Executive Summary / Key Takeaways

• Resilient Performance Amid Volatility: Nuveen Churchill Direct Lending Corp. (NCDL) continues to demonstrate robust financial performance, with net investment income (NII) largely covering its regular quarterly dividend despite market volatility and a slight increase in nonaccruals in Q3 2025.
• Strategic Capital Optimization: The company has actively optimized its capital structure through debt refinancings, including a successful unsecured note issuance and CLO resets, significantly reducing its weighted average cost of debt and enhancing liquidity.
• Core Middle Market Dominance: NCDL's focused strategy on senior secured loans to private equity-owned U.S. middle market companies, underpinned by its proprietary sourcing engine and deep sponsor relationships, provides insulation from broader market pressures and drives attractive risk-adjusted returns.
• Strong Credit Quality & Diversification: The portfolio maintains high credit quality with conservative leverage metrics and exceptional diversification across 213 companies, mitigating idiosyncratic risks.
• Attractive Valuation: Trading at a material discount to its net asset value (NAV) and offering a compelling annualized yield, NCDL presents an attractive investment opportunity, with management actively evaluating further shareholder value initiatives.

The Enduring Strength of Direct Lending in the Core Middle Market

Nuveen Churchill Direct Lending Corp. (NCDL) operates as a leading business development company (BDC), specializing in providing senior secured loans to private equity-owned U.S. middle market companies. Its investment objective is clear: to generate attractive risk-adjusted returns primarily through current income. NCDL defines its core middle market focus as companies with annual EBITDA ranging from $10 million to $100 million, a segment it believes offers superior risk-adjusted returns and insulation from the more aggressive structures often seen in the upper middle market and broadly syndicated loan (BSL) spaces. This strategic focus is a cornerstone of its investment thesis, differentiating it within the competitive financial services landscape.

The company's journey began in March 2018, culminating in its initial public offering (IPO) in January 2024, which marked a significant milestone in its growth trajectory. This public listing followed a period of strategic capital building, including multiple term debt securitizations (CLO-I, CLO-II, CLO-III) that progressively diversified and strengthened its funding base. NCDL's affiliation with Churchill Asset Management and the broader Nuveen/TIAA platform provides a foundational strength, offering access to extensive institutional capital and a vast network of private equity relationships.

Differentiated Platform and Operational Edge

For a BDC like NCDL, "technological differentiators" manifest not in product innovation, but in a highly refined, data-driven, and relationship-centric investment platform and process. This sophisticated operational "technology" is a key competitive moat.

First, NCDL benefits from a proprietary sourcing engine that leverages Churchill's status as a limited partner (LP) in over 325 private equity funds and its presence on 250 advisory boards. This provides a "strong information and sourcing advantage" that generates "significant proprietary deal flow", enabling NCDL to be "highly selective" in its investment choices. This extensive network ensures NCDL sees a wide range of opportunities, even when broader M&A activity might be subdued.

Second, NCDL employs a rigorous underwriting and risk management framework. This involves a "systematic, consistent approach to credit evaluation" focused on an "acceptable level of debt repayment and deleveraging under a base case set of projections". This disciplined process, coupled with a focus on "high selectivity and diversification", is critical for minimizing losses and generating strong returns across various market cycles.

Third, the company's experienced investment, operating, and management teams bring a "20-year track record of investing across interest rate and economic cycles". This human capital, integrated with structured processes and data-driven monitoring, forms a robust operational "technology" that enhances decision-making and portfolio oversight. Churchill regularly monitors and adjusts investment ratings, reflecting a sophisticated system for tracking portfolio health.

These operational advantages are crucial in a competitive landscape. While larger BDCs like Ares Capital Corporation (ARCC) and Blackstone Secured Lending Fund (BXSL) boast significant scale and broad market presence, NCDL's specialized focus and relationship-driven model allow it to effectively target underserved middle market segments. This can lead to stronger gross margins through efficient capital use and potentially "notably faster" deployment in competitive situations compared to some peers. NCDL's ability to underwrite substantial transactions, often in the hundreds of millions, also insulates it from the smaller, lower middle market players, while its relationship-driven approach makes it a preferred long-term partner over "market timers" from the BSL world.

Financial Performance and Operational Discipline

NCDL's financial performance in recent quarters reflects both the dynamic market environment and its disciplined operational execution. For the third quarter of 2025, NCDL reported net investment income (NII) of $0.43 per share, a slight decrease from $0.46 per share in the second quarter of 2025. This decline was "largely due to lower interest income driven in part by the two nonaccruals we added in the quarter". Total investment income for Q3 2025 was $51.1 million, down modestly from $53.1 million in Q2 2025, primarily due to a slight reduction in the investment portfolio size and underlying loan contracts resetting to lower base rates.

The weighted average yield on debt and income-producing investments at cost saw a gradual decline, moving from 10.33% as of December 31, 2024, to 9.92% as of September 30, 2025. This trend is attributed to "overall tightening of spreads in newly originated investments and lower base interest rates". Despite this, management notes that spreads have "settled in at that kind of SOFR 450, 500 range" and does not anticipate significant further tightening, expecting them to hover around 450 basis points, with a historical low of approximately 425 basis points. Payment-in-kind (PIK) income remained a small component, representing around 4% of total investment income, predominantly from junior capital positions.

