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    NCDL
    Earnings call· Jun 2026(Q2 FY26)

    Nuveen Churchill Direct Lending Q2 FY26 earnings call NCDL

    Aug 6, 2026 Source

    Executive summary

    Nuveen Churchill Direct Lending Corp. Q2 FY26 — Solid NII Coverage and Strategic JV Launch Amid Market Volatility

    Nuveen Churchill Direct Lending Corp. reported solid Q2 FY26 net investment income, fully covering its base distribution and enabling a supplemental dividend, despite a decline in NAV due to specific credit challenges. The company strategically launched a joint venture to enhance earnings and capacity, and optimized its debt capital structure. Management emphasized the defensive positioning of its diversified portfolio and its focus on the core middle market amidst broader market volatility and concerns around AI disruption.

    Highlights

    5

    • Net investment income of $0.41 per share fully covered the $0.36 per share base quarterly distribution.

    • Board declared a total Q3 distribution of $0.38 per share, including a $0.02 supplemental distribution.

    • Closed a joint venture with an institutional partner, expected to be accretive to long-term earnings and provide incremental capacity.

    • Successfully completed $100 million tap of existing 2030 unsecured notes, bringing total to $400 million and maintaining investment-grade ratings.

    • Portfolio company interest coverage increased to 2.5x from 2.3x QoQ, with total net leverage at 5.2x.

    Concerns

    4

    • Net asset value declined to $17.19 per share from $17.50 per share QoQ, driven by unrealized markdowns and realized losses.

    • Gross originations declined to $12.1 million from $82.9 million QoQ, due to leverage management and timing.

    • Internal watch list increased to 10.8% of fair value from 8.4% QoQ, driven by a few underperforming names.

    • Nonaccruals increased to 2.7% of cost basis (1.5% fair value) from 1.3% (0.6% fair value) QoQ, with 4 new names added.

    Guidance & targets

    4
    CategoryTargetConfidence
    Third Quarter Distribution
    $0.38 per share
    high materiality
    High
    Joint Venture Portfolio Size
    approximately $300 million
    medium materiality
    High
    Target Leverage Ratio
    1 to 1.25x debt to equity (upper end)
    high materiality
    High
    Portfolio Allocation
    roughly 90% senior loans with the balance allocated to junior debt and equity
    medium materiality
    High

    Operational metrics

    41
    Net investment income per share
    $0.41in line with Q1
    Q2 FY26

    Fully covered the base quarterly distribution of $0.36 per share.

    Total investment income
    $44.3 milliondown from $46.3 million Q1 FY26
    Q2 FY26

    Primarily driven by modest decline in portfolio size and yields.

    Gross debt-to-equity ratio
    1.29xdown from 1.32x Q1 FY26
    Q2 FY26

    Ratio at June 30.

    Net debt-to-equity ratio
    1.23xdown from 1.26x Q1 FY26
    Q2 FY26

    Ratio at June 30, net of cash position.

    Total GAAP net income per share
    $0.07down from $0.18 per share Q1 FY26
    Q2 FY26

    Included $0.34 per share of net realized and unrealized losses.

    Net realized and unrealized losses per share
    $0.34
    Q2 FY26

    Comprised of $0.23 per share realized losses and $0.11 per share unrealized losses.

    Net realized losses per share
    $0.23
    Q2 FY26

    Primarily driven by amendments to 2 underperforming debt investments.

    Net unrealized losses per share
    $0.11
    Q2 FY26

    Primarily due to decrease in fair value of certain underperforming portfolio companies.

    Investment portfolio fair value
    $1.9 billiondown from $2 billion Q1 FY26
    Q2 FY26

    Fair value at June 30.

    Gross originations
    $12.1 milliondown from $82.9 million Q1 FY26
    Q2 FY26

    Decline driven by leverage management and timing of transactions.

    Gross investment fundings
    $24.8 milliondown from $85.4 million Q1 FY26
    Q2 FY26

    Slowed in the quarter due to market volatility.

    Sales and repayments
    $67.5 million
    Q2 FY26

    Included full repayments on 3 larger positions ($59 million) and partial prepayments ($9 million).

    Sales and repayments rate
    3.4%in line with Q1 FY26, below 5% long-range assumption
    Q2 FY26

    Attributable to lower sponsor M&A activity.

    Number of portfolio companies
    244up from 236 Q1 FY26
    Q2 FY26

    Diversification remains a key focus.

