Nuveen Churchill Direct Lending Corp. (NYSE:NCDL) Q1 2025 Earnings Call Transcript

Nuveen Churchill Direct Lending Corp. (NYSE:NCDL) Q1 2025 Earnings Call Transcript May 8, 2025

Nuveen Churchill Direct Lending Corp. misses on earnings expectations. Reported EPS is $0.53 EPS, expectations were $0.57.

Operator: Welcome to Nuveen Churchill Direct Lending Corp. First Quarter 2025 Earnings Call. At this time, all participants are in a listen-only mode. A question and answer session will follow the formal presentation. As a reminder, this conference call is being recorded for replay purposes. I would like to turn the call over to Robert Paun, Head of Investor Relations for Nuveen Churchill Direct Lending Corp. Robert, please go ahead.

Robert Paun: Good morning, and welcome to Nuveen Churchill Direct Lending Corp’s First Quarter 2025 Earnings Call. Today, I am joined by Nuveen Churchill Direct Lending Corp’s Chairman, President, and CEO, Ken Kencel, and Chief Financial Officer, Shai Vichness. Following our prepared remarks, we will be available to take your questions. Today’s call may include forward-looking statements. Such statements involve known and unknown risks, uncertainties, and other factors, and undue reliance should not be placed thereon. These forward-looking statements are not historical facts but rather are based on current expectations, estimates, and projections about the company, our current and prospective portfolio investments, our industry, our beliefs and opinions, and our assumptions.

These statements are not guarantees of future performance and are subject to risks, uncertainties, and other factors, some of which are beyond our control and difficult to predict. Actual results may differ materially from those expressed or forecasted in the forward-looking statements. We ask that you refer to the company’s most recent filing with the SEC for important risk factors. Any forward-looking statements made today do not guarantee future performance, and undue reliance should not be placed on them. The company assumes no obligation to update any forward-looking statements at any time. Our earnings release, 10-Q, and supplemental earnings presentation are available on the Investor Relations section of our website at ncdl.com. Now I would like to turn the call over to Ken.

Ken Kencel: Thank you, Robert. Good morning, everyone, and thank you all for joining us today. During my prepared remarks, I will discuss our results for the first quarter and then discuss our origination activity, portfolio positioning, and our forward outlook. After that, I will hand the call over to Shai for a more detailed discussion of our financial performance. Before I go through our financial results for the quarter, I would like to take a moment to comment on current market conditions and our positioning as a leader in the core middle market direct lending space. We have witnessed significant market volatility in the equity and credit markets over the past several weeks driven by the announcement and implementation by the current administration of broad-based tariffs, affecting global trade at least in the short term.

During periods of economic uncertainty like we are experiencing today, it is important to remain focused on our core values and pillars that have benefited Churchill over the past twenty years. We have deep expertise, substantial experience, strong relationships, significant size and scale, and a differentiated approach to sourcing and originating high-quality deal flow. Our ability to navigate these market conditions and environment stems from our experienced investment, operating, and management teams. Our leaders at Churchill have been investing and operating in the private credit market through various cycles, including the great financial crisis, COVID, the recent rate hike cycle, and other periods of volatility and challenging conditions.

While we expect near-term volatility to continue, driven by uncertainty around tariffs and the impact on the U.S. and global economies, we believe that we are well-positioned to continue delivering strong returns for our shareholders. We believe we are entering this uncertain economic time from a position of strength based on a number of key factors. First, our investment portfolio is largely concentrated in non-cyclical and service-oriented businesses. Second, our portfolio is highly diversified. Our average position size is one-half of 1%. Our largest investment is only 1.5% of the total portfolio, and our top 10 portfolio companies represent only 13% of the portfolio. Third, our conservative approach to underwriting is supported by several key metrics, including a weighted average portfolio company net leverage of under five times and an interest coverage ratio of 2.4 times at the end of the first quarter.

