Nuveen Churchill Direct Lend Stock

Welcome to Nuveen Churchill Direct Lending Corp.'s Second Quarter 2026 Earnings Call. [Operator Instructions] As a reminder, this conference call is being recorded for replay purposes.

I'd now like to turn the call over to Robert Paun, Head of Investor Relations for NCDL. Robert, please go ahead.

Good morning, and welcome to Nuveen Churchill Direct Lending Corp.'s Second Quarter 2026 Earnings Call. Today, I'm joined by NCDL's Chairman, President and CEO, Ken Kencel; and Chief Financial Officer and Treasurer, Shai Vichness.

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 factors. 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 News and Investors 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 for joining us today. During my prepared remarks, I will start with a discussion of our second quarter results, followed by some comments and thoughts on the current market environment, our portfolio positioning and the strategic initiative that occurred post quarter end.

First, I'd like to start by reviewing our financial results for the quarter. Overall, we continue to be pleased with the operating performance of NCDL and our investment portfolio despite a challenging market environment. This morning, we reported second quarter net investment income of $0.41 per share, fully covering our $0.36 per share base quarterly distribution. Based on our results, the Board has declared a total third quarter distribution of $0.38 per share, consisting of a regular quarterly distribution of $0.36 per share and a supplemental distribution of $0.02 per share.

During the quarter, gross originations totaled approximately $12 million compared to $83 million in the first quarter of this year. The decline in gross originations quarter-over-quarter was driven by 2 factors: our desire to manage our leverage ratio towards the upper end of our target leverage range and timing of certain transactions, which were underwritten in the second quarter, but ultimately closed in July.

As I will discuss later in my prepared remarks, the Churchill platform continues to see strong asset growth and new originations. Net asset value at June 30 was $17.19 per share compared to $17.50 per share at March 31, driven by unrealized markdowns and realized losses on 2 amendments that Shai will touch on in his remarks.

In terms of the current market conditions and economic environment, the first half of 2026 has been one of the most closely watched periods in private credit's history, unfolding against the backdrop of elevated public market volatility, geopolitical tensions and negative headlines. These headlines have been driven by concerns around AI disruption, software exposure and increased redemption activity in private BDCs.

We continue to believe there is a significant disconnect between the narrative in the media and the underlying fundamentals in private credit, particularly with our investment portfolio and the continued strength of our credit metrics. Dispersion amongst private credit managers has started to emerge in our view, and we think it will continue to be a focus area with investors.

Amid these market conditions, private equity M&A activity was highly selective in the second quarter as financial sponsored deal activity slowed compared to the first quarter despite overall global M&A recording new highs. Private equity volumes were relatively light compared to prior periods, driven by continued market volatility as buyers navigated geopolitical uncertainties and AI-driven disruptions.

The gap between strategic acquirers and private equity sponsors widened as financial sponsors faced disciplined underwriting and tighter credit constraints. However, in June and July, we experienced a material increase in deals reviewed over prior months as transaction activity across our platform has returned to a more normalized level. We attribute this to our focus on the core traditional middle market as well as our relationships with high-quality private equity sponsors.

In terms of spreads, we started to see a widening of direct lending spreads early in the second quarter, driven by the recent market concerns, volatility and disruption. Today, spreads have stabilized around a more normalized level of between 475 and 500 over for traditional first lien loans.

As far as the interest rate environment is concerned, given that inflation remains above the Fed's targets, expectations for rate cuts for the remainder of the year have diminished with the forward SOFR curve now showing potential rate hikes. This shift from earlier in the year is largely driven by persistent inflation, a resilient labor market as well as geopolitical tensions, which have created economic uncertainty.

Despite all of these factors, we continue to view private credit and direct lending as an attractive asset class with a compelling risk-return profile.

Turning to our investment activity. The first half of 2026 brought a more measured environment for new LBO volume, reflecting the broader macroeconomic backdrop. U.S. private equity deal volume and direct lending volume for private equity-backed borrowers declined materially quarter-over-quarter. Despite that, the Churchill platform delivered strong investment activity, outpacing the market by a meaningful margin while maintaining our underwriting standards and high level of selectivity. During the second quarter, at the platform level, Churchill closed or committed to over 80 transactions totaling approximately $4.3 billion, with the majority of that volume concentrated in senior lending.

As I mentioned earlier, gross originations at NCDL were muted in the quarter, which was intentional, given that we were operating slightly above our target leverage range at the end of the first quarter and as a result of timing to close transactions underwritten in June. We remain focused on actively reinvesting cash received from repayments and sales into high-quality assets while optimizing our use of leverage.

During the second quarter, investment fundings totaled approximately $24.8 million and repayments and sales totaled approximately $67.5 million. It's also important to remind everyone that at Churchill, we focus on the traditional core middle market, benefiting from our differentiated sourcing and long-term track record.

We continue to target companies with $10 million 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. We believe 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 long-term value and enhance portfolio diversification for our investors.

As far as our investment portfolio and credit quality is concerned, overall company performance across our portfolio remains healthy, which we believe reflects the quality of the deal flow we have experienced over the last several years. While we did experience a few company-specific credit challenges in the quarter, which is not overly surprising to us given the current market environment, our high-quality, well-diversified investment portfolio continues to perform well and in line with our expectations.

During these periods of market volatility and economic uncertainty, it is important to remain focused on our core values and pillars that have benefited Churchill over the past 2 decades. We have deep expertise, substantial experience, strong relationships, relevant size and scale and a differentiated approach to sourcing and originating high-quality deal flow. Our ability to navigate these market conditions and environment stems from our experienced investment, operating and management teams.

Our weighted average internal risk rating was 4.3 at the end of the second quarter, consistent with the prior quarter and versus an original rating of 4.0 for all of our investments at the time of origination. Our internal watch list ticked up to approximately 10.8% of fair value compared to 8.4% at the end of the first quarter. As a reminder, we employ a dynamic internal risk rating system with a 1 through 10 rating scale. Our watch list starts at a 6 rating, and we ensure that our workout team is involved early on in the process of a potential credit challenge or event. The percentage of watch list names for NCDL remains consistent with the Churchill platform and our long-term historical averages.

Credit metrics and fundamentals within the NCDL portfolio remain strong, with portfolio company total net leverage of 5.2x and interest coverage of 2.5x on traditional middle market first lien loans. Interest coverage increased during the quarter from 2.3x at the end of the first quarter. These credit metrics are a direct result of our conservative structuring and relatively low attachment points that we target when underwriting new transactions.

During the second quarter, we added 4 new names to nonaccrual with a total cost of $33.3 million and a fair value of $18.7 million. At June 30, nonaccruals represented 2.7% of our total investment portfolio on a cost basis and 1.5% on a fair value basis. Despite the increase in nonaccruals this quarter compared to prior quarters, we believe these percentages continue to compare favorably versus current BDC industry averages and the long-term historical BDC average.

At June 30, we had 244 companies in our portfolio, and our top 10 portfolio companies represented approximately 13% of the total fair value. This diversification remains a key focus of ours and is critical as we seek to maintain exceptional credit quality and originate additional attractive investment opportunities. We have achieved this diversification 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 we highlighted last quarter, market concerns regarding AI's potential disruption of software businesses have raised a lot of questions about private credit portfolio software exposure. We believe this underscores the importance of a diversified approach to portfolio construction. As a reminder, we have relatively low exposure to software as these are not the type of deals we tend to underwrite.

The rapid pace of innovation in the software sector, often coupled with higher leverage attachment points and less room for error were key reasons we passed on many software deals. As of June 30, software businesses represented approximately 2.4% of NCDL's total investment portfolio at fair value.

While AI will certainly contribute to disruption in the technology sector, the full impact remains difficult to assess at this time. We continue to monitor AI and its potential impact across the portfolio as we have done long before these headlines emerged. We maintain an active dialogue with the senior management teams of all of our borrowers as well as the private equity firms that own them, so that we have an informed and real-time view on this and any other risk our borrowers may face. Overall, we feel very positive as to how we are positioned relative to the risk that AI may pose to our portfolio companies.

Before I conclude and turn it over to Shai, I'd like to provide an update on a new strategic initiative for NCDL. In July, we successfully closed a joint venture with an institutional partner in which we will deploy assets and investments that align with the Churchill platform and NCDL's investment strategy and portfolio allocation. We'll also utilize a manageable level of leverage at the JV, and we believe this equity investment will be accretive to NCDL's long-term earnings profile. We believe this partnership is a testament to the Churchill platform with an experienced management team, investment and operating teams as well as a successful track record of investing and operating across various market conditions and cycles.

In summary, we are pleased with our financial results and the continued strength of NCDL's investment portfolio despite a few underperforming names and additions to the nonaccrual list this quarter. We have constructed a defensive portfolio balanced across multiple measures, including sponsor, position size as well as industry and sector concentration. This has been critical to our success throughout our history and is a key reason why we are optimistic about our future performance and long-term prospects.

From a forward-looking perspective, we also remain optimistic about the long-term outlook for the private credit industry despite the headline noises in the market. Overall credit metrics remain strong and stable, and we believe systemic risk concerns are overstated and that our focus on the core traditional middle market continues to offer structural advantages.

And now I'll turn the call over to Shai to discuss our financial results in more detail.

Thank you, Ken, and good morning, everyone. I will now review our second quarter financial results in more detail. During the second quarter, NCDL reported net investment income of $0.41 per share, in line with our first quarter NII. Total investment income declined to $44.3 million compared to $46.3 million in the first quarter of 2026. This was primarily driven by the modest decline in the size of our investment portfolio as well as a modest decline in portfolio yields.

At June 30, our gross debt-to-equity ratio was 1.29x compared to 1.32x at March 31 of this year, and our net debt-to-equity ratio was 1.23x compared to 1.26x at the end of the first quarter.

In July, we paid our second quarter distribution of $0.38 per share. And for the third quarter, our Board has declared another $0.38 per share distribution. This consists of a regular quarterly distribution of $0.36 per share and a supplemental distribution of $0.02 per share. Both distributions will be paid on October 28 to shareholders of record as of September 30.

We continue to operate with a base plus supplemental dividend program that sees us paying out a portion of the excess earnings over and above our regular dividend of $0.36 per share. For the most recent quarter, we generated $0.05 per share of incremental earnings above our regular distribution, and we are distributing $0.02 of the excess earnings in the form of a supplemental distribution.

Our total GAAP net income in the second quarter was $0.07 per share compared to $0.18 per share in the first quarter. Second quarter net income included $0.34 per share of net realized and unrealized losses. Net realized losses of approximately $0.23 per share were primarily driven by amendments to 2 underperforming debt investments during the quarter.

