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TCW DIRECT LENDING LLC

Date Filed : Aug 11, 2022

10-Q1tcw_fund_vi_q2_2022.htm10-Q 10-Q

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

 

FORM 10-Q

 

(Mark One)

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.

For the quarterly period ended June 30, 2022

OR

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.

For the transition period from to

Commission file number 814-01069

 

TCW DIRECT LENDING LLC

(Exact Name of Registrant as Specified in Its Charter)

 

 

 

Delaware

46-5327366

(State or Other Jurisdiction of

Incorporation or Organization)

(I.R.S. Employer

Identification No.)

 

 

200 Clarendon Street, Boston, MA

02116

(Address of Principal Executive Offices)

(Zip Code)

Registrant’s Telephone Number, Including Area Code: (617) 936-2275

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.

 

 

 

 

Title of each class

 

Trading Symbol(s)

 

Name of each exchange on which registered

 

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. Yes ☒ No ☐

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). Yes ☐ No ☐

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

Accelerated filer

 

 

 

 

Non-Accelerated filer

Smaller reporting company

 

 

 

 

 

 

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 June 30, 2022, there was no established public market for the Registrant’s common units. The number of the Registrant’s common units outstanding at August 11, 2022 was 20,134,698.

 

 


 

 

TCW DIRECT LENDING LLC

FORM 10-Q FOR THE QUARTER ENDED June 30, 2022

Table of Contents

 

 

INDEX

 

PAGE
NO.

 

PART I.

FINANCIAL INFORMATION

 

Item 1.

Financial Statements

 

 

Consolidated Schedules of Investments as of June 30, 2022 (unaudited) and December 31, 2021

3

 

Consolidated Statements of Assets and Liabilities as of June 30, 2022 (unaudited) and December 31, 2021

13

 

Consolidated Statements of Operations for the three and six months ended June 30, 2022 and 2021 (unaudited)

14

 

Consolidated Statements of Changes in Members’ Capital for the three and six months ended June 30, 2022 and 2021 (unaudited)

15

 

Consolidated Statements of Cash Flows for the six months ended June 30, 2022 and 2021 (unaudited)

16

 

Notes to Consolidated Financial Statements (unaudited)

17

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

31

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

42

Item 4.

Controls and Procedures

42

PART II.

OTHER INFORMATION

42

Item 1.

Legal Proceedings

42

Item 1A.

Risk Factors

42

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

42

Item 3.

Defaults Upon Senior Securities

43

Item 4.

Mine Safety Disclosures

43

Item 5.

Other Information

43

Item 6.

Exhibits

44

 

SIGNATURES

45

 

 

 

 

2


TCW DIRECT LENDING LLC

Consolidated Schedule of Investments (Unaudited)

As of June 30, 2022

 

 

Industry

 

Issuer

 

Acquisition
Date

 

Investment

 

% of Net Assets

 

 

Par
Amount

 

 

Maturity
Date

 

Amortized
Cost

 

 

Fair Value

 

 

 

DEBT(1)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Distributors

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Animal Supply Company, LLC(3)

 

08/14/20

 

Term Loan - 9.50% inc PIK
(LIBOR + 8.50%, 1.00% Floor, all PIK)

 

 

5.6

%

 

$

23,293,037

 

 

08/14/25

 

$

23,293,037

 

 

$

23,293,037

 

 

 

Retail & Animal Intermediate, LLC(2)(3)

 

08/14/20

 

Subordinated Loan - 7.00% inc PIK
(7.00%, Fixed Coupon, all PIK)

 

 

0.3

%

 

 

27,843,469

 

 

11/14/25

 

 

23,151,200

 

 

 

1,392,173

 

 

 

 

 

 

 

 

 

 

5.9

%

 

 

 

 

 

 

 

46,444,237

 

 

 

24,685,210

 

Diversified Consumer Services

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

School Specialty, Inc.(4)

 

09/15/20

 

Term Loan - 9.67%
(LIBOR + 8.00%, 1.25% Floor)

 

 

8.6

%

 

 

35,457,265

 

 

09/15/25

 

 

35,306,748

 

 

 

35,457,265

 

 

 

 

 

 

 

 

 

 

8.6

%

 

 

 

 

 

 

 

35,306,748

 

 

 

35,457,265

 

Diversified Financial Services

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Guardia LLC (2) (3)

 

07/02/18

 

Revolver - 8.75% inc PIK
(LIBOR + 7.25%, 1.50% Floor, all PIK)

 

 

0.7

%

 

 

10,859,391

 

 

07/02/23

 

 

1,914,842

 

 

 

3,029,770

 

 

 

 

 

 

 

 

 

 

0.7

%

 

 

 

 

 

 

 

1,914,842

 

 

 

3,029,770

 

Hotels, Restaurants & Leisure

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Ruby Tuesday Operations LLC(4)

 

02/24/21

 

Term Loan - 13.79% inc PIK
(LIBOR + 12.00%, 1.25% Floor, 6.00% PIK)

 

 

1.7

%

 

 

6,960,300

 

 

02/24/25

 

 

6,960,300

 

 

 

6,960,300

 

 

 

 

 

 

 

 

 

 

1.7

%

 

 

 

 

 

 

 

6,960,300

 

 

 

6,960,300

 

Household Durables

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 


Cedar Electronics Holdings, Corp.
(4)

 

05/19/15

 

Term Loan - 9.67%
(LIBOR + 8.00%, 1.50% Floor)

 

 

3.6

%

 

 

15,126,452

 

 

12/18/23

 

 

15,125,415

 

 

 

15,126,452

 

 

 


Cedar Electronics Holdings, Corp.
 (4)

 

01/30/19

 

Incremental Term Loan - 15.00% inc PIK
(15.00%, Fixed Coupon, all PIK)

 

 

1.0

%

 

 

4,001,316

 

 

12/18/23

 

 

4,001,316

 

 

 

4,001,316

 

 

 

 

 

 

 

 

 

 

4.6

%

 

 

 

 

 

 

 

19,126,731

 

 

 

19,127,768

 

Industrial Conglomerates

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 


H-D Advanced Manufacturing Company

 

06/30/15

 

Term Loan - 10.00% inc PIK
(LIBOR + 8.50%, 1.50% Floor, all PIK)

 

 

21.6

%

 

 

122,933,674

 

 

01/01/23

 

 

122,882,686

 

 

 

89,741,582

 

 

 

 

 

 

 

 

 

 

21.6

%

 

 

 

 

 

 

 

122,882,686

 

 

 

89,741,582

 

Metals & Mining

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Pace Industries, Inc.(2) 4)

 

06/01/20

 

HoldCo Term Loan - 3.50% inc PIK
(LIBOR + 2.00%, 1.50% Floor, all PIK)

 

 

17.2

%

 

 

87,156,748

 

 

06/01/40

 

 

78,137,870

 

 

 

71,119,906

 

 

 

Pace Industries, Inc.(4)

 

06/01/20

 

Term Loan - 9.75% inc PIK
(LIBOR + 8.25%, 1.50% Floor, 2.25% PIK)

 

 

13.2

%

 

 

54,592,326

 

 

06/01/25

 

 

54,566,774

 

 

 

54,592,326

 

 

 

 

 

 

 

 

 

 

30.4

%

 

 

 

 

 

 

 

132,704,644

 

 

 

125,712,232

 

Pharmaceuticals

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Noramco, LLC

 

07/01/16

 

Term Loan - 9.38% inc PIK
(LIBOR + 8.38%, 1.00% Floor, 0.38% PIK)

 

 

11.8

%

 

 

49,092,363

 

 

12/31/23

 

 

49,004,031

 

 

 

48,994,178

 

 

 

 

 

 

 

 

 

 

11.8

%

 

 

 

 

 

 

 

49,004,031

 

 

 

48,994,178

 

 

 

Total Debt Investments

 

 

 

 

 

 

85.3

%

 

 

 

 

 

 

 

414,344,219

 

 

 

353,708,305

 

 

 

3


TCW DIRECT LENDING LLC

Consolidated Schedule of Investments (Unaudited) (Continued)

As of June 30, 2022

 

 

Industry

 

Issuer

 

Investment

 

% of Net
Assets

 

 

Shares

 

 

Amortized
Cost

 

 

Fair Value

 

 

 

EQUITY

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Distributors

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Animal Supply Holdings, LLC(2)(3)(5)(8)

 

Class A Common

 

 

0.0

%

 

 

224,156

 

 

$

1,572,727

 

 

$

 

 

 

 

 

 

 

 

0.0

%

 

 

 

 

 

1,572,727

 

 

 

 

Diversified Consumer Services

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

School Specialty, Inc.(2)(4)(6)(8)

 

Class A Preferred Stock

 

 

2.9

%

 

 

806,264

 

 

 

8,062,637

 

 

 

12,093,956

 

 

 

School Specialty, Inc.(2)(4)(6)(8)

 

Class B Preferred Stock

 

 

1.0

%

 

 

359,474

 

 

 

356,635

 

 

 

4,205,846

 

 

 

School Specialty, Inc.(2)(4)(6)(8)

 

Common Stock

 

 

6.5

%

 

 

80,700

 

 

 

53,889

 

 

 

27,111,972

 

 

 

 

 

 

 

 

10.4

%

 

 

 

 

 

8,473,161

 

 

 

43,411,774

 

Hotels, Restaurants & Leisure

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

RT Holdings Parent, LLC(2)(4)(8)

 

Class A Units

 

 

5.1

%

 

 

5,475,885

 

 

 

5,133,708

 

 

 

20,828,076

 

 

 

RT Holdings Parent, LLC(2)(4)(8)

 

Warrant, expires 12/21/27

 

 

0.8

%

 

 

912,647

 

 

 

 

 

 

3,471,162

 

 

 

 

 

 

 

 

5.9

%

 

 

 

 

 

5,133,708

 

 

 

24,299,238

 

Household Durables

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cedar Ultimate Parent, LLC(2)(4)(8)

 

Class A Preferred Units

 

 

3.6

%

 

 

9,297,990

 

 

 

9,187,902

 

 

 

14,974,041

 

 

 

Cedar Ultimate Parent, LLC(2)(4)(8)

 

Class E Common Units

 

 

0.0

%

 

 

300,000

 

 

 

 

 

 

 

 

 

Cedar Ultimate Parent, LLC(2)(4)(8)

 

Class D Preferred Units

 

 

0.1

%

 

 

2,900,000

 

 

 

 

 

 

 

 

 

 

 

 

 

 

3.7

%

 

 

 

 

 

9,187,902

 

 

 

14,974,041

 

Investment Funds & Vehicles

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

TCW Direct Lending Strategic Ventures(2)(4)(7)

 

Common membership Interests

 

 

0.0

%

 

 

800

 

 

 

 

 

 

 

 

 

TCW Direct Lending Strategic Ventures(4)(7)

 

Preferred membership Interests

 

 

21.4

%

 

 

88,560

 

 

 

88,560,000

 

 

 

89,051,255

 

 

 

 

 

 

 

 

21.4

%

 

 

 

 

 

88,560,000

 

 

 

89,051,255

 

Metals & Mining

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Pace Industries, Inc.(2)(4)(8)

 

Common Stock

 

 

0.0

%

 

 

917,418

 

 

 

2,110,522

 

 

 

 

 

 

 

 

 

 

 

0.0

%

 

 

 

 

 

2,110,522

 

 

 

 

Technologies Hardware,
   Storage and Peripherals

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Quantum Corporation(2)

 

Common Stock

 

 

0.6

%

 

 

1,766,327

 

 

 

6,481,787

 

 

 

2,508,184

 

 

 

 

 

 

 

 

0.6

%

 

 

 

 

 

6,481,787

 

 

 

2,508,184

 

 

 

Total Equity Investments

 

 

 

 

42.0

%

 

 

 

 

 

121,519,807

 

 

 

174,244,492

 

 

 

Total Debt & Equity Investments(9)

 

 

 

 

127.3

%

 

 

 

 

 

535,864,026

 

 

 

527,952,797

 

 

 

Short-term Investments

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. Treasury Bill, Yield 0.09%

 

 

 

 

112.6

%

 

 

470,000,000

 

 

 

467,001,400

 

 

 

467,001,400

 

 

 

Total Short-term Investments

 

 

 

 

112.6

%

 

 

 

 

 

467,001,400

 

 

 

467,001,400

 

 

 

Total Investments (253.8%)

 

 

 

 

 

 

 

 

 

$

1,002,865,426

 

 

$

994,954,197

 

 

 

Net unrealized depreciation on unfunded commitments (0.0%)

 

 

 

 

 

 

 

 

 

 

 

 

 

(17,246

)

 

 

Liabilities in Excess of Other Assets (-153.8%)

 

 

 

 

 

 

 

 

 

 

 

 

 

(580,321,810

)

 

 

Net Assets (100.0%)

 

 

 

 

 

 

 

 

 

 

 

 

$

414,615,141

 

 

(1)
Certain debt investments are subject to contractual restrictions on resale, such as approval of the agent or borrower.
(2)
Non-income producing.

