UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM
(Mark One)
For the quarterly period ended
OR
For the transition period from to
Commission file number
(Exact Name of Registrant as Specified in Its Charter)
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(State or Other Jurisdiction of Incorporation or Organization) |
(I.R.S. Employer Identification No.) |
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(Address of Principal Executive Offices) |
(Zip Code) |
Registrant’s Telephone Number, Including Area Code: (
Not applicable
Former Name, Former Address and Former Fiscal Year, If Changed Since Last Report.
Securities registered pursuant to Section 12(b) of the Act.
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Title of each class
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Trading Symbol(s)
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Name of each exchange on which registered
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None |
Not applicable |
Not applicable |
Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer |
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Accelerated filer |
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Smaller reporting company |
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Emerging growth company |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Securities Exchange Act of 1934). Yes ☐ No
As of March 31, 2024, there was no established public market for the Registrant’s common units. The number of the Registrant’s common units outstanding at May 10, 2024 was
Auditor Firm Id: 34 Auditor Name: Deloitte & Touche LLP Auditor Location: Los Angeles, CA, U.S.A.
TCW DIRECT LENDING LLC
FORM 10-Q FOR THE QUARTER ENDED March 31, 2024
Table of Contents
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INDEX
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PAGE
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PART I. |
FINANCIAL INFORMATION |
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Item 1. |
Financial Statements |
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Consolidated Schedules of Investments as of March 31, 2024 (unaudited) and December 31, 2023 |
3 |
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13 |
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Consolidated Statements of Operations for the three months ended March 31, 2024 and 2023 (unaudited) |
14 |
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15 |
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Consolidated Statements of Cash Flows for the three months ended March 31, 2024 and 2023 (unaudited) |
16 |
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17 |
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Item 2. |
Management’s Discussion and Analysis of Financial Condition and Results of Operations |
31 |
Item 3. |
40 |
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Item 4. |
40 |
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PART II. |
40 |
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Item 1. |
40 |
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Item 1A. |
40 |
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Item 2. |
40 |
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Item 3. |
41 |
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Item 4. |
41 |
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Item 5. |
41 |
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Item 6. |
42 |
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43 |
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TCW DIRECT LENDING LLC
Consolidated Schedule of Investments (Unaudited)
As of March 31, 2024
Industry |
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Issuer |
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Acquisition |
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Investment |
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% of Net Assets |
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Par |
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Maturity |
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Amortized |
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Fair Value |
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DEBT(1) |
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Distributors |
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Animal Supply Company, LLC(2)(3) |
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Term Loan - |
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% |
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$ |
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$ |
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$ |
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Retail & Animal Intermediate, LLC(3) |
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Delayed Draw Priming Term Loan - |
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% |
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% |
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Diversified Consumer Services |
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SSI Parent, LLC (fka School Specialty, Inc.)(4) |
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Term Loan - |
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% |
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% |
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Hotels, Restaurants & Leisure |
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Ruby Tuesday Operations LLC(4) |
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Term Loan - |
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% |
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Ruby Tuesday Operations LLC(4) |
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Incremental Term Loan - |
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% |
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% |
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Household Durables |
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Term Loan - |
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% |
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Incremental Term Loan - |
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% |
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% |
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Industrial Conglomerates |
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Term Loan - |
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% |
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Revolver - |
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% |
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% |
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Metals & Mining |
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Pace Industries, Inc.(2) (4) |
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HoldCo Term Loan - |
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% |
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Pace Industries, Inc.(4) |
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Term Loan - |
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% |
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Pace Industries, Inc.(4) |
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Revolver - |
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% |
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% |
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Pharmaceuticals |
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Noramco, LLC |
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Term Loan - |
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% |
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% |
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Total Debt Investments |
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% |
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3
TCW DIRECT LENDING LLC
Consolidated Schedule of Investments (Unaudited) (Continued)
As of March 31, 2024
Industry |
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Issuer |
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Investment |
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% of Net |
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Shares |
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Amortized |
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Fair Value |
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EQUITY |
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Diversified Consumer Services |
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SSI Parent, LLC (fka School Specialty, Inc.)(4)(5)(7) |
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Class A Preferred Stock |
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% |
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$ |
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$ |
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SSI Parent, LLC (fka School Specialty, Inc.)(4)(5)(7) |
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Class B Preferred Stock |
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% |
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SSI Parent, LLC (fka School Specialty, Inc.)(4)(5)(7) |
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Common Stock |
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% |
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% |
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Hotels, Restaurants & Leisure |
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RT Holdings Parent, LLC(2)(4)(7) |
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Class A Units |
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% |
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RT Holdings Parent, LLC(2)(4)(7) |
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Warrant, expires |
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% |
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RT Holdings Parent, LLC(2)(4)(7) |
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Class P-1 Units |
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% |
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RT Holdings Parent, LLC(2)(4)(7) |
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Class P-2 Units |
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% |
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% |
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Household Durables |
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Cedar Ultimate Parent, LLC(2)(4)(7) |
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Class A Preferred Units |
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% |
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Cedar Ultimate Parent, LLC(2)(4)(7) |
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Class E Common Units |
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% |
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Cedar Ultimate Parent, LLC(2)(4)(7) |
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Class D Preferred Units |
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% |
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% |
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Investment Funds & Vehicles |
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TCW Direct Lending Strategic Ventures(2)(4)(6) |
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Common membership Interests |
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% |
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TCW Direct Lending Strategic Ventures(4)(6) |
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Preferred membership Interests |
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% |
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% |
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Metals & Mining |
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Pace Industries, Inc.(2)(4)(7) |
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Common Stock |
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% |
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% |
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Technologies Hardware, Storage and Peripherals |
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Quantum Corporation(2) |
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Common Stock |
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% |
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% |
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Total Equity Investments |
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% |
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Total Debt & Equity Investments(8) |
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% |
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Cash Equivalents |
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First American Government Obligation Fund, Yield |
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% |
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Total Cash Equivalents |
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% |
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Short-term Investments |
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U.S. Treasury Bill, Yield |
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% |
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Total Short-term Investments |
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% |
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Total Investments ( |
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$ |
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$ |
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Net unrealized depreciation on unfunded commitments (- |
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( |
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Liabilities in Excess of Other Assets (- |
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( |
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Net Assets ( |
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$ |
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4
TCW DIRECT LENDING LLC
Consolidated Schedule of Investments (Unaudited) (Continued)
As of March 31, 2024
Name of Investment |
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Fair Value at December 31, 2023 |
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Gross Addition (a) |
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Gross Reduction (b) |
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Realized Gains |
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Net Change in |
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Fair Value at March 31, 2024 |
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Interest/Dividend/ |
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Animal Supply Holdings LLC Term Loan - 8.5% |
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$ |
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$ |
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$ |
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$ |
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$ |
( |
) |
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$ |
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$ |
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Retail & Animal Intermediate, LLC Delayed Draw Priming Term Loan |
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Total Non-Controlled Affiliated Investments |
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$ |
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$ |
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$ |
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$ |
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$ |
( |
) |
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$ |
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$ |
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5
TCW DIRECT LENDING LLC
Consolidated Schedule of Investments (Unaudited) (Continued)
As of March 31, 2024
Name of Investment |
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Fair Value at December 31, 2023 |
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Gross Addition (a) |
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Gross Reduction (b) |
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Realized Gains |
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Net Change |
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Fair Value at March 31, 2024 |
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Interest/Dividend/ |
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Cedar Electronics Holdings, Corp Incremental Term Loan - |
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$ |
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$ |
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$ |
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$ |
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$ |
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$ |
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$ |
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Cedar Electronics Holdings, Corp Term Loan - |
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Cedar Ultimate Parent, LLC Class A Preferred Unit |
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( |
) |
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Cedar Ultimate Parent, LLC Class D Preferred Unit |
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Cedar Ultimate Parent, LLC Class E Preferred Unit |
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Pace Industries, Inc. Common Stock |
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Pace Industries, Inc. Term Loan - |
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Pace Industries, Inc. Term Loan - |
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Pace Industries, LLC Revolver Opco |
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RT Holdings Parent, LLC Class A Unit |
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( |
) |
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RT Holdings Parent, LLC Warrant |
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( |
) |
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Ruby Tuesday Operations, LLC Term Loan |
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Ruby Tuesday Operations, LLC Incremental Term Loan |
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( |
) |
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Ruby Tuesday P-1 Units |
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( |
) |
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Ruby Tuesday P-2 Units |
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( |
) |
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School Specialty, Inc. Common Stock |
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( |
) |
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School Specialty, Inc. Preferred Stock A |
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School Specialty, Inc. Preferred Stock B |
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School Specialty, Inc. Term Loan - |
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( |
) |
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( |
) |
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TCW Direct Lending Strategic Ventures LLC Common Membership Interests |
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|
|
|
|
|
|
|
|
|
|
|
|||||||
TCW Direct Lending Strategic Ventures LLC Preferred Membership Interests |
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|
|
( |
) |
|
|
|
|
|
|
|||||
Total Controlled Affiliated Investments |
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|
$ |
|
|||||
6
TCW DIRECT LENDING LLC
Consolidated Schedule of Investments (Unaudited) (Continued)
As of March 31, 2024
SOFR - Secured Overnight Financing Rate, generally 1-Month or 3-Month
Aggregate acquisitions and aggregate dispositions of investments, other than government securities, totaled $
Geographic Breakdown of Portfolio |
|
|
|
|
United States |
|
|
% |
|
See Notes to Consolidated Financial Statements.