The net unrealized losses of $0.11 per share were primarily due to a decrease in the fair value of certain underperforming portfolio companies as market spreads remained broadly stable throughout the quarter, partially offset by the reversal of unrealized losses on underperforming debt positions that were restructured or amended during the period.

At June 30, our net asset value was $17.19 per share compared to $17.50 per share on March 31, representing a 1.8% decline quarter-over-quarter, largely due to the impact of realized and unrealized losses during the quarter.

At the end of Q2, NCDL's investment portfolio had a fair value of $1.9 billion, modestly down from the $2 billion at the end of the first quarter. Gross originations totaled $12.1 million and gross investment fundings totaled $24.8 million compared to $82.9 million and $85.4 million of gross originations and gross investment fundings, respectively, in the first quarter of 2026.

As Ken mentioned earlier, investment activity slowed in the quarter, driven by continued market volatility as private equity sponsored buyers navigated geopolitical uncertainties as well as AI disruptions. Late in the second quarter and in July, however, we have seen a meaningful pickup in deals reviewed and a return to more normalized levels of transaction activity across the platform.

During the second quarter, sales and repayments totaled $67.5 million, a rate of approximately 3.4%, relatively in line with last quarter, but still below our long-range assumption of 5% per quarter, attributable to lower sponsor M&A activity in the second quarter. We did have full repayments on 3 larger positions within NCDL totaling $59 million and partial prepayments for another $9 million.

We have been actively reinvesting capital received from repayments with a view towards maintaining leverage at the upper end of our target range. Additionally, we remain focused on redeploying capital into traditional middle market transactions across the capital structure with the vast majority of new investments into senior secured first lien loans.

At June 30, our total investment portfolio consisted of 244 names compared to 236 names at the end of the first quarter. Diversification across portfolio companies remains a key focus of ours with our top 10 portfolio companies representing only 13.2% of the fair value of the portfolio, consistent with the prior quarter. Our largest exposure is only 1.6% of the total portfolio, and our average position size remains at 0.4%.

As far as asset deployment and selection, during the second quarter, our modest amount of new originations were primarily spread across senior first lien loans and equity positions. Of the $12.1 million of gross originations, $5.9 million were in senior loans and $4.8 million were invested in equity positions across 5 names. The balance was deployed in subordinated debt positions.

As we mentioned in our last earnings call, we've been intentionally deploying more dollars into our equity bucket in recent quarters versus junior debt with a focus on slightly increasing the percentage of equity to drive capital appreciation within NCDL.

Spreads on new investments in the second quarter were modestly higher than the prior quarter, with the average spread on first lien loans at approximately 475 basis points. Our weighted average yield on debt and income-producing investments at cost remained consistent with the prior quarter at 9.3%.

In terms of portfolio allocation, at June 30, first lien loans represented approximately 89.6% of the total portfolio, while junior debt and equity comprised 7.3% and 3.1%, respectively. Our allocation strategy remains unchanged as we continue to target a portfolio comprised of roughly 90% senior loans with the balance allocated to junior debt and equity.

We strongly believe that our focus on the traditional middle market segment will benefit NCDL shareholders over the long term as we see meaningfully higher spreads and tighter documentation terms in the traditional middle market as compared to the upper middle and BSL markets.

Turning to credit quality. We continue to be very pleased with the overall health and strength of our investment portfolio despite a few credit challenges during the second quarter. During the quarter, we placed 4 new portfolio companies on nonaccrual status with a cost basis of $33.3 million and a fair value of $18.7 million.

At quarter end, NCDL had 9 total names on nonaccrual, representing 1.5% on a fair value basis and 2.7% at cost. This compares to 0.6% and 1.3% of the total portfolio at fair value and cost, respectively, as of the end of Q1.

Our portfolio continues to perform well and in line with our expectations as we have been operating with historically low level of nonaccruals for an extended period. At June 30, our weighted average internal risk rating was 4.3x, consistent with the prior quarter, and our watch list consisting of names with internal risk ratings of 6 or worse increased slightly to 10.8% at the end of the second quarter compared to 8.4% as of the end of the first quarter. This was largely driven by a few underperforming names as we discussed earlier. Our watch list percentage remains consistent with the Churchill platform overall as well as our long-term historical averages.

And finally, our conservative approach to underwriting is highlighted by our weighted average net leverage across the portfolio of 5.2x and interest coverage of 2.5x as of the end of the second quarter.

Now turning to the right-hand side of our balance sheet. Our debt-to-equity ratio at June 30 was 1.29x gross compared to 1.32x at March 31. And on a net basis, our net debt-to-equity ratio was 1.23x at June 30, net of our cash position at quarter end. Our goal remains to redeploy capital received from repayments and maintain leverage towards the upper end of our target range of 1 to 1.25x debt to equity, and 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.

Subsequent to quarter end, we completed 2 capital structure transactions. First, in July, we redeemed NCDL CLO III with an aggregate principal balance of $297.9 million, inclusive of accrued interest, which we redeemed in full at par. CLO III had an interest rate of SOFR plus 211 basis points. Second, also in July, we completed a successful $100 million tap of our existing 2030 unsecured notes, which brings the aggregate amount of unsecured notes issued by NCDL to $400 million.

As a strong sign of ongoing support from our parent company, TIAA purchased 100% of the notes issued. Also, in connection with the tap, we entered into an interest rate swap covering the incremental issuance, resulting in NCDL paying a floating rate of SOFR plus 2.55% on the incremental debt, which matures on March 15, 2030, together with the existing $300 million of unsecured notes issued in 2025.

Giving effect to both of these capital structure transactions, the redemption of CLO III and the unsecured debt issuance, our pro forma weighted average cost of debt was SOFR plus 188 basis points, largely unchanged from what we reported last quarter. Pro forma for the incremental issuance, our unsecured notes now represent approximately 41% of NCDL's outstanding debt, providing us with even greater operational flexibility, and we maintain our investment-grade ratings from both Moody's and Fitch. We were pleased to have successfully completed both transactions, and we will continue to look for ways to optimize the debt capital structure of NCDL going forward.

Before turning back to Ken, I'd like to briefly discuss a new strategic initiative for NCDL. In July, after quarter end, we partnered with an institutional investor to form a joint venture with a total equity commitment of up to $106 million. NCDL committed 87.5% of the equity to the joint venture with our partner committing the remainder. At closing, we sold a portfolio of approximately $150 million of first lien loans to the joint venture and expect to continue to ramp the joint venture towards a portfolio of approximately $300 million over the coming quarters. The leverage employed at the joint venture, together with its high-quality and diversified portfolio should provide for accretive returns to NCDL and further support our earnings profile. Additionally, the joint venture provides NCDL with incremental capacity to deploy into our attractive pipeline of deal flow.

With that, I'll turn it back to Ken for closing remarks.

Thank you, Shai. In closing, while the first half of 2026 was an eventful period of time in the private credit market, we are pleased with how the team navigated these challenging market conditions. We also remain confident that NCDL is well positioned for the second half of the year with an experienced investment team and our ability to originate high-quality investments in various market conditions and economic environments. We continue to benefit from our competitive advantages in the core middle market as well as our long-term successful track record. Thank you all for joining us today and for your interest in NCDL.

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

And the first question comes from the line of Melissa Wedel with UBS.

I wanted to first follow up on the comment about new originations this quarter and intentionally allocating a little bit more towards equity exposure for future NAV appreciation. I'm curious how you weigh that between the opportunity to play for future NAV appreciation, which could be years down the line versus maybe allocating sort of down the stack a little bit maybe to some junior debt positions just for a little bit of yield pickup and how you really balance those 2 things?

Yes. Melissa, thank you. It's Shai. Thanks for the question. So yes, look, I think when we're talking about sort of the allocations across the portfolio, I think the first thing to just sort of anchor around is that our focus is predominantly in senior secured first lien, and that's not changing. So our expectation is that will continue to comprise, call it, 90% of the portfolio, and we continue to believe that the levered senior trade is highly attractive even relative to junior debt.

Now you can make a bet on sort of which way you think interest rates are going. Obviously, now with sort of a relatively stable to potentially increasing rate environment, again, I think that is even more clear that the levered senior trade is attractive. And then on the equity side, what we're really talking about is going from, call it, 1.5% to 2% equity to 3% to 4% equity. So these are not sort of material movements in the overall allocation percentage, but that ability to get a little bit more equity in the book, especially if the existing equity positions that have been invested over the last number of years are starting to mature, we think that gives us an opportunity to generate some of those capital gains and have that sort of NAV appreciation that we can then redeploy into the pipeline and then deemphasizing a little bit the junior capital while still actively investing there. And as I think you saw, roughly 40% of the capital we deployed this last quarter was actually into junior debt position.

So it's not that we're not investing there. It's still a focus, but it's slightly deemphasized in favor of equity. So again, these are moves on the margin, but the key takeaway is we believe very strongly in the levered senior trade, and we think adding a little bit of incremental equity to the book makes sense just given the maturity profile of the vehicle.

Yes. Melissa, it's Ken as well. And I would just add on the private equity side -- and I think you know this about our platform. Today, we have investments, commitments in over 350 U.S. middle market private equity funds that we manage overall. And obviously, along with that, we get co-investment opportunities that are often very attractive. And so we're leaning into those opportunities as well. It's a very small part of our portfolio. But those opportunities are coming from, by and large, very high-quality mid-market private equity funds that have fantastic track records and the opportunity to co-invest with them, we think, is quite unique. And so we want to make sure that we're taking advantage of that.

I appreciate that. If I could follow on with a question about the JV. It certainly seems -- it certainly looks like you're trying to ramp it fairly quickly by seeding that with it looks like half the capacity, I think my math is right on -- from the existing portfolio. I'm curious what -- if you're willing to share how long you're aiming to take to ramp that vehicle more fully? And then what the yield profile might be between loans that you keep on balance sheet and loans that would go into the JV and how that plays into target ROE, things like that?

Yes, sure. So yes, you're right in terms of your math. We dropped down $150 million of assets at the launch of the joint venture, and our goal is to get that to roughly $300 million in assets. And I would say that should happen over the medium term, so call it, inside 12 months to get the remainder fully ramped. And the focus there is going to be on almost 100% senior secured first lien loans, so taking advantage of that levered senior trade. And the assets will be very similar, frankly, to what's up in the BDC as well. So it will participate in the pipeline. It could acquire assets from time to time from NCDL as well, and that will enable it to ramp and generate that levered trade. And again, if you think about the credit facility employed there and sort of the target leverage for that vehicle, consistent with other JVs that you've seen sort of in that 2x leverage range at the joint venture level, that will allow us to generate those incremental returns and be accretive to the overall earnings profile of NCDL.