4


TCW DIRECT LENDING LLC

Consolidated Schedule of Investments (Unaudited) (Continued)

As of June 30, 2022

 

(3)
As defined in the Investment Company Act of 1940, the investment is deemed to be an “affiliated person” of the Company because the Company owns, either directly or indirectly, between 5% and 25% of the portfolio company’s outstanding voting securities or has the power to exercise control over management or policies of such portfolio company. Fair value as of December 31, 2021 and June 30, 2022 along with transactions during the period ended June 30, 2022 in these affiliated investments are as follows:

 

Name of Investment

 

Fair Value at December 31, 2021

 

 

Gross Addition (a)

 

 

Gross Reduction (b)

 

 

Realized Gains
(Losses)

 

 

Net Change in
Unrealized
Appreciation/
(Depreciation)

 

 

Fair Value at June 30, 2022

 

 

Interest/Dividend/
Other income

 

Animal Supply Holdings LLC Class A Common

 

$

 

 

$

 

 

$

 

 

$

 

 

$

 

 

$

 

 

$

 

ASC Acquisition Holdings LLC Term Loan - 9.50%

 

 

22,248,202

 

 

 

1,094,001

 

 

 

(49,166

)

 

 

 

 

 

 

 

 

23,293,037

 

 

 

1,249,594

 

Guardia LLC (fka Carrier & Technology, LLC) Revolver - 8.75%

 

 

2,807,357

 

 

 

 

 

 

(527,103

)

 

 

 

 

 

749,516

 

 

 

3,029,770

 

 

 

 

Retail and Animal Intermediate Subordinated Loan - 7.00%

 

 

4,247,569

 

 

 

 

 

 

 

 

 

 

 

 

(2,855,396

)

 

 

1,392,173

 

 

 

 

Total Non-Controlled Affiliated
   Investments

 

$

29,303,128

 

 

$

1,094,001

 

 

$

(576,269

)

 

$

 

 

$

(2,105,880

)

 

$

27,714,980

 

 

$

1,249,594

 

 

(a)
Gross additions include new purchases, payment-in-kind (“PIK”) income and amortization of original issue and market discounts.
(b)
Gross reductions include decreases in the cost basis from sales, paydown and the amortization of premium.

 

5


TCW DIRECT LENDING LLC

Consolidated Schedule of Investments (Unaudited) (Continued)

As of June 30, 2022

 

(4)
As defined in the Investment Company Act of 1940, the investment is deemed to be a “controlled person” of the Company because the Company owns, either directly or indirectly, 25% or more of the portfolio company’s outstanding voting securities or has the power to exercise control over management or policies of such portfolio company. Fair value as of December 31, 2021 and June 30, 2022 along with transactions during the period ended June 30, 2022 in these controlled investments are as follows:

 

Name of Investment

 

Fair Value at December 31, 2021

 

 

Gross Addition (a)

 

 

Gross Reduction (b)

 

 

Realized Gains
(Losses)

 

 

Net Change
in Unrealized
Appreciation/
(Depreciation)

 

 

Fair Value at June 30, 2022

 

 

Interest/Dividend/
Other income

 

Cedar Electronics Holdings, Corp Incremental Term Loan - 15.00%

 

$

3,710,871

 

 

$

290,445

 

 

$

 

 

$

 

 

$

 

 

$

4,001,316

 

 

$

293,537

 

Cedar Electronics Holdings, Corp Term Loan - 9.50%

 

 

15,126,452

 

 

 

351

 

 

 

 

 

 

 

 

 

(351

)

 

 

15,126,452

 

 

 

842,849

 

Cedar Ultimate Parent, LLC Class A Preferred Unit

 

 

16,255,955

 

 

 

 

 

 

 

 

 

 

 

 

(1,281,914

)

 

 

14,974,041

 

 

 

 

Cedar Ultimate Parent, LLC Class D Preferred Unit

 

 

2,262,000

 

 

 

 

 

 

 

 

 

 

 

 

(2,262,000

)

 

 

 

 

 

 

Cedar Ultimate Parent, LLC Class E Preferred Unit

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Pace Industries, Inc. Common Stock

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Pace Industries, Inc. Term Loan - 3.50%

 

 

73,617,540

 

 

 

 

 

 

 

 

 

 

 

 

(2,497,634

)

 

 

71,119,906

 

 

 

31,148

 

Pace Industries, Inc. Term Loan - 9.75%

 

 

53,963,182

 

 

 

633,482

 

 

 

 

 

 

 

 

 

(4,338

)

 

 

54,592,326

 

 

 

2,903,418

 

RT Holdings Parent, LLC Class A Unit

 

 

20,859,289

 

 

 

 

 

 

 

 

 

 

 

 

(31,213

)

 

 

20,828,076

 

 

 

 

RT Holdings Parent, LLC Warrant

 

 

3,476,546

 

 

 

 

 

 

 

 

 

 

 

 

(5,384

)

 

 

3,471,162

 

 

 

 

Ruby Tuesday Operations, LLC Term Loan - 13.25%

 

 

8,635,037

 

 

 

258,134

 

 

 

(1,932,871

)

 

 

 

 

 

 

 

 

6,960,300

 

 

 

601,483

 

School Specialty, Inc. Common Stock

 

 

 

 

 

 

 

 

 

 

 

 

 

 

27,111,972

 

 

 

27,111,972

 

 

 

 

School Specialty, Inc. Preferred Stock A

 

 

12,093,956

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

12,093,956

 

 

 

 

School Specialty, Inc. Preferred Stock B

 

 

690,190

 

 

 

 

 

 

 

 

 

 

 

 

3,515,656

 

 

 

4,205,846

 

 

 

 

School Specialty, Inc. Term Loan - 9.25%

 

 

35,532,774

 

 

 

23,688

 

 

 

(75,510

)

 

 

 

 

 

(23,687

)

 

 

35,457,265

 

 

 

1,676,649

 

TCW Direct Lending Strategic Ventures LLC Common Membership Interests

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

TCW Direct Lending Strategic Ventures LLC Preferred Membership Interests

 

 

88,334,811

 

 

 

 

 

 

(12,960,000

)

 

 

 

 

 

13,676,444

 

 

 

89,051,255

 

 

 

2,400,000

 

Total Controlled Affiliated Investments

 

$

334,558,603

 

 

$

1,206,100

 

 

$

(14,968,381

)

 

$

 

 

$

38,197,551

 

 

$

358,993,873

 

 

$

8,749,084

 

 

(a)
Gross additions include new purchases, PIK income and amortization of original issue and market discounts.
(b)
Gross reductions include decreases in the cost basis from sales, paydown and the amortization of premium.
(5)
Holding of Animal Supply Holdings, LLC Class A units are held through TCW DL ASH LLC, a special purpose vehicle.
(6)
Holdings of School Specialty, Inc. Class A & B preferred stock and common stock are held through TCW DL SSP LLC, a special purpose vehicle.

6


TCW DIRECT LENDING LLC

Consolidated Schedule of Investments (Unaudited) (Continued)

As of June 30, 2022

 

(7)
The investment is not a qualifying asset as defined in Section 55(a) under the Investment Company Act of 1940, as amended. A business development company may not acquire an asset other than qualifying assets, unless, at the time the acquisition is made, qualifying assets represent at least 70% of the company’s total assets. As of June 30, 2022, $89,051,225 or 9.1% of the Company’s total assets were represented by “non-qualifying assets.”
(8)
All or a portion of such security was acquired in a transaction exempt from registration under the Securities Act of 1933, and may be deemed “restricted securities” under the Securities Act. As of June 30, 2022, the aggregate fair value of these securities was $82,685,053, or 8.5% of the Company’s total assets.
(9)
The fair value of the Quantum Corporation Common Stock held by the Company is based on the quoted market price of the issuer’s stock as of June 30, 2022. Such common stock is considered to be a Level 1 security within the Fair Value Hierarchy. Otherwise, the fair value of each debt and equity investment was determined using significant unobservable inputs and such investments are considered to be Level 3 within the Fair Value Hierarchy. See Note 3 “Investment Valuations and Fair Value Measurements.”

LIBOR - London Interbank Offered Rate, generally 1-Month or 3-Month

PRIME - Prime Rate

Aggregate acquisitions and aggregate dispositions of investments, other than government securities, totaled $11,779,175 and $16,963,378, respectively, for the period ended June 30, 2022. Aggregate acquisitions includes investment assets received as payment in kind. Aggregate dispositions includes principal paydowns on and maturities of debt investments.

 

Geographic Breakdown of Portfolio

 

 

 

United States

 

 

100

%

 

See Notes to Consolidated Financial Statements.

7


TCW DIRECT LENDING LLC

Consolidated Schedule of Investments

As of December 31, 2021

 

 

Industry

 

Issuer

 

Acquisition
Date

Investment

 

% of Net
Assets

 

 

Par
Amount

 

 

Maturity
Date

 

Amortized
Cost

 

 

Fair Value

 

 

 

DEBT(1)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Distributors

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

ASC Acquisition Holdings, LLC(3)

 

08/14/20

 Term Loan - 9.50% inc PIK
(LIBOR + 8.50%, 1.00% Floor, all PIK)

 

 

5.7

%

 

$

22,248,202

 

 

08/14/25

 

$

22,248,202

 

 

$

22,248,202

 

 

 

Retail & Animal Intermediate, LLC(2)(3)

 

08/14/20

 Subordinated Loan - 7.00% inc PIK
(7.00% Fixed Coupon, all PIK)

 

 

1.1

%

 

 

26,883,346

 

 

11/14/25

 

 

23,151,200

 

 

 

4,247,569

 

 

 

 

 

 

 

 

 

6.8

%

 

 

49,131,548

 

 

 

 

 

45,399,402

 

 

 

26,495,771

 

Diversified Consumer Services

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

School Specialty, Inc.(4)

 

09/15/20

Term Loan - 9.25%
(LIBOR + 8.00%, 1.25% Floor)

 

 

9.1

%

 

 

35,532,774

 

 

09/15/25

 

 

35,358,570

 

 

 

35,532,774

 

 

 

 

 

 

 

 

 

9.1

%

 

 

35,532,774

 

 

 

 

 

35,358,570

 

 

 

35,532,774

 

Diversified Financial Services

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Guardia LLC(2)(3)

 

07/02/18

Revolver - 8.75% inc PIK
(LIBOR + 7.25%, 1.50% Floor, all PIK)

 

 

0.7

%

 

 

10,321,164

 

 

07/02/23

 

 

2,441,944

 

 

 

2,807,357

 

 

 

 

 

 

 

 

 

0.7

%

 

 

10,321,164

 

 

 

 

 

2,441,944

 

 

 

2,807,357

 

Hotels, Restaurants & Leisure

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Ruby Tuesday Operations LLC(4)

 

02/24/21

Term Loan - 13.25% inc PIK
(LIBOR + 12.00%, 1.25% Floor, 6.00% PIK)

 

 

2.2

%

 

 

8,635,037

 

 

02/24/25

 

 

8,635,037

 

 

 

8,635,037

 

 

 

 

 

 

 

 

 

2.2

%

 

 

8,635,037

 

 

 

 

 

8,635,037

 

 

 

8,635,037

 

Household Durables

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 


Cedar Electronics Holdings, Corp.
(4)

 

05/19/15

Term Loan - 9.50%
(LIBOR + 8.00%, 1.50% Floor)

 

 

3.9

%

 

 

15,126,452

 

 

12/18/23

 

 

15,125,064

 

 

 

15,126,452

 

 

 


Cedar Electronics Holdings, Corp.
(4)

 

01/30/19

Incremental Term Loan - 15.00% inc PIK
(15.00% Fixed Coupon, all PIK)

 

 

1.0

%

 

 

3,710,871

 

 

12/18/23

 

 

3,710,871

 

 

 

3,710,871

 

 

 

 

 

 

 

 

 

4.9

%

 

 

18,837,323

 

 

 

 

 

18,835,935

 

 

 

18,837,323

 

Industrial Conglomerates

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 


H-D Advanced Manufacturing Company

 

06/30/15

Term Loan - 10.00% inc PIK
(LIBOR + 8.50%, 1.50% Floor, all PIK)

 

 

18.3

%

 

 

113,536,293

 

 

01/01/23

 

 

113,435,148

 

 

 

71,300,792

 

 

 

 

 

 

 

 

 

18.3

%

 

 

113,536,293

 

 

 

 

 

113,435,148

 

 

 

71,300,792

 

Metals & Mining

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Pace Industries, Inc.(2)(4)

 

06/01/20

HoldCo Term Loan - 3.50% inc PIK
(LIBOR + 2.00%, 1.50% Floor, all PIK)

 

 

18.9

%

 

 

85,601,791

 

 

06/01/40

 

 

78,137,870

 

 

 

73,617,540

 

 

 

Pace Industries, Inc.(4)

 

06/01/20

Term Loan - 9.75% inc PIK
(LIBOR + 8.25%, 1.50% Floor, 2.25% PIK)

 

 

13.9

%

 

 

53,963,182

 

 

06/01/25

 

 

53,933,292

 

 

 

53,963,182

 

 

 

 

 

 

 

 

 

32.8

%

 

 

139,564,973

 

 

 

 

 

132,071,162

 

 

 

127,580,722

 

Pharmaceuticals

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Noramco, LLC

 

07/01/16

Term Loan - 9.38% inc PIK
(LIBOR + 8.38%, 1.00% Floor, 0.38% PIK)

 

 

13.0

%

 

 

50,401,023

 

 

12/31/23

 

 

50,280,078

 

 

 

50,552,226

 

 

 

 

 

 

 

 

 

13.0

%

 

 

50,401,023

 

 

 

 

 

50,280,078

 

 

 

50,552,226

 

 

 

Total Debt Investments

 

 

 

 

 

87.8

%

 

 

 

 

 

 

 

406,457,276

 

 

 

341,742,002

 

 

8


TCW DIRECT LENDING LLC

Consolidated Schedule of Investments (Continued)

As of December 31, 2021

 

 

Industry

 

Issuer

 

Investment

 

% of Net
Assets

 