NCDL's portfolio composition remains highly aligned with its strategy, with first-lien loans consistently representing approximately 90% of the total portfolio's fair value. This focus on senior lending is evident in new originations, which were heavily weighted towards this segment (e.g., 76% in Q3 2025). The portfolio is exceptionally diversified, comprising 213 companies as of September 30, 2025. The top 10 portfolio companies account for less than 14% of the total fair value, and the average position size is a mere 0.5%.

Credit quality remains a hallmark of NCDL's portfolio. The weighted average internal risk rating stood at 4.2 as of September 30, 2025, compared to an original rating of 4.0 at origination. While two new nonaccruals (junior capital names from 2021, in automotive accessories and freight) were added in Q3 2025, the total nonaccrual percentage remains low at 0.4% of fair value and 0.9% at cost. This compares favorably to BDC industry averages. Portfolio company total net leverage was 5.0x, and interest coverage was 2.3x on traditional middle market first-lien loans, reflecting conservative underwriting and low attachment points.

Strategic Capital Management and Outlook

NCDL has proactively managed its capital structure to enhance efficiency and reduce borrowing costs. The company successfully issued $300 million in unsecured notes due 2030 at a fixed coupon of 6.65% in January 2025, which was subsequently swapped to a floating rate of SOFR plus 230 basis points. This move, along with the termination of the Wells Fargo (WFC) Financing Facility and the SMBC (SMFG) Financing Facility, and a refinancing of CLO-I in March 2025, reduced the overall weighted average spread on its debt from SOFR plus 214 basis points to SOFR plus 202 basis points. These actions underscore management's commitment to "optimizing our debt financing and reducing ongoing borrowing costs".

The company's gross debt-to-equity ratio was 1.25x (1.2x net of cash) as of September 30, 2025, positioning it at the upper end of its target range of 1.0x to 1.25x debt-to-equity. With $269.5 million available under its Revolving Credit Facility, NCDL maintains ample liquidity to fund new investments and unfunded commitments. Management's outlook for the private credit market remains optimistic, anticipating increased M&A activity driven by a rebound in market sentiment and an ongoing interest rate cut cycle. Lower financing costs are expected to encourage private equity-backed businesses to pursue more transactions and reinvest in growth.

NCDL's strategy includes the continued rotation of its portfolio away from lower-spread upper middle market assets into its traditional middle market pipeline, a process largely completed in Q2 2025. This strategic shift is expected to further enhance earnings. The company also maintains confidence in its ability to cover its regular quarterly dividend of $0.45 per share, supported by "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".

Risks and Competitive Dynamics

While NCDL's focused strategy provides resilience, it is not without risks. The company acknowledges "significant market volatility" driven by global trade policy changes and tariffs. However, management believes the portfolio is "largely insulated from direct negative impacts" due to a primarily domestic revenue base (over 90% U.S. revenue for senior loans), a concentration in service-oriented businesses, flexible supply chains, and the ability of borrowers to pass through cost changes to consumers. Geopolitical conditions, including conflicts in Ukraine and the Middle East, also present ongoing risks to financial market volatility.

Recent high-profile bankruptcies in the private credit space, such as Tricolor and First Brands, have drawn significant media attention. NCDL explicitly states it has "no exposure to either of these two investments". Management views these situations as "very idiosyncratic", often involving "bulk purchases of assets in a portfolio" or elements of fraud, which are fundamentally different from NCDL's "one deal at a time" diligence-intensive approach.

In the competitive landscape, NCDL benefits from its "relatively insulated part of the market", where larger BSL-focused firms do not typically descend, and new entrants struggle to underwrite large transactions. Its long-standing relationships with private equity firms, cultivated over two decades, foster trust and consistent deal flow, as sponsors seek "long-term partners to finance those businesses". This relationship-driven model provides a significant competitive edge against firms that might "come and go in the core middle market".

Conclusion

Nuveen Churchill Direct Lending Corp. stands as a compelling investment opportunity, firmly rooted in the high-quality segment of the U.S. core middle market. Its disciplined investment strategy, characterized by a focus on senior secured loans, rigorous underwriting, and a highly diversified portfolio, underpins its consistent financial performance and strong credit quality. The company's operational "technology," manifested in its proprietary sourcing engine and deep private equity relationships, provides a distinct competitive advantage, enabling it to thrive even amidst broader market volatility and competitive pressures.

With a proactive approach to capital structure optimization, a robust liquidity position, and a commitment to a sustainable dividend supported by strategic levers like spillover income, NCDL is well-positioned for continued success. While macroeconomic uncertainties and geopolitical risks persist, NCDL's strategic insulation and management's experienced stewardship reinforce its capacity to generate attractive risk-adjusted returns. The current valuation, trading at a material discount to NAV with a compelling annualized yield, further highlights the potential for long-term value creation for discerning investors.