Fourth, our total non-accrual percentage remains extremely low at 0.4% of portfolio fair value at quarter-end. And finally, our balance sheet and capital structure remain strong with no near-term debt maturities. While it is still too early to tell where trade policy lands and the ultimate impact on the economy, we will lean in on our experience and conservative investment approach to navigate through these uncertain times. Historically, periods of stress and volatility in markets have led to attractive opportunities in the private credit market, and we are well-positioned to take advantage of these opportunities as they present themselves. Since the initial tariff announcements earlier this year, Churchill has been actively analyzing the potential implications across our portfolio on a borrower-by-borrower basis.

This review has been updated biweekly to reflect the evolving landscape. Following recent revisions to the previously announced tariffs, our team completed an updated assessment using the most current information available and held a comprehensive portfolio review with members of the investment committee, portfolio management, and risk teams. Our early findings suggest that the majority of the portfolio remains largely insulated from direct negative impacts related to new tariffs due to several key factors: a primarily domestic revenue base with over 90% of Nuveen Churchill Direct Lending Corp’s senior loan portfolio company revenues derived from the U.S., a significant portion of our portfolio is comprised of domestic service-oriented businesses, and many portfolio companies maintain flexible supply chains capable of shifting sourcing to less impacted geographies.

Finally, our borrowers have historically demonstrated the ability to preserve margins by passing through changes to input costs to end consumers. This analysis ultimately led us to categorizing each portfolio company as either low, medium, or high risk based on direct revenue, costs, and supply impacts from tariffs. In 10% of our overall portfolio, while we believe we are well insulated from the direct impact of tariffs, we are cognizant of the elevated level of macroeconomic risk and uncertainty in the current environment and are continuing to monitor our portfolio closely for signs of stress. We remain in close contact with private equity sponsors and borrowers, and our investment team will continue to monitor the portfolio as new information emerges and the impacts, both direct and indirect, become more evident.

Now turning to our results for the first quarter. We generated net investment income of $0.53 per share, which was impacted by one-time interest and debt financing expenses totaling $0.03 per share. Excluding these non-recurring items, net investment income totaled $0.56 per share, in line with our fourth quarter 2024 results. These results reflect the continued strong performance of our investment portfolio, as well as shareholder-friendly actions we implemented following our IPO, including the maintenance of our pre-IPO management fee rate and full waiver of incentive fees for five quarters, which concluded at the end of the first quarter. New originations totaled $166 million for the first quarter, compared to $163 million in the fourth quarter of last year.

Investment activity in the quarter was primarily focused on senior secured first lien loans. We remain focused on investing into our core traditional middle market pipeline, which we believe benefits from wider spreads and generally more attractive terms in the upper middle and broadly syndicated markets. Our net investment value was $17.96 per share at 03/31/2025, compared to $18.18 per share as of 12/31/2024. The decline in net asset value quarter over quarter was primarily due to modest valuation declines in some of our watch list names. In terms of the recent market environment, following the tariff announcements in early April, public credit markets have experienced increased volatility and spreads have widened, and the resurgence of the BSL market that we saw last year has taken an abrupt pause.

On the other hand, the private credit markets continue to operate efficiently, and direct lending deals are still getting done in this environment. In fact, nearly every deal that was in process prior to April has either gotten done or has continued to progress, and our investment team remains very busy. As I outlined earlier, historically, market volatility has led to attractive opportunities in the direct lending space, which has exhibited greater stability than the BSL market over time. Although we have not yet seen a material widening of spreads in our market, we would expect to see modestly wider spreads and more favorable lending terms should the current market volatility persist. Turning to our investment activity, at a platform level, Churchill continues to be extremely active, as investment activity volume was up 60% year over year in the first quarter.

This follows a record year in 2024 for the Churchill platform, investing over $13 billion across approximately 400 transactions for the full year. Nuveen Churchill Direct Lending Corp also benefited from the activity at the platform level. Our new commitments remain focused on senior lending, which represented 91% of Nuveen Churchill Direct Lending Corp’s origination activity in the first quarter. First lien debt remained steady as a percentage of the Nuveen Churchill Direct Lending Corp portfolio, representing over 90% of the fair value of the overall portfolio. One of the benefits of the Churchill platform is the size and scale of our incumbent portfolio, which we believe drives differentiated access to high-quality investment opportunities from our existing portfolio companies.