And the next question comes from the line of Arren Cyganovich with Truist Securities.

This is Alex Breuer, Arren's associate at Truist. Just on the credit, you mentioned a few company-specific challenges during the quarter. I was just curious if there's any color that you could add on the tick up in nonaccruals and the watch list percentage.

Yes. Look, I mean, I think it's important to sort of put, Alex, the new nonaccruals in the context of sort of the historical performance, which has been very strong, right? So the fact that we have a handful of incremental nonaccruals, I believe, 4 this quarter is sort of not overly surprising just as sort of the portfolio evolves and matures. But again, if you look at the composition of those names that are going on the watch list, frankly, we get this question a lot, right, are there trends? Are there themes, industries? And each of the 4 really were across 4 separate industries with no real through line, right? So they're going to be company-specific in terms of the performance. But we're not seeing, frankly, a real trend or overarching sort of concern around the overall credit quality of the portfolio. So a modest increase in the watch list, not surprising just given the maturity of the portfolio and the current environment.

And then as we think about the nonaccrual percentage, right, still fairly low in the context of the overall industry, right? So on a relative performance basis, quite solid on any metric, right, that you would look at. So things like quarter-over-quarter or even first half NAV change in the book as well as the nonaccrual percentage relative to the overall industry, we still feel very good, but clearly an increase from the prior quarter, but something we're keeping a very close eye on.

Yes, this is Ken. I would agree with that. And I would say that if you look at the 4 names, very much idiosyncratic. There really is no theme. And in each case, in each of the 4, we did have ongoing sponsor support. So the sponsors obviously engaged, stepped up, provided incremental capital, worked to try to address these issues. So I think sponsor behavior was as we would have hoped for. But again, not every situation goes as planned. So we're going to have a small handful of these names. Again, we have 244 names today in our portfolio. There are 4 here that we're dealing with, but there is really no common theme, either industry or otherwise.

I will say, overall, obviously, given all the dynamics and the noise about AI that we've heard during the first half of the year, there's no AI theme here at all. And I think it's just a function of some businesses that in a higher for longer environment may be a bit more challenged. But overall, we continue to be happy with the quality of the portfolio and the overall ongoing monitoring and support we've received from our sponsors.

Ladies and gentlemen, this does conclude the question-and-answer session. And I would like to turn the call back over to Ken Kencel for closing remarks.

Great. Thank you very much, and thank you all for joining us today. We very much appreciate your interest and support. And hopefully, all of you have a great remainder to the summer, and we look forward to getting together on our next quarterly call.

Thank you. This does conclude today's conference. You may disconnect your lines at this time and enjoy the rest of your day.

Welcome to Nuveen Churchill Direct Lending Corp.'s First Quarter 2026 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 Robert Paun, Head of Investor Relations for NCDL. Robert, please go ahead.

Good morning, and welcome to Nuveen Churchill Direct Lending Corp.'s First Quarter 2026 Earnings Call. Today, I'm joined by NCDL's Chairman, President and CEO, Ken Kencel; and Chief Financial Officer and Treasurer, Shaul Vichness.

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 factors. 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 News and Investors 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. During my prepared remarks, I will start by discussing our first quarter results, and then I'll provide some thoughts on the current market conditions, our portfolio positioning and our forward outlook.

I'll then hand the call over to Shai for a more detailed discussion of our financial performance. Starting with our financial results for the quarter. Despite the headline noise and market volatility, we are pleased with the overall performance of our investment portfolio and our financial performance to start the year.

This morning, we reported net investment income of $0.41 per share, which was impacted by onetime interest and debt financing expenses totaling approximately $0.02 per share. Excluding these nonrecurring items, net investment income totaled $0.43 per share compared to $0.44 per share during the fourth quarter of 2025.

These results reflect the continued strong performance of our investment portfolio as well as the impact of lower base interest rates. Based on our earnings for the quarter, the Board has declared a total second quarter distribution of $0.38 per share, consisting of a regular quarter distribution of $0.36 per share and a supplemental distribution of $0.02 per share.

In the first quarter, gross originations totaled approximately $83 million compared to $59 million in the fourth quarter of last year. Investment activity in the quarter was primarily focused on senior secured first lien loans, and we remain focused on investing into our core traditional middle market pipeline.

Net asset value was $17.50 per share as of March 31 compared to $17.72 per share as of December 31, 2025. The decline quarter-over-quarter was primarily due to the impact of spread widening on valuations as well as a slight decrease in the fair value of certain underperforming portfolio companies.

In terms of the current market conditions and economic environment, 2026 began in a manner very similar to how 2025 ended, characterized by market volatility, negative private credit headlines, and geopolitical tensions.

This was driven by market concerns of AI disruption and software exposure, increased redemption activity in nontraded BDCs and the conflict in the Middle East. We believe there was a significant disconnect between the narrative in the media and the underlying fundamentals in private credit, particularly with our investment portfolio and the continued strength of our credit metrics.

Against this backdrop, we have begun to see a widening of direct lending spreads, driven by the recent market concerns, volatility and disruption. This shift in pricing and spreads is notable following several quarters of stability in the 4.50% to 4.75% over range for traditional first lien loans.

Additionally, interest rate forecasts have shifted away from aggressive cuts toward a more stable trajectory and indicate a prolonged higher for longer environment. The Federal Reserve is now expecting to keep rates steady throughout the remainder of the year and some projections even show potential rate increases in 2027.

This shift from earlier in the year is largely driven by persistent inflation, a resilient labor market as well as geopolitical tensions, which have created economic uncertainty. Despite all of these factors, we continue to view private credit and direct lending as an attractive asset class with a compelling risk return profile.

Following a slowdown in transaction activity earlier in the first quarter, we are now seeing momentum in new M&A activity, which is reflected in our pipeline for new deals, particularly over the last several weeks.

We're encouraged by the steady growth in our pipeline and the quality of businesses seeking financing solutions. While there is some uncertainty in the economic environment and outlook, we continue to see signs of continued strength, including steady GDP growth, a low and stable unemployment rate and solid corporate earnings.

Based on our positioning and focus on the core middle market, we believe we are well positioned to take advantage of opportunities to deploy capital into higher-quality companies. Now turning to our investment activity.

At the Churchill platform level, we continue to see a healthy number of transactions, particularly new deals for high-quality assets. As we expected due to the seasonality of the first quarter, the number of deals reviewed in the quarter was down sequentially relative to the strong fourth quarter of 2025.

However, the number of deals reviewed in the first quarter increased 13% year-over-year compared to the first quarter of last year. This follows a record year in 2025 in which Churchill closed or committed to over $16 billion across 389 transactions for the full year.

NCDL continues to benefit from attractive opportunities and activity at the Churchill platform level, particularly in senior lending, which represents approximately 90% of the fair value of the overall portfolio.

We also continue to operate at the upper end of our target leverage range, and we remain focused on actively reinvesting cash received from repayments and sales into high-quality assets.

During the first quarter, investment fundings totaled approximately $85 million and repayments and sales totaled approximately $65 million. It's also important to remind everyone that at Churchill, we focus on the traditional core middle market, benefiting from our differentiated sourcing and long-term track record.

We continue to target companies with $10 million 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 the broadly syndicated loan space.

We believe 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 long-term value and enhance portfolio diversification for our investors. Turning to our investment portfolio and credit quality, Overall company performance across our portfolio remains resilient and healthy, which we believe reflects the quality of the deal flow we've experienced over the last several years.

Additionally, our rigorous underwriting, high 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 macroeconomic landscape.

Our weighted average internal risk rating was 4.3 at the end of the first quarter versus an original rating of 4.0 for all of our investments at the time of origination. Our internal watch list remains at a manageable level of approximately 8.4% of fair value.

Credit metrics and fundamentals within the NCDL portfolio remains strong with portfolio company total net leverage of 5.1x and interest coverage of 2.3x on traditional middle market first lien loans.

These metrics are a direct reflection of a conservative structuring and relatively low attachment points that we target when underwriting new transactions. NCDL added 1 new nonaccrual during the first quarter with a total cost of $7.2 million and a fair value of $5 million.

As of this March 31, nonaccruals represented 1.3% of our total investment portfolio on a cost basis and 0.6% on a fair value basis. Despite the slight increase compared to the prior quarter, we believe these percentages continue to compare favorably versus current BDC industry averages and the long-term historical BDC average.

We continue to believe the strength of our platform, including our experienced workout and portfolio management teams will continue to drive favorable results. As of March 31, we had 236 companies in our portfolio, and our top 10 portfolio companies represented approximately 13% of total fair value.

This diversification remains a key focus of ours and is critical as we seek to maintain exceptional credit quality and originate additional attractive investment opportunities. We've achieved this diversification 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.

Finally, recent market concerns regarding AI's potential disruption of software businesses have raised a lot of questions around private credit portfolio software exposure. We believe market volatility stemming from AI disruption underscores the importance of a diversified approach to portfolio construction.

Looking at NCDL's portfolio, we have relatively low exposure to software as these are not the types of deals we tend to underwrite. The rapid pace of innovation in the software sector, often coupled with higher leverage attachment points and less room for error were key reasons we passed on many of these software deals.

In fact, as of March 31, software businesses represented less than 3% of NCDL's total investment portfolio at fair value. Our definition of software exposure includes any borrower whose primary function is the design, development and sale of software products and services and whose business model reflects the operating or structural characteristics of a software company regardless of industry classification.

This excludes technology adjacent companies such as managed service providers and systems integrators that may be assigned to the high-technology industry category under Moody's industry classifications, but do not derive revenue from licensing or subscription sales or proprietary software.

While AI will certainly contribute to disruption in the technology sector, the full impact remains difficult to assess at this time. It's also worth noting that AI could prove beneficial for certain business models, particularly for some business service firms and software companies with large proprietary data sets and deeply embedded workflows.

We continue to monitor AI and its potential impact across the portfolio as we have done long before these headlines emerged. We maintain an active dialogue with the senior management teams of all of our borrowers as well as the private equity firms that own them so that we have an informed and real-time view on this and any other risks our borrowers may face.

Additionally, we have numerous firm-wide initiatives in place to keep informed of AI, and we are looking far beyond just software companies. Overall, we feel positive as to how we are positioned relative to the risk that AI may pose to our portfolio companies.