7
TCW DIRECT LENDING LLC
Consolidated Schedule of Investments
As of December 31, 2023
Industry |
|
Issuer |
|
Acquisition |
|
Investment |
|
% of Net Assets |
|
|
Par |
|
|
Maturity |
|
Amortized |
|
|
Fair Value |
|
||||
|
|
DEBT(1) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Distributors |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
|
|
Animal Supply Company, LLC(2)(3) |
|
|
Term Loan - |
|
|
% |
|
$ |
|
|
|
$ |
|
|
$ |
|
||||||
|
|
Retail & Animal Intermediate, LLC(3) |
|
|
Delayed Draw Priming Term Loan - |
|
|
% |
|
|
|
|
|
|
|
|
|
|
||||||
|
|
|
|
|
|
|
|
|
% |
|
|
|
|
|
|
|
|
|
|
|
||||
Diversified Consumer Services |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
|
|
SSI Parent, LLC (fka School Specialty, Inc.)(4) |
|
|
Term Loan - |
|
|
% |
|
|
|
|
|
|
|
|
|
|
||||||
|
|
|
|
|
|
|
|
|
% |
|
|
|
|
|
|
|
|
|
|
|
||||
Hotels, Restaurants & Leisure |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
|
|
Ruby Tuesday Operations LLC(4) |
|
|
Term Loan - |
|
|
% |
|
|
|
|
|
|
|
|
|
|
||||||
|
|
Ruby Tuesday Operations LLC(4) |
|
|
Incremental Term Loan - |
|
|
% |
|
|
|
|
|
|
|
|
|
|
||||||
|
|
|
|
|
|
|
|
|
% |
|
|
|
|
|
|
|
|
|
|
|
||||
Household Durables |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
|
|
|
|
|
Term Loan - |
|
|
% |
|
|
|
|
|
|
|
|
|
|
||||||
|
|
|
|
|
Incremental Term Loan - |
|
|
% |
|
|
|
|
|
|
|
|
|
|
||||||
|
|
|
|
|
|
|
|
|
% |
|
|
|
|
|
|
|
|
|
|
|
||||
Industrial Conglomerates |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
|
|
|
|
|
Term Loan - |
|
|
% |
|
|
|
|
|
|
|
|
|
|
||||||
|
|
|
|
|
|
|
|
|
% |
|
|
|
|
|
|
|
|
|
|
|
||||
Metals & Mining |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
|
|
Pace Industries, Inc.(2) (4) |
|
|
HoldCo Term Loan - |
|
|
% |
|
|
|
|
|
|
|
|
|
|
||||||
|
|
Pace Industries, Inc.(4) |
|
|
Term Loan - |
|
|
% |
|
|
|
|
|
|
|
|
|
|
||||||
|
|
Pace Industries, Inc.(4) |
|
|
Revolver - |
|
|
% |
|
|
|
|
|
|
|
|
|
|
||||||
|
|
|
|
|
|
|
|
|
% |
|
|
|
|
|
|
|
|
|
|
|
||||
Pharmaceuticals |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
|
|
Noramco, LLC |
|
|
Term Loan - |
|
|
% |
|
|
|
|
|
|
|
|
|
|
||||||
|
|
|
|
|
|
|
|
|
% |
|
|
|
|
|
|
|
|
|
|
|
||||
|
|
Total Debt Investments |
|
|
|
|
|
|
% |
|
|
|
|
|
|
|
|
|
|
|
||||
8
TCW DIRECT LENDING LLC
Consolidated Schedule of Investments (Continued)
As of December 31, 2023
Industry |
|
Issuer |
|
Investment |
|
% of Net |
|
|
Shares |
|
|
Amortized |
|
|
Fair Value |
|
||||
|
|
EQUITY |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Diversified Consumer Services |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
|
|
SSI Parent, LLC (fka School Specialty, Inc.)(4)(5)(7) |
|
Class A Preferred Stock |
|
|
% |
|
|
|
|
$ |
|
|
$ |
|
||||
|
|
SSI Parent, LLC (fka School Specialty, Inc.)(4)(5)(7) |
|
Class B Preferred Stock |
|
|
% |
|
|
|
|
|
|
|
|
|
||||
|
|
SSI Parent, LLC (fka School Specialty, Inc.)(4)(5)(7) |
|
Common Stock |
|
|
% |
|
|
|
|
|
|
|
|
|
||||
|
|
|
|
|
|
|
% |
|
|
|
|
|
|
|
|
|
||||
Hotels, Restaurants & Leisure |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
|
|
RT Holdings Parent, LLC(2)(4)(7) |
|
Class A Units |
|
|
% |
|
|
|
|
|
|
|
|
|
||||
|
|
RT Holdings Parent, LLC(2)(4)(7) |
|
Warrant, expires |
|
|
% |
|
|
|
|
|
|
|
|
|
||||
|
|
RT Holdings Parent, LLC(2)(4)(7) |
|
Class P-1 Units |
|
|
% |
|
|
|
|
|
|
|
|
|
||||
|
|
RT Holdings Parent, LLC(2)(4)(7) |
|
Class P-2 Units |
|
|
% |
|
|
|
|
|
|
|
|
|
||||
|
|
|
|
|
|
|
% |
|
|
|
|
|
|
|
|
|
||||
Household Durables |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
|
|
Cedar Ultimate Parent, LLC(2)(4)(7) |
|
Class A Preferred Units |
|
|
% |
|
|
|
|
|
|
|
|
|
||||
|
|
Cedar Ultimate Parent, LLC(2)(4)(7) |
|
Class E Common Units |
|
|
% |
|
|
|
|
|
|
|
|
|
||||
|
|
Cedar Ultimate Parent, LLC(2)(4)(7) |
|
Class D Preferred Units |
|
|
% |
|
|
|
|
|
|
|
|
|
||||
|
|
|
|
|
|
|
% |
|
|
|
|
|
|
|
|
|
||||
Investment Funds & Vehicles |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
|
|
TCW Direct Lending Strategic Ventures(2)(4)(6) |
|
Common membership Interests |
|
|
% |
|
|
|
|
|
|
|
|
|
||||
|
|
TCW Direct Lending Strategic Ventures(4)(6) |
|
Preferred membership Interests |
|
|
% |
|
|
|
|
|
|
|
|
|
||||
|
|
|
|
|
|
|
% |
|
|
|
|
|
|
|
|
|
||||
Metals & Mining |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
|
|
Pace Industries, Inc.(2)(4)(7) |
|
Common Stock |
|
|
% |
|
|
|
|
|
|
|
|
|
||||
|
|
|
|
|
|
|
% |
|
|
|
|
|
|
|
|
|
||||
Technologies Hardware, Storage and Peripherals |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
|
|
Quantum Corporation(2) |
|
Common Stock |
|
|
% |
|
|
|
|
|
|
|
|
|
||||
|
|
|
|
|
|
|
% |
|
|
|
|
|
|
|
|
|
||||
|
|
Total Equity Investments |
|
|
|
|
% |
|
|
|
|
|
|
|
|
|
||||
|
|
Total Debt & Equity Investments(8) |
|
|
|
|
% |
|
|
|
|
|
|
|
|
|
||||
|
|
Cash Equivalents |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
|
|
First American Government Obligation Fund, Yield |
|
|
|
|
% |
|
|
|
|
|
|
|
|
|
||||
|
|
Total Cash Equivalents |
|
|
|
|
% |
|
|
|
|
|
|
|
|
|
||||
|
|
Short-term Investments |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
|
|
U.S. Treasury Bill, Yield |
|
|
|
|
% |
|
|
|
|
|
|
|
|
|
||||
|
|
Total Short-term Investments |
|
|
|
|
% |
|
|
|
|
|
|
|
|
|
||||
|
|
Total Investments ( |
|
|
|
|
|
|
|
|
|
$ |
|
|
$ |
|
||||
|
|
Net unrealized depreciation on unfunded commitments (- |
|
|
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|||
|
|
Liabilities in Excess of Other Assets (- |
|
|
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|||
|
|
Net Assets ( |
|
|
|
|
|
|
|
|
|
|
|
|
$ |
|
||||
9
TCW DIRECT LENDING LLC
Consolidated Schedule of Investments (Continued)
As of December 31, 2023
Name of Investment |
|
Fair Value at December 31, 2022 |
|
|
Gross Addition(a) |
|
|
Gross Reduction(b) |
|
|
Realized Gains |
|
|
Net Change in |
|
|
Fair Value at December 31, 2023 |
|
|
Interest/Dividend/ |
|
|||||||
Animal Supply Holdings LLC Class A Common |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|
$ |
|
|
$ |
|
||||||
Animal Supply Company, LLC Term Loan - 9.50% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|
|
|
||||||
Guardia LLC (fka Carrier & Technology, LLC) Revolver - |
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
( |
) |
|
|
|
|
|
|
|||||
PNI Litigation Trust (fka Guardia) Preferred Equity |
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|
|
|
|
|
|
||||||
Retail & Animal Intermediate, LLC Delayed Draw Priming Term Loan |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|
|
|
||||||
Retail and Animal Intermediate Subordinated Loan - |
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|
|
|
|
|
|
||||||
Total Non-Controlled Affiliated Investments |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|
$ |
|
|
$ |
|
||||||
10
TCW DIRECT LENDING LLC
Consolidated Schedule of Investments (Continued)
As of December 31, 2023
Name of Investment |
|
Fair Value at December 31, 2022 |
|
|
Gross Addition(a) |
|
|
Gross Reduction(b) |
|
|
Realized Gains |
|
|
Net Change |
|
|
Fair Value at December 31, 2023 |
|
|
Interest/Dividend/ |
|
|||||||
Cedar Electronics Holdings, Corp Incremental Term Loan - |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|||||||
Cedar Electronics Holdings, Corp Term Loan - |
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|
|
( |
) |
|
|
|
|
|
|
|||||
Cedar Ultimate Parent, LLC Class A Preferred Unit |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
Cedar Ultimate Parent, LLC Class D Preferred Unit |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
Cedar Ultimate Parent, LLC Class E Preferred Unit |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
Pace Industries, Inc. Common Stock |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
Pace Industries, Inc. Term Loan - |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|
|
|
||||||
Pace Industries, Inc. Term Loan - |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|
|
|
||||||
Pace Industries, LLC Revolver Opco |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|
|
|
||||||
RT Holdings Parent, LLC Class A Unit |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
RT Holdings Parent, LLC Warrant |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
Ruby Tuesday Operations, LLC Term Loan |
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Ruby Tuesday Operations, LLC Incremental Term Loan |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
Ruby Tuesday Operations, LLC Revolver - |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
Ruby Tuesday P-1 Units |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
Ruby Tuesday P-2 Units |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
SSI Parent, LLC (fka School Specialty, Inc.) Common Stock |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
SSI Parent, LLC (fka School Specialty, Inc.) Preferred Stock A |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
SSI Parent, LLC (fka School Specialty, Inc.) Preferred Stock B |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
SSI Parent, LLC (fka School Specialty, Inc.) Term Loan - |
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|
|
( |
) |
|
|
|
|
|
|
|||||
TCW Direct Lending Strategic Ventures LLC Common Membership Interests |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
TCW Direct Lending Strategic Ventures LLC Preferred Membership Interests |
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Total Controlled Affiliated Investments |
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|
$ |
|
|||||
11
TCW DIRECT LENDING LLC
Consolidated Schedule of Investments (Continued)
As of December 31, 2023
SOFR - Secured Overnight Financing Rate, generally 1-Month or 3-Month
Aggregate acquisitions and aggregate dispositions of investments, other than government securities, totaled $
Country Breakdown Portfolio |
|
|
|
|
United States |
|
|
% |
|
See Notes to Consolidated Financial Statements.
12
TCW DIRECT LENDING LLC
Consolidated Statements of Assets and Liabilities
(Dollar amounts in thousands, except unit data)
March 31, 2024
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As of March 31, |
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2024 |
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As of December 31, |
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(unaudited) |
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2023 |
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Assets |
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Investments, at fair value |
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Non-controlled/non-affiliated investments (amortized cost of $ |
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$ |
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$ |
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Non-controlled affiliated investments (amortized cost of $ |
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Controlled affiliated investments (amortized cost of $ |
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Cash and cash equivalents |
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Short-term investments |
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Interest receivable |
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Deferred financing costs |
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Prepaid and other assets |
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Total Assets |
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$ |
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$ |
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Liabilities |
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Payable for short-term investments purchased |
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$ |
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$ |
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Credit facility payable |
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Unrealized depreciation on unfunded commitments |
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Interest and credit facility expense payable |
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Directors' fees payable |
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Other accrued expenses and other liabilities |
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Total Liabilities |
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Commitments and Contingencies (Note 5) |
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Members’ Capital |
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Common Unitholders’ commitment: ( |
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Common Unitholders’ undrawn commitment: ( |
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( |
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( |
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Common Unitholders’ return of capital |
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( |
) |
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( |
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Common Unitholders’ offering costs |
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( |
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( |
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Accumulated Common Unitholders’ tax reclassification |
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( |
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( |
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Common Unitholders’ capital |
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Accumulated overdistributed earnings |
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( |
) |
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( |
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Total Members’ Capital |
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Total Liabilities and Members’ Capital |
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$ |
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$ |
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Net Asset Value Per Unit (accrual base) (Note 10) |
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$ |
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$ |
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See Notes to Consolidated Financial Statements.
13
TCW DIRECT LENDING LLC
Consolidated Statements of Operations (Unaudited)
(Dollar amounts in thousands, except unit data)
March 31, 2024
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For the three months ended March 31, |
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2024 |
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2023 |
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Investment Income |
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Non-controlled/non-affiliated investments: |
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Interest income |
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$ |
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$ |
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Interest income paid-in-kind |
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Other fee income |
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Non-controlled affiliated investments: |
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Interest income |
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Interest income paid-in-kind |
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Other fee income |
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Controlled affiliated investments: |
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Interest income |
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Interest income paid-in-kind |
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Dividend income |
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Other fee income |
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Total investment income |
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Expenses |
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Interest expense on repurchase transactions |
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Interest and credit facility expenses |
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Management fees |
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Professional fees |
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Administrative fees |
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Directors’ fees |
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Other expenses |
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Total expenses |
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Expenses waived by the Adviser |
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( |
) |
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Net expenses |
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Net investment income |
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Net realized and unrealized (loss) gain on investments |
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Net change in unrealized appreciation/(depreciation): |
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Non-controlled/non-affiliated investments |
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( |
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Non-controlled affiliated investments |
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( |
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( |
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Controlled affiliated investments |
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( |
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( |
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Net realized gain on short-term investments |
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Net realized and unrealized loss on investments |
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( |
) |
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( |
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Net decrease in Members’ Capital from operations |
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$ |
( |
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$ |
( |
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Basic and diluted: |
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Loss per unit |
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$ |
( |
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$ |
( |
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See Notes to Consolidated Financial Statements.