We also believe that continuing to invest in these companies that we know well leads to better long-term credit performance and reduces underwriting risk. In the first quarter, approximately 44% of our new commitments in Nuveen Churchill Direct Lending Corp were to existing borrowers or long-term Churchill relationships. In terms of the portfolio and credit quality, company performance across our overall portfolio remained healthy, which we believe reflects the quality of the deal flow we have experienced over the last several years, as well as our selective approach to investing and the diversification of our portfolio. Our weighted average internal risk rating remains at 4.1 versus an original rating of 4.0 for all of our investments at the time of origination, and our watch list remains at a very manageable level below 7% of fair value.

Additionally, as I mentioned earlier, we are pleased with the credit fundamentals within the Nuveen Churchill Direct Lending Corp portfolio, with portfolio company total net leverage of 4.9 times and interest coverage of 2.4x on traditional middle market first lien loans. These metrics are a direct result of conservative structuring and relatively low attachment points that we target when underwriting new transactions. This conservative approach has served us well in the elevated rate environment. During the first quarter, one portfolio company was placed on non-accrual status for the cost of $14.5 million and a fair value of $4.8 million. Despite this one addition, our total non-accrual percentage is still extremely low at 0.4% of fair value and 1% of cost as of March 31.

With a highly diversified portfolio of over 200 companies and only two names on non-accrual status, we believe that this metric compares favorably versus BDC industry averages. We continue to remain focused on diversification as a key risk mitigant tool in our investment portfolio. This has been achieved with a continued high level of selectivity facilitated by the significant proprietary deal flow our sourcing engine is able to generate from the breadth and depth of our PE relationships. As of March 31, we had 210 companies in our portfolio, and as I mentioned earlier, our top 10 portfolio companies represented only 13% of total fair value. This diversification is critical as we seek to maintain exceptional credit quality and originate additional attractive opportunities.

From a forward-looking perspective, in an uncertain economic environment, we will remain focused on maintaining underwriting discipline, selectively investing in high-quality companies, and proactively managing our current investment portfolio. Since the inception of the firm nearly twenty years ago, each time we have been faced with market dislocation, Churchill has not only navigated through these challenging conditions but also opportunistically taken advantage of such environments. We have been and continue to be a trusted and established investor in the core middle market with deep long-term relationships, which provides Nuveen Churchill Direct Lending Corp with a strong information and sourcing advantage. We remain confident in the company’s positioning as a leader in the core middle market direct lending space, given our long-standing track record, deep network of sponsor relationships, and extensive LP commitments across the broader Churchill platform, which have enabled us to continue to see a wide range of attractive investment opportunities while remaining highly selective.

And now I will turn the call over to Shai to discuss our financial results in more detail.

Shai Vichness: Thank you, Ken. Good morning, everyone. I will now review our first quarter results in more detail. We reported net investment income of $0.53 per share in the first quarter compared to $0.56 per share for the fourth quarter of 2024. As Ken mentioned in his remarks, net investment income in the quarter was negatively impacted by approximately $0.03 per share of non-recurring interest and debt financing expenses related to the acceleration of deferred financing costs associated with paying off and terminating our credit facility with Wells Fargo, as well as the impact of the reset of one of our CLOs. Both of these moves were aimed at optimizing our debt financing and reducing ongoing borrowing costs. Excluding these non-recurring expenses, net investment income was $0.56 per share in the first quarter.

