Executive Summary / Key Takeaways

• Nuveen Churchill Direct Lending Corp. (NCDL) is a leading business development company (BDC) focused on senior secured loans to private equity-owned U.S. middle market companies, leveraging its deep relationships and rigorous underwriting for attractive risk-adjusted returns.
• The company's strategic portfolio rotation out of lower-spread upper middle market assets is largely complete, positioning it for enhanced yields and continued focus on its core segment.
• NCDL maintains exceptional credit quality with a highly diversified portfolio, low non-accruals (0.2% of fair value as of Q2 2025), and conservative leverage metrics, underscoring its defensive investment approach.
• Despite recent market volatility from global trade policy, NCDL's robust investment pipeline and proactive capital management, including recent debt optimizations and a completed share repurchase program, signal strong financial flexibility and a positive outlook for earnings coverage.
• The company's unique sourcing model, rooted in extensive private equity LP relationships, provides a significant competitive moat, enabling high selectivity and consistent access to quality deal flow even in tightening markets.

A Foundation of Discipline: NCDL's Strategic Blueprint in Direct Lending

Nuveen Churchill Direct Lending Corp. (NCDL) stands as a prominent player in the U.S. middle market direct lending landscape. Established in 2018 and publicly listed on the NYSE in January 2024, NCDL's core mandate is to generate attractive risk-adjusted returns primarily through current income. It achieves this by investing predominantly in senior secured loans to private equity-owned U.S. middle market companies, specifically targeting the "core middle market" with EBITDA ranging from $10 million to $100 million. This segment is strategically chosen for its potential to offer wider spreads and more favorable terms compared to the broader syndicated loan (BSL) market.

NCDL's overarching strategy is built on several foundational strengths. Its investment portfolio is heavily concentrated in first-lien senior secured debt and unitranche loans, representing approximately 90% of its fair value. This focus on the top of the capital structure, coupled with opportunistic, highly selective investments in junior capital, underpins a conservative underwriting philosophy. The company's rigorous investment process and proactive portfolio management are critical to its operational excellence.

While NCDL does not explicitly detail a singular "core differentiated technology" in the traditional sense of a software platform or AI-driven lending engine, its competitive edge is deeply rooted in its proprietary, data-informed, and systematically applied investment and risk management processes. This "operational technology" is enabled by the vast resources and expertise of the broader Churchill platform. The tangible benefits are evident in its ability to maintain high selectivity in deal flow, conduct rigorous underwriting, and engage in proactive portfolio management. This systematic approach allows NCDL to assess credit risk with precision, manage its watch list effectively, and execute successful restructurings, as demonstrated by the significant reduction in non-accruals in late 2024. This disciplined process, while not a piece of software, functions as a powerful, repeatable, and scalable competitive advantage in the complex direct lending space.

Competitive Edge in a Dynamic Market

NCDL operates in a highly competitive environment alongside other prominent BDCs such as Ares Capital Corporation (ARCC), Golub Capital BDC (GBDC), Blackstone Secured Lending Fund (BXSL), and Owl Rock Capital (OWL). While these competitors also target middle-market lending, NCDL distinguishes itself through its specialized focus and unique sourcing model. NCDL's emphasis on privately originated debt, particularly within the core middle market, allows for greater customization in deal structuring and potentially stronger borrower alignment compared to broader players like ARCC or GBDC. This targeted approach helps NCDL secure deals with more robust revenue stability and better margins by mitigating default risks.

The company's "power of incumbency" is a significant competitive moat. Churchill's extensive network, built over nearly two decades, includes commitments to over 310 leading U.S. middle-market private equity funds and representation on over 245 advisory boards. This deep LP connectivity provides NCDL with a strong information and sourcing advantage, ensuring consistent access to high-quality, proprietary deal flow. This contrasts with competitors who might rely more heavily on broader market processes. For instance, while BXSL benefits from Blackstone's global network, NCDL's specialized, externally managed structure allows for more focused risk assessment in its niche, potentially leading to enhanced pricing power and increased market share in targeted segments.

However, NCDL's smaller scale compared to giants like ARCC or BXSL presents a vulnerability, potentially leading to higher costs per deal or less diversified portfolios if not managed diligently. Its external management structure, while offering agility, could theoretically lag behind competitors with fully integrated in-house resources, such as OWL's potential for enhanced technological capabilities in deal analysis. Despite these scale-related challenges, NCDL's operational execution, particularly its disciplined underwriting and proactive risk management, positions it competitively against its peers. Its ability to maintain low non-accruals and stable risk ratings, even as some competitors face integration challenges or broader market dependencies, highlights the effectiveness of its specialized approach.

Financial Strength and Strategic Portfolio Optimization

NCDL's financial performance reflects its disciplined strategy. For the second quarter of 2025, NCDL reported net investment income (NII) of $0.46 per share, comfortably exceeding its regular quarterly distribution of $0.45 per share. This performance comes despite a slight decrease in total investment income to $53.1 million in Q2 2025, primarily due to an intentional modest reduction in the investment portfolio aimed at optimizing leverage. For the full year 2024, NCDL generated an impressive ROE of 12.4% on net investment income, demonstrating strong profitability. The company's net profit margin for the trailing twelve months (TTM) stands at 68.96%, indicating efficient conversion of revenue to profit.

