has been achieved with a continued high level of selectivity facilitated by the significant proprietary deal flow our sourcing engine is able to generate from the breadth and depth of our PE relationships. As of September 30th, we had 213 companies in our portfolio, and our top 10 portfolio companies represented less than 14% of the total fair value. This diversification is critical as we seek to maintain exceptional credit quality and originate additional attractive opportunities. From a forward-looking perspective, we continue to have an optimistic outlook for private credit based on significant tailwinds to our business. We are encouraged by the city growth in our pipeline and the quality of businesses seeking financial solutions. Following a period of uncertainty and volatility in the markets driven by Liberation Day, in which investment activity and deal flow came to a pause, we've experienced a resurgence of M&A activity, leading to the buildup in our traditional middle market pipeline. Additionally, we believe corporate management teams are now more focused on long-term strategic initiatives and investing in their businesses for sustained growth. This coupled with an interest rate cut cycle, will lead to increasing deal flow and financing opportunities in 2026, in our view. We believe we remain well positioned due to our scale, our differentiated sourcing as an LP, and over 325 private equity funds, and our nearly 20-year track record of investing across interest rates and economic cycles. And now I'll turn the call over to Shai to discuss our financial results in more detail.

Thank you, Ken, and good afternoon, everyone. I will now review our third quarter financial results in more detail. During the third quarter, NCDL reported net investment income of 43 cents per share compared to 46 cents per share in the second quarter of 2025. The decline was largely due to lower interest income driven in part by the two non-accruals we added in the quarter. Total investment income declined slightly quarter-over-quarter to $51.1 million in the third quarter compared to $53.1 million in the second quarter of this year. This was largely driven by the modest decline in the size of our investment portfolio and a modest decline in portfolio yields as a result of underlying loan contracts resetting to lower base rates. At September 30th, our gross debt-to-equity ratio was 1.25 times compared to 1.26 times at June 30th. Our net debt to equity ratio net of cash was 1.2 times compared to 1.21 times at June 30th of this year. In October, we paid a regular dividend of 45 cents per share, which equates to an annualized yield of approximately 10% on our quarter end net asset value per share. For the fourth quarter, we've declared a 45 cent per share quarterly dividend, which is consistent with prior quarters. Our total gap net income in the third quarter was $0.38 per share, compared to $0.32 per share in the second quarter of this year. Our third quarter net income included $0.05 per share of net realized and unrealized losses, primarily due to a decrease in the fair value of certain underperforming portfolio companies, partially offset by the realization of an equity investment at a gain. Our net asset value was $17.85 per share at the end of the third quarter, compared to $17.92 per share at June 30th. NCDL's investment portfolio had a fair value of $2 billion on September 30th, consistent with the prior quarter. Gross originations totaled approximately $29 million, and gross investment fundings totaled approximately $36 million, compared to $48 million and $81 million of gross originations and gross investment fundings, respectively, in the second quarter of this year. During the third quarter, repayments totaled 3%, which is lower than our long-range assumption of 5% per quarter. We had full repayments on four deals totaling $42 million and partial repayments for another $18 million. On a net basis, we saw a reduction in our funded investment portfolio of approximately $25 million. This reduction was intentional as we redeployed capital received from repayments with a view towards maintaining leverage at the upper end of our target range. As we look forward, we expect to continue to redeploy capital received in connection with repayments into traditional middle market transactions across the capital structure. At the end of the third quarter, our total investment portfolio consisted of 213 names compared to 207 names at the end of the second quarter. We continue to remain highly focused on portfolio diversification with the top 10 portfolio companies comprising only 13.6 percent of the fair value of the portfolio. Our largest exposure is only 1.6 percent of the total portfolio, and our average position size remains at one-half of one percent. Diversification continues to be a key focus of ours within the investment portfolio. In terms of deployment and asset selection, our new originations during the quarter were weighted towards senior loans with $22 million out of the $29 million of gross originations deployed into this strategy. The balance was deployed into subordinated debt and equity during the quarter. Our focus on the traditional middle market segment will benefit NCDL shareholders, we believe, as we see meaningfully higher spreads and tighter documentation terms in the traditional middle market compared to the upper end of the middle and BSL markets. Spreads on new investments during the quarter were slightly down from the prior two quarters, with the average spread on first lien loans at 470 basis points compared to 480 basis points in the first two quarters of the year. Our weighted average yield on debt and income-producing investments at cost declined to 9.9% at the end of the quarter compared to 10.1% at the end of the second quarter. This decrease in yield was primarily due to overall tightening of spreads in newly originated investments as well as lower base interest rates. In terms of portfolio allocation, at the end of the third quarter, first lien loans represented approximately 90% of the total portfolio, while junior debt and equity comprised approximately 8% and 2% respectively. Our allocation strategy remains unchanged as we continue to target 85 to 90% senior loans with the balance allocated to junior debt and equity. Turning to credit quality, we continue to be pleased with the health of our investment portfolio. Although we placed two smaller investments on non-accrual status during the quarter, the overall performance of our portfolio companies continues to be strong. At the end of the third quarter, NCDL had three names on non-accrual, representing just 0.4% on a fair value basis and 0.9% at cost. This compares to 0.2% on a fair value basis and 0.4% at cost at the end of the second quarter. Our weighted average internal risk rating was 4.2 at September 30th, And our watch list consisting of names with an internal risk rating of six or worse remains at a relatively low level of 7.3% at the end of the third quarter in line with the prior quarter. And finally, our conservative approach to underwriting is highlighted by our weighted average net leverage across the portfolio of five times and interest coverage of 2.3 times at the end of the third quarter. With respect to our capital structure on the right-hand side of our balance sheet, our debt-to-equity ratio at September 30th was relatively unchanged quarter-over-quarter at 1.25 times compared to 1.26 times at June 30th, and on a net basis was 1.2 times at September 30th, net of our cash position at quarter-end. As we spoke about on prior calls, our goal is to redeploy capital received from repayments and maintain leverage towards the upper end of our target range of 1 to 1.25 times debt-to-equity. Lastly, as discussed, our focus for the near term is on optimizing the asset mix within the portfolio and actively reinvesting cash received from repayments and sales into high-quality assets. I'll now turn it back to Ken for closing remarks.