14
TCW DIRECT LENDING LLC
Consolidated Statements of Changes in Members' Capital (Unaudited)
(Dollar amounts in thousands, except unit data)
March 31, 2024
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Common |
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Accumulated Undistributed (Overdistributed) Earnings |
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Total |
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Members’ Capital at January 1, 2024 |
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$ |
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$ |
( |
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$ |
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Net Increase (Decrease) in Members’ Capital Resulting from Operations: |
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Net investment income |
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Net realized gain on investments |
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Net change in unrealized appreciation/(depreciation) on investments |
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( |
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( |
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Distributions to Members from: |
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Distributable earnings |
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( |
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( |
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Total Decrease in Members’ Capital for the three months ended March 31, 2024 |
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( |
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( |
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Members’ Capital at March 31, 2024 |
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$ |
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$ |
( |
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$ |
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Common |
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Accumulated Undistributed (Overdistributed) Earnings |
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Total |
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Members’ Capital at January 1, 2023 |
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$ |
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$ |
( |
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$ |
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Net Increase (Decrease) in Members’ Capital Resulting from Operations: |
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Net investment income |
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Net realized gain on investments |
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Net change in unrealized appreciation/(depreciation) on investments |
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( |
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( |
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Total Decrease in Members’ Capital for the three months ended March 31, 2023 |
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( |
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( |
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Members’ Capital at March 31, 2023 |
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$ |
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$ |
( |
) |
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$ |
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See Notes to Consolidated Financial Statements.
15
TCW DIRECT LENDING LLC
Consolidated Statements of Cash Flows (Unaudited)
(Dollar amounts in thousands, except unit data)
March 31, 2024
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For the three months ended March 31, |
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2024 |
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2023 |
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Cash Flows from Operating Activities |
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Net decrease in net assets resulting from operations |
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$ |
( |
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$ |
( |
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Adjustments to reconcile the net decrease in net assets resulting from operations to net cash provided by operating activities: |
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Purchases of investments |
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( |
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( |
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Purchases of short-term investments |
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( |
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( |
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Interest income paid in-kind |
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( |
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( |
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Proceeds from sales and paydowns of investments |
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Proceeds from sales of short-term investments |
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Change in net unrealized (appreciation)/depreciation on investments |
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Amortization of premium and accretion of discount, net |
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( |
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( |
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Amortization of deferred financing costs |
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Increase (decrease) in operating assets and liabilities: |
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(Increase) decrease in interest receivable |
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( |
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(Increase) decrease in prepaid and other assets |
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Increase (decrease) in payable for short-term investments purchased |
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( |
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Increase (decrease) in management fees payable |
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( |
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Increase (decrease) in interest and credit facility expense payable |
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Increase (decrease) in directors’ fees payable |
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Increase (decrease) in other accrued expenses and liabilities |
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Net cash provided by (used in) operating activities |
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( |
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Cash Flows from Financing Activities |
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Distributions to Members |
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( |
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Deferred financing costs paid |
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( |
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Proceeds from credit facility |
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Net cash (used in) provided by financing activities |
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( |
) |
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Net (decrease) increase in cash and cash equivalents |
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( |
) |
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Cash and cash equivalents, beginning of period |
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Cash and cash equivalents, end of period |
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$ |
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$ |
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Supplemental and non-cash financing activities |
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Interest expense paid |
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$ |
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$ |
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See Notes to Consolidated Financial Statements.
16
TCW DIRECT LENDING LLC
Notes to Consolidated Financial Statements (Unaudited)
(Dollar amounts in thousands, except unit data)
March 31, 2024
1. Organization and Basis of Presentation
Organization: TCW Direct Lending LLC (“Company”) was formed as a Delaware corporation on
The Company has elected to be regulated as a business development company (“BDC”) under the Investment Company Act of 1940, as amended (the “1940 Act”). The Company has also elected to be treated for U.S. federal income tax purposes as a Regulated Investment Company (a “RIC”) under Subchapter M of the U.S Internal Revenue Code of 1986, as amended (the “Code”) for the taxable year ending December 31, 2015 and subsequent years. The Company is required to meet the minimum distribution and other requirements for RIC qualification and as a BDC and a RIC, the Company is required to comply with certain regulatory requirements.
As of March 31, 2024, the Company has wholly-owned subsidiaries, each of which is a Delaware limited liability company designed to hold an equity investment of the Company.
The consolidated financial statements in this quarterly report on Form 10-Q include the accounts of the Company and its wholly-owned subsidiaries. All significant intercompany transactions and balances have been eliminated in consolidation.
Term: The initial term of the Company continued until the sixth anniversary of the Initial Closing Date (as defined below), September 19, 2020. The Company may extend the term for
Commitment Period:
In October 2022, the Company’s Members approved a proposal to allow the Company to make pre-identified follow-on investments in specific portfolio companies as well as their holding companies, subsidiaries, successors or other affiliates, up to an aggregate maximum of
Capital Commitments: On September 19, 2014 (“the Initial Closing Date”), the Company began accepting subscription agreements from investors for the private sale of its Common Units. On March 19, 2015, the Company completed its final private placement of its Common Units. Subscription agreements with commitments (“Commitments”) from investors (each a “Common Unitholder”) totaling $
17
TCW DIRECT LENDING LLC
Notes to Consolidated Financial Statements (Unaudited) (Continued)
(Dollar amounts in thousands, except unit data)
March 31, 2024
1. Organization and Basis of Presentation (Continued)
The commitment amount funded does not include amounts contributed in anticipation of a potential investment that the Company did not consummate and therefore returned to the Members’ as unused capital.
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Commitments |
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Undrawn |
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% of |
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Units |
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Common Unitholder |
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$ |
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$ |
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% |
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Recallable Amount: A Common Unitholder may be required to re-contribute amounts distributed equal to
The Recallable Amount as of March 31, 2024 was $
2. Significant Accounting Policies
Basis of Presentation: The consolidated financial statements of the Company were prepared in accordance with accounting principles generally accepted in the United States (“GAAP”). The Company is an investment company following accounting and reporting guidance in Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 946, Financial Services—Investment Companies (“ASC 946”). The Company has consolidated the results of its wholly owned subsidiary in its consolidated financial statements in accordance with ASC 946.
Use of Estimates: The preparation of the consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect (i) the reported amounts of assets and liabilities at the date of the financial statements, (ii) the reported amounts of income and expenses during the years presented and (iii) disclosure of contingent assets and liabilities at the date of the consolidated financial statements. Actual results could differ from those estimates, and such differences could be material.
Investments: The Company measures the value of its investments in accordance with ASC Topic 820, Fair Value Measurements and Disclosure (“ASC 820”). Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Market participants are defined as buyers and sellers in the principal or most advantageous market (which may be a hypothetical market) that are independent, knowledgeable, and willing and able to transact. In accordance with ASC 820, the Company considers its principal market to be the market that has the greatest volume and level of activity.
Transactions: The Company records investment transactions on the trade date. The Company considers trade date for investments not traded on a recognizable exchange, or traded in the over-the-counter markets, to be the date on which the Company receives legal or contractual title to the asset and bears the risk of loss.
Income Recognition: Interest income and interest income paid-in-kind are recorded on an accrual basis unless doubtful of collection or the related investment is in default. Realized gains and losses on investments are recorded on a specific identification basis. The Company typically receives a fee in the form of a discount to the purchase price at the time it funds an investment in a loan. The discount is accreted to interest income over the life of the respective loan, using the effective-interest method assuming there are no questions as to collectability, and reflected in the amortized cost basis of the investment. Ongoing facility, commitment or other additional fees including prepayment fees, consent fees and forbearance fees are recognized as interest income in the period in which the fees were earned. Income received in exchange for the provision of services such as administration and managerial services is recognized as other fee income in the period in which it was earned.
The Company has entered into certain intercreditor agreements that entitle the Company to the “last out” tranche of first lien secured loans, whereby the “first out” tranche will receive priority as to the “last out” tranche with respect to payments of principal, interest, and any other amounts due thereunder. In certain cases, the Company may receive a higher interest rate than the contractual stated interest rate as disclosed on the Company’s Consolidated Schedule of Investments.
18
TCW DIRECT LENDING LLC
Notes to Consolidated Financial Statements (Unaudited) (Continued)
(Dollar amounts in thousands, except unit data)
March 31, 2024
2. Significant Accounting Policies (Continued)
Certain investments have an unfunded loan commitment for a delayed draw term loan or revolving credit. The Company earns an unused commitment fee on the unfunded commitment during the commitment period. The expiration date of the commitment period may be earlier than the maturity date of the investment stated above. See Note 5—Commitments and Contingencies.
Loans are generally placed on non-accrual status when principal or interest payments are past due 30 days or more or when there is reasonable doubt that principal or interest will be collected in full. Accrued and unpaid interest is generally reversed when a loan is placed on non-accrual status. Interest payments received on non-accrual loans may be recognized as income or applied to principal depending upon management’s judgment regarding collectability. Non-accrual loans are restored to accrual status when past due principal and interest is paid and, in management’s judgment, are likely to remain current. The Company may make exceptions to this policy if the loan has sufficient collateral value and is in the process of collection.
Deferred Financing Costs: Deferred financing costs incurred by the Company in connection with the revolving credit facility, including arrangement fees, upfront fees and legal fees, are amortized on a straight-line basis over the term of the revolving credit facility.
Organization and Offering Costs: The Company did not bear more than an amount equal to
Cash and Cash Equivalents: The Company generally considers investments with a maturity of three months or less at the time of acquisition to be cash equivalents. As of March 31, 2024, cash and cash equivalents is comprised of demand deposits and highly liquid investments with maturities of three months or less. Cash equivalents are carried at amortized costs which approximates fair value and are classified as Level 1 in the GAAP valuation hierarchy.
Short-term investments: The Company considers all investments with original maturities beyond three months at the date of purchase and one year or less from the balance sheet date to be short-term investments. As of March 31, 2024, short-term investments is comprised of U.S. Treasury bills, all of which are carried at fair value and are classified as Level 1 in the GAAP valuation hierarchy.
Income Taxes: So long as the Company maintains its status as a RIC, it generally will not pay corporate-level U.S. Federal income taxes on any ordinary income or capital gains that it distributes at least annually to its Members as dividends. Rather, any tax liability related to income earned and distributed by the Company represents obligations of the Company’s Members and will not be reflected in the consolidated financial statements of the Company.
Recent Accounting Pronouncements: In June 2022, the FASB issued ASU No. 2022-03, Fair Value Measurement of Equity Securities Subject to Contractual Sale Restrictions (“ASU 2022-03”). ASU 2022-03 (1) clarifies the guidance in ASC 820 on the fair value measurement of an equity security that is subject to a contractual sale restriction and (2) requires specific disclosures related to such an equity security. ASU 2022-03 is effective for fiscal years beginning after December 15, 2023 and interim periods within that fiscal year, with early adoption permitted. On
3. Investment Valuations and Fair Value Measurements
Investments at Fair Value: Investments held by the Company are valued at fair value. Fair value is generally determined on the basis of last reported sales prices or official closing prices on the primary exchange in which each security trades, or if no sales are reported, generally based on the midpoint of the valuation range obtained for debt investments from a quotation reporting system, established market makers or pricing service.
Investments for which market quotes are not readily available or are not considered reliable are valued at fair value according to procedures approved by the Board based on similar instruments, internal assumptions and the weighting of the best available pricing inputs.
Pursuant to Rule 2a-5 under the 1940 Act, the Board has designated the Adviser as the "valuation designee" with respect to the fair valuation of the Company's portfolio securities, subject to oversight by and periodic reporting to the Board.
19
TCW DIRECT LENDING LLC
Notes to Consolidated Financial Statements (Unaudited) (Continued)
(Dollar amounts in thousands, except unit data)
March 31, 2024
3. Investment Valuations and Fair Value Measurements (Continued)
Fair Value Hierarchy: Assets and liabilities are classified into three levels by the Company based on valuation inputs used to determine fair value:
Level 1 values are based on unadjusted quoted market prices in active markets for identical assets.
Level 2 values are based on significant observable market inputs, such as quoted prices for similar assets and quoted prices in inactive markets or other market observable inputs.
Level 3 values are based on significant unobservable inputs that reflect the Company’s determination of assumptions that market participants might reasonably use in valuing the assets.
Categorization within the hierarchy is based upon the lowest level of input that is significant to the fair value measurement. The valuation levels are not necessarily an indication of the risk associated with investing in those securities.
Level 1 Assets (Investments): The valuation techniques and significant inputs used to determine fair value are as follows:
Equity, (Level 1), includes common stock valued at the closing price on the primary exchange in which the security trades.