    Top 10 portfolio companies as % of fair value
    13%consistent with Q1 FY26
    Q2 FY26

    Represents diversification across portfolio.

    Largest exposure as % of total portfolio
    1.6%
    Q2 FY26

    Reflects portfolio diversification.

    Average position size
    0.4%
    Q2 FY26

    Reflects portfolio diversification.

    New originations in senior loans
    $5.9 million
    Q2 FY26

    Part of modest new originations.

    New originations in equity positions
    $4.8 million
    Q2 FY26

    Part of modest new originations, deployed across 5 names.

    Average spread on first lien loans (new investments)
    475modestly higher than Q1 FY26
    Q2 FY26

    Spreads on new investments.

    Weighted average yield on debt and income-producing investments at cost
    9.3%consistent with Q1 FY26
    Q2 FY26

    Yield on the investment portfolio.

    First lien loans as % of total portfolio
    89.6%
    Q2 FY26

    Portfolio allocation at June 30.

    Junior debt as % of total portfolio
    7.3%
    Q2 FY26

    Portfolio allocation at June 30.

    Equity as % of total portfolio
    3.1%
    Q2 FY26

    Portfolio allocation at June 30.

    Weighted average internal risk rating
    4.3consistent with Q1 FY26
    Q2 FY26

    Rating on a 1-10 scale, with 10 being highest risk.

    Watch list as % of fair value
    10.8%up from 8.4% Q1 FY26
    Q2 FY26

    Watch list consists of names with internal risk ratings of 6 or worse.

    New nonaccruals
    4
    Q2 FY26

    Added during the quarter.

    Total nonaccruals
    9
    Q2 FY26

    Total names on nonaccrual at June 30.

    Nonaccruals as % of fair value
    1.5%up from 0.6% Q1 FY26
    Q2 FY26

    Percentage of total investment portfolio at fair value.

    Nonaccruals as % of cost basis
    2.7%up from 1.3% Q1 FY26
    Q2 FY26

    Percentage of total investment portfolio at cost basis.

    Portfolio company total net leverage
    5.2x
    Q2 FY26

    Across traditional middle market first lien loans.

    Portfolio company interest coverage
    2.5xup from 2.3x Q1 FY26
    Q2 FY26

    Across traditional middle market first lien loans.

    Software businesses as % of total investment portfolio
    2.4%
    Q2 FY26

    Low exposure to software businesses.

    CLO III principal balance redeemed
    $297.9 million
    July 2026

    Redeemed in full at par.

    Unsecured notes tap amount
    $100 million
    July 2026

    Successful tap of existing 2030 unsecured notes.

    Total unsecured notes
    $400 million
    July 2026

    Aggregate amount of unsecured notes issued by NCDL after the tap.

    Pro forma weighted average cost of debt
    SOFR plus 188 basis pointslargely unchanged from Q1 FY26
    July 2026

    Giving effect to CLO III redemption and unsecured debt issuance.

    Unsecured notes as % of outstanding debt
    41%
    July 2026

    Provides greater operational flexibility.

    Joint Venture total equity commitment
    up to $106 million
    July 2026

    Partnership with an institutional investor.

    Joint Venture initial portfolio sale
    $150 million
    July 2026

    Portfolio sold to the joint venture at closing.

    Joint Venture target leverage
    ~2x
    Ongoing

    Consistent with other JVs, expected to provide accretive returns.

    Industry KPIs

    1
    MetricValueDetails
    Deployment realizations$24.8 million funded, $67.5 million repaidUSD

    Deals & partnerships

    1
    institutional partnerJoint venture to deploy assets and investments aligned with Churchill platform and NCDL's investment strategy.up to $106 million equity commitment

    NCDL committed 87.5% of the equity. The JV will utilize a manageable level of leverage (~2x) and focus on almost 100% senior secured first lien loans.

    Risks & headwinds

    4
    Challenging market environmentH1 FY26

    Elevated public market volatility, geopolitical tensions, negative headlines (AI disruption, software exposure, BDC redemption activity)

    Mitigation: Focus on core traditional middle market, high-quality PE sponsor relationships, diversified portfolio, active monitoring of AI impact.

    Slowing private equity M&A activityQ2 FY26

    Private equity volumes relatively light compared to prior periods; financial sponsors faced disciplined underwriting and tighter credit constraints.