Total investment income decreased to $53.6 million in the first quarter, compared to $57.1 million in the fourth quarter of 2024, primarily driven by a decline in interest income due to the decline in base rates. In April, we paid a total dividend of $0.55 per share, consisting of a regular quarterly dividend of $0.45 per share and a special dividend of $0.10 per share. In aggregate, this $0.55 per share dividend equates to an annualized yield of approximately 12% based on our quarter-end net asset value. As a reminder, the $0.10 special dividend paid in April was the fourth and final special dividend that we declared at the time of our IPO in January of 2024. In the first quarter, our total GAAP net income was $0.29 per share compared to $0.54 per share in the fourth quarter last year.

Our first quarter net income included $0.24 of net realized and unrealized losses, largely due to valuation declines in a few watch list names. Our gross debt-to-equity ratio at March 31 was 1.31 times, compared to 1.15x at year-end 2024, and our net debt-to-equity ratio net of cash was 1.25 times compared to 1.1 times at year-end 2024. At the end of the first quarter, our net asset value was $17.96 per share, compared to $18.18 per share at 12/31/2024. The decline was largely driven by the $0.24 per share of net realized and unrealized losses during the quarter and slightly offset by the impact of our share repurchases, which had a positive impact of approximately $0.04 per share. As of March 31, our investment portfolio had a fair value of $2.08 billion, in line with the fair value at year-end.

Gross originations totaled $166 million, and gross investment fundings totaled $153 million. This compares to $163 million and $151 million of gross originations and gross investment fundings, respectively, in the fourth quarter of last year. New originations accounted for 12 of the transactions done during the first quarter, totaling approximately $90 million. Additionally, we continue to benefit from add-on financing opportunities, which allow us to generate 11 deals in the form of incremental transactions with existing portfolio companies totaling approximately $25 million. We also saw drawdowns of approximately $37 million on our delayed draw term loans in the quarter, as our portfolio companies continue to be active in growing via acquisitions.

Repayments in the first quarter totaled 4.7% compared to 4.6% in the fourth quarter of last year and remained in line with our long-range assumption of 5% per quarter. We had full repayments on three deals totaling $53 million and partial prepayments for another $31 million. We also sold $65 million worth of upper middle market investments, continuing our strategy of rotating out of lower spread, upper middle market investments and into our traditional middle market pipeline. On a net basis, we deployed approximately $5 million during the first quarter. Looking ahead, we expect to continue to deploy capital primarily into traditional middle market transactions, rotate the portfolio away from more liquid upper middle market assets, and redeploy cash received from repayments.

Our total portfolio consisted of 210 names as of the end of the first quarter, in line with the number of names at year-end 2024. The investment portfolio remains highly diversified, with the top 10 portfolio companies accounting for only 13% of the fair value of the total portfolio, down slightly from 13.2% in the prior quarter. Our largest exposure is only 1.5% of the total, and our average position size is 0.5%. We continue to view this high level of diversification by position size as a key risk mitigation tool, particularly in today’s uncertain economic environment. As far as asset selection, our new originations during the quarter were weighted towards traditional middle market senior loans, representing more than 83% of the dollars deployed during the quarter, with the balance deployed into the upper middle market as well as into junior debt and equity investments.

This focus on the traditional middle market segment, we believe, will benefit Nuveen Churchill Direct Lending Corp shareholders as we see meaningfully higher spreads and tighter documentation terms in the traditional middle market versus the upper middle and BSL markets. Spreads in the quarter were largely unchanged, again in the 4.75% over range. Our weighted average yield on debt and income-producing investments at cost decreased slightly to 10.1% at the end of the first quarter from 10.3% at the end of the fourth quarter of last year. While new transactions during the quarter focused on first lien loans, we also opportunistically invested in a few subordinated debt transactions, which accounted for 8% of gross commitments. At the end of the first quarter, first lien loans represented 90.5% of the total portfolio, while junior debt and equity comprised 7.8% and 1.7%, respectively.