Level 3 Assets (Investments): The following valuation techniques and significant inputs are used to determine the fair value of investments in private debt and equity for which reliable market quotations are not available. Some of the inputs are independently observable however, a significant portion of the inputs and the internal assumptions applied are unobservable.
Debt, (Level 3), include investments in privately originated senior secured debt. Such securities are valued based on specific pricing models, internal assumptions and the weighting of the best available pricing inputs. An income method approach incorporating a weighted average cost of capital and discount rate or a market method approach using prices and other relevant information generated by market transactions involving identical or comparable assets are generally used to determine fair value, though some cases use an enterprise value waterfall method. Valuation may also include a shadow rating method. Standard pricing inputs include but are not limited to the financial health of the issuer, place in the capital structure, value of other issuer debt, credit, industry, and market risk and events.
Equity, (Level 3), includes common stock, preferred stock and warrants. Such securities are valued based on specific pricing models, internal assumptions and the weighting of the best available pricing inputs. A market approach is generally used to determine fair value. Pricing inputs include, but are not limited to, financial health and relevant business developments of the issuer; EBITDA; market multiples of comparable companies; comparable market transactions and recent trades or transactions; issuer, industry and market events; and contractual or legal restrictions on the sale of the security. When a Black-Scholes pricing model is used it follows the income approach. The pricing model takes into account the contract terms as well as multiple inputs, including: time value, implied volatility, equity prices and interest rates. A liquidity discount based on current market expectations, future events, minority ownership position and the period management reasonably expects to hold the investment may be applied.
Pricing inputs and weightings applied to determine value require subjective determination. Accordingly, valuations do not necessarily represent the amounts that may eventually be realized from sales or other dispositions of investments.
Net Asset Value (“NAV”) (Investment Funds and Vehicles): Equity investments in affiliated investment fund (Strategic Ventures) are valued based on the NAV reported by the investment fund. Investments held by the affiliated fund include debt investments in privately originated senior secured debt. Such investments held by the affiliated fund are valued using the same methods, approach and standards applied above to debt investments held by the Company. The Company’s ability to withdraw from the fund is subject to restrictions. The term of the fund will continue until June 5, 2021 unless dissolved earlier or extended for two additional one-year periods by the Company, in its full discretion. The Company can further extend the term of the fund for additional one-year periods upon notice to and consent from the fund’s management committee. On February 25, 2021, Company extended the fund’s term one additional year, until June 5, 2022. On February 1, 2022, the Company further extended the fund's term one additional year, until June 5, 2023. On April 17, 2023, the Company further extended the fund's term one additional year, until June 5, 2024. The Company is entitled to income and principal distributed by the fund.
20
TCW DIRECT LENDING LLC
Notes to Consolidated Financial Statements (Unaudited) (Continued)
(Dollar amounts in thousands, except unit data)
March 31, 2024
3. Investment Valuations and Fair Value Measurements (Continued)
The following is a summary by major security type of the fair valuations according to inputs used in valuing investments listed in the Consolidated Schedule of Investments as of March 31, 2024:
Investments |
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Level 1 |
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Level 2 |
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Level 3 |
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NAV |
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Total |
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Debt |
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$ |
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$ |
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$ |
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$ |
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$ |
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Equity |
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Investment funds & vehicles(1) |
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Short- term investments |
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Cash equivalents |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Total |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|||||
The following is a summary by major security type of the fair valuations according to inputs used in valuing investments listed in the Consolidated Schedule of Investments as of December 31, 2023:
Investments |
|
Level 1 |
|
|
Level 2 |
|
|
Level 3 |
|
|
NAV |
|
|
Total |
|
|||||
Debt |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|||||
Equity |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Investment funds & vehicles(1) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Short- term investments |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Cash equivalents |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Total |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|||||
The following table provides a reconciliation of the beginning and ending balances for total investments that use Level 3 inputs for the three months ended March 31, 2024:
|
|
Debt |
|
|
Equity |
|
|
Total |
|
|||
Balance, January 1, 2024 |
|
$ |
|
|
$ |
|
|
$ |
|
|||
Purchases, including payments received in-kind |
|
|
|
|
|
|
|
|
|
|||
Sales and paydowns of investments |
|
|
( |
) |
|
|
|
|
|
( |
) |
|
Amortization of premium and accretion of discount, net |
|
|
|
|
|
|
|
|
|
|||
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
Balance, March 31, 2024 |
|
$ |
|
|
$ |
|
|
$ |
|
|||
Change in net unrealized appreciation/(depreciation) in investments held as of March 31, 2024 |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
21
TCW DIRECT LENDING LLC
Notes to Consolidated Financial Statements (Unaudited) (Continued)
(Dollar amounts in thousands, except unit data)
March 31, 2024
3. Investment Valuations and Fair Value Measurements (Continued)
The following table provides a reconciliation of the beginning and ending balances for total investments that use Level 3 inputs for the three months ended March 31, 2023:
|
|
Debt |
|
|
Equity |
|
|
Total |
|
|||
Balance, January 1, 2023 |
|
$ |
|
|
$ |
|
|
$ |
|
|||
Purchases, including payments received in-kind |
|
|
|
|
|
|
|
|
|
|||
Sales and paydowns of investments |
|
|
( |
) |
|
|
|
|
|
( |
) |
|
Amortization of premium and accretion of discount, net |
|
|
|
|
|
|
|
|
|
|||
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
Balance, March 31, 2023 |
|
$ |
|
|
$ |
|
|
$ |
|
|||
Change in net unrealized appreciation/(depreciation) in investments held as of March 31, 2023 |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
The Company did
Level 3 Valuation and Quantitative Information:
Investment Type |
|
Fair Value |
|
|
Valuation |
|
Unobservable |
|
Range |
|
Weighted |
|
Impact to |
|
Debt |
|
$ |
|
|
Income Method |
|
Discount Rate |
|
|
|
Decrease |
|||
Debt |
|
$ |
|
|
Market Method |
|
EBITDA Multiple |
|
|
N/A |
|
Increase |
||
Debt |
|
$ |
|
|
Market Method |
|
Revenue Multiple |
|
|
N/A |
|
Increase |
||
Equity |
|
$ |
|
|
Market Method |
|
EBITDA Multiple |
|
|
N/A |
|
Increase |
||
Equity |
|
$ |
|
|
Market Method |
|
Revenue Multiple |
|
|
N/A |
|
Increase |
||
* Weighted based on fair value
The following table summarizes the valuation techniques and quantitative information utilized in determining the fair value of the Level 3 investments as of December 31, 2023.
Investment Type |
|
Fair Value |
|
|
Valuation |
|
Unobservable |
|
Range |
|
Weighted |
|
Impact to |
|
Debt |
|
$ |
|
|
Income Method |
|
Discount Rate |
|
|
|
Decrease |
|||
Debt |
|
$ |
|
|
Market Method |
|
EBITDA Multiple |
|
|
N/A |
|
Increase |
||
Debt |
|
$ |
|
|
Market Method |
|
Revenue Multiple |
|
|
N/A |
|
Increase |
||
Equity |
|
$ |
|
|
Market Method |
|
EBITDA Multiple |
|
|
N/A |
|
Increase |
||
Equity |
|
$ |
|
|
Market Method |
|
Revenue Multiple |
|
|
N/A |
|
Increase |
||
* Weighted based on fair value
Unless noted, the Company generally utilizes the midpoint of a valuation range provided by an external, independent valuation firm.
4. Agreements and Related Party Transactions
Advisory Agreement: On September 15, 2014, the Company entered into an Investment Advisory and Management Agreement (the “Advisory Agreement”) with the Adviser, a registered investment adviser under the Investment Advisers Act of 1940, as amended. The Advisory Agreement was approved by the Board at an in-person meeting. Unless earlier terminated, the Advisory Agreement will remain in effect for a period of
22
TCW DIRECT LENDING LLC
Notes to Consolidated Financial Statements (Unaudited) (Continued)
(Dollar amounts in thousands, except unit data)
March 31, 2024
4. Agreements and Related Party Transactions (Continued)
Management Fee: Pursuant to the Advisory Agreement, and subject to the overall supervision of the Board, the Adviser will manage the Company’s day-to-day operations and provide investment advisory services to the Company. The Company will pay to the Adviser, quarterly in advance, a management fee (the “Management Fee”) calculated as follows: (i) for the period starting on the initial closing date and ending on the earlier of (A) the last day of the calendar quarter during which the Commitment Period (as defined below) ends or (B) the last day of the calendar quarter during which the Adviser or an affiliate thereof begins to accrue a management fee with respect to a successor fund,
During the three months ended March 31, 2024 and 2023, Management Fees incurred were $
Incentive Fee: In addition, the Adviser will receive an incentive fee (the “Incentive Fee”) as follows:
(a) First, no Incentive Fee will be owed until the Common Unitholders have collectively received cumulative distributions pursuant to this clause (a) equal to their aggregate capital contributions in respect of all Common Units;
(b) Second, no Incentive Fee will be owed until the Common Unitholders have collectively received cumulative distributions equal to a
(c) Third, the Adviser will be entitled to an Incentive Fee out of
(d) Thereafter, the Adviser will be entitled to an Incentive Fee equal to
The Incentive Fee will be calculated on a cumulative basis and the amount of the Incentive Fee payable in connection with any distribution (or deemed distribution) will be determined and, if applicable, paid in accordance with the foregoing formula each time amounts are to be distributed to the Unitholders.
If the Advisory Agreement terminates early for any reason other than (i) the Adviser voluntarily terminating the agreement or (ii) our terminating the agreement for cause (as set out in the Advisory Agreement), we will be required to pay the Adviser a final incentive fee payment (the “Final Incentive Fee Payment”). The Final Incentive Fee Payment will be calculated as of the date the Advisory Agreement is so terminated and will equal the amount of Incentive Fee that would be payable to the Adviser if (A) all our investments were liquidated for their current value (but without taking into account any unrealized appreciation of any portfolio investment), and any unamortized deferred portfolio investment-related fees would be deemed accelerated, (B) the proceeds from such liquidation were used to pay all our outstanding liabilities, and (C) the remainder were distributed to Unitholders and paid as Incentive Fee in accordance with the “waterfall” (i.e., clauses (a) through (d)) described above for determining the amount of the Incentive Fee. We will make the Final Incentive Fee Payment in cash on or immediately following the date the Advisory Agreement is so terminated. The Adviser Return Obligation (defined below) will not apply in connection with a Final Incentive Fee Payment.
23
TCW DIRECT LENDING LLC
Notes to Consolidated Financial Statements (Unaudited) (Continued)
(Dollar amounts in thousands, except unit data)
March 31, 2024
4. Agreements and Related Party Transactions (Continued)
Administration Agreement: On September 15, 2014, the Company entered into the Administration Agreement with the Adviser under which the Adviser (or one or more delegated service providers) will oversee the maintenance of our financial records and otherwise assist on the Company’s compliance with regulations applicable to a BDC under the 1940 Act, and a RIC under the Code, to prepare reports to our Members, monitor the payment of our expenses and the performance of other administrative or professional service providers, and generally provide us with administrative and back office support. The Company will reimburse the Administrator for expenses incurred by it on behalf of the Company in performing its obligations under the Administration Agreement. Amounts paid pursuant to the Administration Agreement are subject to the annual cap on Company Expenses (as defined below), as described more fully below. On August 10, 2023, the Company’s Board reapproved the Administrative Agreement.
The Company, and indirectly the Unitholders, will bear (including by reimbursing the Adviser or Administrator) all other costs and expenses of its operations, administration and transactions, including, without limitation, organizational and offering expenses, management fees, costs of reporting required under applicable securities laws, legal fees of the Company’s counsel and accounting fees. However, the Company will not bear (a) more than an amount equal to
TCW Direct Lending Strategic Ventures LLC: On June 5, 2015, the Company, together with an affiliate of Security Benefit Corporation and accounts managed by Oak Hill Advisors, L.P., entered into an Amended and Restated Limited Liability Company Agreement (the “Agreement”) to become members of TCW Direct Lending Strategic Ventures LLC (“Strategic Ventures”). Strategic Ventures focuses primarily on making senior secured floating rate loans to middle-market borrowers. The Agreement was effective June 5, 2015. The Company’s investment in Strategic Ventures is restricted from redemption until the termination of Strategic Ventures.