Thank you, Shai. In closing, we are pleased with our financial results and the performance of our portfolio during the third quarter. As we enter the last two months of the year and look towards 2026, NCDL remains well positioned with respect to our experienced investment team, high quality diversified portfolio, and strong capital structure. And we continue to remain optimistic about the long-term future of the private credit markets and NCDL's long-term success based on the successful track record of the Churchill platform and operating across various market conditions and cycles. Additionally, With NCDL shares trading at a material discount to our net asset value and around a 12% annualized yield, we continue to view the shares as an attractive investment opportunity. Thank you all for joining us today and your interest in NCDL. I will now turn the call over to the operator for Q&A.

Thank you. If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star two if you would like to remove your question from the queue. And for participants using speaker equipment, it may be necessary to pick up your headset before pressing the star keys. Our first question is from Brian McKenna with Citizens JMP. Please proceed.

Okay, great, thanks. So just on the few non-accruals in the portfolio today, I'm curious, when were these investments made? And I guess looking back to the time of underwriting, what's changed relative to those initial expectations, and why did those assets ultimately underperform?

Hey, Brian. It's Shai. How are you? Um, so just a couple of things on, um, on the 2 new non accrual. So, you know, I think it was, we've spoken about in the past, just in terms of the names that are on the non accrual list and sort of trying to draw through lines in terms of themes. Um, I would say. Um, you know, fairly difficult to do that just given the idiosyncratic nature of some of these and as they, as they pop up. And in terms of these 2 names that were placed on non accrual, you know, you heard can speak about them on the call just in terms of the size of the positions relatively small. speaking to the sort of diversification points across the portfolio. Both of these positions were junior capital names that were placed on the non-accrual list this quarter. One of them is in the automotive sort of aftermarket accessory segment, and the other one is in essentially the freight sector. So it's a training business and recruiting business for For truck drivers, so again, no real theme to draw in terms of the 2 new non accruals in terms of when the when the investments were made. Again, they have been in the portfolio for a couple of years now. So the decline and just sort of the trend, I would say, in the 1 hand, the overall freight reception and just sort of what we're seeing and we've had. Another non accrual and restructuring in the portfolio in the same industry. I would say that's sort of the theme there. And then the other one, you know, it's really just a function of softness on the top line in terms of the performance there. And both of these investments were made actually in 2021. So, you know, they've been around for quite a bit. And, you know, the decline got to a point now where we felt it was appropriate to place them on non-recrual status.