 

Shares

 

 

Amortized
Cost

 

 

Fair Value

 

 

 

EQUITY

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Distributors

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Animal Supply Holdings LLC(2)(3)(5)(8)

 

 Class A Common

 

 

0.0

%

 

 

224,156

 

 

$

1,572,727

 

 

$

 

 

 

 

 

 

 

 

0.0

%

 

 

224,156

 

 

 

1,572,727

 

 

 

 

Diversified Consumer Services

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

School Specialty, Inc.(2)(4)(6)(8)

 

Class A Preferred Stock

 

 

3.1

%

 

 

806,264

 

 

 

8,062,637

 

 

 

12,093,956

 

 

 

School Specialty, Inc.(2)(4)(6)(8)

 

Class B Preferred Stock

 

 

0.2

%

 

 

359,474

 

 

 

356,635

 

 

 

690,190

 

 

 

School Specialty, Inc.(2)(4)(6)(8)

 

Common Stock

 

 

0.0

%

 

 

80,700

 

 

 

53,889

 

 

 

 

 

 

 

 

 

 

 

3.3

%

 

 

1,246,438

 

 

 

8,473,161

 

 

 

12,784,146

 

Hotels, Restaurants & Leisure

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

RT Holdings Parent, LLC(2)(4)(8)

 

Class A Units

 

 

5.4

%

 

 

5,475,885

 

 

 

5,133,708

 

 

 

20,859,289

 

 

 

RT Holdings Parent, LLC(2)(4)(8)

 

Warrant, expires 12/21/27

 

 

0.9

%

 

 

912,647

 

 

 

 

 

 

3,476,546

 

 

 

 

 

 

 

 

6.3

%

 

 

6,388,532

 

 

 

5,133,708

 

 

 

24,335,835

 

Household Durables

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cedar Ultimate Parent, LLC(2)(4)(8)

 

Class A Preferred Units

 

 

4.2

%

 

 

9,297,990

 

 

 

9,187,902

 

 

 

16,255,955

 

 

 

Cedar Ultimate Parent, LLC(2)(4)(8)

 

Class E Common Units

 

 

0.0

%

 

 

300,000

 

 

 

 

 

 

 

 

 

Cedar Ultimate Parent, LLC(2)(4)(8)

 

Class D Preferred Units

 

 

0.6

%

 

 

2,900,000

 

 

 

 

 

 

2,262,000

 

 

 

 

 

 

 

 

4.8

%

 

 

12,497,990

 

 

 

9,187,902

 

 

 

18,517,955

 

Investment Funds & Vehicles

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

TCW Direct Lending Strategic Ventures(2)(4)(7)

 

Common membership Interests

 

 

0.0

%

 

 

800

 

 

 

 

 

 

 

 

 

TCW Direct Lending Strategic Ventures(4)(7)

 

Preferred membership Interests

 

 

22.6

%

 

 

101,520

 

 

 

101,520,000

 

 

 

88,334,811

 

 

 

 

 

 

 

 

22.6

%

 

 

102,320

 

 

 

101,520,000

 

 

 

88,334,811

 

Metals & Mining

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Pace Industries, Inc.(2)(4)(8)

 

Common Stock

 

 

0.0

%

 

 

917,418

 

 

 

2,110,522

 

 

 

 

 

 

 

 

 

 

 

0.0

%

 

 

917,418

 

 

 

2,110,522

 

 

 

 

Technologies Hardware, Storage and Peripherals

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Quantum Corporation(2)

 

Common Stock

 

 

2.5

%

 

 

1,766,327

 

 

 

6,481,787

 

 

 

9,750,125

 

 

 

 

 

 

 

 

2.5

%

 

 

1,766,327

 

 

 

6,481,787

 

 

 

9,750,125

 

 

 

Total Equity Investments

 

 

 

 

39.5

%

 

 

 

 

 

134,479,807

 

 

 

153,722,872

 

 

 

Total Debt & Equity Investments(9)

 

 

127.3

%

 

 

 

 

 

540,937,083

 

 

 

495,464,874

 

 

 

Short-term Investments

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. Treasury Bill, Yield 0.09%

 

 

 

 

141.3

%

 

 

550,000,000

 

 

 

549,929,721

 

 

 

549,929,721

 

 

 

Total Short-term Investments

 

 

 

 

141.3

%

 

 

550,000,000

 

 

 

549,929,721

 

 

 

549,929,721

 

 

 

Total Investments (268.5%)

 

 

 

 

 

 

 

 

 

$

1,090,866,804

 

 

$

1,045,394,595

 

 

 

Net unrealized depreciation on unfunded commitments (0.0%)

 

 

 

 

 

 

 

 

 

 

 

 

 

(138,337

)

 

 

Liabilities in Excess of Other Assets (-168.5%)

 

 

 

 

 

 

 

 

 

 

 

 

 

(655,951,784

)

 

 

Net Assets (100.0%)

 

 

 

 

 

 

 

 

 

 

 

 

$

389,304,474

 

 

(1)
Certain debt investments are subject to contractual restrictions on resale, such as approval of the agent or borrower.
(2)
Non-income producing.

9


TCW DIRECT LENDING LLC

Consolidated Schedule of Investments (Continued)

As of December 31, 2021

 

(3)
As defined in the Investment Company Act of 1940, the investment is deemed to be an “affiliated person” of the Company because the Company owns, either directly or indirectly, between 5% and 25% of the portfolio company’s outstanding voting securities or has the power to exercise control over management or policies of such portfolio company. Fair value as of December 31, 2020 and December 31, 2021 along with transactions during the year ended December 31, 2021 in these affiliated investments are as follows:

Name of Investment

 

Fair Value at December 31, 2020

 

 

Gross Addition(a)

 

 

Gross Reduction(b)

 

 

Realized Gains
(Losses)

 

 

Net Change in
Unrealized
Appreciation/
(Depreciation)

 

 

Fair Value at December 31, 2021

 

 

Interest/Dividend/
Other income

 

Animal Supply Holdings LLC Class A Common

 

$

 

 

$

 

 

$

 

 

$

 

 

$

 

 

$

 

 

$

 

ASC Acquisition Holdings LLC Term Loan - 9.50%

 

 

20,398,360

 

 

 

2,046,507

 

 

 

(196,665

)

 

 

 

 

 

 

 

 

22,248,202

 

 

 

2,265,018

 

Carrier & Technology, LLC Common Stock

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Carrier & Technology Holdings, LLC Term Loan—11.75%

 

 

 

 

 

231,174

 

 

 

(1,369,948

)

 

 

(41,407,285

)

 

 

42,546,059

 

 

 

 

 

 

231,174

 

Guardia LLC (fka Carrier & Technology, LLC) Revolver - 8.75%

 

 

5,782,424

 

 

 

133,991

 

 

 

 

 

 

(7,361,653

)

 

 

4,252,595

 

 

 

2,807,357

 

 

 

68,403

 

Guardia LLC (fka Carrier & Technology Solutions, LLC) Term loan—8.75%

 

 

 

 

 

669,510

 

 

 

 

 

 

(10,057,378

)

 

 

9,387,868

 

 

 

 

 

 

421,861

 

Retail and Animal Intermediate Subordinated Loan - 7.00%

 

 

9,617,957

 

 

 

 

 

 

(275,366

)

 

 

 

 

 

(5,095,022

)

 

 

4,247,569

 

 

 

(267,358

)

Total Non-Controlled Affiliated Investments

 

$

35,798,741

 

 

$

3,081,182

 

 

$

(1,841,979

)

 

$

(58,826,316

)

 

$

51,091,500

 

 

$

29,303,128

 

 

$

2,719,098

 

 

(a)
Gross additions include new purchases, PIK income and amortization of original issue and market discounts.
(b)
Gross reductions include decreases in the cost basis from sales, paydown and the amortization of premium.

 

10


TCW DIRECT LENDING LLC

Consolidated Schedule of Investments (Continued)

As of December 31, 2021

 

(4)
As defined in the Investment Company Act of 1940, the investment is deemed to be a “controlled person” of the Company because the Company owns, either directly or indirectly, 25% or more of the portfolio company’s outstanding voting securities or has the power to exercise control over management or policies of such portfolio company. Fair value as of December 31, 2020 and December 31, 2021 along with transactions during the year ended December 31, 2021 in these controlled investments are as follows:

 

Name of Investment

 

Fair Value at December 31, 2020

 

 

Gross Addition(a)

 

 

Gross Reduction(b)

 

 

Realized Gains
(Losses)

 

 

Net Change
in Unrealized
Appreciation/
(Depreciation)

 

 

Fair Value at December 31, 2021

 

 

Interest/Dividend/
Other income

 

Cedar Electronics Holdings, Corp Incremental Term Loan - 15.00%

 

$

3,177,284

 

 

$

533,587

 

 

$

 

 

$

 

 

$

 

 

$

3,710,871

 

 

$

550,844

 

Cedar Electronics Holdings, Corp Term Loan - 9.50%

 

 

20,795,847

 

 

 

1,560

 

 

 

(5,669,395

)

 

 

 

 

 

(1,560

)

 

 

15,126,452

 

 

 

2,008,188

 

Cedar Ultimate Parent, LLC Class A Preferred Unit

 

 

9,598,036

 

 

 

 

 

 

 

 

 

 

 

 

6,657,919

 

 

 

16,255,955

 

 

 

 

Cedar Ultimate Parent, LLC Class D Preferred Unit

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2,262,000

 

 

 

2,262,000

 

 

 

 

Cedar Ultimate Parent, LLC Class E Preferred Unit

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Pace Industries, Inc. Common Stock

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Pace Industries, Inc. Term Loan - 3.50%

 

 

66,352,141

 

 

 

 

 

 

(19,165

)

 

 

 

 

 

7,284,564

 

 

 

73,617,540

 

 

 

39,519

 

Pace Industries, Inc. Term Loan - 9.75%

 

 

52,749,501

 

 

 

1,222,430

 

 

 

 

 

 

 

 

 

(8,749

)

 

 

53,963,182

 

 

 

5,515,898

 

RT Holdings Parent, LLC Class A Unit

 

 

 

 

 

5,133,708

 

 

 

 

 

 

 

 

 

15,725,581

 

 

 

20,859,289

 

 

 

 

RT Holdings Parent, LLC Warrant

 

 

 

 

 

 

 

 

 

 

 

 

 

 

3,476,546

 

 

 

3,476,546

 

 

 

 

Ruby Tuesday Operations, LLC Term Loan - 13.25%

 

 

 

 

 

15,211,786

 

 

 

(6,576,749

)

 

 

 

 

 

 

 

 

8,635,037

 

 

 

1,519,814

 

School Specialty, Inc. Common Stock

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

School Specialty, Inc. Preferred Stock A

 

 

4,386,075

 

 

 

 

 

 

 

 

 

 

 

 

7,707,881

 

 

 

12,093,956

 

 

 

 

School Specialty, Inc. Preferred Stock B

 

 

 

 

 

 

 

 

 

 

 

 

 

 

690,190

 

 

 

690,190

 

 

 

 

School Specialty, Inc. Term Loan - 9.25%

 

 

34,562,488

 

 

 

1,054,673

 

 

 

(37,116

)

 

 

 

 

 

(47,271

)

 

 

35,532,774

 

 

 

3,459,729

 

TCW Direct Lending Strategic Ventures LLC Common Membership Interests

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

TCW Direct Lending Strategic Ventures LLC Preferred Membership Interests

 

 

138,889,888

 

 

 

 

 

 

(63,680,000

)

 

 

 

 

 

13,124,923

 

 

 

88,334,811

 

 

 

7,200,000

 

Total Controlled Affiliated Investments

 

$

330,511,260

 

 

$

23,157,744

 

 

$

(75,982,425

)

 

$

 

 

$

56,872,024

 

 

$

334,558,603

 

 

$

20,293,992

 

 

(a)
Gross additions include new purchases, PIK income and amortization of original issue and market discounts.
(b)
Gross reductions include decreases in the cost basis from sales, paydown and the amortization of premium.
(5)
Holding of Animal Supply Holdings, LLC Class A units are held through TCW DL ASH LLC, a special purpose vehicle.
(6)
Holdings of School Specialty, Inc. Class A & B preferred stock and common stock are held through TCW DL SSP LLC, a special purpose vehicle.
(7)
The investment is not a qualifying asset as defined in Section 55(a) under the Investment Company Act of 1940, as amended. A business development company may not acquire an asset other than qualifying assets, unless, at the time the acquisition is made, qualifying assets represent at least 70% of the company’s total assets. As of December 31, 2021, $88,334,811 or 8.4% of the Company’s total assets were represented by “non-qualifying assets.”
(8)
All or a portion of such security was acquired in a transaction exempt from registration under the Securities Act of 1933 and may be deemed “restricted securities” under the Securities Act. As of December 31, 2021, the aggregate fair value of these securities was $55,637,936, or 5.3% of the Company’s total assets.

11


TCW DIRECT LENDING LLC

Consolidated Schedule of Investments (Continued)

As of December 31, 2021

 

(9)
The fair value of the Quantum Corporation Common Stock held by the Company is based on the quoted market price of the issuer’s stock as of December 31, 2021. Such common stock is considered to be a Level 1 security within the Fair Value Hierarchy. Otherwise, the fair value of each debt and equity investment was determined using significant unobservable inputs and such investments are considered to be Level 3 within the Fair Value Hierarchy. See Note 3 “Investment Valuations and Fair Value Measurements.”