The Company’s capital commitment is $
24
TCW DIRECT LENDING LLC
Notes to Consolidated Financial Statements (Unaudited) (Continued)
(Dollar amounts in thousands, except unit data)
March 31, 2024
5. Commitments and Contingencies
The Company had the following unfunded commitments and unrealized depreciation by investment as of March 31, 2024 and December 31, 2023:
|
|
|
|
March 31, 2024 |
|
|
December 31, 2023 |
|
||||||||||
Unfunded Commitments |
|
Maturity/ |
|
Amount |
|
|
Unrealized |
|
|
Amount |
|
|
Unrealized |
|
||||
H-D Advanced Manufacturing Company |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|||||
Pace Industries, Inc. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Retail & Animal Intermediate, LLC |
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Ruby Tuesday Operations LLC (fka Ruby Tuesday, Inc.) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Total |
|
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
The Company’s total capital commitment to its underlying investment in Strategic Ventures is $
From time to time, the Company may become a party to certain legal proceedings incidental to the normal course of its business. As of March 31, 2024, management is not aware of any pending or threatened litigation.
In the normal course of business, the Company enters into contracts which provide a variety of representations and warranties, and that provide general indemnifications. Such contracts include those with certain service providers, brokers and trading counterparties. Any exposure to the Company under these arrangements is unknown as it would involve future claims that may be made against the Company; however, based on the Company’s experience, the risk of loss is remote and no such claims are expected to occur. As such, the Company has not accrued any liability in connection with such indemnifications.
6. Members’ Capital
During the three months ended March 31, 2024 and 2023, the Company did not sell or issue any Common Units. As described in Note 1, on July 11, 2022 the Company’s Members approved a reduction in Undrawn Commitments by $
|
|
Three months ended March 31, |
|
|||||
|
|
2024 |
|
|
2023 |
|
||
Units at beginning of period |
|
|
|
|
|
|
||
Units issued and committed at end of period |
|
|
|
|
|
|
||
The Company did
7. Credit Facility
The Company has a secured revolving credit agreement (the “Credit Agreement”) with Natixis, New York Branch (“Natixis”) as administrative agent and committed lender. The Credit Agreement provides for a revolving credit line of up to $
25
TCW DIRECT LENDING LLC
Notes to Consolidated Financial Statements (Unaudited) (Continued)
(Dollar amounts in thousands, except unit data)
March 31, 2024
7. Credit Facility (Continued)
On April 10, 2017, the Company and Natixis entered into a Third Amended and Restated Revolving Credit Agreement. Under the Third Amended and Restated Revolving Credit Agreement borrowings bear interest at a rate equal to either the (a) adjusted eurodollar rate calculated in a customary manner plus
On April 6, 2020, the Company entered into a First Amendment to the Third Amended and Restated Revolving Credit Agreement (the “Amended Credit Agreement”), by and among the Company, as borrower, and Natixis, New York Branch, as administrative agent and the lenders party thereto. The Amended Credit Agreement provides for a revolving credit line of up to $
On May 27, 2020, the Company entered into a Lender Group Joinder Agreement pursuant to which Zions Bancorporation, N.A. d/b/a California Bank & Trust was added as a committed lender (with a commitment of $
On April 6, 2021, the Company entered into a Third Amendment to the Amended Credit Agreement (the “Third Amended Credit Agreement”). The Third Amended Credit Agreement provides for a revolving credit line of up to $
On January 10, 2023, the Company entered into a Fourth Amendment to the Third Amended and Restated Revolving Credit Agreement (the "Fourth Amended Credit Agreement"). The Fourth Amended Credit Agreement replaces the Eurocurrency Rate with a Daily Simple SOFR Rate, Term SOFR Rate and Adjusted Term SOFR Rate (each as defined in the Fourth Amended Credit Agreement) for purposes of calculating interest on the loan. Each Term SOFR Loan shall bear interest on the outstanding principal amount thereof for each Interest Period at a rate per annum equal to the Adjusted Term SOFR Rate for such Interest Period plus the interest rate spread or "Applicable Margin." Each Daily SOFR Loan will bear interest on the outstanding principal amount thereof at a rate per annum equal to Daily Simple SOFR plus the Applicable Margin. The Term SOFR Loan and Daily SOFR Loan have an Applicable Margin of
26
TCW DIRECT LENDING LLC
Notes to Consolidated Financial Statements (Unaudited) (Continued)
(Dollar amounts in thousands, except unit data)
March 31, 2024
7. Credit Facility (Continued)
On April 7, 2023, the Company entered into the Fifth Amendment to the Third Amended and Restated Revolving Credit Agreement (the "Fifth Amended Credit Agreement"). The Fifth Amended Credit Agreement removed the Adjusted Term SOFR Rate for purposes of calculating interest on the loan but kept the Daily Simple SOFR and Term SOFR rates as is. It also updated the Applicable Margin from
As of March 31, 2024 and December 31, 2023, the Available Commitment under the Amended Credit Agreement was $
As of March 31, 2024 and December 31, 2023, the amounts outstanding under the Credit Facility were $
Costs associated with the Credit Facility are recorded as deferred financing costs on our Consolidated Statements of Assets and Liabilities and the costs are being amortized over the life of the Credit Facility. As of March 31, 2024 and December 31, 2023, $
The summary information regarding the Credit Facility for the three months ended March 31, 2024 and 2023 was as follows:
|
|
Three months ended March 31, |
|
|||||
|
|
2024 |
|
|
2023 |
|
||
Credit facility interest expense |
|
$ |
|
|
$ |
|
||
Undrawn commitment fees |
|
|
|
|
|
|
||
Administrative fees |
|
|
|
|
|
|
||
Amortization of deferred financing costs |
|
|
|
|
|
|
||
Total |
|
$ |
|
|
$ |
|
||
Weighted average interest rate |
|
|
% |
|
|
% |
||
Average outstanding balance |
|
$ |
|
|
$ |
|
||
8. Repurchase Transactions
The Company may, from time to time, enter into repurchase agreements with Barclays Bank PLC (“Barclays”), whereby the Company sells to Barclays its short-term investments and concurrently enters into an agreement to repurchase the same investments at an agreed-upon price at a future date, generally within 30-days (each, a “Repurchase Transaction”).
In accordance with ASC 860, Transfers and Servicing, these Repurchase Transactions meet the criteria for secured borrowings. Accordingly, the short-term investments remain on the Company’s Consolidated Statements of Assets and Liabilities as an asset, and the Company records a liability to reflect its repurchase obligation to Barclays (the “Repurchase Obligation”). The Repurchase Obligation is secured by the short-term investments that are the subject of the repurchase agreement.
The Company had
27
TCW DIRECT LENDING LLC
Notes to Consolidated Financial Statements (Unaudited) (Continued)
(Dollar amounts in thousands, except unit data)
March 31, 2024
9. Income Taxes
The Company has elected to be treated as a BDC under the 1940 Act and has elected to be treated as a RIC under the Code. So long as the Company maintains its status as a RIC, it will generally not pay corporate-level U.S. Federal income or excise taxes on any ordinary income or capital gains that it distributes at least annually to its common unitholders as dividends. The Company elected to be taxed as a RIC in 2015. The Company evaluates tax positions taken or expected to be taken in the course of preparing its financial statements to determine whether the tax positions are “more-likely-than-not” to be sustained by the applicable tax authority. Tax positions not deemed to meet the “more-likely-than-not” threshold are reversed and recorded as a tax benefit or expense in the current year. All penalties and interest associated with income taxes are included in income tax expense. Conclusions regarding tax positions are subject to review and may be adjusted at a later date based on factors including, but not limited to, on-going analyses of tax laws, regulations and interpretations thereof.
Federal Income Taxes: It is the policy of the Company to comply with the requirements of the Internal Revenue Code applicable to regulated investment companies and distribute all of its net taxable income and any net realized gains on investments to its shareholders. Therefore, no federal income tax provision is required
As of March 31, 2024 and December 31, 2023, the Company’s aggregate investment unrealized appreciation and depreciation for federal income tax purposes were as follows:
|
|
March 31, 2024 |
|
|
December 31, 2023 |
|
||
Cost of investments for federal income tax purposes |
|
$ |
|
|
$ |
|
||
Unrealized appreciation |
|
$ |
|
|
$ |
|
||
Unrealized depreciation |
|
$ |
( |
) |
|
$ |
( |
) |
Net unrealized depreciation on investments |
|
$ |
( |
) |
|
$ |
( |
) |
The Company did
28
TCW DIRECT LENDING LLC
Notes to Consolidated Financial Statements (Unaudited) (Continued)
(Dollar amounts in thousands, except unit data)
March 31, 2024
10. Financial Highlights
Selected data for a unit outstanding throughout the three months ended March 31, 2024 and 2023 is presented below. The accrual base Net Asset Value is calculated by subtracting the per unit loss from investment operations from the beginning Net Asset Value per unit and reflects all units issued and outstanding.
|
|
For the three months ended March 31, |
|
|||||
|
|
2024(1) |
|
|
2023(1) |
|
||
Net Asset Value Per Unit (accrual base), Beginning of Period |
|
$ |
|
|
$ |
|
||
Income from Investment Operations: |
|
|
|
|
|
|
||
Net investment income |
|
|
|
|
|
|
||
Net realized and unrealized loss |
|
|
( |
) |
|
|
( |
) |
Total loss from investment operations |
|
|
( |
) |
|
|
( |
) |
Less Distributions: |
|
|
|
|
|
|
||
From net investment income |
|
|
( |
) |
|
|
|
|
Total distributions |
|
|
( |
) |
|
|
|
|
Net Asset Value Per Unit (accrual base), End of Period |
|
$ |
|
|
$ |
|
||
Common Unitholder Total Return(2)(3) |
|
|
( |
)% |
|
|
( |
)% |
Common Unitholder IRR(4) |
|
|
% |
|
|
% |
||
Ratios and Supplemental Data: |
|
|
|
|
|
|
||
Members’ Capital, end of period |
|
$ |
|
|
$ |
|
||
Units outstanding, end of period |
|
|
|
|
|
|
||
Ratios based on average net assets of Members’ Capital: |
|
|
|
|
|
|
||
Ratio of total expenses to average net assets(5) |
|
|
% |
|
|
% |
||
Expenses waived by Investment Adviser(5) |
|
|
( |
)% |
|
|
|
|
Ratio of net expenses to average net assets(5) |
|
|
% |
|
|
% |
||
Ratio of financing cost to average net assets(3) |
|
|
% |
|
|
% |
||
Ratio of net investment income to average net assets(5) |
|
|
% |
|
|
% |
||
Credit facility payable |
|
|
|
|
|
|
||
Asset coverage ratio |
|
|
|
|
|
|
||
Portfolio turnover rate(3) |
|
|
% |
|
|
% |
||
29
TCW DIRECT LENDING LLC
Notes to Consolidated Financial Statements (Unaudited) (Continued)
(Dollar amounts in thousands, except unit data)
March 31, 2024
11. Subsequent Events
The Company has evaluated subsequent events through the date of issuance of the consolidated financial statements. There have been no subsequent events that require recognition or disclosure in these consolidated financial statements other than those described below.
On
On April 5, 2024, the Company entered into the Sixth Amendment to the Third Amended and Restated Revolving Credit Agreement (the "Sixth Amended Credit Agreement"). The Sixth Amended Credit Agreement updated the Applicable Margin from
30
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The information contained in this section should be read in conjunction with the consolidated financial statements and notes thereto appearing elsewhere in this report on Form 10-Q. Some of the statements in this report (including in the following discussion) constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, which relate to future events or future performance or financial condition of TCW Direct Lending LLC. For simplicity, this report uses the terms “Company,” “we,” “us,” and “our” to refer to TCW Direct Lending LLC and where appropriate in the context, its wholly-owned subsidiaries.