    Mitigation: Churchill platform outpacing market, deal activity returning to normalized levels in June/July, differentiated sourcing and long-term track record.

    Increased nonaccruals and watch listQ2 FY26

    4 new nonaccruals ($33.3 million cost, $18.7 million fair value); watch list increased to 10.8% of fair value (from 8.4% Q1).

    Mitigation: Attributed to idiosyncratic company-specific challenges, not systemic trends; ongoing sponsor support for underperforming names; nonaccrual percentages remain favorable vs. industry averages.

    Higher for longer interest rate environmentRemainder of FY26

    Expectations for rate cuts diminished, forward SOFR curve showing potential rate hikes; some businesses may be more challenged.

    Mitigation: Conservative structuring, relatively low attachment points, strong interest coverage (2.5x) in portfolio.

    What to watch in Q3 FY26

    5

    Joint Venture portfolio ramp-up

    Next quarter / within 12 months
    Current$150 million
    TargetProgress towards $300 million

    Why it matters

    The JV is expected to be accretive to NCDL's earnings and provide incremental capacity, so its successful ramp-up is key to future financial performance.

    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.

    Q&A highlights

    3

    How does NCDL balance allocating capital for future NAV appreciation through equity exposure versus seeking yield from junior debt positions, given the recent intentional shift towards equity?

    Management clarified that the primary focus remains on senior secured first lien loans (90% of portfolio). The slight increase in equity exposure (from 1.5-2% to 3-4%) is a marginal move to capture capital gains, especially from co-investment opportunities with high-quality PE funds, while junior debt is slightly deemphasized but still actively invested in.

    “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.”

    asked by Melissa Wedel · answered by Shaul Vichness

    2 min read6 chapters

    Detailed Narrative

    01

    Market Environment and Strategy

    The first half of 2026 was characterized by elevated public market volatility🌐, geopolitical tensions, and negative headlines, including concerns around AI disruption and software exposure. Management believes there is a significant disconnect between the media narrative and the underlying fundamentals in private credit. NCDL maintains its focus on the traditional core middle market, targeting companies with $10 million to $100 million of EBITDA, which helps insulate it from aggressive structures in the upper middle market.

    02

    Investment Activity and Sourcing

    Private equity M&A activity slowed in Q2 FY26, but the Churchill platform delivered strong investment activity, outpacing the market. NCDL's gross originations were intentionally muted at $12.1 million due to leverage management and timing of📎 transactions. However, deal flow across the platform returned to more normalized levels in June and July, driven by NCDL's focus on the core middle market and relationships with high-quality private equity sponsors.

    03

    Credit Quality and Portfolio Health

    Overall portfolio performance remains healthy, with a weighted average internal risk rating of 4.3, consistent with the prior quarter. Portfolio company total net leverage stood at 5.2x and interest coverage increased to 2.5x from 2.3x QoQ. While the watch list increased to 10.8% of fair value and nonaccruals rose to 2.7% of cost basis (1.5% fair value) with 4 new names, these are attributed to idiosyncratic company-specific challenges rather than systemic trends, and remain favorable compared to industry averages.

    04

    AI Exposure and Monitoring

    NCDL has relatively low exposure to software businesses, representing approximately 2.4% of its total investment portfolio at fair value, a result of its disciplined underwriting approach. Management actively monitors AI's potential impact across the portfolio through ongoing dialogue with borrowers and private equity firms. The company feels well-positioned relative to the risks AI may pose to its portfolio companies.

    05

    Capital Structure Optimization

    Subsequent to quarter-end, NCDL redeemed CLO III with a principal balance of $297.9 million (SOFR + 211 bps) and completed a $100 million tap of its existing 2030 unsecured notes (SOFR + 2.55%). These transactions resulted in a pro forma weighted average cost of debt of SOFR plus 188 basis points, largely unchanged. Unsecured notes now represent approximately 41% of outstanding debt, enhancing operational flexibility, and NCDL maintains investment-grade ratings.

    06

    Joint Venture Launch

    In July, NCDL successfully closed a joint venture with an institutional partner, with a total equity commitment of up to $106 million, of which NCDL committed 87.5%. The JV was seeded with a $150 million portfolio of first lien loans and is expected to ramp to approximately $300 million over the coming quarters. This partnership is anticipated to be accretive to NCDL's long-term earnings profile and provide incremental capacity for deal flow.

    AI-generated summary of the company’s earnings call. Not investment advice.