As a reminder, we remain committed to the target allocations that we communicated at the time of our IPO, with a target of 85% to 90% senior loans and the balance in junior debt and equity co-investments, with equity staying in that low single-digit percentage range. Turning to credit quality, as Ken mentioned earlier, we believe we are entering this period of economic uncertainty from a position of strength based on the overall quality of our investment portfolio. As an example, at the end of the first quarter, we had only two names on non-accrual, representing just 0.4% on a fair value basis and 1% at cost. Putting one portfolio company on non-accrual during the quarter. Additionally, our weighted average internal risk rating remained steady quarter over quarter at 4.1 at the end of the first quarter.

Our watch list, consisting of names with internal risk ratings of six or worse, also remains at a relatively low level of 6.7% at the end of the first quarter. And finally, our conservative approach to underwriting is highlighted by our weighted average net leverage of 4.9 times and interest coverage of 2.4 times for our traditional middle market senior loans at the end of the quarter. As far as the right-hand side of our balance sheet is concerned, specifically leverage utilization, our debt-to-equity ratio increased to 1.31 times at March 31, compared to 1.15x at year-end 2024. On a net basis, our debt-to-equity ratio was 1.25 times net of our cash position at quarter-end. This incremental leverage utilization is in line with our expectations at the time of our IPO and was driven primarily by a reduction in our outstanding shares as a result of activity on our share repurchase program, the issuance of debt in connection with a reset of Nuveen Churchill Direct Lending Corp CLO1, and associated borrowings on our corporate revolver.

We expect to continue to be able to deploy capital efficiently and operate towards the upper end of our target range of one to 1.25 times debt-to-equity. As we spoke about on our last call, we also took an additional step towards optimizing our capital structure in the first quarter. In January of this year, we issued $300 million of unsecured notes due in 02/1930 at a fixed coupon of 6.65%, which we swapped to a floating rate of SOFR plus 230 basis points. We were pleased with the execution of our inaugural bond offering and the reception that we received from the capital markets. This issuance further diversified and strengthened our capital structure and balance sheet. In connection with our unsecured bond issuance, we received two grade ratings from Fitch and Moody’s.

Also in January, we terminated in full our Wells Fargo financing facility, using a portion of the proceeds from the unsecured note issuance to repay the outstanding borrowings on the facility. And finally, in February, we priced a reset of the Nuveen Churchill Direct Lending Corp CLO I transaction, reducing borrowing costs on the financing through the AA tranche, from SOFR plus 166 basis points to SOFR plus 143. In addition, we were able to secure a five-year reinvestment period, up from four years previously. With this reset, we replaced approximately $59 million CLO debt with borrowings on our corporate revolver. In aggregate, these transactions reduce the overall weighted average spread on our debt from SOFR plus 214 basis points to SOFR plus 202 basis points.

With over $200 million of available liquidity as of the end of the first quarter, and no near-term debt maturities, we remain well-positioned to take advantage of attractive investment opportunities, fund our unfunded commitments, and fund the remainder of our share repurchase program. As discussed, our focus for the near term is on optimizing the asset mix within the portfolio and actively reinvesting cash from repayments and sales. In advance of the expiration of our share repurchase plan in March, we extended the program for another twelve months, giving us additional time to utilize $99.3 million on authorization. Through May 2, we have utilized approximately $85 million under the program, leaving approximately $15 million remaining. The program increased its level of activity in early 2025 and in April based on the increased trading volume in the shares of Nuveen Churchill Direct Lending Corp and the recent volatility in the public equity markets, allowing us to purchase shares at a meaningful discount to NAV.

I will now turn it back to Ken for closing remarks.

Ken Kencel: Thank you, Shai. In closing, we believe we are well-positioned with respect to our high-quality investment portfolio, conservative investment approach, and strong capital structure to navigate the current market environment. Additionally, we continue to believe Nuveen Churchill Direct Lending Corp is uniquely positioned for long-term success and remain optimistic about the company’s outlook based on our experienced team and our long-term successful track record of investing and operating across various market conditions and cycles. Lastly, I would like to thank our team for its continued strong execution. And I would like to thank all of you for joining us today and your interest in Nuveen Churchill Direct Lending Corp. I will now turn the call over to the operator for Q&A.