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
This report contains forward-looking statements that involve substantial risks and uncertainties. These forward- looking statements are not historical facts, but rather are based on current expectations, estimates and projections about us, our prospective portfolio investments, our industry, our beliefs, and our assumptions. Words such as “anticipates,” “expects,” “intends,” “plans,” “believes,” “seeks,” “estimates,” “would,” “should,” “targets,” “projects,” and variations of these words and similar expressions are intended to identify forward-looking statements. 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 are difficult to predict, that could cause actual results to differ materially from those expressed or forecasted in the forward-looking statements including, without limitation:
31
Although we believe that the assumptions on which these forward-looking statements are based are reasonable, some of those assumptions are based on the work of third parties and any of those assumptions could prove to be inaccurate; as a result, the forward-looking statements based on those assumptions also could prove to be inaccurate. In light of these and other uncertainties, the inclusion of a projection or forward-looking statement in this report should not be regarded as a representation by us that our plans and objectives will be achieved. You should not place undue reliance on these forward-looking statements, which apply only as of the date of this report. We do not undertake any obligation to update or revise any forward-looking statements or any other information contained herein, except as required by applicable law. The safe harbor provisions of Section 21E of the Securities Exchange Act of 1934, as amended the (“1934 Act”), which preclude civil liability for certain forward-looking statements, do not apply to the forward-looking statements in this report because we are an investment company.
Overview
We were formed on April 1, 2014 as a limited liability company under the laws of the State of Delaware. We have filed an election to be regulated as a BDC under the 1940 Act. We have also elected to be treated for U.S. federal income tax purposes as a RIC under the Code for the taxable year ending December 31, 2015 and subsequent years. We are required to continue to meet the minimum distribution and other requirements for RIC qualification. As such, we are required to comply with various regulatory requirements, such as the requirement to invest at least 70% of our assets in “qualifying assets,” source of income limitations, asset diversification requirements, and the requirement to distribute annually at least 90% of our taxable income and tax-exempt interest.
Each investor was required to enter into a subscription agreement in connection with its Commitment (a “Subscription Agreement”). Under the terms of the subscription agreements, the Company may generally draw down all or any portion of the undrawn commitment with respect to each Common Unit upon at least ten business days’ prior written notice to the Common Unitholders. Investors have entered into subscription agreements for 20,134,698 Common Units of the Company issued and outstanding representing a total of $2.013 billion of committed capital. On July 11, 2022 our Members approved a reduction in Undrawn Commitments by $10.43 per unit, resulting in an approximately 41.18% reduction of overall remaining available capital commitments. We effected this commitment reduction by reducing the number of outstanding undrawn units and thereby reducing total Units from 20,134,698 to 18,034,649. Such Unit reduction was proportionately effected for each Member and therefore has no impact on each Member’s percentage interest in us.
As of March 31, 2024, we have two wholly-owned subsidiaries, each of which is a Delaware limited liability company designed to hold an equity investment of ours.
Revenues
We generate revenues in the form of interest income and capital appreciation by providing private capital to middle market companies operating in a broad range of industries primarily in the United States. As our investment period has ended, we will not originate new loans, but may increase credit facilities to existing borrowers or affiliates. Our highly negotiated private investments may include senior secured loans, unsecured senior loans, subordinated and mezzanine loans, convertible securities, equity securities, and equity-linked securities such as options and warrants. However, our investment bias has been towards adjustable-rate, senior secured loans. We do not anticipate a secondary market developing for our private investments. The investment philosophy, strategy and approach of the private credit team of the Adviser (the “Private Credit Team” fka the “Direct Lending Team”) has generally not involved the use of payment-in-kind (“PIK”) interest, which represents contractual interest accrued and added to the loan balance that generally becomes due at maturity, or similar arrangements. Although the Private Credit Team generally did not originate a significant amount of investments for us with PIK interest features, the majority of our current investments do contain PIK due to certain circumstances involving debt restructurings or work-outs. The high concentration of PIK in our current portfolio is primarily a result of the continued wind down of our portfolio.
We are primarily focused on investing in senior secured debt obligations, although there may be occasions where the investment may be unsecured. We also consider an equity investment as the primary security, in combination with a debt obligation, or as a part of total return strategy. Our investments are mostly in corporations, partnerships or other business entities. Additionally, in certain circumstances, we may co-invest with other investors and/or strategic partners through indirect investments in portfolio companies through a joint venture vehicle, partnership or other special purpose vehicle (each, an “Investment Vehicle”). While we invest primarily in U.S. companies, there are certain instances where we invested in companies domiciled elsewhere.
Expenses
We do not currently have any employees and do not expect to have any employees. Services necessary for our business are provided through the Administration Agreement and the Advisory Agreement.
32
We will bear (including by reimbursing the Adviser or Administrator) all costs and expenses of our operations, administration and transactions, including, without limitation, organizational and offering expenses, management fees, costs of reporting required under applicable securities laws, legal fees of our counsel and accounting fees. However, we will not bear (a) more than an amount equal to 10 basis points of the aggregate Commitments for organization and offering expenses in connection with the offering of Common Units through the Closing Period and (b) more than an amount equal to 12.5 basis points of the aggregate Commitments per annum (pro-rated for partial years) for our Operating Expenses, including amounts paid to the Administrator under the Administration Agreement and reimbursement of expenses to the Adviser and its affiliates. Notwithstanding the foregoing, the cap on Operating Expenses does not apply to payments of the Management Fee, Incentive Fee, organizational and offering expenses (which are subject to the separate cap described above), amounts payable in connection with our borrowings (including interest, bank fees, legal fees and other transactional expenses related to any borrowing or borrowing facility and similar costs), costs and expenses relating to our liquidation of the Company, taxes, or extraordinary expenses (such as litigation expenses and indemnification payments to either the Adviser or the Administrator). All expenses that we will not bear will be borne by the Adviser or its affiliates.
Critical Accounting Policies and Estimates
Investments which we hold for which market quotes are not readily available or are not considered reliable are valued at fair value according to procedures approved by our Board of Directors based on similar instruments, internal assumptions and the weighting of the best available pricing inputs. Pursuant to Rule 2a-5 under the 1940 Act, the Board has designated the Adviser as the "valuation designee" with respect to the fair valuation of the Company's portfolio securities, subject to oversight by and periodic reporting to the Board.
Fair Value Hierarchy: Assets and liabilities are classified by us into three levels based on valuation inputs used to determine fair value. Level 1 values are based on unadjusted quoted market prices in active markets for identical assets.
Level 2 values are based on significant observable market inputs, such as quoted prices for similar assets and quoted prices in inactive markets or other market observable inputs.
Level 3 values are based on significant unobservable inputs that reflect our determination of assumptions that market participants might reasonably use in valuing the assets.
Categorization within the hierarchy is based upon the lowest level of input that is significant to the fair value measurement. The valuation levels are not necessarily an indication of the risk associated with investing in those securities.
Level 1 Assets (Investments): The valuation techniques and significant inputs used to determine fair value are as follows:
Equity, (Level 1), includes common stock valued at the closing price on the primary exchange in which the security trades.
Level 3 Assets (Investments): The following valuation techniques and significant inputs are used to determine the fair value of investments in private debt for which reliable market quotations are not available. Some of the inputs are independently observable; however, a significant portion of the inputs and the internal assumptions applied are unobservable.
Debt, (Level 3), include investments in privately originated senior secured debt. Such securities are valued based on specific pricing models, internal assumptions and the weighting of the best available pricing inputs. An income method approach incorporating a weighted average cost of capital and discount rate or a market method approach using prices and other relevant information generated by market transactions involving identical or comparable assets are generally used to determine fair value, though some cases use an enterprise value waterfall method. Valuation may also include a shadow rating method. Standard pricing inputs include but are not limited to the financial health of the issuer, place in the capital structure, value of other issuer debt, credit, industry, and market risk and events.
Equity, (Level 3), includes common stock, preferred stock and warrants. Such securities are valued based on specific pricing models, internal assumptions and the weighting of the best available pricing inputs. A market approach is generally used to determine fair value. Pricing inputs include, but are not limited to, financial health and relevant business developments of the issuer; EBITDA; market multiples of comparable companies; comparable market transactions and recent trades or transactions; issuer, industry and market events; and contractual or legal restrictions on the sale of the security. A liquidity discount based on current market expectations, future events, minority ownership position and the period management reasonably expects to hold the investment may be applied.
Net Asset Value (“NAV”) (Investment Funds and Vehicles): Equity investments in affiliated investment fund (TCW Strategic Ventures) are valued based on the net asset value reported by the investment fund. Investments held by the affiliated fund include debt investments in privately originated senior secured debt. Such investments held by the affiliated fund are valued using the
33
same methods, approach and standards applied above to debt investments held by the Company. The Company’s ability to withdraw from the fund is subject to restrictions. The term of the fund will continue until June 5, 2021 unless dissolved earlier or extended for two additional one-year periods by the Company, in its full discretion. The Company can further extend the term of the fund for additional one-year periods, upon notice to and consent from the funds management committee. On February 25, 2021, Company extended the fund’s term one additional year, until June 5, 2022. On February 1, 2022, the Company further extended the fund's term one additional year, until June 5, 2023. On April 17, 2023, the Company further extended the fund's term one additional year, until June 5, 2024. The Company is entitled to income and principal distributed by the fund.
Investment Activity
As of March 31, 2024, our portfolio consisted of debt and equity investments in seven and six portfolio companies, respectively, including TCW Strategic Ventures. Based on fair values as of March 31, 2024, our portfolio was comprised of 64.9% debt investments which were primarily senior secured, first lien term loans and 35.1% equity investments, which were primarily common and preferred stocks; warrants; and our common and preferred membership interests in TCW Strategic Ventures. Debt investments in two portfolio companies were on non-accrual status as of March 31, 2024, representing 4.1% and 22.8% of our portfolio’s fair value and cost, respectively.
As of December 31, 2023, our portfolio consisted of debt and equity investments in seven and six portfolio companies, respectively, including TCW Strategic Ventures. Based on fair values as of December 31, 2023, our portfolio was comprised of 62.5% debt investments which were primarily senior secured, first lien term loans and 37.5% equity investments, which were primarily common and preferred stocks; warrants; and our common and preferred membership interests in TCW Strategic Ventures. Debt investments in three portfolio companies were on non-accrual status as of December 31, 2023, representing 4.3% and 22.6% of our portfolio’s fair value and cost, respectively.
The table below describes our debt and equity investments by industry classification and enumerates the percentage, by fair value, of the total portfolio assets by industry as of March 31, 2024:
Industry |
|
Percent of Total Investments |
|
|
Industrial Conglomerates |
|
|
24 |
% |
Metals & Mining |
|
|
19 |
% |
Investment Funds & Vehicles |
|
|
15 |
% |
Diversified Consumer Services |
|
|
13 |
% |
Pharmaceuticals |
|
|
10 |
% |
Household Durables |
|
|
8 |
% |
Hotels, Restaurants & Leisure |
|
|
7 |
% |
Distributors |
|
|
4 |
% |
Technologies Hardware, Storage and Peripherals |
|
|
0 |
% |
Total |
|
|
100 |
% |
Results of Operations
Our operating results for the three months ended March 31, 2024 and 2023 were as follows (dollar amounts in thousands):
|
|
For the three months ended March 31, |
|
|||||
|
|
2024 |
|
|
2023 |
|
||
Total investment income |
|
$ |
12,659 |
|
|
$ |
11,559 |
|
Net expenses |
|
|
3,773 |
|
|
|
4,114 |
|
Net investment income |
|
|
8,886 |
|
|
|
7,445 |
|
Net change in unrealized appreciation/(depreciation) on investments |
|
|
(11,980 |
) |
|
|
(12,188 |
) |
Net realized gain on short-term investments |
|
|
1,607 |
|
|
|
954 |
|
Net decrease in Members’ Capital from operations |
|
$ |
(1,487 |
) |
|
$ |
(3,789 |
) |
Total investment income
Total investment income for the three months ended March 31, 2024 and 2023 was $12.7 million and $11.6 million, respectively, and included interest income (including interest income paid-in-kind) of $10.3 million and $11.4 million, respectively. Interest income for the three months ended March 31, 2024 and 2023 included $6.7 million and $3.4 million, respectively, of interest income paid-in-kind. Total investment income for the three months ended March 31, 2024 and 2023 also included $2.3 million and $0, respectively, of dividend income from our investment in TCW Direct Lending Strategic Ventures.
34
Total investment income increased during the three months ended March 31, 2024 compared to the three months ended March 31, 2023 due to the increase in dividend income from TCW Direct Lending Strategic Ventures during the three months ended March 31, 2024 compared to the three months ended March 31, 2023 and was partially offset by a decrease in interest income. Interest income decreased during the three months ended March 31, 2024 compared to the three months ended March 31, 2023 due to principal payments of $34.7 million and $26.0 million, respectively, on the H-D Advanced Manufacturing Company and SSI Parent, LLC term loans which occurred after March 31, 2023 and reduced the principal balances and related accrued interest on those loans.