LIBOR - London Interbank Offered Rate, generally 1-Month or 3-Month

PRIME - Prime Rate

Aggregate acquisitions and aggregate dispositions of investments, other than government securities, totaled $23,027,564 and $241,550,432, respectively, for the period ended December 31, 2021. Aggregate acquisitions includes investment assets received as payment in kind. Aggregate dispositions includes principal paydowns on and maturities of debt investments.

 

Country Breakdown Portfolio

 

 

 

United States

 

 

100.0

%

 

See Notes to Consolidated Financial Statements.

12


 

 

TCW DIRECT LENDING LLC

Consolidated Statements of Assets and Liabilities

(Dollar amounts in thousands, except unit data)

June 30, 2022

 

 

 

As of June 30,

 

 

 

 

 

 

2022

 

 

As of December 31,

 

 

 

(unaudited)

 

 

2021

 

Assets

 

 

 

 

 

 

Investments, at fair value

 

 

 

 

 

 

Non-controlled/non-affiliated investments (amortized cost of $178,369 and
   $170,197, respectively)

 

$

141,244

 

 

$

131,603

 

Non-controlled affiliated investments (amortized cost of $49,932 and
   $49,414, respectively)

 

 

27,715

 

 

 

29,303

 

Controlled affiliated investments (amortized cost of $307,564 and $321,326, respectively)

 

 

358,994

 

 

 

334,559

 

Cash and cash equivalents

 

 

2,712

 

 

 

8,532

 

Short-term investments

 

 

467,001

 

 

 

549,930

 

Interest receivable

 

 

1,438

 

 

 

1,608

 

Deferred financing costs

 

 

341

 

 

 

498

 

Prepaid and other assets

 

 

 

 

 

73

 

Total Assets

 

$

999,445

 

 

$

1,056,106

 

Liabilities

 

 

 

 

 

 

Payable for short-term investments purchased

 

$

467,001

 

 

$

549,930

 

Credit facility payable

 

 

115,250

 

 

 

115,250

 

Management fees payable

 

 

997

 

 

 

1,055

 

Interest and credit facility expense payable

 

 

355

 

 

 

267

 

Directors' fees payable

 

 

135

 

 

 

 

Unrealized depreciation on unfunded commitments

 

 

17

 

 

 

138

 

Other accrued expenses and other liabilities

 

 

1,075

 

 

 

162

 

Total Liabilities

 

$

584,830

 

 

$

666,802

 

Commitments and Contingencies (Note 5)

 

 

 

 

 

 

Members’ Capital

 

 

 

 

 

 

Common Unitholders’ commitment: (20,134,698 units issued and outstanding)

 

$

2,013,470

 

 

$

2,013,470

 

Common Unitholders’ undrawn commitment: (20,134,698 units issued and outstanding)

 

 

(409,125

)

 

 

(409,125

)

Common Unitholders’ return of capital

 

 

(1,117,503

)

 

 

(1,099,503

)

Common Unitholders’ offering costs

 

 

(853

)

 

 

(853

)

Accumulated Common Unitholders’ tax reclassification

 

 

(13,901

)

 

 

(13,901

)

Common Unitholders’ capital

 

 

472,088

 

 

 

490,088

 

Accumulated loss

 

 

(57,473

)

 

 

(100,784

)

Total Members’ Capital

 

$

414,615

 

 

$

389,304

 

Total Liabilities and Members’ Capital

 

$

999,445

 

 

$

1,056,106

 

Net Asset Value Per Unit (accrual base) (Note 9)

 

$

40.91

 

 

$

39.65

 

 

See Notes to Consolidated Financial Statements.

13


 

 

TCW DIRECT LENDING LLC

Consolidated Statements of Operations (Unaudited)

(Dollar amounts in thousands, except unit data)

June 30, 2022

 

 

 

Three months ended June 30,

 

 

For the six months ended June 30,

 

 

 

2022

 

 

2021

 

 

2022

 

 

2021

 

Investment Income

 

 

 

 

 

 

 

 

 

 

 

 

Non-controlled/non-affiliated investments:

 

 

 

 

 

 

 

 

 

 

 

 

Interest income

 

$

1,290

 

 

$

3,924

 

 

$

2,209

 

 

$

9,531

 

Interest income paid-in-kind

 

 

6,583

 

 

 

2,318

 

 

 

9,507

 

 

 

4,642

 

Other fee income

 

 

3

 

 

 

7

 

 

 

6

 

 

 

10

 

Non-controlled affiliated investments:

 

 

 

 

 

 

 

 

 

 

 

 

Interest income

 

 

21

 

 

 

325

 

 

 

144

 

 

 

579

 

Interest income paid-in-kind

 

 

561

 

 

 

504

 

 

 

1,094

 

 

 

1,063

 

Other fee income

 

 

6

 

 

 

7

 

 

 

12

 

 

 

11

 

Controlled affiliated investments:

 

 

 

 

 

 

 

 

 

 

 

 

Interest income

 

 

2,460

 

 

 

2,631

 

 

 

5,109

 

 

 

4,772

 

Interest income paid-in-kind

 

 

597

 

 

 

1,001

 

 

 

1,178

 

 

 

1,793

 

Dividend income

 

 

2,400

 

 

 

2,800

 

 

 

2,400

 

 

 

5,600

 

Other fee income

 

 

27

 

 

 

28

 

 

 

62

 

 

 

48

 

Total investment income

 

 

13,948

 

 

 

13,545

 

 

 

21,721

 

 

 

28,049

 

Expenses

 

 

 

 

 

 

 

 

 

 

 

 

Interest and credit facility expenses

 

 

1,039

 

 

 

1,148

 

 

 

2,192

 

 

 

2,475

 

Management fees

 

 

997

 

 

 

1,420

 

 

 

2,011

 

 

 

2,939

 

Administrative fees

 

 

176

 

 

 

200

 

 

 

348

 

 

 

407

 

Professional fees

 

 

205

 

 

 

125

 

 

 

341

 

 

 

291

 

Directors’ fees

 

 

78

 

 

 

86

 

 

 

156

 

 

 

164

 

Other expenses

 

 

136

 

 

 

94

 

 

 

235

 

 

 

218

 

Total expenses

 

 

2,631

 

 

 

3,073

 

 

 

5,283

 

 

 

6,494

 

Net investment income

 

$

11,317

 

 

$

10,472

 

 

$

16,438

 

 

$

21,555

 

Net realized and unrealized gain (loss) on investments

 

 

 

 

 

 

 

 

 

 

 

 

Net realized gain (loss):

 

 

 

 

 

 

 

 

 

 

 

 

Non-controlled/non-affiliated investments

 

$

 

 

$

457

 

 

$

 

 

$

3,438

 

Non-controlled affiliated investments

 

 

 

 

 

 

 

 

 

 

 

(58,826

)

Net change in unrealized appreciation/(depreciation):

 

 

 

 

 

 

 

 

 

 

 

 

Non-controlled/non-affiliated investments

 

 

3,775

 

 

 

(3,192

)

 

 

1,591

 

 

 

4,893

 

Non-controlled affiliated investments

 

 

(904

)

 

 

438

 

 

 

(2,106

)

 

 

57,222

 

Controlled affiliated investments

 

 

28,458

 

 

 

24,977

 

 

 

38,198

 

 

 

36,556

 

Net realized (loss) gain on short-term investments

 

 

(99

)

 

 

(9

)

 

 

(310

)

 

 

27

 

Net realized and unrealized gain on investments

 

$

31,230

 

 

$

22,671

 

 

$

37,373

 

 

$

43,310

 

Net increase in Members’ Capital from operations

 

$

42,547

 

 

$

33,143

 

 

$

53,811

 

 

$

64,865

 

Basic and diluted:

 

 

 

 

 

 

 

 

 

 

 

 

Income per unit

 

$

2.11

 

 

$

1.65

 

 

$

2.68

 

 

$

3.22

 

 

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)

June 30, 2022

 

 

 

Common
Unitholders’
Capital

 

 

Accumulated
Earnings (Loss)

 

 

Total

 

Members’ Capital at January 1, 2021

 

$

735,256

 

 

$

(166,981

)

 

$

568,275

 

Net Increase (Decrease) in Members’ Capital Resulting from Operations:

 

 

 

 

 

 

 

 

 

Net investment income

 

 

 

 

 

11,084

 

 

 

11,084

 

Net realized loss on investments

 

 

 

 

 

(55,809

)

 

 

(55,809

)

Net change in unrealized appreciation/(depreciation) on investments

 

 

 

 

 

76,448

 

 

 

76,448

 

Distributions to Members from:

 

 

 

 

 

 

 

 

 

Distributable earnings

 

 

 

 

 

(15,000

)

 

 

(15,000

)

Total Increase in Members’ Capital for the three months ended March 31, 2021

 

 

 

 

 

16,723

 

 

 

16,723

 

Members’ Capital at March 31, 2021

 

$

735,256

 

 

$

(150,258

)

 

$

584,998

 

Net Increase (Decrease) in Members’ Capital Resulting from Operations:

 

 

 

 

 

 

 

 

 

Net investment income

 

 

 

 

 

10,472

 

 

 

10,472

 

Net realized gain on investments

 

 

 

 

 

448

 

 

 

448

 

Net change in unrealized appreciation/(depreciation) on investments

 

 

 

 

 

22,223

 

 

 

22,223

 

Distributions to Members from:

 

 

 

 

 

 

 

 

 

Distributable earnings

 

 

 

 

 

(8,200

)

 

 

(8,200

)

Return of capital

 

 

(66,800

)

 

 

 

 

 

(66,800

)

Total (Decrease) Increase in Members’ Capital for the three months ended June 30, 2021

 

 

(66,800

)

 

 

24,943

 

 

 

(41,857

)

Members’ Capital at June 30, 2021

 

$

668,456

 

 

$

(125,315

)

 

$

543,141

 

 

 

 

 

Common
Unitholders’
Capital

 

 

Accumulated
Earnings (Loss)

 

 

Total

 

Members’ Capital at January 1, 2022

 

$

490,088

 

 

$

(100,784

)

 

$

389,304

 

Net Increase (Decrease) in Members’ Capital Resulting from Operations:

 

 

 

 

 

 

 

 

 

Net investment income

 

 

 

 

 

5,121

 

 

 

5,121

 

Net realized loss on investments

 

 

 

 

 

(211

)

 

 

(211

)

Net change in unrealized appreciation/(depreciation) on investments

 

 

 

 

 

6,354

 

 

 

6,354

 

Distributions to Members from:

 

 

 

 

 

 

 

 

 

Return of capital

 

 

(18,000

)

 

 

 

 

 

(18,000

)

Total (Decrease) Increase in Members’ Capital for the three months ended March 31, 2022

 

 

(18,000

)

 

 

11,264

 

 

 

(6,736

)

Members’ Capital at March 31, 2022

 

$

472,088

 

 

$

(89,520

)

 

$

382,568

 

Net Increase (Decrease) in Members’ Capital Resulting from Operations:

 

 

 

 

 

 

 

 

 

Net investment income

 

 

 

 

 

11,317

 

 

 

11,317

 

Net realized loss on investments

 

 

 

 

 

(99

)

 

 

(99

)

Net change in unrealized appreciation/(depreciation) on investments

 

 

 

 

 

31,329

 

 

 

31,329

 

Distributions to Members from:

 

 

 

 

 

 

 

 

 

Distributable earnings

 

 

 

 

 

(10,500

)

 

 

(10,500

)

Total Increase in Members’ Capital for the three months ended June 30, 2022

 

 

 

 

 

32,047

 

 

 

32,047

 

Members’ Capital at June 30, 2022

 

$

472,088

 

 

$

(57,473

)

 

$

414,615

 

 

See Notes to Consolidated Financial Statements.

15


 

 

TCW DIRECT LENDING LLC

Consolidated Statements of Cash Flows (Unaudited)

(Dollar amounts in thousands, except unit data)

June 30, 2022

 

 

 

For the six months ended June 30,

 

 

 

2022

 

 

2021

 

Cash Flows from Operating Activities

 

 

 

 

 

 

Net increase in net assets resulting from operations

 

$

53,811

 

 

$

64,865

 

Adjustments to reconcile the net increase in net assets resulting from operations to net cash provided by operating activities:

 

 

 

 

 

 

Purchases of investments

 

 

 

 

 

(9,490

)

Purchases of short-term investments

 

 

(467,001

)

 

 

(499,942

)

Interest income paid in-kind

 

 

(11,779

)

 

 

(7,498

)

Proceeds from sales and paydowns of investments

 

 

16,963

 

 

 

80,003

 

Proceeds from sales of short-term investments

 

 

549,930

 

 

 

599,748

 

Net realized loss on investments

 

 

 

 

 

55,388

 

Change in net unrealized (appreciation)/depreciation on investments

 

 

(37,683

)

 

 

(98,671

)

Amortization of premium and accretion of discount, net

 

 

(111

)

 

 

(749

)

Amortization of deferred financing costs

 

 

609

 

 

 

684

 

Increase (decrease) in operating assets and liabilities:

 

 

 

 

 

 

(Increase) decrease in interest receivable

 

 

170

 

 

 

3,508

 

(Increase) decrease in prepaid and other assets

 

 

73

 

 

 

82

 

Increase (decrease) in payable for short-term investments purchased

 

 

(82,929

)

 

 

(99,806

)

Increase (decrease) in management fees payable

 

 

(58

)

 

 

(278

)

Increase (decrease) in interest and credit facility expense payable

 

 

88

 

 

 

(202

)

Increase (decrease) in directors’ fees payable

 

 

135

 

 

 

135

 

Increase (decrease) in other accrued expenses and liabilities

 

 

913

 

 

 

164

 

Net cash provided by operating activities

 

$

23,131

 

 

$

87,941

 

Cash Flows from Financing Activities

 

 

 

 

 

 

Return of capital

 

$

(18,000

)

 

$

(66,800

)

Distributions to Members

 

 

(10,500

)

 

 

(23,200

)

Deferred financing costs paid

 

 

(451

)

 

 

(883

)

Net cash used in financing activities

 

$

(28,951

)

 

$

(90,883

)

Net decrease in cash and cash equivalents

 

$

(5,820

)

 

$

(2,942

)

Cash and cash equivalents, beginning of period

 

$

8,532

 

 

$

34,802

 

Cash and cash equivalents, end of period

 

$

2,712

 

 

$

31,860

 

Supplemental and non-cash financing activities

 

 

 

 

 

 

Interest expense paid

 

$

1,337

 

 

$

1,785

 

 

See Notes to Consolidated Financial Statements.