In summary, we are pleased with the continued strength of NCDL's overall portfolio despite the headline noise in the private credit market. Credit metrics remain strong and stable, and we believe systemic risk concerns are overstated, and our focus on the core traditional middle market continues to offer structural advantages.

We have been and continue to be a trusted and established investor in the core middle market with deep long-term relationships, which provides NCDL with a strong information and sourcing advantage. There are many reasons to be excited about the future of our business and the continued tailwinds of the private credit market. And we continue to see signs of increasing deal flow and attractive financing opportunities, which we are well positioned to take advantage of. And now I'll turn the call over to Shai to discuss our financial results in more detail.

Thank you, Ken, and good morning, everyone. I will now review our first quarter financial results in more detail. This morning, we reported net investment income of $0.41 per share for the first quarter compared to $0.44 per share in the fourth quarter of 2025.

As Ken highlighted earlier, net investment income in the quarter was negatively impacted by approximately $0.02 per share of nonrecurring expenses related to the refinancing of the NCDL CLO-II transaction.

As we spoke about on last quarter's call, the refinancing was aimed at optimizing our debt financing and reducing ongoing borrowing costs. Excluding this nonrecurring expense, net investment income was $0.43 per share in the first quarter.

Total investment income declined to $46.3 million compared to $50 million in the fourth quarter of 2025. This was primarily driven by the decline in portfolio yields as a result of underlying loan contracts resetting to lower base rates, along with tighter spreads that we saw throughout the fourth quarter of last year.

However, as Ken mentioned, we are now seeing spreads modestly wider. Our gross debt-to-equity ratio at March 31 was 1.32x compared to 1.27x at year-end 2025. Our net debt-to-equity ratio, net of cash, was 1.26x compared to 1.2x at the end of the fourth quarter.

In April, we paid our first quarter distribution of $0.40 per share. And for the second quarter, we have declared a $0.38 per share distribution, which consists of a regular distribution of $0.36 per share and a supplemental distribution of $0.02 per share.

Both distributions will be paid on July 28 to shareholders of record as of June 30. As we reiterated last quarter, we are operating with a supplemental dividend program that sees us paying out a portion of the excess earnings over and above our regular dividend of $0.36 per share.

This should allow us to deliver the benefits of higher returns to shareholders when market returns are higher as well as provide stability to NAV while allowing us to reinvest earnings for growth.

For the most recent quarter, we generated approximately $0.05 of incremental earnings above our regular distribution, and we are distributing $0.02 of the excess earnings in the form of the supplemental distribution.

Our total GAAP net income for the first quarter was $0.18 per share compared to $0.32 per share in the fourth quarter of 2025. First quarter net income included $0.23 per share of net realized and unrealized losses.

Net realized losses of $0.07 per share were primarily driven by the restructuring of 2 underperforming debt positions, partially offset by realized gains from full or partial repayments and sales of investments during the quarter.

Net unrealized losses of $0.16 per share were primarily due to the impact of benchmark spread widening as well as decreases in the fair value of certain underperforming portfolio companies, partially offset by the reversal of unrealized losses on debt positions that were restructured during the period.

At the end of the first quarter, net asset value was $17.50 per share compared to $17.72 per share as of December 31, 2025, a modest decline of 1.2%. NCDL's investment portfolio had a fair value of $2 billion, consistent with the prior quarter as we have been actively reinvesting proceeds received from repayments into new transactions.

Gross originations totaled $82.9 million and gross investment fundings totaled $85.4 million compared to $59.4 million and $80.4 million of gross originations and gross investment fundings, respectively, in the fourth quarter of 2025.

During the first quarter, sales and repayments totaled $65 million, a rate of approximately 3.3%, slightly lower than last quarter's 4.2% and our long-range assumption of 5% per quarter, attributable to lower M&A activity in the first quarter, as highlighted by Ken. We had full repayments on 3 deals totaling $48 million and partial prepayments for another $11 million.

We expect to continue to redeploy capital received from repayments with a view towards maintaining leverage at the upper end of our target range. Additionally, we remain focused on redeploying capital into traditional middle market transactions across the capital structure with the vast majority of new investments into senior first lien loans.

As of March 31, our total investment portfolio consisted of 236 names compared to 227 names at year-end 2025. This diversification remains a key focus of ours with our top 10 portfolio companies representing just 13.2% of the fair value of the portfolio, consistent with the prior quarter.

Our largest exposure is only 1.6% of the total portfolio, and our average position size remains at 0.4%. In terms of asset deployment and selection, our new originations during the first quarter were again weighted towards senior loans with $70.2 million out of the $82.9 million of gross originations deployed into this strategy.

The balance was deployed into subordinated debt and equity in the first quarter with $10.6 million invested in equity positions across 7 names. We've intentionally deployed more dollars into our equity bucket in recent quarters versus junior debt, modestly increasing the percentage of equity to drive capital appreciation.

Spreads on new investments in the first quarter were relatively consistent with the prior quarter with the average spread on first lien loans at approximately 471 basis points. Our weighted average yield on debt and income-producing investments at cost declined to 9.3% at the end of the quarter compared to 9.5% at the end of the fourth quarter.

As far as portfolio allocation is concerned, at March 31, first lien loans represented approximately 89.7% of the total portfolio, while junior debt and equity comprised 7.5% and 2.8%, respectively.

Our allocation strategy remains unchanged as we continue to target a portfolio comprised of roughly 90% senior loans with the balance allocated to junior debt and equity. We strongly believe that our focus on the traditional middle market segment will benefit NCDL shareholders over the long term as we see meaningfully higher spreads and tighter documentation terms in the traditional middle market compared to the upper middle and BSL markets.

Now turning to credit quality. Overall, we continue to be very pleased with the health and strength of our investment portfolio and the performance of our portfolio companies remain strong.

During the first quarter, we placed 1 portfolio company on nonaccrual status. And at quarter end, NCDL had only 5 names on nonaccrual, representing just 0.6% on a fair value basis and 1.3% of the portfolio at cost.

This compares to 0.5% on a fair value basis and 1.2% at cost at the end of the fourth quarter. At March 31, our weighted average internal risk rating was 4.3%, relatively consistent with the prior quarter, and our watch list consisting of names with an internal risk rating of 6 or worse, remains at a relatively low level of 8.4% at the end of the first quarter, up slightly from the 8.1% we reported in the prior quarter.

And finally, our conservative approach to underwriting is highlighted by our weighted average net leverage across the portfolio at 5.1x and interest coverage of 2.3x as of the end of the quarter.

So to the right-hand side of our balance sheet. Our debt-to-equity ratio at March 31 was 1.32x gross compared to 1.27x at December 31, 2025, and on a net basis, 1.26x net of our cash position at quarter end.

Our goal remains to redeploy capital received from repayments and maintain leverage towards the upper end of our target range of 1 to 1.25x debt to equity. And our focus in 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.

As I mentioned earlier, in February of this year, we closed the refinancing of the NCDL CLO-II transaction, reducing borrowing costs in that deal from SOFR plus 250 basis points to SOFR plus 144.

In addition, we were able to secure a 5-year reinvestment period. This strong capital markets execution reflects the reputation that NCDL and Churchill have in the debt capital markets and represents a meaningful improvement in borrowing costs for NCDL. Our total weighted average cost of debt declined to SOFR plus 186 basis points at March 31 compared to SOFR plus 203 basis points as of year-end 2025. We will continue to look for ways to optimize the debt capital structure of NCDL going forward. I'll now turn it back to Ken for closing remarks.

Thank you, Shai. In closing, we are pleased with our financial performance to start the year, which reflects the overall health and strength of our investment portfolio. We also remain confident that NCDL is well-positioned for the remainder of 2026 with an experienced investment team and our ability to originate high-quality investments in various market conditions and economic environments.

We continue to benefit from our competitive advantages in the core middle market as well as our long-term successful track record. Thank you all for joining us today and for your interest in NCDL. I will now turn the call over to the operator for Q&A.

[Operator Instructions] And the first question comes from the line of Brian McKenna with Citizens.

So you generated a 9.4% NII ROE in the quarter. Is this 9% to 9.5% level a good way to think about returns for the portfolio over the next few quarters? And then I'm curious, do you have any other levers you can pull to try and grind this higher over time?

Hey, Brian. Thanks. It's Shai. I appreciate the question. Look, I think what we've seen, and as Ken commented, right, the direction of travel with respect to interest rates, base rates appears to be sort of higher for longer as we look out now relative to a dynamic that we faced even just a quarter ago where the expectation was for rate cuts.

Couple that with spreads on new deployment that while it was relatively flat quarter-over-quarter as comparing Q4 to Q1, we are seeing some widening on spreads, as Ken mentioned in his remarks.

So I think you put those 2 together, and I think that the earnings picture going forward should be relatively stable, right? And on balance, the wider spreads on new origination as we redeploy repayments should be helpful.

Offsetting that, obviously, we saw lower M&A in Q1, while pipeline is very strong now and frankly, sort of up relative to where it was in the beginning of Q1. That lower repayment rate obviously will drive a little bit less acceleration of OID on repayment.

But you put all that together, and I think broadly speaking, it looks like a pretty stable earnings picture going forward. From a leverage perspective, obviously, we're operating at the upper end of our leverage range, so we don't have a lot of room to push leverage, but thinking about continuing to optimize the borrowing costs. Obviously, we made great strides on that in the most recent quarter, and we'll continue to look for opportunities there as well. So all told, I think it looks like a pretty stable picture from our perspective.

Okay. That's helpful. And then to your point, you are a little bit more constrained on leverage today. But as you get repayments come back and you'll redeploy that capital, where are you seeing the most attractive deployment opportunities today from a sector perspective? And then should we expect any material shift in the underlying mix of assets over time?

Yes. Ken, do you want to take the sector piece, and I'll take the mix?

Sure. Yes. Yes. No, happy to do that. Look, I think the mix of investment opportunities we're seeing continues to be pretty broad-based across business services, health care services as well.

As you know, we've never been a large-scale software lender. So I think the good news there is, as you saw, it's a very small percentage of our portfolio. And I would say, moreover, the types of software businesses we're financing tend to be much more utility-like and embedded in the systems of their underlying clients.

So I would say other than broad-based business services where there's been a lot of activity, health care as well, that continues. I think what's really interesting, though, about the market is in addition to the spread widening that Shai alluded to, which we're very much seeing, is this disruption relative to the private BDCs, the larger retail dominated private BDCs pulling back in the upper middle market is creating opportunities for us with larger companies, right?