Net investment income
Net investment income for the three months ended March 31, 2024 and 2023 was $8.9 million and $7.4 million, respectively.
The increase in net investment income during the three months ended March 31, 2024 compared to the three months ended March 31, 2023 was due to the increase in total investment income as described above, coupled with lower total expenses during the three months ended March 31, 2024 versus the three months ended March 31, 2023.
Expenses for the three months ended March 31, 2024 and 2023 were as follows (dollar amounts in thousands):
|
|
For the three months ended March 31, |
|
|||||
|
|
2024 |
|
|
2023 |
|
||
Expenses |
|
|
|
|
|
|
||
Interest expense on repurchase transactions |
|
$ |
1,735 |
|
|
$ |
1,347 |
|
Interest and credit facility expenses |
|
|
1,679 |
|
|
|
2,306 |
|
Management fees |
|
|
873 |
|
|
|
— |
|
Professional fees |
|
|
133 |
|
|
|
197 |
|
Administrative fees |
|
|
128 |
|
|
|
142 |
|
Directors’ fees |
|
|
68 |
|
|
|
68 |
|
Other expenses |
|
|
30 |
|
|
|
54 |
|
Total expenses |
|
|
4,646 |
|
|
|
4,114 |
|
Expenses waived by the Adviser |
|
|
(873 |
) |
|
|
— |
|
Net Expenses |
|
$ |
3,773 |
|
|
$ |
4,114 |
|
Our net expenses for the three months ended March 31, 2024 and 2023 were $3.8 million and $4.1 million, respectively. Our net expenses included management fees attributed to the Adviser of $0.9 million and $0 for the three months ended March 31, 2024 and 2023, respectively, which were waived by the Adviser subsequent to December 31, 2022.
The decrease in net operating expenses during the three months ended March 31, 2024 compared to the three months ended March 31, 2023, was primarily due to lower interest and credit facility expenses during the three months ended March 31, 2024 compared to the three months ended March 31, 2023 due to a decrease in our weighted averaging outstanding credit facility balance. This decrease was partially offset by an increase in interest expense on repurchase transactions due to increases in interest rates during the three months ended March 31, 2024 compared to the three months ended March 31, 2023.
Net change in unrealized appreciation/(depreciation) on investments
Our net change in unrealized appreciation/(depreciation) on investments for the three months ended March 31, 2024 and 2023 was ($12.0) million and ($12.2) million, respectively. Our net change in unrealized appreciation/(depreciation) for the three months ended March 31, 2024 was primarily attributable to the following investments (dollar amounts in thousands):
Issuer |
|
Investment |
|
Change in |
|
|
Pace Industries, Inc. |
|
Term Loan |
|
$ |
989 |
|
Noramco, LLC |
|
Term Loan |
|
|
(571 |
) |
Animal Supply Company, LLC |
|
Term Loan |
|
|
(1,468 |
) |
SSI Parent, LLC (fka School Specialty, Inc.) |
|
Common Stock |
|
|
(3,315 |
) |
Cedar Ultimate Parent, LLC |
|
Class A Preferred Units |
|
|
(3,812 |
) |
TCW Direct Lending Strategic Ventures |
|
Preferred membership Interests |
|
|
(3,836 |
) |
All others |
|
Various |
|
|
33 |
|
Net change in unrealized appreciation/(depreciation) |
|
|
|
$ |
(11,980 |
) |
35
Our net change in unrealized appreciation/(depreciation) for the three months ended March 31, 2023 was primarily attributable to the following investments (dollar amounts in thousands):
Issuer |
|
Investment |
|
Change in |
|
|
|
H-D Advanced Manufacturing Company |
|
Term Loan |
|
$ |
8,459 |
|
|
Ruby Tuesday Operations LLC |
|
Incremental Term Loan |
|
|
1,453 |
|
|
Guardia LLC |
|
Revolver |
|
|
(1,067 |
) |
|
RT Holdings Parent, LLC |
|
Class A Units |
|
|
(2,083 |
) |
|
TCW DLSV LLC |
|
Preferred Membership Interests |
|
|
(2,562 |
) |
|
Animal Supply Company, LLC |
|
Term Loan |
|
|
(3,463 |
) |
|
SSI Parent, LLC (fka School Specialty, Inc.) |
|
Common Stock |
|
|
(4,096 |
) |
|
Pace Industries, Inc. |
|
HoldCo Term Loan |
|
|
(8,169 |
) |
|
All others |
|
Various |
|
|
(660 |
) |
|
Net change in unrealized appreciation/(depreciation) |
|
|
|
$ |
(12,188 |
) |
|
Net realized gain on short-term investments
During the three months ended March 31, 2024 and 2023 we incurred $1.6 million and $1.0 million, respectively, in realized gains from our short-term investments in government treasuries.
Net decrease in Members’ Capital from operations
Our net decrease in Members’ Capital from operations during the three months ended March 31, 2024 and 2023 was $1.5 million and $3.8 million, respectively.
The relative decrease in Net decrease in Members’ Capital from operations during the three months ended March 31, 2024 compared to the three months ended March 31, 2023 was primarily due to net realized and unrealized losses on our investments of $10.4 million during the three months ended March 31, 2024 compared to $11.2 million during the three months ended March 31, 2023 coupled with an increase in net investment income of $8.9 million during the three months ended March 31, 2024 compared to net investment income of $7.4 million during the three months ended March 31, 2023, as described above.
Direct Lending Strategic Ventures LLC
On June 5, 2015, the Company, together with an affiliate of Security Benefit Corporation and accounts managed by Oak Hill Advisors, L.P., entered into an Amended and Restated Limited Liability Company Agreement (the “Agreement”) to become members of TCW Strategic Ventures. TCW Strategic Ventures focuses primarily on making senior secured floating rate loans to middle-market borrowers. The Agreement was effective June 5, 2015. The Company’s capital commitment is $481.6 million, representing approximately 80% of the preferred and common equity ownership of TCW Strategic Ventures, with the third-party investors representing the remaining capital commitments and preferred and common equity ownership. A portion of the Company’s capital commitment was satisfied by the contribution of two loans to TCW Strategic Ventures. TCW Strategic Ventures also entered into a revolving credit facility to finance a portion of certain eligible investments on June 5, 2015. The revolving credit facility is for up to $600 million. TCW Strategic Ventures is managed by a management committee comprised of two members, one appointed by the Company and one appointed by Oak Hill Advisors, L.P. All decisions of the management committee require unanimous approval of its members. Neither the Company, nor the Adviser will receive management fees from this entity. Although the Company owns more than 25% of the voting securities of TCW Strategic Ventures, the Company does not believe that it has control over TCW Strategic Ventures (other than for purposes of the 1940 Act). The Company’s ability to withdraw from the fund is subject to restrictions.
On April 30, 2021, TCW Strategic Ventures’ revolving credit facility was terminated.
Financial Condition, Liquidity and Capital Resources
On March 19, 2015 we completed the final private placement of Common Units. We generate cash from (1) drawing down capital in respect of Common Units, (2) cash flows from investments and operations and (3) borrowings from banks or other lenders.
Our primary use of cash is for (1) investments in portfolio companies and other investments to comply with certain portfolio diversification requirements, (2) the cost of operations (including expenses, management fees, incentive fees, and any indemnification obligations), (3) debt service of any borrowings and (4) cash distributions to the Common Unitholders.
36
As of March 31, 2024 and December 31, 2023, aggregate Commitments, Undrawn Commitments and subscribed for Units of the Company are as follows (dollar amounts in thousands):
|
|
March 31, 2024 |
|
|
December 31, 2023 |
|
||
Commitments |
|
$ |
1,803,465 |
|
|
$ |
1,803,465 |
|
Undrawn commitments |
|
$ |
199,120 |
|
|
$ |
199,120 |
|
Percentage of commitments funded |
|
|
89.0 |
% |
|
|
89.0 |
% |
Units |
|
|
18,034,649 |
|
|
|
18,034,649 |
|
Natixis Credit Agreement
We have a secured revolving credit agreement (the “Credit Agreement”) with Natixis, New York Branch (“Natixis”) as administrative agent and committed lender. The Credit Agreement provides for a revolving credit line of up to $750 million (the “Maximum Commitment”) (the “Credit Facility”), subject to the lesser of the “Borrowing Base” assets or the Maximum Commitment (the “Available Commitment”). The Borrowing Base assets generally equal the sum of (a) a percentage of certain eligible investments in a controlled account, (b) a percentage of unfunded commitments from certain eligible investors in the Company and (c) cash in a controlled account. The Credit Agreement is generally secured by the Borrowing Base assets.
On April 10, 2017, we entered into a Third Amended and Restated Revolving Credit Agreement. Under the April 10, 2017 Credit Agreement borrowings bear interest at a rate equal to either the (a) adjusted eurodollar rate calculated in a customary manner plus 2.35%, (b) commercial paper rate plus 2.35%, or (c) a base rate calculated in a customary manner (using the higher of the Federal Funds Rate plus 0.50%, the Prime Rate and the Floating LIBOR Rate plus 1.00%) plus 1.35%. Moreover, the Credit Agreement’s stated maturity date was extended from November 10, 2017 to April 10, 2020.
On April 6, 2020, we entered into a First Amendment to the Third Amended and Restated Revolving Credit Agreement (the “Amended Credit Agreement”), with Natixis, New York Branch, as administrative agent and the lenders party thereto. The Amended Credit Agreement provides for a revolving credit line of up to $375.0 million (with an option for us to increase this amount to $450.0 million subject to consent of the lenders and satisfaction of certain other conditions), subject to the available borrowing base, which is generally the sum of (a) a percentage of certain eligible investments, (b) a percentage of remaining unfunded commitments from certain eligible investors in the Company and (c) cash in a controlled account. The Amended Credit Agreement is generally secured by the unfunded commitments (together with the recallable amounts) of our investors, portfolio investments and substantially all other assets of the Company. The stated maturity date of the Amended Credit Agreement was April 9, 2021, which date (subject to the satisfaction of certain conditions) could have been extended by the Company for up to an additional 364 days. Borrowings under the Amended Credit Agreement bore interest at a rate equal to either (a) adjusted eurodollar rate calculated in a customary manner plus 2.50%, (b) commercial paper rate plus 2.50%, or (c) a base rate calculated in a customary manner (which will never be less than the adjusted eurodollar rate plus 1.00%) plus 1.50%, provided however in each case the commercial paper rate and the eurocurrency rate shall have a floor of 1.00%.
On May 27, 2020, we entered into a Lender Group Joinder Agreement pursuant to which Zions Bancorporation, N.A. d/b/a California Bank & Trust was added as a committed lender (with a commitment of $25.0 million) under the Amended Credit Agreement. Concurrently therewith, we elected to increase the size of our revolving credit line under the Credit Agreement to $400.0 million. On December 29, 2020, we elected to permanently decrease the size of our revolving credit line under the Credit Agreement to $177.0 million.
On April 6, 2021, we entered into a Third Amendment to the Amended Credit Agreement (the “Third Amended Credit Agreement”). The Third Amended Credit Agreement provides for a revolving credit line of up to $177.0 million subject to the available borrowing base, which is generally a percentage of remaining unfunded commitments from certain eligible investors in the Company. The Third Amended Credit Agreement is generally secured by the unfunded commitments (together with the recallable amounts) of the Company’s investors. The stated maturity date of the Third Amended Credit Agreement is April 8, 2022, which (subject to the satisfaction of certain conditions) may be extended by us for up to an additional 364 days. On March 23, 2022, we exercised our final extension option, and extended the maturity date of the Third Amended Credit Agreement to April 7, 2023. Borrowings under the Third Amended Credit Agreement bear interest at a rate equal to either (a) Eurocurrency Rate calculated in a customary manner plus 1.95%, (b) commercial paper (“CP”) rate plus 1.95%, or (c) a base rate calculated in a customary manner (which will never be less than the adjusted Eurocurrency Rate plus 1.00%) plus 0.95%, provided however in each case the CP Rate and the Eurocurrency Rate shall have a floor of 0.00%. The Credit Facility may be terminated, and any outstanding amounts thereunder may become due and payable, should the Company fail to satisfy certain covenants. As of March 31, 2024, we were in compliance with such covenants.