Okay, that's helpful. Thanks, Shai. And then just on the workout process more broadly, Shai, How long does it typically take to restructure a loan in the portfolio and then ultimately get to a resolution? And then can you just remind us what do historical recovery rates for your business look like?

Yeah, I can comment on both. So just in terms of the timing, it's obviously going to vary depending on the severity of the situation and sort of the engagement, you know, with the private equity sponsor and the ultimate prospects for recovery of the underlying business. So it's a tough one to answer in terms of, you know, how long does it take? But, you know, clearly it can be, you know, a few month process. It can take as long as a year to sort of work through the restructuring. And then the timing to recovery is clearly going to be market and company specific requirements. In terms of how long that takes, so it's sort of a tough 1 to the vector in on a specific timeline. And then, in terms of the recovery rates in the portfolio, again, they tend to vary depending on the situation and depending on our spot in the capital structure. So, for senior loans, we have a number of instances where recoveries have been in excess of par. We have others where they've been in the 70s and 80s and others that have been lower. For junior capital, I would say it tends to be a bit more binary, right, either the situation works out or it doesn't. And we tend to be sort of in that fulcrum security where we're then riding the equity upside in the future. So, again, it's going to be variable. But obviously, recoveries, you know, you'd expect them to be higher on senior loans than on junior capital.

Got it. Great. And then just maybe one more for Ken here on the stock. So trading at 80% of NAV, leverage is at the upper end of the target. You already repurchased $100 million of stock. But what else can you do? And I guess what is the leadership team focused on in order to improve the valuation? And then I think the market is telling us that maybe you should think about cutting the dividend or reevaluating that. So I guess why not reset the dividend a little bit especially given the two rate cuts we just got, one at the end of September, one in October, and that would just put you in a position to comfortably cover the dividend. You'd likely create some incremental book value and then maybe have a little bit more capacity to buy back the stock at what I'm sure you think are really attractive levels.

Yeah, no, look, from a business and an investment standpoint, the most important thing for us is to stay focused on continuing to originate and invest in high-quality assets. You know, we've done that consistently over a 20-year period, certainly, you know, more recently now with NCDL. We actually feel very, very good about the overall quality in our portfolio and the level of new deal and investment activity. I will say from a pricing perspective, while we obviously saw spreads tighten, maybe not as dramatically as the BSO market, over the last 12 to 18 months. Things have, in terms of spread tightening, we've seen that slow down quite a bit. Spread seemed to have settled in at that kind of SOPR 450, 500 range, which has been good to see. But deal activity overall, the quality of the opportunities we're seeing to invest in, the level of M&A activity, all the fundamentals that we can control, we feel very good about those fundamentals right now. Deal activity, quality of opportunities we're seeing, ability to stay highly selective, underlying pricing dynamics. You know, so while obviously base rates, you know, have come down and certainly, albeit more slowly than expected, we would continue to see, you know, base rates. We would expect to continue to see base rates come down. From a quality perspective, from a sourcing standpoint, all the fundamental dynamics we feel very good about, including the underlying portfolio quality. In terms of levers we have, Shai, I don't know if you want to speak to that.

I'm happy to speak to it. And I think we alluded to this on the last call. And obviously, you know, this earning cycle and last, it's been a topic of conversation in terms of sort of where are earnings going across the industry. And as we commented last quarter, and I think we reinforced that this quarter, you know, we felt good about our ability to continue to earn earnings. You know, again, within a penny or two, obviously, you know, we under-earned by two cents this quarter our dividend of 45 cents. But again, you know, within a range, and there were some reasons for that, including, you know, the two non-recrual names that I alluded to in terms of reducing our earnings for this particular period. But again, looking forward in the current base rate and spread environment, we continue to feel good about our ability to, you know, essentially earn Um, you know, plus or minus the 45 cents and that's something that we will continue to evaluate as we go forward. As I commented last quarter, we did talk about the fact that we do have spillover income from prior periods that provide 1 lever that we can pull in terms of. Continuing to maintain that dividend for the near term. But, again, your points around what do we do going forward, do we consider additional share buybacks, et cetera, are things that we absolutely talk about. I think when we think about that program, obviously, we did put in place the roughly $100 million program at the time of our IPO. We've since exhausted that. And really, our focus going forward is on growing the BDC, not continuing to reduce the amount of equity outstanding and reduce the share count. So, again, these are all the things that we're thinking about, and we'll continue to evaluate them going forward. But as Ken said, we feel very good about the quality in the BDC, its ability to continue to generate earnings going forward, and that's really our focus.