If you look back over the last several years, those were the firms that were going fairly aggressively into new deals. They were competing with the BSL market and even into the upper middle market to provide financing for those companies, typically on more aggressive structures, in many cases, even doing covenant-lite.

With that bid pulled away and those large-scale, I would call them, large-cap private credit lenders, I think what we're seeing now is an opportunity for core middle market lenders like Churchill to do slightly larger financings, but on our terms and our structure, meaning traditional covenants, reasonable leverage and better pricing.

So I think it opens up a broader runway, if you will. And I think that's a big change, and we are definitely seeing that. Overall, deal activity has been very good. And I think that there continues to be an aspect of consolidation among the largest core middle market lenders.

The core 5 or 6 firms today really dominate the traditional middle market, and obviously, we're pleased to be one of them and to have great deal flow and things have picked up quite a bit in the last couple of months. It was a little bit slower in the first month or 2 of the year. We were kind of working through our backlog from Q4, which was huge. But now we're seeing activity pick up again. And some of this disruption, I think, is actually going to be helpful in a number of ways.

Yes, I was just going to jump in on sort of the mix. So the only comment I would make there, and you saw a modest uptick in the equity percentage in the portfolio this quarter. So at 2.8%. I think prior quarter, we were at 2.3% and that's sort of been steadily increasing over the 5 quarters from just below 2% to now close to 3%.

And that's been intentional, right? So essentially favoring the levered senior trade, which will continue to be the vast majority of what we do, probably a slightly higher allocation to equity co-investments as well to try to drive some capital appreciation and taking that allocation from sub debt.

And you've kind of seen that shift. I still think equity is going to be in that kind of low single-digit percentage, but we might expect to see a modest increase in that equity allocation over the coming quarters as well as we attempt to drive a little bit more capital appreciation in the vehicle.

Okay. Thanks, guys. And then one more, if I can here. For you, Ken, Churchill clearly has scale tenured institutional business. You've talked about this at length. But I'm curious, what are you hearing from your institutional LPs and those allocators as it relates to the opportunity in direct lending today? And also how they're thinking about their overall diversification and really where their exposures sit across their portfolios.

Yes. No, that's a great question. And I can tell you, overall, we were just out to Tokyo. I was in Seoul. I traveled to Canada as well. So I was up in Toronto meeting with investors. And obviously, just coming back from Milken, where we had, I think, 20-some-odd meetings with investors there.

The sentiment on the institutional side is very strong. And I can tell you that there's quite a contrast between the retail redemption dynamics which thankfully, we're not as exposed to. As I think you're aware, and I think we've said this before, as a firm, we're 96% institutional, which is actually very important when you think about the dynamics and origination dynamics in the market today.

We actually get private equity firms that are asking us now how exposed are we to retail, and we tell them we're 96% institutional. That's an incredibly positive point as they think about our ability to fund those companies on a go-forward basis.

Similarly, on the institutional side, they continue to allocate. Allocations were up year-over-year institutionally, and it has not rolled over. The dynamics that we're seeing on the retail side are very, very different institutionally.

They view private credit as a fundamental asset class. They are looking very much at performance. They are certainly surprised by the headlines. And I think in virtually every case where we've gone down into the details, they've come back and said, this is exactly what we're hearing from our other institutional managers.

The quality remains very good. There is no evidence of any issues in the portfolios, in particular, with you all, where we've had, in many cases, decades-long relationships. This is exactly what we expected.

We are -- stay the course, continue to allocate and feel very good about the risk-adjusted returns in private credit. And I think recognize that the bit of disruption we've seen in that kind of upper middle market large-cap private equity dynamic could open up a broader runway for us.

So the institutional color is much more positive than the retail side. I will say when the headline started -- first started rolling out, it did -- it definitely was important for us to get out there and talk about it.

But other managers have done the same. And I would say that the feedback across the board from our institutional relationships is, yes, that's what we're hearing. We're hearing that. They're getting questions from their investment committee about, gee, why are we reading all about private credit and what's the backdrop of these stories.

But the reality is that the fundamentals in the portfolio are very good, and they're hearing that across the board. And so we're feeling very good about institutional fundraising. As I think you know, we closed our largest fund ever, one of the largest private credit funds raised in the last 5 years, a $16 billion middle market senior loan fund we closed at the end of last year, and we continue to see strong interest in our product.

The next question comes from the line of Cory Johnson with UBS.

I just wanted to touch on a little bit of some of the topics you kind of already just talked about, where from -- I guess, what are you hearing from your portfolio companies in terms of like M&A? And then given the fact that you're looking more into allocating towards equity, what are the possibilities for realizations or perhaps some reversals of the unrealized losses going forward?

So yes, I would say -- yes, I can take that shot. I would say 2 things and certainly feel free to weigh in. Obviously, private equity liquidity and realizations have been low for the last several years.

Obviously, GP-led secondaries have helped that. I think pretty much every sponsor that I'm aware of in our portfolio is either doing a GP-led secondary CV or is considering doing them. So I think that's taken some of the pressure off.

But look, I think we feel very good about the equity investments we made. We do think over time that they will generate a nice additive capital gain within the portfolio. We actually think the risk-adjusted opportunity right now in private equity is somewhat better than junior debt.

So what you're seeing is an allocation -- a modest allocation shift to continue to lean in on senior lending, continue to view the levered senior loan trade as a very attractive trade. But we do see opportunities to co-invest alongside our private equity sponsors and generate attractive long-term capital gains.

What we do think that M&A activity picked up quarter-over-quarter every single quarter in the last 3 quarters of 2025. So we do see a modest pickup in M&A activity. I do think that part of that was driven by the stabilization and modest decline in interest rates.

So we'll see how that goes through the rest of this year. But the M&A activity in the core middle market was quite robust last year, and we continue to see a pretty good market there. So we're hopeful that private equity realizations will start to tick up more meaningfully. But in the meantime, we feel very good about our private equity portfolio and our investments, and we think they represent excellent long-term value. Shai, I don't know if you have any other comments?

Yes. Yes. No, I would just add, too, in terms of use of proceeds when thinking about our lending activity, right, a meaningful percentage, call it, 25% to 1/3 of those proceeds are being used for add-on acquisitions.

So our borrowers remain very active in terms of pursuing tuck-in acquisitions even in a modestly lower new deal M&A environment, although new deals, add-on acquisitions, growth CapEx, et cetera, still represent the vast majority of the deployment that we're seeing across the board. So I would just add that comment that our sponsors remain very active with their existing portfolio companies even in a slightly lower M&A environment over the first quarter.

And just one follow-up. You mentioned being able to possibly get into larger deals given the fact that like the retail pullback and such. But I was wondering, is there -- are there areas where you're seeing any increased competition, perhaps players moving down market, looking for opportunities or perhaps given the fact that they may be shying away from software a bit they're looking to play in other spaces. Are there any areas where you're seeing additional competition?

No. In fact, I'd say it's exactly the opposite. I think that the larger retail-oriented private credit shops or the firms that have been raising significant retail capital, we've seen them in a number of situations, very real situations in the last couple of months, pull back, either pull back on pitching more aggressive structures or where we're in deals with them and they are reluctant to step up and do a more significant amount of the add-ons, add-on acquisitions and provide more capital.

So I would say it's the opposite from the large cap players. Look, I mean, if you're facing a large number of redemptions and your plan is to limit those to 5% a quarter and you're looking at 15% or 20% redemption requests, you have to plan for another 3 or 4 quarters of 5% redemptions, right? So you've got to make sure you freed up enough liquidity and be prudent about that. So I don't think it's unnatural behavior. It's exactly, I think, what you have to do in light of in light of the redemption pressure that you're seeing. So we are actually not seeing those firms look to come down market at all. In fact, if anything, we're seeing them pull back new commitments or add-on commitments to existing borrowers.

And I would say the other dynamic is that newer entrants are almost certainly going to be playing in the lower end of the middle market. And I think that you've seen a considerable uptick in the competitive dynamics in the lower middle market where we typically don't play. But if the solution that a private equity firm is looking for is $400 million or $500 million and you raised a $400 million or $500 million fund, you're not going to put the whole deal in the fund. So the new entrants, by definition, are going into the lower middle market transactions, and that's where we're seeing the competitive dynamics play out.

Unfortunately, that's not an area that we operate in. But I do think it's putting pressure on the lower end of the market. And I think on the upper end of the market, the good news there is that with the large-cap private credit players backing away, understandably, it presents an opportunity for us to step up. So I think we're extraordinarily well positioned. We have a tremendous amount of dry powder across our platform. And the competitive dynamics that I think today are probably about as good as we've seen in the last several years.

There are a handful of us that are institutionally backed. So we're not seeing that retail pressure. We have plenty of capital. It's drawdown capital. So we draw down as we make the investments. So I think we can be prudent about where we deploy. So look, I think that the dynamics that are playing out in the market now play extraordinarily well to our strengths, and I think we're incredibly well positioned. Low software exposure, low PIK exposure because we were never playing in those ARR, large cap. In fact, we've never done an ARR transaction in our history.

So I think when you look at all the fundamentals, the market is very much coming our way in terms of deal activity and our ability to deploy capital. So we feel very good about where we're sitting today and certainly don't see the competitive dynamics being an issue for us right now at all.

[Operator Instructions] And the next question comes from the line of Arren Cyganovich with Truist Securities.

I was hoping to get into maybe, help us square what we're hearing from peers, which I think you kind of sort of addressed in your last comments of seeing a pretty active pipeline and also wider spreads. Typically, when we see a wider spread environment, the pipelines or the deal activity slows as borrowers adjust to the new pricing terms and structures. Maybe you just discuss why you're seeing essentially a better kind of outcome maybe than most are seeing.

So I guess I would say a couple of things. One is we have been extraordinarily active through 2025. We had a bit of a pullback with all the negative headlines and obviously, the onset of the war. And I think that created a bit of uncertainty. I think the private equity firms that were considering selling portfolio companies or putting those businesses up for sale, pressed pause, if you will. But the pipeline has come back very strong and deal activity remains very good. So I think on the pure deal activity front, core middle market, very active.

Now as far as the competitive dynamics and spreads, I think it is in large part a function of the fact that the retail capital that was raised by definition, as you all know this, has to be deployed immediately. So they were -- those lenders were being more aggressive about pricing because they had to be. They had to put the money to work very quickly. Otherwise, it would impact their ongoing yields.

So when you pulled away the -- effectively the retail drive to kind of the need to put up capital very quickly, I think that sets up a much more balanced dynamic that allows traditional direct lenders like ourselves to normalize and to obtain spreads that would be more consistent with where we feel they should be, and they've been with respect to the core middle market. So a 450 to 475, which was definitely tighter than it was over the last several years. That's kind of where it was landing toward the second half of 2025. That number today is more like 5% to 5.25%, maybe even 5.5%.