 

16


TCW DIRECT LENDING LLC

Notes to Consolidated Financial Statements (Unaudited)

(Dollar amounts in thousands, except unit data)

June 30, 2022

 

1. Organization and Basis of Presentation

Organization: TCW Direct Lending LLC (“Company”) was formed as a Delaware corporation on March 20, 2014 and converted to a Delaware limited liability company on April 1, 2014. The Company conducted a private offering of its limited liability company units (the “Common Units”) to investors in reliance on exemptions from the registration requirements of the U.S. Securities Act of 1933, as amended (the “Securities Act”). In addition, the Company may issue preferred units, though it currently has no intention to do so. The Company has engaged TCW Asset Management Company LLC (“TAMCO”), an affiliate of The TCW Group, Inc. (“TCW”) to be its adviser (the “Adviser”). On May 13, 2014 (“Inception Date”), the Company sold and issued 10 Common Units at an aggregate purchase price of $1 to TAMCO.

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.

The Company has several wholly-owned subsidiaries, each of which is a Delaware limited liability company designed to hold an equity investment of the Company.

These consolidated financial statements 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 14, 2020. The Company may extend the term for two additional one-year periods upon written notice to the holders of the Common Units and holders of preferred units, if any, (collectively the “Unitholders” or “Members”) at least 90 days prior to the expiration of the term or the end of the first one-year period. Thereafter, the term may be extended for successive one-year periods, with the vote or consent of a supermajority in interest of the holders of the Common Units. On April 30, 2021, the Company’s Board of Directors approved the second one year extension of the Company’s term from September 14, 2021 to September 14, 2022.

Commitment Period: The Commitment Period commenced on September 19, 2014 (the “Initial Closing Date”) and ended on September 19, 2017, the third anniversary of the Initial Closing Date. In accordance with the Company’s Limited Liability Company Agreement, the Company may complete investment transactions that were significantly in process as of the end of the Commitment Period and which the Company reasonably expects to be consummated prior to 90 days subsequent to the expiration date of the Commitment Period. The Company may also effect follow-on investments up to an aggregate maximum of 10% of Capital Commitments (as defined below), provided that any such follow-on investment to be made after the third anniversary of the expiration of the Commitment Period shall require the prior consent of a majority in interest of the Common Unitholders.

In October 2020, 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 10% of Capital Commitments.

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 $2,013,470 for the purchase of Common Units were accepted. Each Common Unitholder is obligated to contribute capital equal to their Commitment and each Unit’s Commitment obligation is $100.00 per unit. The amount of capital that remains to be drawn down and contributed is referred to as an “Undrawn Commitment”.

 

 

17


TCW DIRECT LENDING LLC

Notes to Consolidated Financial Statements (Unaudited) (Continued)

(Dollar amounts in thousands, except unit data)

June 30, 2022

 

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. As of June 30, 2022, aggregate Commitments, Undrawn Commitments, the percentage of Commitments funded and the number of subscribed for Units of the Company were as follows:

 

 

 

Commitments

 

 

Undrawn
Commitments

 

 

% of
Commitments
Funded

 

 

Units

 

Common Unitholder

 

$

2,013,470

 

 

$

409,125

 

 

 

79.7

%

 

 

20,134,698

 

 

Recallable Amount: A Common Unitholder may be required to re-contribute amounts distributed equal to 75% of the principal amount or the cost portion of any Portfolio Investment that is fully repaid to or otherwise fully recouped by the Company within one year of the Company’s investment. The Recallable Amount is excluded from the calculation of the accrual based net asset value.

The Recallable Amount as of June 30, 2022 was $100,875.

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 is 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)

June 30, 2022

 

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: Costs incurred to organize the Company totaling $665 were expensed as incurred. Offering costs totaling $853 were accumulated and charged directly to Members’ Capital on March 19, 2015, the end of the period during which Common Units were offered (the “Closing Period”). The Company did not bear more than an amount equal to 10 basis points of the aggregate capital commitments of the Company for organization and offering expenses.

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 June 30, 2022, 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.

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 January 2021, the FASB issued Accounting Standards Update (“ASU”) No. 2021-01, Reference Rate Reform (Topic 848) (“ASU 2021-01”). ASU 2021-01 is an update of ASU 2020-04 (defined below), which is in response to concerns about structural risks of interbank offered rates, and particularly the risk of cessation of London Interbank Offered Rate (“LIBOR”); regulators have undertaken reference rate reform initiatives to identify alternative reference rates that are more observable or transaction based and less susceptible to manipulation. ASU 2020-04 provides optional guidance for a limited period of time to ease the potential burden in accounting for (or recognizing the effects of) reference rate reform on financial reporting. ASU 2020-04 is elective and applies to all entities, subject to meeting certain criteria, that have contracts, hedging relationships, and other transactions that reference LIBOR or another reference rate expected to be discontinued because of reference rate reform. The ASU 2021-01 update clarifies that certain optional expedients and exceptions in Topic 848 for contract modifications and hedge accounting apply to derivatives that are affected by the discounting transition. The amendments in this update are effective immediately through December 31, 2022, for all entities. Management is currently evaluating the implications, if any, of the additional requirements and their impact on the Company’s consolidated financial statements.

In March 2020, the FASB issued ASU No. 2020-04, Reference Rate Reform (Topic 848) — Facilitation of the Effects of Reference Rate Reform on Financial Reporting (“ASU 2020-04”). The amendments in ASU 2020-04 provide optional temporary financial reporting relief from the effect of certain types of contract modifications due to the planned discontinuation of LIBOR and other interbank offered reference rates as of the end of 2021. The ASU is effective for certain reference rate-related contract modifications that occur during the period March 12, 2020 through December 31, 2022. The Company does not expect the adoption of this ASU to have a material impact on the consolidated financial statements.

 

19


TCW DIRECT LENDING LLC

Notes to Consolidated Financial Statements (Unaudited) (Continued)

(Dollar amounts in thousands, except unit data)

June 30, 2022

 

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 and approved by the Board based on similar instruments, internal assumptions and the weighting of the best available pricing inputs.

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. A discounted cash flow approach incorporating a weighted average cost of capital is generally used to determine fair value or, in some cases, 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.

 

20


TCW DIRECT LENDING LLC

Notes to Consolidated Financial Statements (Unaudited) (Continued)

(Dollar amounts in thousands, except unit data)

June 30, 2022

 

3. Investment Valuations and Fair Value Measurements (Continued)

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. The Company is entitled to income and principal distributed by the fund.

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 June 30, 2022:

 

Investments

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

NAV

 

 

Total

 

Debt

 

$

 

 

$

 

 

$

353,708

 

 

$

 

 

$

353,708

 

Equity

 

 

2,508

 

 

 

 

 

 

82,685

 

 

 

 

 

 

85,193

 

Investment Funds & Vehicles(1)

 

 

 

 

 

 

 

 

 

 

 

89,051

 

 

 

89,051

 

Short- term investments

 

 

467,001

 

 

 

 

 

 

 

 

 

 

 

 

467,001

 

Total

 

$

469,509

 

 

$

 

 

$

436,393

 

 

$

89,051

 

 

$

994,953

 

 

(1)
Includes equity investments in Strategic Ventures. In accordance with ASC Topic 820-10, certain investments that are measured at fair value using the net asset value per share (or its equivalent) practical expedient have not been classified in the fair value hierarchy. The fair value amounts presented in this table are intended to permit reconciliation of the fair value hierarchy to the amounts presented in the Consolidated Statements of Assets and Liabilities.

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, 2021:

 

Investments

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

NAV

 

 

Total

 

Debt

 

$

 

 

$

 

 

$

341,742

 

 

$

 

 

$

341,742

 

Equity

 

 

9,750

 

 

 

 

 

 

55,638

 

 

 

 

 

 

65,388

 

Investment Funds & Vehicles(1)

 

 

 

 

 

 

 

 

 

 

 

88,335

 

 

 

88,335

 

Short- term investments

 

 

549,930

 

 

 

 

 

 

 

 

 

 

 

 

549,930

 

Total

 

$

559,680

 

 

$

 

 

$

397,380

 

 

$

88,335

 

 

$

1,045,395

 

 

(1)
Includes equity investments in Strategic Ventures. In accordance with ASC Topic 820-10, certain investments that are measured at fair value using the net asset value per share (or its equivalent) practical expedient have not been classified in the fair value hierarchy. The fair value amounts presented in this table are intended to permit reconciliation of the fair value hierarchy to the amounts presented in the Consolidated Statements of Assets and Liabilities.

 

21


TCW DIRECT LENDING LLC

Notes to Consolidated Financial Statements (Unaudited) (Continued)

(Dollar amounts in thousands, except unit data)

June 30, 2022

 

3. Investment Valuations and Fair Value Measurements (Continued)

The following tables provide a reconciliation of the beginning and ending balances for total investments that use Level 3 inputs for the three and six months ended June 30, 2022:

 

 

 

Debt

 

 

Equity

 

 

Total

 

Balance, April 1, 2022

 

$

347,901

 

 

$

62,481

 

 

$

410,382

 

Purchases, including payments received in-kind

 

 

7,741

 

 

 

 

 

 

7,741

 

Sales and paydowns of investments

 

 

(3,295

)

 

 

 

 

 

(3,295

)

Amortization of premium and accretion of discount, net

 

 

57

 

 

 

 

 

 

57

 

Net realized gains

 

 

 

 

 

 

 

 

 

Net change in unrealized appreciation/(depreciation)

 

 

1,304

 

 

 

20,204

 

 

 

21,508

 

Balance, June 30, 2022

 

$

353,708

 

 

$

82,685

 

 

$

436,393

 

Change in net unrealized appreciation/(depreciation) in investments held as of
  June 30, 2022

 

$

1,302

 

 

$

20,204

 

 

$

21,506

 

 

 

 

Debt

 

 

Equity

 

 

Total

 

Balance, January 1, 2022

 

$

341,742

 

 

$

55,638

 

 

$

397,380

 

Purchases, including payments received in-kind

 

 

11,779

 

 

 

 

 

 

11,779

 

Sales and paydowns of investments

 

 

(4,005

)

 

 

 

 

 

(4,005

)

Amortization of premium and accretion of discount, net

 

 

111

 

 

 

 

 

 

111

 

Net realized losses

 

 

 

 

 

 

 

 

 

Net change in unrealized appreciation/(depreciation)

 

 

4,081

 

 

 

27,047

 

 

 

31,128

 

Balance, June 30, 2022

 

$

353,708

 

 

$

82,685

 

 

$

436,393

 

Change in net unrealized appreciation/(depreciation) in investments held as of
   June 30, 2022

 

$

4,079

 

 

$

27,047

 

 

$

31,126

 

 

22


TCW DIRECT LENDING LLC

Notes to Consolidated Financial Statements (Unaudited) (Continued)

(Dollar amounts in thousands, except unit data)

June 30, 2022

 

3. Investment Valuations and Fair Value Measurements (Continued)

The following tables provide a reconciliation of the beginning and ending balances for total investments that use Level 3 inputs for the three and six months ended June 30, 2021:

 

 

 

Debt

 

 

Equity

 

 

Total

 

Balance, April 1, 2021

 

$

490,154

 

 

$

21,721

 

 

$

511,875

 

Purchases, including payments received in-kind

 

 

3,907

 

 

 

 

 

 

3,907

 

Sales and paydowns of investments

 

 

(57,744

)

 

 

 

 

 

(57,744

)

Amortization of premium and accretion of discount, net

 

 

261

 

 

 

 

 

 

261

 

Net realized losses

 

 

 

 

 

 

 

 

 

Net change in unrealized appreciation/(depreciation)

 

 

6,932

 

 

 

16,243

 

 

 

23,175

 

Balance, June 30, 2021

 

$

443,510

 

 

$

37,964

 

 

$

481,474

 

Change in net unrealized appreciation/(depreciation) in investments held as of
   June 30, 2021

 

$

6,552

 

 

$

16,243

 

 

$

22,795

 

 

 

 

Debt

 

 

Equity

 

 

Total

 

Balance, January 1, 2021

 

$

476,052

 

 

$

13,984

 

 

$

490,036

 

Purchases, including payments received in-kind

 

 

22,394

 

 

 

5,134

 

 

 

27,528

 

Sales and paydowns of investments

 

 

(72,012

)

 

 

 

 

 

(72,012

)

Amortization of premium and accretion of discount, net

 

 

749

 

 

 

 

 

 

749

 

Net realized losses

 

 

(58,421

)

 

 

(1,380

)

 

 

(59,801

)

Net change in unrealized appreciation/(depreciation)

 

 

74,748

 

 

 

20,226

 

 

 

94,974

 

Balance, June 30, 2021

 

$

443,510

 

 

$

37,964

 

 

$

481,474

 

Change in net unrealized appreciation/(depreciation) in investments held as of
   June 30, 2021

 

$

22,614

 

 

$

18,846

 

 

$

41,460

 

 

The Company did not have any transfers between levels during the three and six months ended June 30, 2022 and 2021.