Yeah, and certainly, I'd be remiss if I didn't say we're certainly looking at the Share price relative to NAV, we certainly feel that the shares are undervalued. We think there's a tremendous amount of value creation that continues to go on within the portfolio. The quality, the fundamentals, et cetera, you know, we don't think are reflected in the share price.

Super helpful. Thanks so much.

Our next question is from Finian O'Shea with Wells Fargo Securities. Please proceed.

Hey, everyone. Good morning. Question on the portfolio outlook. I think early in the remarks you mentioned lighter allocation based on the BDC being fully levered. Seeing if that also implies subdued repayment outlook.

Yeah, hey, Ben, Chai. Yeah, so when we think about the repayments, I mean, what we saw in this most recent quarter, they were running at 3%, you know, relative to our long-range assumption of 5%. So, again, I think that's really a function of essentially mixed and really timing because, as Ken alluded to, and we're seeing it every day just in terms of the level of deal activity across the platform, M&A has certainly picked up. and sponsors are feeling good about, you know, transacting in the current environment. So, our expectation is that, you know, that repayment rate would continue close to our long-range assumption, but the fact that it was at 3% this quarter, it was closer to 5% the prior quarter. So, again, just the fact that, you know, we are in an environment where deal activity is picking up, you know, we're not changing our view on repayments going forward. What we will do, though, is, again, be sort of dynamic about how we're investing out of the BDC. So to the extent that we get incremental repayments and we get those proceeds in, we'll look to redeploy them as quickly as possible into attractive investment opportunities. And that's what we've done and what we do. And that's one of the benefits, obviously, of being part of the broader platform. And we have access to that deal flow. And as we have capital available, we're going to deploy it into attractive transactions.

Yeah. And I would just say, look, from our perspective, keeping the portfolio fully deployed is not a challenge at all for us right now relative to the deal flow platform-wide. We've obviously tried to maintain investment activity in every deal so that we've got a position in every deal as we're making investments so that we can do the follow-on and avail ourselves to the add-ons and other opportunities in those companies. So we want to be in them at the time of sourcing. But on an overall basis, I don't see any challenge whatsoever maintaining full investment at NCDL. And to the extent we have repayments increase for various reasons, there's been no challenge for us in terms of keeping it fully invested.

That's a helpful thank you. And just to follow on piggybacking on the dialogue with Brian on the stock price, curious as to what you're hearing Well, just to hit on, you have a pretty big and successful non-traded BDC, so you're very present in that market. How much of a thing is it – I know it's very recent, of course, but with a lot of public BDCs trading where they are, do you feel a lot of retail shareholders in the wealth channel – Is it either a discussion or is it perhaps, oh, should I buy the public one or any color you could give us on that? Thank you.

Yeah, we've certainly gotten that question a number of times because they're obviously looking at the tremendous discount in the public. So it's a good question, Finn. While it's come up, it hasn't been a major theme, but certainly at a individual level, you look at the, you know, you look at the fact that the private BDC obviously issues shares at NAV and the public BDC is trading at a significant discount. I think it just highlights the value proposition and the return dynamics and the opportunity in the public BDC. The fact that you can buy the public BDC, the publicly traded BDC at a, you know, 15 or 20% discount to NAV, you know, I think just highlights what a great opportunity it is right now. But, you know, we've gotten that question a handful of times. It hasn't been a huge amount of focus, but, you know, we've definitely been asked the question. And, you know, we've tried to be very straightforward on it, and that is that it is tremendous value at the current trading level, no question about it.

Great. Thanks so much. Thank you.

Our next question is from Doug Harder with UBS. Please proceed.

Hi, this is Corey Johnson on for Doug. I know you spoke about the repayments and, you know, long-term, I guess you don't expect there to be a, you know, much of a difference from your long-term assumptions, but over the next, you know, quarter or two, would you expect perhaps more elevated repayments and perhaps the, you know, current government shutdown delaying some of the repayments that you might've been seeing, you know, in the, last quarter or this coming quarter?