So I think it's purely a function of pulling out a fair amount of capacity that needed to find a home very, very quickly. And that was particularly true in the larger middle market companies, upper middle market businesses where that large cap bid would start to appear. So I think it's taken some of the pressure off.

And I think that the size and scale that's required in the core middle market leaves it to a handful of us that can consistently write $250 million, $500 million, even $750 million commitments on a regular basis. And I think we're benefiting from that. Correspondingly, at the low end, I think you've got lots of new entrants. And as a result, a lot of firms that are trying to get on the board and to do deals and their efforts ideally lead deals. And so the competitive dynamics there, I think, are very different.

But once you get to the point where you're talking about $250 million or more in commitment size, you're limiting the number of firms that can do that on a regular basis that have long-standing relationships in the private equity community. And once you pulled away the upper the large-cap retail bid, I think you end up with a situation where we've got more pricing flexibility and frankly, the ability to capture larger deals, but to do them on terms and structure that look a lot more like what we promised our investors and what we focused on.

This concludes the question-and-answer session. I'd like to turn the call back over to Ken Kencel for closing remarks.

Great. Well, thank you very much, everyone, for joining us, and thank you for the excellent questions. We appreciate your support and dialogue. And obviously, we'll continue to update you all as we move forward, but we feel very good about the market and the opportunity going forward, and we appreciate your support. Thanks again.

This concludes today's conference. You may disconnect your lines at this time, and we thank you for your participation.

Welcome to Nuveen Churchill Direct Lending Corp.'s Fourth Quarter and Full Year 2025 Earnings Call. [Operator Instructions] As a reminder, this conference call is being recorded for replay purposes.

I'd now like to turn the call over to Robert Paun, Head of Investor Relations for NCDL. Robert, please go ahead.

Good morning, and welcome to Nuveen Churchill Direct Lending Corp.'s Fourth Quarter and Full Year 2025 Earnings Call.

Today, I'm joined by NCDL's Chairman, President and CEO, Ken Kencel; and Chief Financial Officer and Treasurer, Shai Vichness. 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 industries, 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 factors. 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-K and supplemental earnings presentation are available on the News and Investors sections of our website at ncdl.com.

Now I would like to turn the call over to Ken.

Thank you, Robert. Hello, everyone, and thank you all for joining us today. I'd like to start by discussing our results for the fourth quarter and full year, and then I'll provide some thoughts on the current market conditions, economic environment, portfolio positioning and our forward outlook for 2026. I'll then hand the call over to Shai for a more detailed discussion of our financial performance.

Before getting into the results for NCDL, I think it's important to reflect on the past year. 2025 was littered with headlines, including a change in administration, tariffs, interest rate reductions, geopolitical tensions and a few large bankruptcies.

Private credit also garnered significant media attention, largely, we believe, due to the meaningful growth of the industry over the past decade. All of these headlines led to temporary market fears and a pullback in BDC stock valuations.

In our view, the disruption in the sector has created a compelling investment opportunity. We remind investors that direct lending has been around for several decades. It did not appear overnight. And the investments in our portfolio are primarily directly originated and negotiated loans.

At Churchill, we remain intensely focused on generating attractive risk-adjusted returns. We believe we are uniquely positioned with our focus on the traditional core middle market and our distinct sourcing advantage.

Our conservative underwriting strategy and long-term track record of nearly 20 years have produced strong returns for our investors and stakeholders over time. Overall, NCDL had a successful year in 2025. NCDL generated an ROE of nearly 11% on net investment income. We paid total distributions of $1.90 per share, equating to a 10.7% yield based on our year-end 2025 net asset value.

We took an important step to optimize our balance sheet and capital structure by issuing $300 million of unsecured notes in the first quarter of 2025.

And finally, NCDL's portfolio performed well as we ended the year with only four portfolio companies on non-accrual status, representing 0.5% of the total portfolio at fair value.

Now turning to the results. Despite the noise in the market, we are pleased with NCDL's operating performance and the stability and quality of our investment portfolio. This morning, we reported net investment income of $0.44 per share during the fourth quarter compared to $0.43 per share in the third quarter.

Gross originations totaled approximately $59 million in the quarter compared to $29 million in the third quarter. Additionally, the Churchill platform continued to see strong asset growth and new originations during the fourth quarter of 2025, as I will discuss a little later in my prepared remarks.

NCDL's investment portfolio remains healthy and resilient, and our portfolio companies continue to perform well, largely due to the strength of our senior loan investments.

Net asset value was $17.72 per share at year-end compared to $17.85 per share at September 30, 2025. The modest decline quarter-over-quarter was primarily due to a slight decrease in the fair value of certain underperforming portfolio companies.

In terms of the current market environment, the broader U.S. economy proved more resilient in 2025 than originally expected. U.S. GDP increased at an annual rate of 1.4% in the fourth quarter and 2.2% for the full year, reflecting a strong, resilient economy.

M&A activity also continued its positive momentum in the fourth quarter of last year, building on the rebound in the third quarter. We believe stabilizing market conditions and renewed private equity sponsor confidence in the macro environment contributed to increased transaction activity.

In our view, the ingredients for continued improvement in M&A and LBO activity are still intact. Lower financing costs, improving buyer and seller alignment and pressure on sponsors to transact should create a more constructive environment for increased deal flow and investment activity in 2026.

During the fourth quarter, the Federal Reserve continued its interest rate cut cycle with two 25 basis points cuts in October and December. This marked the third consecutive cut. As many expected, the Fed paused in January of this year as they held interest rates steady. However, markets continue to price in two more 25 basis point cuts in 2026.

Despite the reduction in interest rates and the potential for further cuts, 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. And it also goes without saying that we will not compromise our conservative underwriting strategy by stretching for returns in a declining interest rate environment.

Turning to our investment activity. During the fourth quarter, we continued to see an increase in transaction activity, particularly new deals for high-quality assets that are in resilient business sectors.

At the Churchill platform level, the number of deals reviewed in the second half of the year increased 23% from the first half. And for the full year 2025, Churchill closed or committed $16.3 billion of investments across 389 transactions, driven by a record-setting first quarter and a resurgence of activity in the second half of the year.

In NCDL, we continue to operate at the upper end of our target leverage range, and we remain focused on actively reinvesting cash received from repayments and sales into high-quality assets. We also continue to benefit from attractive opportunities and activity at the Churchill platform level, particularly in senior lending, which represents approximately 90% of the fair value of the overall portfolio.

During the fourth quarter, investment fundings totaled $80 million and repayments and sales totaled approximately $84 million. We think it's important to remind everyone that at Churchill, we focus on the traditional core middle market, benefiting from our differentiated sourcing and long-term track record.

We continue to target companies with $10 million to $100 million in 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. We believe 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 long-term value and enhanced portfolio diversification for our investors.

Now turning to our investment 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 past several years.

In addition, our rigorous underwriting, high 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.

At December 31, 2025, our weighted average internal risk rating was 4.2, in line with the prior quarter and versus an original rating of 4.0 for all of our investments at the time of origination.

Our internal watchlist remains at a manageable level. It's approximately 8% of fair value. Credit fundamentals within the NCDL portfolio remains strong with portfolio company total net leverage of 5x and interest coverage of 2.3x 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 added one new non-accrual during the fourth quarter with a cost of $5.7 million and fair value of $2.7 million at year-end. As of December 31, non-accruals represented just 0.5% of our total investment portfolio on a fair value basis and 1.2% on a cost basis. We believe these percentages continue to compare extremely well versus current BDC averages and the long-term historical BDC average.

We continue to believe the strength of our platform, including our experienced workout and portfolio management teams will continue to drive favorable results. At year-end, we had 227 companies in our portfolio, and our top 10 portfolio companies represented approximately 13% of total fair value. This diversification remains a key focus of ours and is critical as we seek to maintain exceptional credit quality and originate additional attractive investment opportunities.

We've achieved this diversification 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.

Before I conclude my remarks, I'd like to take a moment to talk about our software exposure and investment strategy in this sector. Recent market concerns around AI's potential disruption of software businesses have raised a lot of questions around private credit portfolios software exposure.

Churchill's platform does not have meaningful exposure to the types of software companies in the headlines, susceptible to displacement from AI and has limited exposure to software in general.

NCDL's high-tech industry sector, where software businesses fall, accounts for only 4% of the total portfolio. Within this industry categorization, the exposure is largely weighted towards specialized managed service providers, systems integrators and cybersecurity consultants. NCDL's portfolio exposure to true Software-as-a-Service or SaaS businesses is around 2% of the total portfolio.

Additionally, it is important to note that we have avoided annual recurring revenue or ARR loans, which have been common in the technology sector. The software platforms that we have invested in, these are cash flow generating mature businesses with high customer retention. These businesses are also typically modestly levered, ingrained within the operations of the customers they serve and non-discretionary.

Churchill has been monitoring AI as a potential positive and negative catalyst across the portfolio long before these headlines emerged. We maintain an active dialogue with the senior management teams of all of our borrowers as well as the private equity firms that own them so that we have an informed and real-time view of this and any other risks our borrowers may face.

As we look forward, there are many reasons to be excited about the future of our business and the tailwinds of the private credit market. We are encouraged by the steady growth in our pipeline and the quality of businesses seeking financing solutions.

During the second half of 2025, we experienced a resurgence of M&A activity, leading to a 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.

At the same time, we also acknowledge the impact on our earnings and the return profile of NCDL from recent interest rate cuts, projections for further cuts as well as the competitive market environment in which spreads have remained below 500 basis points on average.

Given these market dynamics, we have declared a $0.40 per share quarterly distribution in the first quarter of 2026, which consists of a base distribution of $0.36 per share and a supplemental distribution of $0.04 per share. Our total first quarter distribution of $0.40 per share equates to an annualized yield of 9%, which we believe is competitive in today's market environment.

Shai will discuss our distribution policy in more detail during his remarks.

Finally, although 2025 was a challenging year for BDC's stock prices, we continue to believe our portfolio remains healthy and resilient, and we believe the current share price offers a compelling investment opportunity. As a result, today, we announced that the Board authorized a new $50 million share repurchase program.

And now I'll turn the call over to Shai to discuss our financial results in more detail.

Thank you, Ken, and good morning, everyone. I will now review our fourth quarter financial results in more detail.