 

23


TCW DIRECT LENDING LLC

Notes to Consolidated Financial Statements (Unaudited) (Continued)

(Dollar amounts in thousands, except unit data)

June 30, 2022

 

3. Investment Valuations and Fair Value Measurements (Continued)

Level 3 Valuation and Quantitative Information: The following table summarizes the valuation techniques and quantitative information utilized in determining the fair value of the Level 3 investments as of June 30, 2022.

 

Investment Type

 

Fair Value

 

 

Valuation
Technique

 

Unobservable
Input

 

Range

 

Weighted
Average*

 

Impact to
Valuation if
Input Increases

Debt

 

$

48,994

 

 

Income Method

 

Discount Rate

 

11.9 to 13.4%

 

12.7%

 

Decrease

Debt

 

$

234,581

 

 

Market Method

 

EBITDA Multiple

 

6.0x to 7.8x

 

N/A

 

Increase

Debt

 

$

35,457

 

 

Market Method

 

Revenue Multiple

 

1.1x to 1.4x

 

N/A

 

Increase

Debt

 

$

3,030

 

 

Market Method

 

Indicative Bid

 

22.3% to 37.2%

 

N/A

 

Increase

Debt

 

$

31,646

 

 

Market Method

 

EBITDA Multiple

 

3.5x to 5.5x

 

N/A

 

Increase

 

 

 

 

 

 

 

Revenue Multiple

 

0.1x to 0.2x

 

N/A

 

Increase

Equity

 

$

14,973

 

 

Market Method

 

EBITDA Multiple

 

6.0x to 7.6x

 

N/A

 

Increase

Equity

 

$

43,412

 

 

Market Method

 

Revenue Multiple

 

1.1x to 1.4x

 

N/A

 

Increase

Equity

 

$

24,300

 

 

Market Method

 

EBITDA Multiple

 

3.5x to 5.5x

 

N/A

 

Increase

 

 

 

 

 

 

 

Revenue Multiple

 

0.1x to 0.2x

 

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, 2021.

 

Investment Type

 

Fair Value

 

 

Valuation
Technique

 

Unobservable
Input

 

Range

 

Weighted
Average*

 

Impact to
Valuation if
Input Increases

Debt

 

$

50,552

 

 

Income Method

 

Discount Rate

 

8.9% to 10.7%

 

9.8%

 

Decrease

Debt

 

$

181,951

 

 

Market Method

 

EBITDA Multiple

 

5.9x to 8.1x

 

N/A

 

Increase

Debt

 

$

71,301

 

 

Market Method

 

Revenue Multiple

 

1.1x to 1.3x

 

N/A

 

Increase

Debt

 

$

2,807

 

 

Market Method

 

Indicative Bid

 

25.8% to 28.7%

 

N/A

 

Increase

Debt

 

$

35,131

 

 

Market Method

 

EBITDA Multiple

 

3.0x to 9.8x

 

N/A

 

Increase

 

 

 

 

 

 

 

Revenue Multiple

 

0.2x to 0.2x

 

N/A

 

Increase

Equity

 

$

31,302

 

 

Market Method

 

EBITDA Multiple

 

5.9x to 8.1x

 

N/A

 

Increase

Equity

 

$

24,336

 

 

Market Method

 

EBITDA Multiple

 

3.0x to 9.8x

 

N/A

 

Increase

 

 

 

 

 

 

 

Revenue Multiple

 

0.2x to 0.2x

 

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 two years and will remain in effect from year to year thereafter if approved annually by (i) the vote of the Board, or by the vote of a majority of our outstanding voting securities, and (ii) the vote of a majority of the independent directors of the Board. On August 9, 2021, the Company’s Board reapproved the Advisory Agreement.

 

24


TCW DIRECT LENDING LLC

Notes to Consolidated Financial Statements (Unaudited) (Continued)

(Dollar amounts in thousands, except unit data)

June 30, 2022

 

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, 0.375% (i.e., 1.50% per annum) of the aggregate commitments determined as of the end of the Closing Period, and (ii) for each calendar quarter thereafter during the term of the Company (but not beyond the tenth anniversary of the initial closing date), 0.1875% (i.e., 0.75% per annum) of the aggregate cost basis (whether acquired by the Company with contributions from members, other Company funds or borrowings) of all portfolio investments that have not been sold, distributed to the members, or written off for tax purposes (but reduced by any portion of such cost basis that has been written down to reflect a permanent impairment of value of any portfolio investment), determined in each case as of the first day of such calendar quarter. The Management Fee in respect of the Closing Period will be calculated as if all capital commitments of the Company were made on the initial closing date, regardless of when Common Units were actually funded. The actual payment of the Management Fee with respect to the Closing Period will not be made prior to the first day of the first full calendar quarter following the end of the Closing Period. The “Commitment Period” of the Company will begin on the initial closing date and end on the earlier of (a) three years from the initial closing date and (b) the date on which the undrawn Commitment of each Common Unit has been reduced to zero. While the Management Fee will accrue from the initial closing date, the Adviser intends to defer payment of such fees to the extent that such fees cannot be paid from interest and fee income generated by the Company’s investments.

For the three and six months ended June 30, 2022, Management Fees incurred were $997 and $2,011, respectively, of which $997 remained payable as of June 30, 2022. For the three and six months ended June 30, 2021, Management Fees incurred amounted to $1,420 and $2,939, respectively, of which $1,420 remained payable at June 30, 2021.

Transaction and Other Fees: Any (i) transaction, advisory, consulting, management, monitoring, directors’ or similar fees, (ii) closing, investment banking, finders’, transaction or similar fees, (iii) commitment, breakup or topping fees or litigation proceeds and (iv) other fee or payment of services performed or to be performed with respect to an investment or proposed investment received from or with respect to Portfolio Companies or prospective Portfolio Companies in connection with the Company’s activities will be will be the property of the Company. Since inception, the Company received $2,615 in such fees, none of which were during the three and six months ended June 30, 2022 and 2021.

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 9% internal rate of return on their aggregate capital contributions in respect of all Common Units (the “Hurdle”);

(c) Third, the Adviser will be entitled to an Incentive Fee out of 100% of additional amounts otherwise distributable to Common Unitholders until such time as the cumulative Incentive Fee paid to the Adviser is equal to 20% of the sum of (i) the amount by which the Hurdle exceeds the aggregate capital contributions of the Common Unitholders in respect of all Common Units and (ii) the amount of Incentive Fee being paid to the Adviser pursuant to this clause (c); and

(d) Thereafter, the Adviser will be entitled to an Incentive Fee equal to 20% of additional amounts otherwise distributable to Unitholders, with the remaining 80% distributed to the Unitholders.

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.

 

25


TCW DIRECT LENDING LLC

Notes to Consolidated Financial Statements (Unaudited) (Continued)

(Dollar amounts in thousands, except unit data)

June 30, 2022

 

4. Agreements and Related Party Transactions (Continued)

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.

No Incentive Fees were incurred during the three and six months ended June 30, 2022 and 2021.

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.

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 10 basis points of the aggregate capital commitments of the Company 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 of the Company per annum (pro-rated for partial years) for its costs and expenses other than ordinary operating expenses (“Company Expenses”), including amounts paid to the Administrator under the Administration Agreement and reimbursement of expenses to the Adviser. All expenses that the Company will not bear will be borne by the Adviser or its affiliates. Notwithstanding the foregoing, the cap on Company Expenses does not apply to payments of the Management Fee, Incentive Fee, organizational and offering expenses (which are subject to the separate cap), amounts payable in connection with the Company’s 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 the liquidation of the Company, taxes, or extraordinary expenses (such as litigation expenses and indemnification payments).

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 $481,600, representing approximately 80% of the preferred and common equity ownership of 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 Strategic Ventures. Strategic Ventures also entered into a revolving credit facility to finance a portion of certain eligible investments on June 5, 2015. On April 30, 2021, Strategic Ventures’ revolving credit facility was terminated.

26


TCW DIRECT LENDING LLC

Notes to Consolidated Financial Statements (Unaudited) (Continued)

(Dollar amounts in thousands, except unit data)

June 30, 2022

 

5. Commitments and Contingencies

The Company had the following unfunded commitments and unrealized depreciation by investment as of June 30, 2022 and December 31, 2021:

 

 

 

 

 

June 30, 2022

 

 

December 31, 2021

 

Unfunded Commitments

 

Maturity/
Expiration

 

Amount

 

 

Unrealized
Depreciation

 

 

Amount

 

 

Unrealized
Depreciation

 

Guardia LLC (fka Carrier & Technology Solutions, LLC)

 

July 2023

 

$

24

 

 

$

17

 

 

$

190

 

 

$

138

 

Ruby Tuesday Operations LLC (fka Ruby Tuesday, Inc.)

 

February 2025

 

 

4,921

 

 

 

 

 

 

6,824

 

 

 

 

Total

 

 

 

$

4,945

 

 

$

17

 

 

$

7,014

 

 

$

138

 

 

The Company’s total capital commitment to its underlying investment in Strategic Ventures is $481,600. As of June 30, 2022 and December 31, 2021, the Company’s unfunded commitment to Strategic Ventures is $219,646.

From time to time, the Company may become a party to certain legal proceedings incidental to the normal course of its business. As of June 30, 2022, 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 and six months ended June 30, 2022 and 2021, the Company did not sell or issue any Common Units. The activity for the three and six months ended June 30, 2022 and 2021 was as follows:

 

 

 

Three months ended June 30,

 

 

Six months ended June 30,

 

 

 

2022

 

 

2021

 

 

2022

 

 

2021

 

Units at beginning of period

 

 

20,134,698

 

 

 

20,134,698

 

 

 

20,134,698

 

 

 

20,134,698

 

Units issued and committed at end of period

 

 

20,134,698

 

 

 

20,134,698

 

 

 

20,134,698

 

 

 

20,134,698

 

 

The Company did not process any deemed distributions and re-contributions during the three and six months ended June 30, 2022 and 2021.

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 $750,000 (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, 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 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.

 

27


TCW DIRECT LENDING LLC

Notes to Consolidated Financial Statements (Unaudited) (Continued)

(Dollar amounts in thousands, except unit data)

June 30, 2022

 

7. Credit Facility (Continued)

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 $375,000 (with an option for the Company to increase this amount to $450,000 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 the Company’s 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, 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 $25,000) under the Amended Credit Agreement. Concurrently therewith, the Company elected to increase the size of its revolving credit line under the Amended Credit Agreement to $400,000. On December 29, 2020, the Company elected to permanently decrease the size of its revolving credit line under the Amended Credit Agreement to $177,000.

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 $177,000, 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 the Company for up to an additional 364 days. On March 23, 2022, the Company exercised its 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 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 June 30, 2022, the Company was in compliance with such covenants.

As of June 30, 2022 and December 31, 2021, the Available Commitment under the Amended Credit Agreement was $61,750.

As of June 30, 2022 and December 31, 2021, the amounts outstanding under the Credit Facility were $115,250. The carrying amount of the Credit Facility, which is categorized as Level 2 within the fair value hierarchy as of June 30, 2022 and December 31, 2021, 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. The Company incurred financing costs of $10,123 in connection with the April 10, 2017 Third Amended and Restated Revolving Credit Agreement. The Company also incurred additional financing costs of $1,848 in connection with the Amended Credit Agreement on April 6, 2020 and May 27, 2020 as well as an additional $883 in connection with the April 6, 2021 Third Amended Credit Agreement. The Company recorded these costs as deferred financing costs on its Consolidated Statements of Asset and Liabilities and the costs are being amortized over the life of the Credit Facility. As of June 30, 2022 and December 31, 2021, $341 and $498, respectively, of such prepaid deferred financing costs has yet to be amortized.

28


TCW DIRECT LENDING LLC

Notes to Consolidated Financial Statements (Unaudited) (Continued)

(Dollar amounts in thousands, except unit data)

June 30, 2022

 

7. Credit Facility (Continued)

The summary information regarding the Credit Facility for the three and six months ended June 30, 2022 and 2021 was as follows:

 

 

 

Three months ended June 30,

 

 

Six months ended June 30,

 

 

 

2022

 

 

2021

 

 

2022

 

 

2021

 

Credit facility interest expense

 

$

808

 

 

$

625

 

 

$

1,426

 

 

$

1,634

 

Undrawn commitment fees

 

 

62

 

 

 

62

 

 

 

124

 

 

 

124

 

Administrative fees

 

 

17

 

 

 

17

 

 

 

33

 

 

 

33

 

Amortization of deferred financing costs

 

 

152

 

 

 

444

 

 

 

609

 

 

 

684

 

Total

 

$

1,039

 

 

$

1,148

 

 

$

2,192

 

 

$

2,475

 

Weighted average interest rate

 

 

2.78

%

 

 

2.18

%

 

 

2.46

%

 

 

2.86

%

Average outstanding balance

 

$

115,250

 

 

$

115,250

 

 

$

115,250

 

 

$

115,250

 

 

8. 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 June 30, 2022 and December 31, 2021, the Company’s aggregate investment unrealized appreciation and depreciation for federal income tax purposes were as follows:

 

 

 

June 30, 2022

 

 

December 31, 2021

 

Cost of investments for federal income tax purposes

 

$

1,002,865

 

 

$

1,088,923

 

Unrealized appreciation

 

$

61,674

 

 

$

37,008

 

Unrealized depreciation

 

$

(69,602

)

 

$

(80,537

)

Net unrealized depreciation on investments

 

$

(7,928

)

 

$

(43,529

)

 

The Company did not have any unrecognized tax benefits at December 31, 2021, nor were there any increases or decreases in unrecognized tax benefits for the period then ended; and therefore no interest or penalties were accrued. The Company is subject to examination by U.S. federal and state tax authorities regarding returns filed for the prior three and four years, respectively.