No. In fact, I would say there's an interesting dynamic. If we were, which we're not, heavily invested in kind of broadly syndicated loans, that market is primarily a refinancing market. So as rates come down, you might see more pressure in either BDCs or funds that are really oriented toward that market. In our world, since we are much more heavily oriented toward traditional middle market, the primary driver of activity is new deals, right? So we get a refi when a company in our portfolio is refinanced because it's sold as opposed to going out and proactively refinancing itself. So I would say in that regard, a solid level of new deal activity, we've already been seeing that consistently over the course of the year. So I would not expect to see any material change in kind of the trends we've been seeing, you know, around repayments, again, primarily driven by new deal activity as opposed to suddenly seeing an acceleration as a result of, you know, being driven by, you know, reductions in underlying base rates. That's really not as big a factor for us, maybe as some other funds that are more focused on the BSL world.

Got it. Thanks. And then just the last question. Are you seeing like any additional competition from perhaps tools, you know, coming down in market and playing a bit more in the, you know, core middle market or just any, you know, any changes in the competition landscape recently?

You know, we really haven't. You know, it's interesting. You know, I get that question a lot. Institutional investors ask that. We get this from you folks as well. The reality is that we're not seeing the private credit firms that are focusing historically more on BSL or those large billion-dollar-plus transactions come down market, nor are we seeing the new entrants really being able to step up and underwrite four, five, six, seven, $800 million transactions, which we obviously can do. So I think in that sense, we're relatively insulated from pressure from the top or even pressure from the bottom, right? The new entrants are primarily playing in that lower middle market where they can deliver a $50 million, $75 million solution. And at the larger end, those folks continue to focus on larger buyouts, refinancing activity, and playing as an alternative to an underwritten and syndicated BSL transaction. So we're operating, we think, in a relatively insulated part of the market where, frankly, relationships are driving that deal flow. And partnering with a lender like us or one of our peers is a very important decision for driving the underlying growth in the space. So market timers or firms that are coming down for a period of time and then maybe bouncing back up into their core market, not as appealing to the private equity firms that are looking for long-term partners to finance those businesses, be available to finance add-ons, and really act as a financing partner for a more extended period of time. And I think that's where we really benefit. We've been in the core middle market now for 20 years. You know, if you look at our top sponsor relationships, we've done dozens and dozens of deals with those firms, and as a result, they come back. They come back based on the relationship, based upon the history, and it's much less likely that they're going to tap a firm that's really more of a large-cap player, recognizing that those firms tend to come and go in the core middle market. Great. Thank you.

Our next question is from Aaron Syganovitch with Truist Securities. Please proceed.

Thanks. Just touching on the health of the portfolio overall, you know, your non-equals ticked up, but it's pretty modest. I think your costs are still below 1%, so it's obviously not a big challenge. Maybe you just talk a little bit about the portfolio companies and how they're performing from maybe a revenue and EBITDA growth standpoint and how those trends are moving throughout the year.

You know, the story there has actually been very solid. Now, remember, you know, our overall criteria, you know, when we underwrite and invest is we are looking for market leaders. We are looking for businesses that that are in non cyclical industries. So we're typically not looking at, you know, restaurants and retail and oil and gas and chemicals and anything that has an underlying cyclical dynamic to it. You know, we're also not, you know, we're also not, you know, investing in businesses that fundamentally don't have those underlying solid growth characteristics. So given that, given the world that we play in, business services, healthcare services, software, you know, we've continued to see solid single-digit growth in both revenues and cash flow for our portfolio. That's probably down a bit from where it was a couple years ago. You know, we were seeing numbers in the kind of 20% range, but still very respectable and very consistent. So we feel good about the underlying growth in the portfolio, and Again, I think it's reflective of not just organic growth and the fundamentals of the businesses we finance, but also the fact that when we do a deal, the vast majority of those transactions, the private equity firm that's acquiring the business has already come to the table with a plan to grow it, either through geographic expansion, product expansion, smaller strategic M&A, you know, the large percentage of our portfolio, those are the types of businesses we're financing. And that's also, you know, that's also reflected in the fact that, you know, in many cases, we're doing a delayed draw term loan to actually put in place a facility to finance that growth. So, you know, I think the nature of the space we plan and the types of companies that we finance, you know, is going to give you an ongoing kind of built-in growth rate in that, you know, kind of, you know, call it, you know, 5% to 10% range. And then where you're getting, you know, even stronger growth economically overall, you know, you see numbers that are closer to 20%. But certainly we feel very good right now, you know, that kind of core growth rate in that 5% to 10% range.