As Ken outlined, NCDL reported net investment income of $0.44 per share for the fourth quarter compared to $0.43 per share in the third quarter of 2025.

Total investment income declined slightly to $50 million compared to $51.1 million in the third quarter of 2025. This was primarily driven by the decline in portfolio yields as a result of underlying loan contracts resetting to lower base rates.

At year-end, our gross debt-to-equity ratio was 1.27x compared to 1.25x at September 30, while our net debt-to-equity ratio, net of cash was 1.2x, in line with the end of the third quarter.

In January, we paid our Q4 dividend of $0.45 per share. And as Ken mentioned earlier, for the first quarter of 2026, we have declared a $0.40 per share dividend which consists of a regular dividend of $0.36 per share and a supplemental dividend of $0.04 per share. Both distributions will be paid on April 28 to shareholders of record as of March 31.

Consistent with our communication to the market on our dividend policy since we IPO-ed in January of 2024, we intend to operate with a supplemental dividend program that sees us paying out a portion of the excess earnings over and above our regular dividend. This should allow us to deliver the benefits of higher returns to shareholders when market returns are higher as well as provide stability to NAV while allowing us to reinvest earnings for growth.

We have assessed various scenarios related to interest rates, asset spreads, financing costs and credit performance, and we've concluded that a regular quarterly distribution of $0.36 per share is an appropriate level that we feel our earnings will comfortably cover for the medium to long term.

On an annualized basis, our first quarter 2026 total dividend of $0.40 per share equates to an approximately 9% yield on our December 31, 2025, NAV. Our total GAAP net income for the fourth quarter was $0.32 per share compared to $0.38 per share in the third quarter of this year.

Our fourth quarter net income included $0.12 per share of net realized and unrealized losses primarily due to a decrease in the fair value of certain underperforming portfolio companies.

Our net asset value was $17.72 per share at the end of the fourth quarter compared to $17.85 per share at September 30. At year-end, NCDL's investment portfolio had a fair value of $2 billion, consistent with the third quarter.

Gross originations totaled $59.4 million and gross investment fundings totaled $80.4 million, compared to $29.2 million and $36.3 million of gross origination and gross investment fundings, respectively, in the third quarter of 2025.

During the fourth quarter, repayments sold $84.3 million a rate of approximately 4%, slightly lower than our long-range assumption of 5% per quarter, but also slightly up from the prior quarter of roughly 3%. We had full repayments on six deals totaling $73 million and partial repayments for another $9 million.

As we mentioned on our prior call, we expect to continue to redeploy capital received from repayments with a view towards maintaining leverage at the upper end of our target range. We also remain focused on redeploying capital into traditional middle market transactions across the capital structure with the vast majority of new investments into senior loans.

At December 31, 2025, our total investment portfolio consisted of 227 names compared to 213 names at the end of the third quarter. We continue to remain highly focused on diversification within our portfolio with the top 10 portfolio companies representing only 13.1% of the fair value of the portfolio down from 13.6% at September 30.

Our largest exposure is only 1.6% of the total portfolio, and our average position size is 0.4%, down from 0.5% in the prior quarter. As far as deployment and asset selection goes, our new originations during the fourth quarter were again weighted towards senior loans with $47.5 million out of the $59.4 million of gross originations deployed into this strategy.

The balance was deployed into subordinated debt and equity in the fourth quarter. We strongly believe that our focus on the traditional middle market segment will benefit NCDL shareholders over the long term as we see meaningfully higher spreads and tighter documentation terms in the traditional middle market as compared to the upper middle and BSL markets.

Spreads on new investments in the fourth quarter were consistent with the prior quarter with the average spread on first lien loans at approximately 470 basis points. Our weighted average yield on debt and income-producing investments at cost declined to 9.5% at the end of the quarter compared to 9.9% as of the end of the third quarter. This decrease in yield was primarily due to lower base interest rates.

As far as portfolio allocation, at year-end, 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 a portfolio comprised of roughly 90% senior loans with the balance allocated to junior debt and equity.

Turning to credit quality. And as Ken mentioned earlier, we continue to be very pleased with the overall health and strength of our investment portfolio as the performance of our portfolio companies remain strong.

During the quarter, we placed one investment on non-accrual status. And at year-end, NCDL had only four names on non-accrual, representing just 0.5% on a fair value basis and 1.2% at cost. This compares to 0.4% on a fair value basis and 0.9% at cost at the end of the third quarter.

At December 31, our weighted average internal risk rating was 4.2%, consistent with the prior quarter and our watchlist consisting of names with internal risk ratings of 6 or worse remains at a relatively low level of 8% at the end of the fourth quarter, slightly up from the 7.3% in the prior quarter.

And finally, our conservative approach to underwriting is highlighted by our weighted average net leverage across the portfolio of 5x and interest coverage of 2.3x as of the end of the quarter.

With respect to our debt capitalization. Our debt-to-equity ratio at December 31 was relatively unchanged quarter-over-quarter at 1.27x compared to 1.25x since September 30. On a net basis, our debt-to-equity ratio was 1.2x at December 31, 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 1x to 1.25x debt-to-equity. 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.

Subsequent to quarter end, in February of this year, we closed the refinancing of the NCDL CLO-II transaction, reducing borrowing costs from SOFR plus 250 basis points to SOFR plus 144. In addition, we were able to secure a 5-year reinvestment period.

Pro forma for this transaction, NCDL's weighted average cost of debt declined by 17 basis points to SOFR plus 186. This strong capital markets execution reflects the reputation that NCDL and Churchill have in the debt capital markets and represents a meaningful improvement in borrowing costs for NCDL. We will continue to look for ways to optimize the debt capital structure of NCDL going forward.

Finally, as Ken highlighted earlier, our Board has authorized a new $50 million share repurchase program, which is designed to take advantage of discounts in the trading price of our shares relative to NAV. This move reflects our confidence in the overall strength of our portfolio and our cycle-tested investment approach.

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

Thank you, Shai. In summary, while the stock performance of NCDL and the entire BDC industry was underwhelming in 2025 to say the least, we believe NCDL had a successful year from an operational and financial standpoint. We also believe NCDL is well positioned for 2026 with an experienced investment team and our ability to originate high-quality investments in the context of a diversified portfolio and strong capital structure.

I would like to thank our entire team for their hard work and dedication during this past year. Thank you all for joining us today and for your interest in NCDL.

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

[Operator Instructions] Our first question is from Douglas Harter with UBS.

Can you -- with your commentary that you look to stay at the upper end of the leverage target, can you talk about how you would weigh share repurchase versus making new loans and kind of just a little bit on the thought process there?

Yes. Doug, it's Shai. Yes, look, I mean, I think it's the classic sort of capital allocation thought process that we will go through, sort of evaluating the level of the discount and reinvesting in our portfolio that we've obviously conveyed confidence in the health of that portfolio and our ability to buy it at a meaningful discount, obviously, is an attractive opportunity.

At the same time, we're also continuing to see attractive investment opportunities in the market. So I think it will be a question of sort of analyzing those two.

As we have done in the past with our share repurchase programs, they are essentially programmatic, so designed to take advantage of discounts in the trading price and sort of operating independently. So we'll keep an eye on that activity and do all of that with a view towards maintaining leverage within our target range of 1x to 1.25x and as we've stated, sort of operating towards the upper end of the range given our confidence in the portfolio, the diversification and our ability to run that level of leverage against the type of portfolio that we have. So hopefully, that helps.

[Operator Instructions] Our next question is from Arren Cyganovich with Truist Securities.

The investment activity was really strong in 2025. Maybe you could share your thoughts on what the recent public market volatility has -- how that may have shaped your outlook for activity in 2026? Should we kind of expect it again to be a little bit more back-end weighted given the kind of near-term volatility we're seeing?

Yes. Thanks, Arren. It's Ken. I'd say a few things. One is, as I think we pointed out, across the platform, we had an extraordinarily busy year and actually quarter-over-quarter going into third quarter, fourth quarter and now even into the first quarter, deal activity has been extraordinarily busy and that really hasn't slowed. We entered the year with probably our largest pipeline overall as a firm in January. And we continue to see a very, very significant level of activity and obviously, in the core middle market.

That said, I think that some of the dynamics in the public markets probably does shift some of the pricing power back to us. So on a marginal basis, I think it does put lenders like ourselves in a better position to get better structures and potentially even tighter covenants. And certainly, some of the spread tightening we saw developed earlier in 2025 has really subsided. Spreads have, in our view, stabilized around that kind of 450 to 475 level. So we think they've reached a floor. We certainly don't see any material tightening as we go through the first half of 2026.

But I do think interest rates overall, as they come down, will continue to drive and unlock sponsor activity, sales of companies, M&A that obviously is a big driver of our efforts. So I would say the broader trend remains very, very good both with respect to deal activity and spreads. A little bit of volatility in the public markets has generally worked in favor of us as a mid-market lender. But overall, the trends have been very good, and we haven't seen any change in that in more recent activity.

And I appreciate the commentary on software. Clearly, you have a very small exposure to there, much smaller than a lot of the peers in the BDCs. Maybe you could share a little bit of why you've avoided that historically and why that's not an area because, obviously, it was a very kind of steady earnings business or industry for a long time.

Sure. So look, I think when you think of us in our underwriting approach from a credit perspective, we are very traditional, right? So we are looking at fundamental cash flow metrics, free cash flows of the business, both gross and net cash flow. We're looking at the fundamentals of the company with respect to the stability of those businesses and the ability to service the leverage profile that we're underwriting. So that traditional approach leads us to a number of conclusions.

One is that we have never, in our history, in our 20-year history, ever done an ARR loan. And from our perspective, that's just not -- financing recurring revenue is not, in our view, an appropriate risk profile for our platform. We finance recurring cash flow, right? And so, if you look at the types of businesses that has led us to within the software area, it's been principally specialized managed service providers, systems integrators, cybersecurity consultants, businesses that are more traditional and away from Software-as-a-Service or SaaS businesses, which represent, as I mentioned, only about 2% of our portfolio.

So when you think about the fundamentals, cash flow-generating businesses, mature businesses, where we are financing and obviously looking at things like customer retention, these are businesses are typically modestly levered, ingrained within the operations of the customers they serve and generally non-discretionary. So it really comes down to the fundamentals of our underwriting approach. But the reality is, not only are we not an ARR lender, we're also generally not looking at those very, very highly levered are deals that are being done in the upper middle market and the broadly syndicated market.

So I think this is yet another situation where our focus on the fundamentals on the core middle market against the backdrop of some of the -- backdrop of some of the noise in the market actually shows very well for us.