A key operational achievement has been the strategic rotation out of lower-spread upper middle market investments. In Q2 2025, NCDL sold nearly $100 million of these assets, largely completing this initiative. This move, along with $52.6 million in full repayments and $12.5 million in partial repayments, resulted in an $81 million net reduction in the funded investment portfolio, which was used to repay leverage. This proactive management contributed to a modest quarter-over-quarter decline in net asset value (NAV) to $17.92 per share, primarily due to valuation adjustments in watch list names, but was partially offset by the positive impact of the share repurchase program.

Credit quality remains a cornerstone of NCDL's portfolio. As of June 30, 2025, non-accruals represented a mere 0.2% of the total investment portfolio at fair value (0.4% at cost), with no new non-accruals added in Q2 2025. This compares favorably to BDC industry averages. The weighted average internal risk rating remained stable at 4.1, and the watch list stood at a manageable 7.3% of fair value. Portfolio company fundamentals are robust, with a weighted average net leverage of 4.9x and interest coverage of 2.3x on traditional middle market first-lien loans, metrics that underscore NCDL's conservative underwriting. The weighted average yield on debt and income-producing investments at cost was 10.08% as of June 30, 2025, reflecting the impact of lower base rates and some spread tightening.

Robust Capital Structure and Shareholder Alignment

NCDL maintains a strong and flexible capital structure. Its asset coverage ratio stood at 179.67% as of June 30, 2025, well above the 150% regulatory requirement. The company actively manages its liabilities, having recently issued $300 million in 6.65% Notes due 2030 (January 2025) and strategically terminated its Wells Fargo (WFC) and SMBC (SMBC) financing facilities (January 2025 and November 2024, respectively). The CLO-I transaction was also refinanced in March 2025, reducing borrowing costs and extending the reinvestment period. These liability management initiatives are expected to reduce the overall weighted average cost of debt from SOFR + 214 basis points to SOFR + 202 basis points, enhancing profitability.

Liquidity remains robust, with $260.3 million available under its Revolving Credit Facility as of June 30, 2025, complemented by cash and cash equivalents. This ample liquidity positions NCDL to fund its $201.598 million in unfunded investment commitments and pursue new opportunities.

The company also demonstrated a strong commitment to shareholder value through its share repurchase program, which concluded in July 2025 after repurchasing approximately 5.9 million shares at an attractive discount to NAV, utilizing its full $99.3 million authorization. This program was designed to be opportunistic, increasing buyback volume as the discount to NAV widened.

NCDL's dividend policy is designed to reward shareholders while supporting growth. Beyond its regular quarterly dividend, the company has paid special dividends declared at the time of its IPO, with the final $0.10 special dividend paid in April 2025. Going forward, NCDL intends to implement a supplemental dividend program, distributing approximately 50% of excess earnings over the regular dividend, balancing shareholder returns with NAV accretion.

Outlook: Resilient Growth Amidst Evolving Markets

NCDL's management expresses confidence in the company's forward outlook, anticipating continued strong performance. The investment pipeline is robust, with deal flow returning to normalized or even record levels by June 2025, despite earlier volatility from global trade policy changes. Management expects this positive momentum to continue into the second half of 2025, driven by a healthy and resilient U.S. economy and an anticipated increase in M&A activity as interest rates stabilize.

The company's strategic focus remains on deploying capital into high-quality, senior loan investments within the core middle market, particularly in resilient, service-oriented sectors with minimal tariff exposure. While spreads on new floating rate loans have stabilized around 475-500 basis points over SOFR, management does not anticipate significant further tightening, expecting them to hover in the 450-475 basis point range. This outlook, combined with ongoing efforts to optimize the asset mix and maintain leverage at the upper end of its 1.0x to 1.25x target range, underpins management's confidence in sustaining earnings and covering its dividend. NCDL's long-standing track record, deep sponsor relationships, and disciplined investment approach position it favorably to capitalize on market opportunities and continue delivering attractive risk-adjusted returns for investors.

Conclusion

Nuveen Churchill Direct Lending Corp. presents a compelling investment thesis grounded in its disciplined approach to the U.S. middle market direct lending space. By prioritizing senior secured loans to private equity-backed companies and leveraging its extensive network for proprietary deal flow, NCDL has built a highly diversified and resilient portfolio. Its proactive capital management, including strategic debt optimizations and a completed share repurchase program, further strengthens its financial foundation and enhances shareholder value.

Despite a dynamic market environment characterized by geopolitical uncertainties and competitive pressures, NCDL's rigorous underwriting and operational excellence, which serve as its core "technological" differentiator, enable it to maintain exceptional credit quality and attractive risk-adjusted returns. The company's consistent earnings coverage and commitment to a shareholder-friendly dividend policy underscore its stability. As NCDL continues to optimize its asset mix and capitalize on a robust investment pipeline, its strategic positioning and proven execution capabilities suggest a promising trajectory for sustained growth and attractive distributions for investors.