Yeah, I appreciate that. And I wouldn't expect that you'd have, you know, hotline growth rates. Just want to make sure that they're not deteriorating any notably. It sounds like everything is good there. Yeah. Yeah.

I was just going to say that, you know, I think, you know, as I mentioned earlier, a lot of it gets to the types of businesses we are financing. You know, we're We're typically not great fans of financing kind of static companies, if you will, where the credit metrics might look okay, but the fundamentals are, you know, it's not really a great business. You know, it's okay. The numbers are all right. The coverage numbers look okay, but you're not seeing any real fundamental growth. That's not typically the types of businesses we would be all that excited about financing. So, Yes, all the credit metrics have to be there, but we want to be financing businesses that have solid underlying growth fundamentals, and I think that's reflected in our portfolio.

Yeah, and maybe touching on the origination side, you mentioned deal pipelines pretty strong heading into the quarter. Um, w what's the mix of that in, in, you know, maybe you could talk a little bit about the quality of what you're seeing, um, come to you from, from the various sponsors.

So, you know, I, I think that, um, well, you know, it's, it's interesting if you look at our deal activity, uh, for example, July, August, even through September, we were actually setting records across the platform for deal activity, right? I don't think anyone would expect, you know, August to be, you know, a record month. Typically, that's a slower period of time in the summer. But we were, you know, we were extraordinarily active. You know, in our case, you know, we would see, you know, there were weeks where we were seeing three, four, five, six investment committee memos a week, right? So, we were actually scheduling, you know, additional meetings at EIC in order to keep up with the level of activity. You know, I think that's been surprising. You know, we certainly expected that the debt deal activity would begin to come back, as you saw, you know, rates stabilize and begin to come down. And we certainly did see that. You know, Liberation Day was a bit of a, you know, a bit of a, you know, a pause in those dynamics. But, you know, starting really in June and July and going on through the summer and early fall, the quality has been quite good. Overall spreads have stabilized in that kind of 450 to 500 range. Underlying fundamentals, you know, quite good. Given the pressure, you know, on private equity to drive some realizations, you know, we've seen a fair amount of GP-led transactions, and we have our own views as to what GP-led transactions we like and don't like. I think we like to see If there is a GP-led deal, we like to see the private equity firm roll their carry in, continue to be significantly supportive of the credit and the transaction. So we do look at those. But overall, the deal environment right now is quite good. You know, we feel quite good about the quality. We feel quite good about the relative value. We're still getting, you know, in that 9% range for new transactions. So, you know, risk-adjusted returns we think very attractive relative to you know, where they've been historically, and we still feel very good about the deal environment. We haven't talked about it on your questions, but I mentioned it in the part of my prepared remarks. The reality is if you look at those situations like Tricolor or First Brands or even the more recent announcement on the HPS transaction, you know, the reality is that, you know, we see those as very idiosyncratic Certainly in a number of those cases, there's elements of fraud. I'd also say, and I was talking to an investor about this earlier in the week, if you look at the nature of those deals, they were essentially bulk purchases of assets in a portfolio. So, you know, that's a very different business than, you know, asset-based, but also just buying blocks of receivables or financing large blocks of receivables. Very, very different business than ours where we are financing one deal at a time, doing our diligence, doing our homework, fundamentally assessing the business, the underlying structure, the underlying fundamentals. So we're going to stay focused on traditional core middle market, directly originated transactions in that $50 to $100 million EBITDA range where we think the risk-adjusted returns are attractive. structures, you know, have maintained, you know, a reasonable underlying dynamic, and that's where we're going to be. So, you know, we're not going to venture into, you know, some of these other more esoteric areas of lending that have created some of the problems. And moreover, there's certainly no evidence in our portfolio today that those very isolated situations really have anything to do with the types of lending that we're doing today.

Thank you. Appreciate the comments.

With no further questions at this time, I would like to turn the call back over to Ken for closing comments.

Great. Well, thank you all again for joining us. I appreciate your interest in the business. Obviously, we're very proud of our performance this quarter. We continue to stay focused on delivering excellent risk-adjusted returns for our investors. And that concludes the call and appreciate your joining us today.

Thank you. This does conclude today's conference. You may disconnect at this time, and thank you for your participation.