10-Q: Nuveen Churchill Reports Q3 Decline Amid Market Shifts

Nuveen Churchill Direct Lending Corp. reported a significant decrease in net investment income and net assets for the nine months ended September 30, 2025, despite a recovery in private equity M&A activity.

Summary

• Net investment income for the nine months ended September 30, 2025, decreased to $71.69 million from $92.23 million in the prior year.
• Total investment income for the nine months ended September 30, 2025, was $157.82 million, down from $166.96 million in the same period of 2024.
• Interest and debt financing expenses increased to $59.95 million for the nine months ended September 30, 2025, from $58.86 million in 2024, primarily due to higher average daily borrowings and one-time refinancing costs.
• Management fees increased to $14.22 million for the nine months ended September 30, 2025, from $10.73 million in 2024, following an increase in the base rate from 0.75% to 1.00% effective March 31, 2025.
• Incentive fees on net investment income totaled $8.37 million for the nine months ended September 30, 2025, compared to $0 in 2024 due to the expiration of the fee waiver.
• Net realized loss on investments widened to $8.08 million for the nine months ended September 30, 2025, from $1.52 million in 2024, driven by the restructuring of an underperforming debt position.
• Net change in unrealized depreciation on investments increased to $13.92 million for the nine months ended September 30, 2025, from $3.84 million in 2024, primarily due to fair value decreases in underperforming portfolio companies.
• Net increase in net assets resulting from operations significantly decreased to $49.70 million for the nine months ended September 30, 2025, from $86.87 million in 2024.
• Net asset value per share decreased to $17.85 as of September 30, 2025, from $18.18 as of December 31, 2024.
• The weighted average yield on debt and income-producing investments (at cost) decreased to 9.92% as of September 30, 2025, from 10.33% as of December 31, 2024, due to tightening spreads and lower base interest rates.
• Investments on non-accrual status increased to three portfolio companies with an aggregate fair value of $7.67 million as of September 30, 2025, from one company with $1.90 million as of December 31, 2024.

Sentiment

Score: 4

Explanation: The financial performance for the nine months ended September 30, 2025, shows significant declines in key profitability metrics like net investment income and net assets from operations. Increased losses from realized and unrealized investments, coupled with a rise in non-accrual investments, indicate underlying portfolio challenges. While there's a positive outlook on M&A recovery and strategic debt management, the overall financial results are concerning.

Positives

• Private equity mergers and acquisitions activity showed recovery momentum through Q3 2025, indicating stabilizing market conditions and renewed sponsor confidence.
• Repayment activity increased during Q3 2025, driven by new transactions and selective refinancing, allowing borrowers to capitalize on investor demand.
• The company maintains an asset coverage ratio of 179.82% as of September 30, 2025, well above the 150% regulatory requirement.
• The company has adequate liquidity, including $269.5 million available under its Revolving Credit Facility, to support near-term capital requirements.

Negatives

• Net investment income decreased significantly by approximately 22% for the nine months ended September 30, 2025, compared to the prior year.
• Net assets resulting from operations decreased by over 42% for the nine months ended September 30, 2025, compared to the prior year.
• Net asset value per share declined to $17.85 from $18.18, indicating a reduction in shareholder value.
• Net realized losses on investments increased substantially, primarily due to the restructuring of an underperforming debt position.
• Net change in unrealized depreciation on investments worsened, reflecting decreases in fair value of certain underperforming portfolio companies.
• The number and aggregate fair value of investments on non-accrual status increased, indicating a deterioration in credit quality for some portfolio companies.
• The weighted average yield on debt investments decreased, impacting potential future interest income.

Risks

• Future operating results are subject to the general economy and its impact on industries in which investments are made.
• Changes in financial and lending markets, including a protracted decline in credit market liquidity, could adversely affect the business.
• Increased competition in the direct lending market could impact investment opportunities and returns.
• Economic downturns or recessions could affect portfolio companies' ability to operate and repay debt.
• Interest rate volatility could impact net investment income, financial condition, and portfolio companies.
• Supply chain constraints and labor difficulties could affect portfolio companies and the global economy.
• Inflation levels and their impact on portfolio companies and industries remain a concern.
• Uncertainty from tariffs, trade barriers, and changes in trade policies could disrupt supply chains and negatively impact portfolio companies.
• Geopolitical conditions, including conflicts in Ukraine/Russia and the Middle East, could impact financial market volatility and global economic markets.
• Valuation of illiquid investments, particularly those without liquid trading markets, involves significant judgment and may differ from realized amounts.
• Actual and potential conflicts of interest exist with the Advisers and their affiliates.
• The ability to qualify and maintain status as a regulated investment company (RIC) and operate as a business development company (BDC) is crucial for tax purposes.
• Future legislation and regulation could impact the business and portfolio companies.
• Changes to U.S. tariff and import/export regulations may negatively affect portfolio companies' operations, increasing costs, decreasing margins, and reducing competitiveness.
• U.S. policy changes and resultant economic uncertainty could impact the ability to source, negotiate, execute, manage, or exit investments.