 

The Company's investment in School Specialty, Inc.'s common stock is held through TCW DL SSP LLC, an unconsolidated special purpose vehicle. The fair value of such equity investment as of June 30, 2022 is net of a $9,276 deferred tax liability recorded by TCW DL SSP LLC. TCW DL SSP LLC accounts for income taxes under the liability method prescribed by FASB ASC 740, Accounting for Income Taxes ("ASC 740"). Under ASC 740, deferred tax assets and liabilities are recognized for the future tax consequences attributable to the temporary differences between the financial statement carrying amount of existing assets and liabilities and their respective tax basis.

29


TCW DIRECT LENDING LLC

Notes to Consolidated Financial Statements (Unaudited) (Continued)

(Dollar amounts in thousands, except unit data)

June 30, 2022

 

9. Financial Highlights

Selected data for a unit outstanding throughout the six months ended June 30, 2022 and 2021 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 six months ended June 30,

 

 

 

2022(1)

 

 

2021(1)

 

Net Asset Value Per Unit (accrual base), Beginning of Period

 

$

39.65

 

 

$

48.54

 

Income from Investment Operations:

 

 

 

 

 

 

Net investment income(1)

 

 

0.82

 

 

 

1.07

 

Net realized and unrealized gain

 

 

1.86

 

 

 

2.15

 

Total income from investment operations

 

 

2.68

 

 

 

3.22

 

Less Distributions:

 

 

 

 

 

 

From net investment income

 

 

(0.53

)

 

 

(1.15

)

Return of capital

 

 

(0.89

)

 

 

(3.32

)

Total distributions(2)

 

 

(1.42

)

 

 

(4.47

)

Net Asset Value Per Unit (accrual base), End of Period

 

$

40.91

 

 

$

47.29

 

Common Unitholder Total Return(3)(4)

 

 

16.47

%

 

 

11.37

%

Common Unitholder IRR(5)

 

 

8.81

%

 

 

7.98

%

Ratios and Supplemental Data

 

 

 

 

 

 

Members’ Capital, end of period

 

$

414,615

 

 

$

543,141

 

Units outstanding, end of period

 

 

20,134,698

 

 

 

20,134,698

 

Ratios based on average net assets of Members’ Capital:

 

 

 

 

 

 

Ratio of total expenses to average net assets(6)

 

 

2.75

%

 

 

2.33

%

Ratio of financing cost to average net assets(4)

 

 

0.57

%

 

 

0.44

%

Ratio of net investment income to average net assets(6)

 

 

8.55

%

 

 

7.72

%

Credit facility payable

 

 

115,250

 

 

 

115,250

 

Asset coverage ratio

 

 

4.60

 

 

 

5.71

 

Portfolio turnover rate(4)

 

 

 

 

 

1.49

%

 

(1)
Per unit data was calculated using the number of Common Units issued and outstanding as of June 30, 2022 and 2021.
(2)
Includes distributions which have an offsetting capital re-contribution (“deemed distributions”). Excludes return of unused capital.
(3)
The Total Return for the six months ended June 30, 2022 and 2021 was calculated by taking total income from investment operations for the period divided by the weighted average capital contributions from the Members during the period. The return does not reflect sales load and is net of management fees and expenses.
(4)
Not annualized.
(5)
The Internal Rate of Return (“IRR”) since inception for the Common Unitholders, after management fees, financing costs and operating expenses, is 8.81% through June 30, 2022. The IRR is computed based on cash flow due dates contained in notices to Members (contributions from and distributions to the Common Unitholders) and the net assets (residual value) of the Members’ Capital account at period end. The IRR is calculated based on the fair value of investments using principles and methods in accordance with GAAP and does not necessarily represent the amounts that may be realized from sales or other dispositions. Accordingly, the return may vary significantly upon realization.
(6)
Annualized.

10. 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 July 11, 2022 the term of the Company was extended for a one-year period from September 14, 2022 to September 14, 2023 via a vote by the Unitholders. However, the management fee will only be paid through December 31, 2022.

On July 11, 2022 the Company’s 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.

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:

the impact of the novel strain of coronavirus known as “COVID-19” and variants of COVID-19, on the global economy, our industry, our business and our targeted investments;
an economic downturn, including as a result of the current COVID-19 pandemic, could impair our portfolio companies’ ability to continue to operate, which could lead to the loss of some or all of our investments in such portfolio companies;
an economic downturn, such as the downturn associated with the COVID-19 pandemic, could disproportionately impact the companies which we intend to target for investment, potentially causing us to experience a decrease in investment opportunities and diminished demand for capital from these companies;
a contraction of available credit could impair our ability to obtain leverage;
interest rate volatility could adversely affect our results, particularly if we elect to use leverage as part of our investment strategy;
our future operating results;
our business prospects and the prospects of our portfolio companies
our contractual arrangements and relationships with third parties;
the ability of our portfolio companies to achieve their financial and other business objectives and the impact of the COVID-19 pandemic thereon;
competition with other entities and our affiliates for investment opportunities;
the impact of changing market conditions and lending standards on our ability to compete with other industry participants, including other business development companies, private and public funds, individual and institutional investors, and financial institutions for investment opportunities;
uncertainty surrounding the impact of the current COVID-19 pandemic on the financial stability of the United States and global economies;
the social, geopolitical, financial, trade and legal implications of the trade and cooperation agreement arising from Brexit, as well as future agreements between the United Kingdom and various countries in the European Union;
pandemics or other serious public health events, such as the ongoing global outbreak of COVID-19;
an inability to replicate the historical success of any previously launched fund managed by the private credit team of our investment adviser, TCW Asset Management Company LLC (the “Adviser”);
the speculative and illiquid nature of our investments;
the use of borrowed money to finance a portion of our investments;
the adequacy of our financing sources and working capital;
the costs associated with being an entity registered with the Securities and Exchange Commission (“SEC”);

31


 

uncertainty surrounding the financial and political stability of the United States, the United Kingdom, the European Union, Russia, Ukraine and China, including the effect of the current COVID-19 pandemic;
the loss of key personnel;
the timing of cash flows, if any, from the operations of our portfolio companies;
the ability of the Adviser to locate suitable investments for us and to monitor and administer our investments;
the ability of the TCW Group, Inc. to attract and retain highly talented professionals that can provide services to the adviser and administrator;
our ability to qualify and maintain our qualification as a regulated investment company, or “RIC,” under Subchapter M of the U.S. Internal Revenue Code of 1986, as amended (the “Code”) and as a business development company (“BDC”) under the Investment Company Act of 1940 (the “1940 Act”) and the related tax implications;
the effect of legal, tax and regulatory changes; and
the other risks, uncertainties and other factors we identify under “Part I—Item 1A. Risk Factors” in our Form 10-K filed with the SEC on March 29, 2022.

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.

We have several 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, from time to time we made, and currently have, investments that contain such features, usually due to certain circumstances involving debt restructurings or work-outs of current investments.

32


 

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.

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 and approved by our Board of Directors based on similar instruments, internal assumptions and the weighting of the best available pricing inputs.

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. A discounted cash flow approach incorporating a weighted average cost of capital is generally used to determine fair value or, in some cases, 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.

33


 

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 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. The Company is entitled to income and principal distributed by the fund. The Company is entitled to income and principal distributed by the fund.

Investment Activity

As of June 30, 2022, our portfolio consisted of debt and equity investments in eight and seven portfolio companies, respectively, including TCW Strategic Ventures. Based on fair values as of June 30, 2022, our portfolio was comprised of 67.0% debt investments which were primarily senior secured, first lien term loans and 33.0% 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 June 30, 2022, representing 14.3% and 19.3% of our portfolio’s fair value and cost, respectively.

As of December 31, 2021, our portfolio consisted of debt and equity investments in eight and seven portfolio companies, respectively, including TCW Strategic Ventures. Based on fair values as of December 31, 2021, our portfolio was comprised of 69.0% debt investments which were primarily senior secured, first lien term loans and 31.0% 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, 2021, representing 16.3% and 19.2% 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 June 30, 2022:

 

Industry

 

Percent of Total Investments

 

Metals & Mining

 

 

24

%

Industrial Conglomerates

 

 

17

%

Investment Funds & Vehicles

 

 

17

%

Diversified Consumer Services

 

 

15

%

Pharmaceuticals

 

 

9

%

Household Durables

 

 

6

%

Hotels, Restaurants & Leisure

 

 

6

%

Distributors

 

 

5

%

Diversified Financial Services

 

 

1

%

Technologies Hardware, Storage and Peripherals

 

 

0

%

Total

 

 

100

%

 

34


 

 

Results of Operations

Our operating results for the three and six months ended June 30, 2022 and 2021 were as follows (dollar amounts in thousands):

 

 

 

For the three months ended June 30,

 

 

For the six months ended June 30,

 

 

 

2022

 

 

2021

 

 

2022

 

 

2021

 

Total investment income

 

$

13,948

 

 

$

13,545

 

 

$

21,721

 

 

$

28,049

 

Total expenses

 

 

2,631

 

 

 

3,073

 

 

 

5,283

 

 

 

6,494

 

Net investment income

 

 

11,317

 

 

 

10,472

 

 

 

16,438

 

 

 

21,555

 

Net realized loss on investments

 

 

 

 

 

457

 

 

 

 

 

 

(55,388

)

Net change in unrealized appreciation/(depreciation) on investments

 

 

31,329

 

 

 

22,223

 

 

 

37,683

 

 

 

98,671

 

Net realized (loss) gain on short-term investments

 

 

(99

)

 

 

(9

)

 

 

(310

)

 

 

27

 

Net increase in Members’ Capital from
   operations

 

$

42,547

 

 

$

33,143

 

 

$

53,811

 

 

$

64,865

 

 

Total investment income

Total investment income for the three months ended June 30, 2022 and 2021 was $13.9 million and $13.5 million, respectively, and included interest income (including interest income paid-in-kind) of $11.5 million and $10.7 million, respectively. Total investment income for the three months ended June 30, 2022 and 2021 also included dividend income of $2.4 and $2.8 million, respectively, as well as $36 thousand and $42 thousand, respectively, of other income.

Total investment income for the six months ended June 30, 2022 and 2021 was $21.7 million and $28.0 million, respectively, and included interest income (including interest income paid-in-kind) of $19.2 million and $22.4 million, respectively. Total investment income for the six months ended June 30, 2022 and 2021 also included dividend income of $2.4 million and $5.6 million, respectively, as well as other income of $0.1 million for each period.

Total investment income was flat during the three months ended June 30, 2022 compared to the three months ended June 30, 2021. The decline in our total investment income due to the decrease in our investment portfolio size during the three months ended June 30, 2022 compared to June 30, 2021 was partially offset by a PIK amendment fee that we earned on our term loan to H-D Advanced Manufacturing Company during the three months ended June 30, 2022, resulting in a relatively similar total investment income between the three months ended June 30, 2022 versus three months ended June 30, 2021.

Total investment income decreased during the six months ended June 30, 2022 compared to the six months ended June 30, 2021 due to the decrease in the size of our debt portfolio (which had investments in eight portfolio companies as of June 30, 2022, compared to investments in 10 portfolio companies as of June 30, 2021), as well as the decrease in dividend income from TCW Strategic Ventures, partially offset by the PIK amendment fee that we earned on our term loan to H-D Advanced Manufacturing Company during the three months ended June 30, 2022.

Net investment income

Net investment income for the three months ended June 30, 2022 and 2021 was $11.3 million and $10.5 million, respectively. Net investment income for the six months ended June 30, 2022 and 2021 was $16.4 million and $21.6 million, respectively.

The slight increase in net investment income during the three months ended June 30, 2022 compared to the three months ended June 30, 2021 was due to relatively flat total investment income as described above, coupled with lower total expenses during the three months ended June 30, 2022 versus the three months ended June 30, 2021.

The decrease in net investment income during the six months ended June 30, 2022 compared to the six months ended June 30, 2021 was primarily due to lower total investment income as previously described, partially offset by lower total expenses.

35


 

Expenses for the three and six months ended June 30, 2022 and 2021 were as follows (dollar amounts in thousands):

 

 

 

For the three months ended June 30,

 

 

For the six months ended June 30,

 

 

 

2022

 

 

2021

 

 

2022

 

 

2021

 

Expenses

 

 

 

 

 

 

 

 

 

 

 

 

Interest and credit facility expenses

 

$

1,039

 

 

$

1,148

 

 

$

2,192

 

 

$

2,475

 

Management fees

 

 

997

 

 

 

1,420

 

 

 

2,011

 

 

 

2,939

 

Administrative fees

 

 

176

 

 

 

200

 

 

 

348

 

 

 

407

 

Professional fees

 

 

205

 

 

 

125

 

 

 

341

 

 

 

291

 

Directors’ fees

 

 

78

 

 

 

86

 

 

 

156

 

 

 

164

 

Other expenses

 

 

136

 

 

 

94

 

 

 

235

 

 

 

218

 

Total expenses

 

$

2,631

 

 

$

3,073

 

 

$

5,283

 

 

$

6,494

 

 

Our total expenses for the three months ended June 30, 2022 and 2021 were $2.6 million and $3.1 million, respectively. Our total expenses included management fees attributed to the Adviser of $1.0 million and $1.4 million for the three months ended June 30, 2022 and 2021, respectively.