Operator: Thank you. And at this time, we will conduct our question and answer session. Your first question comes from Brian McKenna with Citizens. Please state your question.

Q&A Session

Brian McKenna: Thanks. Good morning, everyone. I appreciate the detail on the $0.03 per share of non-recurring costs in the quarter. If I adjust for this, then, you know, layer in full management and incentive fees that will kick in during the second quarter, the implied NII is about $0.01 above the $0.45 regular quarterly dividend. I am assuming you still feel good about the quarterly dividend moving forward and the coverage there, but any thoughts would be helpful. And then I guess, too, are there any other levers you can pull to drive some incremental NII throughout the year? I know you are still maybe remixing the portfolio. So maybe just hash out that opportunity as well.

Shai Vichness: Yes. Hey, Brian. Thanks for the question. It is Shai here. So on both of those, with respect to the dividend coverage going forward, I think your math is directionally accurate, right, in terms of the effect of the increase in the management fee as well as the implementation of the incentive fee going forward. So that I think is correct. With respect to our ability to continue to cover, we set that $0.45 kind of regular dividend level with that in mind, right? So thinking about kind of what our forward assessment is of the earnings power of the vehicle and the ability to cover that dividend. So the short answer is yes. We continue to feel good about our ability to cover the dividend for the foreseeable future.

Obviously, as we evaluate the macro situation and sort of where base rates go in the future, you know, that will be something that we discuss and focus on. But we did all that with the forward view in mind and a high degree of confidence in our ability to continue to earn that dividend at the $0.45 level. In terms of the other levers that we can pull, I think there are a few factors there, right? One is we think about the current environment and what does that mean for ongoing sort of spreads in the marketplace. You know, interestingly, we have seen spreads be, you know, basically unchanged for the last three quarters now. If you look at our new origination activity, and we are really not seeing continued tightening of spreads. If anything, we would expect spreads to start going the other way.

I think there is an opportunity there to eke out some incremental yield in the portfolio. We also still have a reasonable amount of rotation left to go. You will have seen and heard in my comments, we sold $65 million of upper middle market sort of liquid assets, which tend to be lower spread last quarter. We will continue to seek opportunities for that rotation trade as we move forward. Obviously, the redeployment of any repayments that we get, so I think there is an opportunity there to drive some incremental earnings. And then the last piece of it is just sort of the liability management exercise and thinking about our financings. Including if you look at our CLOs, we have a couple in there that have higher cost of capital than where the current market is.

And as those exit their non-call periods, we will be evaluating those as opportunities to continue to bring down our cost of financing going forward.

Brian McKenna: Okay, great. That is helpful. And then just on buyback, leverage is sitting kind of at the upper end of the target. I think you feel comfortable with it there, but stocks trading at almost 80% of NAV today. So does it make sense to lean in more opportunistically on repurchase? And then did you disclose the actual amounts for how much you bought back in the first quarter? And then how much you bought back quarter to date? And then I know you mentioned you extended the buyback. You have $15 million left on the remaining authorization. So did you keep the $15 million unchanged or why not increase that just given where the stock is trading?

Shai Vichness: Yes. So a couple of comments there. Maybe taking kind of in reverse order. So in terms of the extension of the authorization, we did extend the timing. So we kicked it out another twelve months. We did not touch yet the amount on authorization. That is a conversation that we have regularly, obviously, internally with our board, and we will continue to evaluate sort of that trade, right, whether it is appropriate to increase or not. One thing I would comment on, though, is in terms of just your question about being opportunistic is that the program is designed in and of itself to effectively be opportunistic on a programmatic basis. And what I mean by that is it is structured such that as the discount to NAV increases, the percentage of average daily trading volume that we are buying increases, and that is designed to do exactly that, right, take advantage of the deeper discounts.