37
On January 10, 2023, we entered into a Fourth Amendment to the Third Amended and Restated Revolving Credit Agreement (the "Fourth Amended Credit Agreement"). The Fourth Amended Credit Agreement replaces the Eurocurrency Rate with a Daily Simple SOFR Rate, Term SOFR Rate and Adjusted Term SOFR Rate (each as defined in the Fourth Amended Credit Agreement) for purposes of calculating interest on the loan. Each Term SOFR Loan shall bear interest on the outstanding principal amount thereof for each Interest Period at a rate per annum equal to the Adjusted Term SOFR Rate for such Interest Period plus the interest rate spread or "Applicable Margin." Each Daily SOFR Loan will bear interest on the outstanding principal amount thereof at a rate per annum equal to Daily Simple SOFR plus the Applicable Margin. The Term SOFR Loan and Daily SOFR Loan have an Applicable Margin of 1.95%.
On April 7, 2023, we entered into the Fifth Amendment to the Third Amended and Restated Revolving Credit Agreement (the "Fifth Amended Credit Agreement"). The Fifth Amended Credit Agreement removed the Adjusted Term SOFR Rate for purposes of calculating interest on the loan but kept the Daily Simple SOFR and Term SOFR rates as is. It also updated the Applicable Margin from 0.95% to 1.15% for Base Rate Loans and from 1.95% to 2.15% for all other loan types. The revolving credit line was also reduced from $177.0 million to $152.0 million and lastly, the maturity date of the loan was extended 364 days to April 5, 2024.
As of March 31, 2024 and December 31, 2023, the Available Commitment under the Credit Facility was $75.0 million and $75.0 million, respectively.
As of March 31, 2024 and December 31, 2023 the amounts outstanding under the Credit Facility were $77.1 million and $77.1 million, respectively. The carrying amount of the Credit Facility, which is categorized as Level 2 within the fair value hierarchy as of March 31, 2024 and December 31, 2023, approximates its fair value. Valuation techniques and significant inputs used to determine fair value include Company details, credit, market and liquidity risk and events, financial health of the Company, place in the capital structure, interest rate and terms and conditions of the Credit Facility.
Costs associated with the Credit Facility are recorded as deferred financing costs on our Consolidated Statements of Assets and Liabilities and the costs are being amortized over the life of the Credit Facility. We incurred financing costs of $0.9 million and $0.5 million in connection with the April 6, 2021 Third Amended Credit Agreement and the April 7, 2023 Fifth Amended Credit Agreement, respectively. We also incurred financing costs of $0.6 million in connection with the April 5, 2024 Sixth Amended Credit Agreement. As of March 31, 2024 and December 31, 2023, $0.0 million and $0.1 million, respectively, of such prepaid deferred financing costs had yet to be amortized.
The summary information regarding the Credit Facility for the three months ended March 31, 2024 and 2023 was as follows (dollar amounts in thousands):
|
|
Three months ended March 31, |
|
|||||
|
|
2024 |
|
|
2023 |
|
||
Credit facility interest expense |
|
$ |
1,473 |
|
|
$ |
2,104 |
|
Undrawn commitment fees |
|
|
77 |
|
|
|
49 |
|
Administrative fees |
|
|
16 |
|
|
|
16 |
|
Amortization of deferred financing costs |
|
|
113 |
|
|
|
137 |
|
Total |
|
$ |
1,679 |
|
|
$ |
2,306 |
|
Weighted average interest rate |
|
|
7.56 |
% |
|
|
6.61 |
% |
Average outstanding balance |
|
$ |
77,050 |
|
|
$ |
127,583 |
|
We may, from time to time, enter into repurchase agreements with Barclays Bank PLC (“Barclays”), whereby we sell to Barclays our short-term investments and concurrently enter into an agreement to repurchase the same investments at an agreed-upon price at a future date, generally within 30-days (the “Repurchase Transaction”).
In accordance with ASC 860, Transfers and Servicing, these Repurchase Transactions meet the criteria for secured borrowings. Accordingly, the short-term investments remain on our Consolidated Statements of Assets and Liabilities as an asset, and we record a liability to reflect our repurchase obligation to Barclays (the “Repurchase Obligation”). The Repurchase Obligation is secured by the short-term investments that are the subject of the repurchase agreement.
We had no outstanding Repurchase Obligations as of March 31, 2024 and 2023. Interest expense incurred under these Repurchase Transactions was $1.7 million and $1.3 million for the three months ended March 31, 2024 and 2023, respectively.
38
A summary of our contractual payment obligations as of March 31, 2024 and December 31, 2023 is as follows (dollar amounts in thousands):
Revolving Credit Agreement |
|
Total Facility |
|
|
Borrowings |
|
|
Available |
|
|||
Total Debt Obligations – March 31, 2024 |
|
$ |
152,000 |
|
|
$ |
77,050 |
|
|
$ |
74,950 |
|
Total Debt Obligations – December 31, 2023 |
|
$ |
152,000 |
|
|
$ |
77,050 |
|
|
$ |
74,950 |
|
We had the following unfunded commitments and unrealized losses by investment as of March 31, 2024 and December 31, 2023 (dollar amounts in thousands):
|
|
|
|
March 31, 2024 |
|
|
December 31, 2023 |
|
||||||||||
Unfunded Commitments |
|
Maturity/ |
|
Amount |
|
|
Unrealized |
|
|
Amount |
|
|
Unrealized |
|
||||
H-D Advanced Manufacturing Company |
|
November 2025 |
|
$ |
10,300 |
|
|
$ |
20 |
|
|
$ |
— |
|
|
$ |
— |
|
Pace Industries, Inc. |
|
June 2025 |
|
|
3,254 |
|
|
|
88 |
|
|
|
3,671 |
|
|
|
158 |
|
Retail & Animal Intermediate, LLC |
|
November 2025 |
|
|
2,242 |
|
|
|
2,242 |
|
|
|
2,242 |
|
|
|
2,241 |
|
Ruby Tuesday Operations LLC (fka Ruby Tuesday, Inc.) |
|
February 2025 |
|
|
4,921 |
|
|
|
— |
|
|
|
4,921 |
|
|
|
— |
|
Total |
|
|
|
$ |
20,717 |
|
|
$ |
2,350 |
|
|
$ |
10,834 |
|
|
$ |
2,399 |
|
The Company’s total capital commitment to its underlying investment in Strategic Ventures is $481,600. As of March 31, 2024 and December 31, 2023, the Company’s unfunded commitment to Strategic Ventures was $219,646.
In accordance with our Second Amended and Restated Limited Liability Company Agreement, we may make follow-on investments up to an aggregate maximum of 10% of Capital Commitments (as defined in our Second Amended and Restated Limited Liability Company Agreement), provided that any such follow-on investment to be made after September 19, 2020, the third anniversary of the expiration of our commitment period, shall require the prior consent of a majority in interest of our Common Unitholders.
In October 2022, our Members approved a proposal to allow us to make pre-identified follow-on investments in specific portfolio companies as well as their holding companies, subsidiaries, successors or other affiliates, up to an aggregate maximum of 10% of Capital Commitments. Such approval is valid throughout the remaining Company term.
39
Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We are subject to financial market risks, including changes in interest rates. At March 31, 2024, 98.2% of our debt investments bore interest based on floating rates, such as SOFR. The interest rates on such investments generally reset by reference to the current market index after one to three months. At March 31, 2024, the percentage of our floating rate debt investments that bore interest based on an interest rate floor was 0.0%. Floating rate investments subject to a floor generally reset by reference to the current market index after one to three months only if the index exceeds the floor.
Interest rate sensitivity refers to the change in earnings that may result from changes in the level of interest rates. Because we fund a portion of our investments with borrowings, our net investment income is affected by the difference between the rate at which we invest and the rate at which we borrow. As a result, there can be no assurance that a significant change in market interest rates will not have a material adverse effect on our net investment income. We assess our portfolio companies periodically to determine whether such companies will be able to continue making interest payments in the event that interest rates increase. There can be no assurances that the portfolio companies will be able to meet their contractual obligations at any or all levels of increases in interest rates. Based on our March 31, 2024 consolidated balance sheet, the following table shows the annual impact on net investment income (excluding the related incentive compensation impact) of base rate changes in interest rates (considering interest rate floors for variable rate instruments) assuming no changes in our investment and borrowing structure (dollar amounts in thousands):
|
|
Interest Income |
|
|
Interest Expense |
|
|
Net Investment Income (Loss) |
|
|||
Up 300 basis points |
|
$ |
9,245 |
|
|
$ |
2,344 |
|
|
$ |
6,901 |
|
Up 200 basis points |
|
|
6,163 |
|
|
|
1,562 |
|
|
|
4,601 |
|
Up 100 basis points |
|
|
3,082 |
|
|
|
781 |
|
|
|
2,301 |
|
Down 100 basis points |
|
|
(3,082 |
) |
|
|
(781 |
) |
|
|
(2,301 |
) |
Down 200 basis points |
|
|
(6,163 |
) |
|
|
(1,562 |
) |
|
|
(4,601 |
) |
Down 300 basis points |
|
|
(9,245 |
) |
|
|
(2,344 |
) |
|
|
(6,901 |
) |
Item 4. CONTROLS AND PROCEDURES
As of the end of the period covered by this report, we carried out an evaluation, under the supervision and with the participation of our management, including our President and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rule 13a-15 under the Securities Exchange Act of 1934). Based on that evaluation, our President and Chief Financial Officer have concluded that our current disclosure controls and procedures are effective in timely alerting them to material information relating to us that is required to be disclosed by us in the reports we file or submit under the Securities Exchange Act of 1934.
There have been no changes in our internal control over financial reporting that occurred during our most recently completed fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
We are not currently subject to any material legal proceedings, nor, to our knowledge, is any material legal proceeding threatened against us. From time to time, we may be a party to certain legal proceedings in the ordinary course of business, including proceedings relating to the enforcement of our rights under loans to or other contracts with our portfolio companies.
Item 1A. Risk Factors
There have been no material changes from the risk factors previously disclosed in our Annual Report on Form 10-K.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Sales of unregistered securities
On September 19, 2014, the Company began accepting subscription agreements from investors for the private sale of its Common Units. The Company continued to enter into subscription agreements through the final closing date of March 19, 2015. Under the terms of the subscription agreements, the Company may generally draw down all or any portion of the undrawn commitment with respect to each Common Unit upon at least ten business days’ prior written notice to the Unitholders. The issuance of the Common Units pursuant to these subscription agreements and any draw by the Company under the related Commitments is expected to be exempt from the registration requirements of the Securities Act of 1933, as amended, pursuant to Section 4(a)(2) thereof, and Rule 506(c) of Regulation D thereunder.
40
Issuer purchases of equity securities
None.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Mine Safety Disclosures
None.
Item 5. Other Information
None.
41
Item 6. Exhibits.
(a) Exhibits
Exhibits |
|
|
|
3.1 |
|
|
|
3.4 |
|
|
|
10.1 |
|
|
|
10.2 |
|
|
|
10.6 |
|
|
|
10.8 |
|
|
|
10.10 |
|
|
|
10.11 |
|
|
|
10.12 |
|
|
|
10.13 |
|
10.14* |
|
31.1* |
Certification of President Pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934 |
|
|
31.2* |
|
|
|
32.1* |
|
|
|
32.2* |
|
|
|
99.1* |
|
|
|
101.INS |
Inline XBRL Instance Document – the instance document does not appear in the Interactive Data File because XBRL tags are embedded within the Inline XBRL document. |
101.SCH |
Inline XBRL Taxonomy Extension Schema Document |
101.CAL |
Inline XBRL Taxonomy Extension Calculation Linkbase Document |
101.DEF |
Inline XBRL Taxonomy Extension Definition Linkbase Document |
101.LAB |
Inline XBRL Taxonomy Extension Label Linkbase Document |
101.PRE |
Inline XBRL Taxonomy Extension Presentation Linkbase Document |
104 |
Cover Page Interactive Data File (embedded within the Inline XBRL document) |
* Filed herewith
42
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
|
|
|
|
TCW DIRECT LENDING LLC |
|
|
|
|
Date: May 10, 2024 |
By: |
/s/ Richard T. Miller
|
|
|
Richard T. Miller |
|
|
President |
|
|
|
Date: May 10, 2024 |
By: |
/s/ Andrew J. Kim
|
|
|
Andrew J. Kim |
|
|
Chief Financial Officer |
43