[Operator Instructions] There are no further questions at this time. I'd like to hand the floor back over to Ken Kencel for any closing comments.

Great. Well, thank you very much, and thank you all for joining us today. We appreciate your support and look forward to moving forward with hopefully continued great performance and feedback to you all as we continue in the business. Thank you.

This concludes today's conference call. You may disconnect your lines at this time. Thank you again for your participation.

Welcome to Nuveen Churchill Direct Lending Corp's Third Quarter 2025 Earnings Call. [Operator Instructions] As a reminder, this conference call is being recorded for replay purposes. I would like to turn the conference over to Robert Paun, Head of Investor Relations for NCDL. Robert, please go ahead.

Good morning, and welcome to Nuveen Churchill Direct Lending Corp's third Quarter 2025 Earnings Call. Today, I'm joined by NCDL's Chairman, President and CEO, Ken Kencel; and Chief Financial Officer, Shai Vichness. 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 factors. 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 $0.43 per share during the third quarter compared to $0.46 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 remains healthy, and our portfolio companies continue to perform well. Largely due to the strength of our Senior Loan Investments.

Net asset value was $17.85 per share as of September 30 compared to $17.92 per share as of June 30. The modest decline quarter-over-quarter was primarily due to 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 a 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 long-standing 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 long-standing 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 returned 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 nontariff 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 9 months of 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 at NCDL, we continue 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 million 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 enhanced 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 30, 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 NCDL portfolio remains strong with portfolio company total net leverage of and interest coverage of 2.3x 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 nonaccruals during the third quarter, which were relatively smaller positions in the portfolio. Despite the slight increase in nonaccruals this quarter, we believe our percentages continue to compare extremely well versus BDC industry averages.

As of September 30, nonaccruals 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 30, 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 steady 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 in over 325 private equity funds. And our nearly 20-year track record of investing across interest rate 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 $0.43 per share compared to $0.46 per share in the second quarter of 2025. The decline was largely due to lower interest income driven in part by the two nonaccruals 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 30, our gross debt-to-equity ratio was 1.25x compared to 1.26x at June 30. Our net debt-to-equity ratio net of cash was 1.2x compared to 1.21x at June 30 of this year.

In October, we paid a regular dividend of $0.45 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 have declared a $0.45 per share quarterly dividend, which is consistent with prior quarters.

Our total GAAP 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 in the 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 30. NCDL's investment portfolio had a fair value of $2 billion at September 30, 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% of the fair value of the portfolio. Our largest exposure is only 1.6% of the total portfolio and our average position size remains at 0.5%. 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 2 quarters, with the average spread on first lien loans at 470 basis points compared to 480 basis points in the first 2 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 nonaccrual 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 nonaccrual, 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 30, and out watch list consisting of names with an internal risk rating of 6 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 5x and interest coverage of 2.3x 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 30 is relatively unchanged quarter-over-quarter at 1.25x compared to 1.26x at June 30. And on a net basis, was 1.2x at September 30, 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 1.25x 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 2 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's 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.

[Operator Instructions] Our first question is from Brian McKenna with Citizens JMP.

Okay. Great. So just on the few nonaccruals 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.

Brian, it's Shai. So just a couple of things on the two new nonaccruals. So I think as we've spoken about in the past, just in terms of the names that are on the nonaccrual list and sort of trying to draw through lines in terms of themes, I would say, fairly difficult to do that just given the idiosyncratic nature of some of these and as they pop up.

And in terms of these two names that were placed on nonaccrual, you heard Ken speak about them on the call, just in terms of the size of the position is 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 nonaccrual list this quarter. One of them is in the automotive sort of market accessory segment. And the other one is in essentially the freight sector. So it's a training business and recruiting business for truck drivers. So again, no real theme to draw in terms of the two new nonaccruals.

In terms of 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, on the one hand, the overall freight reception and just sort of what we're seeing and we've had another nonaccrual and restructuring in the portfolio in the same industry. I would say that's sort of the theme there. And then the other one, 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 they've been around for quite a bit. and the decline got to a point now where we felt it was appropriate to place them on nonaccrual status.

Okay. That's helpful. And then just on the workout process more broadly, 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 the historical recovery rates for your business look like?

Yes. I can come 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 with the private equity sponsor and the ultimate prospects for recovery of the underlying business. So it's a tough one answer in terms of how long does it take. But clearly, it can be 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 in terms of how well that takes. So it's sort of a tough one to vector in on a specific time line.

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, 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'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, 1 in October, and that would just put you in a position to comfortably cover the dividend, you'd likely create some incremental book value then maybe you have a little bit more capacity to buy back the stock at what I'm sure you think are really attractive levels.

Yes. 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. We've done that consistently over a 20-year period certainly more recently now with NCDL. We actually feel very, very good about the overall quality in our portfolio and the level of new dealer and investment activity. I will say from a from a pricing perspective, while we obviously saw spreads tighten, maybe not as dramatically as the BSL market over the last 12 to 18 months. things have.

In terms of spread tightening, we've seen that slow down quite a bit. Spreads seem to have settled in at that kind of SOFR 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. So while obviously, base rates have come down and certainly albeit more slowly than expected, we would continue to see 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 leverage, we have, Shai, I don't know if you want to speak I'm happy to speak to it. And I think we alluded to this on the last call and obviously, this earnings cycle and last, it's been a topic of conversation in terms of sort of where our earnings going across the industry. And as we commented last quarter, and I think we reinforced that this quarter, we felt good about our ability to continue to earn, again, within $0.01 or $0.02. Obviously, we under-earned by $0.02 this quarter our dividend of $0.45. But again, within a range, and there were some reasons for that, including the two nonaccrual 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 essentially earn plus or minus the $0.45, 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 one 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 eat 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. Yes. 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, we don't think are reflected in the share price.

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

Hey, everyone, good morning. question on the portfolio outlook. I think early in the remarks, you mentioned lighter allocation based on the being fully levered, seeing if that also implies a subdued repayment outlook?

Yes. Fin, it's Shai. Yes, so when we think about the repayments, I mean, what we saw in this most recent quarter, they were running at 3% relative to our long-range assumption of 5%. So again, I think that's really a function of essentially mix 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 transacting in the current environment. So our expectation is that, 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 we are in an environment where deal activity is picking up. 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. We have access to that deal flow. And as we have capital available, we're going to deploy it into attractive transactions.

Yes. 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 trying 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 make ourselves 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 helpful. And just a follow-on -- piggybacking the dialogue with Brian on the stock price. Curious as to what you're hearing on -- just hit on, you have a pretty big and successful nontraded 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 should I buy the public on or any color you could give us on that? .

Yes. 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, Fin. While it's come up, it hasn't been a major theme. But certainly, at an individual level, you look at the fact that the private BDC obviously issue 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 15% or 20% discount to NAV, I think just highlights what a great opportunity it is right now.

And -- but we've gotten that question a handful of times. It hasn't been a huge amount of focus, but we've definitely been asked the question. And we try to be very straightforward on it, and that is that it is tremendous value at the current trading level. No question about it.

Our next question is from Doug Harter with UBS.

This is Cory Johnson on for Doug. I know you spoke about the repayments. And long term, I guess you don't expect there to be much of a difference from your long-term assumptions. But over the next quarter or 2, would you expect perhaps more elevated repayments and is perhaps the current government shutdown delaying some of the repayments that you might have been seeing in the last quarter or this coming quarter?

No, in fact, I would say there's an interesting dynamic. If if we were, which were 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 towards 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 around our repayments, again, primarily driven by new deal activity as opposed to suddenly seeing an acceleration as a result of being driven by 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. And then just the last question. Are you seeing like any additional competition from perhaps tools coming down in market and playing a bit more in the core middle market or just any changes in the competition landscape recently?

We really haven't. It's interesting. I get that question a lot. Institutional investors ask that we get this from new 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 $1 billion-plus transactions come down market nor are we seeing the new entrants really being able to step up and underwrite $400 million, $500 million, $600 million, $700 million, $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 to 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. 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 about 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.

Our next question is from Arren Cyganovich with Truist Securities.

Just touching on the health of the portfolio overall. Your nonaccruals ticked up, it's pretty modest. I think your costs are still below 1%. So it's obviously not a big challenge. Maybe you could 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.

The story there has actually been very solid. Now remember, our overall criteria when we underwrite and invest is we are looking for market leaders we are looking for businesses that are in noncyclical industries. So we're typically not looking at restaurants and retail and oil and gas and chemicals and anything that has an underlying cyclical dynamic to it. We're also not 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, health care services, software 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 of years ago. 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 the large percentage of our portfolio, those are the types of businesses we're financing.

And that's also reflected in the fact that in many cases, we're doing a delayed draw term loan to actually put in place a facility to finance that growth. So I think the nature of the space we play in and the types of companies that we finance is going to give you an ongoing kind of built-in growth rate in that kind of call it, 5% to 10% range. And then where you're getting even stronger growth economically overall you see numbers that are closer to 20%. But certainly, we feel very good right now that kind of core growth rate in that 5% to 10% range.

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

No, I was just going to say maybe going I was just going to say that I think as I mentioned earlier, a lot of it gets to the types of businesses we are financing. 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 it's not really a great business. 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 that 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.

Yes. And maybe touching on the origination side. You mentioned deal pipelines pretty strong heading into the quarter. what's the mix of that? And maybe you could talk a little bit about the quality of what you're seeing come to you from the various sponsors.

So I think that -- well, it's interesting. If you look at our deal activity, 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 August to be a record month. Typically, that's a slower period of time, end of summer. But we were extraordinarily active. In our case, we would see -- there were weeks where we were seeing 3, 4, 5, 6 investment committee memos a week right? So we were actually scheduling additional meetings of the IC in order to keep up with the level of activity.

So I think that's been surprising. We certainly expected that deal activity would begin to come back as you saw rates stabilize and begin to come down, and we certainly did see that. Liberation Day was a bit of a pause in those dynamics. But 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 quite good given the pressure on private equity to drive some realizations, 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 there, 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. We feel quite good about the quality. We feel quite good about the relative value. We're still getting in that 9% range for new transactions. So risk-adjusted returns, we think, very attractive relative to where they've been historically, and we still feel very good about the deal environment I didn't -- 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, First Brands or even the more recent announcement on the, HPS transaction, the reality is that 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 that's a very different business than asset base 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, right, 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 million to $100 million EBITDA range where we think the risk-adjusted returns are attractive. Structures have maintained a reasonable underlying dynamic, and that's where we're going to be. So we're not going to venture into some of these other more so 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.

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 you joining us today.

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