So the level of activity under the program as we moved into this year and certainly kind of post, you know, Liberation Day, you know, became more active. So I think we are taking advantage of that opportunity. And I think you can sort of do the math right in terms of what we disclosed last quarter in terms of how much we purchased versus how much we purchased through this quarter and then through the quarter to date, which is the May date that we just referenced on the call. So I believe that number was something like $35 million to $40 million in purchases in Q1 and then an additional sort of $15 million or so in Q2 through the date that we just referenced.

Brian McKenna: Okay. That is super helpful. I will leave it there. Thank you.

Operator: Your next question comes from Douglas Harter with UBS. Please state your question.

Douglas Harter: Thanks. Can you just talk about your expectations for leverage, any willingness to kind of let that move a little bit higher if you see opportunities kind of in the current market, or is it going to be coming more from a rotation?

Shai Vichness: Yeah. So, I mean, I think we really are kind of committed to that range that we put out there, Doug. So it is really a function of again 1% to 1.25. We have said previously, and we have been consistent on this point all along, is that based on our view of the quality of our portfolio, the skew towards senior lending representing over 90% of the assets in the book, that we are comfortable operating at the upper end of that target range. And I expect we will kind of hold there, but we do have levers to pull to allow us to continue to be opportunistic in the market, namely the rotation, obviously, as we get repayments under our existing portfolio, the ability to redeploy. So we do have dry powder, but I do not know that we would be comfortable taking that leverage ratio much higher than what it is today, but I do think there still presents an opportunity for us to be opportunistic to take advantage of wider spreads and deploy as we see those opportunities.

So the answer to your question is kind of a bit of both, right? We will still remain active in the market. We will be opportunistic. We have more to go in terms of rotation. And given where broadly syndicated loans are bid, right, there is still an opportunity to sell at attractive levels in that upper middle market and kind of BSL category in our book and then rotate. And that is where we will look to do that. But again, our view right now is that we are really not intending to move leverage higher from here.

Douglas Harter: Thank you.

Shai Vichness: Thank you.

Operator: Our next question comes from Maxwell Fritscher with Truist Securities. Please state your question.

Maxwell Fritscher: Hi, good morning. I am calling in for Mark Hughes. You had noted that the direct lending or direct lending had taken back some share from the BSL market. Has this had any positive effects on competition in the core middle market, maybe some competitors going back up market?

Ken Kencel: Hey, Max. It is Ken. Thank you for the question. Look, I think that our size and scale in the core middle market and our ability to finance larger businesses is a real advantage right now. There are really just a handful of what I would call core middle market direct lenders that can step up and write significant checks to finance those businesses. And as a result, I feel like we are in a very nice position to be able to take advantage of those opportunities. So as we have seen, you know, historically in times of market stress, the liquid market tends to go offline. The larger scale direct lenders and certainly the core middle market lenders like ourselves can take advantage of that by stepping into that void. So I would expect that the companies we finance would skew larger over the next quarter or two.

I would also expect that they would continue to be of the highest quality. If you look at the market today, the deals that are really getting done are the A plus credits that can demonstrate no real tariff impact. You know, strong businesses with significant cash flow, market leaders. Shai, I think, mentioned on the call, and I did as well, that our deal flow remains very strong. In fact, we did not have a single deal as we moved from March to April and post-Liberation Day that did not continue to progress. And I think that speaks to the quality of the deals we are seeing. So I think the competitive dynamics will be better as a result of that scaling to larger opportunities and the large cap market really being waylaid. So we are looking forward to good opportunities.

We have not seen, interestingly, we have really not seen spreads move appreciably at this point, although the BSL market has moved a bit on the secondary side, 50 to 100 basis points. So we would absolutely expect spreads to move over the next several months in a positive way. Spreads today for high-quality mid-market deals in the core middle market are hovering in that 4.75% range, 4.75%, 5.00%. You know, I could certainly envision a scenario where they moved out a bit. And I certainly think the quality of the deal flow we are seeing and the size of the companies I would expect to be somewhat larger. So I think we are looking at an opportunity here, but an opportunity with what might be a somewhat reduced volume because it is really on the quality deals on the deals that can demonstrate really no tariff dynamics that are going to be the prevalence certainly of what we are financing.

