What is the expected timeline for ramping the new joint venture to its full capacity, and how will its yield profile compare to loans kept on the balance sheet, impacting NCDL's target ROE?

The JV is expected to ramp to approximately $300 million in assets within 12 months, primarily focused on 100% senior secured first lien loans, similar to NCDL's existing assets. Leveraged at around 2x at the JV level, it is designed to generate incremental returns and be accretive to NCDL's overall earnings profile. “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.”

Can management provide more color on the company-specific challenges that led to the tick-up in nonaccruals and the watch list percentage this quarter?

Management stated that the increase in nonaccruals and watch list was due to idiosyncratic company-specific challenges, with no common themes or industry trends across the 4 new nonaccrual names. They emphasized that sponsor support was present in each case, and the overall credit quality remains strong relative to historical performance and industry averages. “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.”

NCDL

Nuveen Churchill Direct Lending (NCDL) Q2 FY26 earnings call: guidance and Q&A

Earnings call· Jun 2026 (Q2 FY26)· Financials· Aug 6, 2026

Source: earnings call transcript

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

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

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

Category	Target	Timeline	Confidence
Third Quarter Distribution	$0.38 per share high materiality	Q3 · FY26	High
Joint Venture Portfolio Size	approximately $300 million medium materiality	Medium term (inside 12 months)	High
Target Leverage Ratio	1 to 1.25x debt to equity (upper end) high materiality	Near term	High
Portfolio Allocation	roughly 90% senior loans with the balance allocated to junior debt and equity medium materiality	Long term	High

Deals & partnerships

institutional partner Joint 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

Challenging market environment H1 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 activity Q2 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 list Q2 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 environment Remainder 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

Joint Venture portfolio ramp-up

Next quarter / within 12 months

Current $150 million

Target Progress 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.

Find out whether NCDL delivers this. Inve re-checks your case every morning.

Q&A highlights

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 read 6 chapters

Detailed narrative

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.

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.

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.

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.

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.

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.

Summary of the company's earnings call; see how call summaries are prepared. Not investment advice.