Future Outlook

Private equity mergers and acquisitions activity continued its recovery momentum through the third quarter of 2025, driven by stabilizing market conditions and renewed sponsor confidence. Repayment activity increased, with well-capitalized lenders and strong proprietary sponsor networks expected to benefit from increased market opportunities. However, macro-economic risks and uncertainties persist, including potential negative impacts from changes to trade policies, new tariffs, and interest rate volatility. The Federal Reserve reduced its benchmark interest rate twice in Q3 2025, but future adjustments remain uncertain given the evolving economic environment and focus on inflationary pressures.

Management Comments

• Believe that well-capitalized lenders with available liquidity, existing portfolio company relationships, and strong proprietary sponsor networks are well-positioned to benefit from increased market opportunities.
• Closely monitoring the impacts of macro-economic risks on portfolio companies and will continue to seek to invest in defensive businesses with low levels of cyclicality, strong levels of free cash flow generation, and multiple channels to source products or materials.

Industry Context

The private equity mergers and acquisitions market is showing signs of recovery, with increased transaction execution and renewed sponsor confidence. This rebound follows earlier disruptions from global trade policy uncertainty. However, the broader economic environment remains subject to significant macro-economic risks, including potential impacts from evolving trade policies, new tariffs, and continued interest rate volatility. The Federal Reserve's recent rate cuts indicate a response to economic conditions, but the future trajectory of monetary policy is uncertain, influencing borrowing costs and investment returns across the industry.

Corporate Governance

Legal Proceedings

• Not currently subject to any material legal proceedings, nor are any material legal proceedings threatened against the company or its subsidiaries/advisers.

Related Party Transactions

• Investment Advisory Agreement with Churchill DLC Advisor LLC (Adviser).
• CAM Sub-Advisory Agreement with Churchill Asset Management LLC (Churchill).
• NAM Sub-Advisory Agreement with Nuveen Asset Management, LLC (Nuveen Asset Management).
• Administration Agreement with Churchill BDC Administration LLC (Administrator).
• SEC granted co-investment exemptive relief order on August 5, 2025, permitting co-investment transactions with other funds managed by the Adviser and affiliates.

Stakeholder Impact

• Shareholders: Experienced a decrease in NAV per share and net assets from operations, but continued to receive quarterly distributions and benefited from a completed share repurchase program. Future distributions and share price may be influenced by ongoing financial performance and market conditions.
• Portfolio Companies: Subject to ongoing monitoring and potential impacts from macro-economic risks such as trade policies, tariffs, and interest rate volatility. Some companies are underperforming, leading to increased non-accrual investments.
• Advisers/Administrator: Management fees increased due to a base rate adjustment, and incentive fee waivers expired, leading to higher compensation for services provided. Continued to provide investment advisory, management, and administrative services.
• Creditors/Lenders: Debt obligations include asset-based leverage facilities, a revolving credit facility, debt securitizations, and unsecured notes. The company actively manages its debt structure through refinancings and new issuances, maintaining asset coverage above regulatory requirements.

Next Steps

• Continue to make quarterly distributions to common shareholders.
• Advisory Agreements renewed for an additional one-year term expiring December 1, 2026.
• Regular dividend of $0.45 per share declared on October 29, 2025, payable on or around January 27, 2026.
• May use net proceeds from the ATM Program for general corporate purposes, including investing and repaying indebtedness.
• Will continue to evaluate overall liquidity position and take proactive steps to maintain it.
• Will continue to seek to invest in defensive businesses with low levels of cyclicality, strong free cash flow generation, and multiple channels to source products or materials.
• Will continue to closely monitor the impacts of economic conditions on portfolio companies.

Key Dates

Recommendation

The company faces significant headwinds, as evidenced by the substantial declines in net investment income, net assets from operations, and NAV per share. The increase in non-accrual investments and widening realized/unrealized losses are concerning. While management is actively managing debt and sees recovery in M&A, the financial results indicate a challenging period. The stock has already seen a decline in market value. A 'hold' recommendation is appropriate as the company navigates these challenges, with investors awaiting clearer signs of stabilization and improved portfolio performance before considering further investment, or a 'sell' if conditions worsen.

Keywords

Direct Lending, BDC, SEC Filing, Quarterly Report, Investment Income, Net Asset Value, Private Equity, Middle Market, Senior Secured Loans, Subordinated Debt, Equity Co-investments, Interest Rates, Credit Markets, Portfolio Performance, Financial Results, Asset Coverage Ratio, Share Repurchase, CLO, Unsecured Notes, Dividend, NCDL