So areas like software, healthcare, business services that are primarily domestic businesses, where there is demonstrated market leadership, strong cash flow, are really where we are going to focus. As you know, we have never been chasing, you know, kind of yield on marginal opportunities. So I think, you know, it is certainly possible that the overall level of deal flow in the core middle market may come in a notch just given the focus on quality. I think that will be offset and potentially even more than offset by the runway and the widening of that aperture of deals that we will see at the upper end of the market.

Maxwell Fritscher: Understood. Thank you. And you had mentioned your strong deal flow and strong new investments in the quarter. So I was just wondering how the pipeline is shaping up in terms of the mix of new versus incumbent borrowers and maybe in your answer, you kind of answered that in a different way. But yeah, so how is the pipeline shaping?

Ken Kencel: The pipeline remains quite good. And I think that the fact that our private equity and junior capital team is an LP in 300 private equity funds gives us kind of a built-in deal flow, if you will. When deals are getting done, the odds are very good. Certainly, with our LP base and our relationships, we are seeing them. So it has led to ongoing new investment activity that has enabled us to remain very selective. So the pipeline is actually quite good. And I think that is reflective of the fact that the quality that we are focusing on and the types of deals we are financing are generally non-tariff impacted. You see that in our current portfolio. I think we quoted 90% or so are companies that are either minimally or not impacted by tariffs.

And that continues to be the case in terms of what we are looking at today. So as a result, the pipeline looks quite good. And certainly, some of those deals are coming in that are a bit larger in size. That historically might have gone to the BSL market. So we are seeing some of that as well. We are certainly shying away from turning down, not pursuing credits where we think there is either a tariff implication in some way, shape, or form, either on the revenue side or the cost side, or businesses that we think have a higher probability of being impacted in any type of recessionary dynamic. I think overall, as we think about the market today, we still see tariffs as a tariff dynamic that we would hope would see some resolution in a reasonable period of time here.

Just given the dynamics, both political and economic, that would mitigate in favor of that occurring. But we, of course, are mindful of the fact that if we do slip into more of a recessionary dynamic, we need to be financing companies that are really in recession-resistant industries and market leaders. So that being said, the pipeline is good. We are staying very selective. And it tends to skew larger. But at this point, we have not seen any appreciable widening of spreads. But we are certainly hopeful that we would start to see it as we move through the quarter.

Maxwell Fritscher: Thank you. And then last one for me, and sorry if I missed it in the prepared remarks. But with the understanding that there is a little bit of a lag effect, has the full impact of the base rate changes last quarter completely made its way through the portfolio?

Ken Kencel: Yes. So I think you are right, Max. It is essentially a one-quarter lag, if you will, with respect to how the assets reset. Now they do not all reset exactly on quarter-end. But again, our view is that when we think about the weighted average SOFR that we experienced during the quarter, it was roughly 4.3, down about 15 basis points from the prior quarter. So again, as you think about the forward curve and kind of what that means, I think it is fair to assume sort of a one-quarter lag relative to the curve, noting obviously that the curve and then what really plays out in terms of SOFR obviously can differ materially.

Maxwell Fritscher: Very good. Thanks, Shai. Thanks, Ken.

Ken Kencel: Thank you.

Operator: Thank you. And we have reached the end of the question and answer session. I will now turn the call over to Ken Kencel for closing remarks.

Ken Kencel: Great. Well, thank you, operator, and thank you all for joining us today. We remain very much open to taking your calls. Any follow-up questions you may have, we are certainly available to respond. As a general matter, as we indicated, we feel well-positioned in the market environment going forward. Significant dry powder across our platform and within the BDC ability to take advantage of those opportunities as they become available. And again, thank you for joining the call. We look forward to taking time to talk with you next quarter.

Operator: Thank you. This concludes today’s conference. You may disconnect your lines at this time. Thank you for your participation.