 

Our total expenses for the six months ended June 30, 2022 and 2021 were $5.3 million and $6.5 million, respectively. Our total expenses included management fees attributed to the Adviser of $2.0 million and $2.9 million for the six months ended June 30, 2022 and 2021, respectively.

The decrease in total operating expenses during the three and six months ended June 30, 2022 compared to the three and six months ended June 30, 2021, was primarily due to lower management fees, resulting from the overall decrease in our investment portfolio’s size as well as lower interest and credit facility expenses due to a slightly lower weighted average interest rate.

Net realized gain (loss) on investments

Our net realized gain on investments for the three months ended June 30, 2022 and 2021 was $0 and $0.5 million, respectively. The Company did not have a net realized gain or loss on investments during the three months ended June 30, 2022 as no investments were disposed of during the three months ended June 30, 2022.

Our net realized gain on investments during the three months ended June 30, 2021 was entirely attributable to the partial disposition of our Quantum Corp. common stock.

Our net realized gain (loss) on investments for the six months ended June 30, 2022 and 2021 was $0 and $(55.4) million, respectively. The Company did not have a net realized gain or loss on investments during the six months ended June 30, 2022 as no investments were disposed of during the six months ended June 30, 2022.

Our net realized loss on investments during the six months ended June 30, 2021 was attributable to a permanent impairment that we took on our term loan to Carrier & Technology Holdings, LLC and our term loan and revolver to Guardia LLC, which resulted in an aggregate realized loss of $58.8 million. Of the $58.8 million of aggregate realized loss, $56.5 million was from unrealized depreciation recognized in prior periods and $2.3 million was additional losses taken during the current period. We also recognized a realized loss of $1.4 million on the partial disposition of our warrants to RTI Holding Company, LLC. These realized losses were partially offset by $4.4 million of realized gains on the partial disposition of our Quantum Corp. common stock.

 

36


 

Net change in unrealized appreciation/(depreciation) on investments

Our net change in unrealized appreciation/(depreciation) on investments for the three months ended June 30, 2022 and 2021 was $31.3 million and $22.2 million, respectively. Our net change in unrealized appreciation/(depreciation) for the three months ended June 30, 2022 was primarily attributable to the following investments (dollar amounts in thousands):

 

Issuer

 

Investment

 

Change in
Unrealized
Appreciation/
(Depreciation)

 

School Specialty, Inc.

 

Common Stock

 

$

26,648

 

TCW DLSV LLC

 

Preferred Membership Interests

 

 

11,323

 

H-D Advanced Manufacturing Company

 

Term Loan

 

 

5,543

 

Retail & Animal Intermediate, LLC

 

Subordinated Loan

 

 

(1,426

)

Quantum Corporation

 

Common Stock

 

 

(1,501

)

Cedar Ultimate Parent, LLC

 

Class A Preferred
 Units

 

 

(1,891

)

Cedar Ultimate Parent, LLC

 

Class D Preferred
 Units

 

 

(1,914

)

RT Holdings Parent, LLC

 

Class A Units

 

 

(2,262

)

Pace Industries, Inc.

 

HoldCo Term Loan

 

 

(3,055

)

All others

 

Various

 

 

(136

)

Net change in unrealized appreciation/(depreciation)

 

 

 

$

31,329

 

Our net change in unrealized appreciation/(depreciation) for the three months ended June 30, 2021 was primarily attributable to the following investments (dollar amounts in thousands):

 

Issuer

 

Investment

 

Change in
Unrealized
Appreciation/
(Depreciation)

 

 

School Specialty, Inc.

 

Preferred Stock

 

$

7,498

 

 

TCW Strategic Ventures

 

Preferred Membership Interest

 

 

5,215

 

 

Cedar Ultimate Parent, LLC

 

Preferred Stock

 

 

4,383

 

 

RTI Holding Company, LLC

 

Class A Units

 

 

3,738

 

 

Pace Industries, Inc.

 

Term Loan

 

 

3,532

 

 

Noramco, LLC

 

Term Loan

 

 

1,445

 

 

ASC Acquisition Holdings, LLC

 

Term Loan

 

 

1,143

 

 

Quantum Corporation

 

Common Stock

 

 

(2,942

)

 

H-D Advanced Manufacturing Company

 

Term Loan

 

 

(3,407

)

 

All others

 

Various

 

 

1,618

 

 

Net change in unrealized appreciation/(depreciation)

 

 

 

$

22,223

 

 

 

 

37


 

Our net change in unrealized appreciation/(depreciation) on investments for the six months ended June 30, 2022 and 2021 was $37.7 million and $98.7 million, respectively. Our net change in unrealized appreciation/(depreciation) for the six months ended June 30, 2022 was primarily attributable to the following investments (dollar amounts in thousands):

 

Issuer

 

Investment

 

Change in
Unrealized
Appreciation/
(Depreciation)

 

 

School Specialty, Inc.

 

Common Stock

 

$

27,112

 

 

TCW Strategic Ventures

 

Preferred Membership
Interests

 

 

13,676

 

 

H-D Advanced Manufacturing Company

 

Term Loan

 

 

8,993

 

 

School Specialty, Inc.

 

Preferred Stock

 

 

3,516

 

 

Cedar Ultimate Parent, LLC

 

Class A Preferred
 Units

 

 

(1,282

)

 

Cedar Ultimate Parent, LLC

 

Class D Preferred
 Units

 

 

(2,262

)

 

Pace Industries, Inc.

 

HoldCo Term Loan

 

 

(2,498

)

 

Retail & Animal Intermediate, LLC

 

Subordinated Term Loan

 

 

(2,855

)

 

Quantum Corporation

 

Common Stock

 

 

(7,242

)

 

All others

 

Various

 

 

525

 

 

Net change in unrealized appreciation/(depreciation)

 

 

 

$

37,683

 

 

 

Our net change in unrealized appreciation/(depreciation) for the six months ended June 30, 2021 was primarily attributable to the following investments (dollar amounts in thousands):

 

Issuer

 

Investment

 

Change in
Unrealized
Appreciation/
(Depreciation)

 

 

Carrier & Technology Holdings, LLC

 

Term Loan

 

$

42,546

 

*

Pace Industries, Inc.

 

Term Loan

 

 

9,520

 

 

Guardia, LLC

 

Term Loan

 

 

9,387

 

*

TCW Strategic Ventures

 

Preferred Membership Interest

 

 

8,214

 

 

School Specialty, Inc.

 

Preferred Stock

 

 

7,531

 

 

Cedar Ultimate Parent, LLC

 

Preferred Stock

 

 

5,699

 

 

Guardia, LLC

 

Revolver

 

 

4,816

 

*

RTI Holding Company, LLC

 

Class A Units

 

 

4,081

 

 

OTG Management, LLC

 

Term Loan

 

 

4,312

 

 

Noramco, LLC

 

Term Loan

 

 

2,838

 

 

RTI Holding Company, LLC

 

Warrants

 

 

1,536

 

 

RTI Holding Company, LLC

 

Warrants

 

 

1,380

 

*

H-D Advanced Manufacturing Company

 

Revolver

 

 

(4,147

)

 

All others

 

Various

 

 

958

 

 

Net change in unrealized appreciation/(depreciation)

 

 

 

$

98,671

 

 

 

*Includes reversals of previously recognized unrealized appreciation/(depreciation). Recognized as realized gains/(losses) and/or accelerated original issue discount during the six months ended June 30, 2021.

 

Net realized (loss)gain on short-term investments

During the three months ended June 30, 2022 and 2021 we incurred ($99) thousand and ($9) thousand, respectively, in realized losses from our short-term investments in government treasuries.

During the six months ended June 30, 2022 and 2021 we incurred ($310) thousand and $27 thousand, respectively, in realized (losses) gains from our short-term investments in government treasuries.

38


 

Net increase in Members’ Capital from operations

Our net increase in Members’ Capital from operations during the three months ended June 30, 2022 and 2021 was $42.5 million and $33.1 million, respectively.

Our net increase in Members’ Capital from operations during the six months ended June 30, 2022 and 2021 was $53.8 million and $64.9 million, respectively.

The relative increase in net increase in Members’ Capital from operations during the three months ended June 30, 2022 compared to the three months ended June 30, 2021 was primarily due to higher net investment income in addition to higher net realized and unrealized gains.

The relative decrease in net increase in Members’ Capital from operations during the six months ended June 30, 2022 compared to the six months ended June 30, 2021 was primarily due to lower net investment income and lower net realized and unrealized gains.

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.

As of June 30, 2022 and December 31, 2021, aggregate Commitments, Undrawn Commitments and subscribed for Units of the Company are as follows (dollar amounts in thousands):

 

 

 

June 30, 2022

 

 

December 31, 2021

 

Commitments

 

$

2,013,470

 

 

$

2,013,470

 

Undrawn commitments

 

$

409,125

 

 

$

409,125

 

Percentage of commitments funded

 

 

79.7

%

 

 

79.7

%

Units

 

 

20,134,698

 

 

 

20,134,698

 

 

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.

39


 

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 $177,000, 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 June 30, 2022, we were in compliance with such covenants.

As of June 30, 2022 and December 31, 2021, the Available Commitment under the Credit Facility was $61.8 million.

As of June 30, 2022 and December 31, 2021 the amounts outstanding under the Credit Facility were $115.3 million. The carrying amount of the Credit Facility, which is categorized as Level 2 within the fair value hierarchy as of June 30, 2022 and December 31, 2021, 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. We incurred financing costs of $10.1 million in connection with the April 10, 2017 Third Amended and Restated Revolving Credit Agreement. We also incurred additional financing costs totaling $1.8 million in connection with the Amended Credit Agreement on April 6, 2020 and May 27, 2020 as well as an additional $0.9 million in connection with the April 6, 2021 Third Amended Credit Agreement. We recorded these costs as deferred financing costs on its Consolidated Statements of Asset and Liabilities and the costs are being amortized over the life of the Credit Facility. As of June 30, 2022 and December 31, 2021, $0.3 million and $0.5 million, respectively, of such prepaid deferred financing costs had yet to be amortized.

40


 

The summary information regarding the Credit Facility for the three and six months ended June 30, 2022 and 2021 was as follows (dollar amounts in thousands):

 

 

 

Three months ended June 30,

 

 

Six months ended June 30,

 

 

 

2022

 

 

2021

 

 

2022

 

 

2021

 

Credit facility interest expense

 

$

808

 

 

$

625

 

 

$

1,426

 

 

$

1,634

 

Undrawn commitment fees

 

 

62

 

 

 

62

 

 

 

124

 

 

 

124

 

Administrative fees

 

 

17

 

 

 

17

 

 

 

33

 

 

 

33

 

Amortization of deferred financing costs

 

 

152

 

 

 

444

 

 

 

609

 

 

 

684

 

Total

 

$

1,039

 

 

$

1,148

 

 

$

2,192

 

 

$

2,475

 

Weighted average interest rate

 

 

2.78

%

 

 

2.18

%

 

 

2.46

%

 

 

2.86

%

Average outstanding balance

 

$

115,250

 

 

$

115,250

 

 

$

115,250

 

 

$

115,250

 

 

A summary of our contractual payment obligations as of June 30, 2022 and December 31, 2021 is as follows (dollar amounts in thousands):

 

Revolving Credit Agreement

 

Total Facility
Commitment

 

 

Borrowings
Outstanding

 

 

Available
Amount
(1)

 

Total Debt Obligations – June 30, 2022

 

$

177,000

 

 

$

115,250

 

 

$

61,750

 

Total Debt Obligations – December 31, 2021

 

$

177,000

 

 

$

115,250

 

 

$

61,750

 

 

(1)
The amount available considers any limitations related to the debt facility borrowing.

 

We had the following unfunded commitments and unrealized losses by investment as of June 30, 2022 and December 31, 2021 (dollar amounts in thousands):

 

 

 

 

 

June 30, 2022

 

 

December 31, 2021

 

Unfunded Commitments

 

Maturity/
Expiration

 

Amount

 

 

Unrealized
Depreciation

 

 

Amount

 

 

Unrealized
Depreciation

 

Guardia LLC (fka Carrier & Technology Solutions, LLC)

 

July 2023

 

$

24

 

 

$

17

 

 

$

190

 

 

$

138

 

Ruby Tuesday Operations LLC (fka Ruby Tuesday, Inc.)

 

February 2025

 

 

4,921

 

 

 

 

 

 

6,824

 

 

 

 

Total

 

 

 

$

4,945

 

 

$

17

 

 

$

7,014

 

 

$

138

 

 

The Company’s total capital commitment to its underlying investment in Strategic Ventures is $481,600. As of June 30, 2022 and December 31, 2021, 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 2020, 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.

 

41


 

Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

We are subject to financial market risks, including changes in interest rates. At June 30, 2022, 98.5% of our debt investments bore interest based on floating rates, such as LIBOR or the Prime Rate. The interest rates on such investments generally reset by reference to the current market index after one to three months. At June 30, 2022, the percentage of our floating rate debt investments that bore interest based on an interest rate floor was 82.2%. 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 June 30, 2022 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

 

Up 300 basis points

 

$

11,010

 

 

$

3,506

 

 

$

7,504

 

Up 200 basis points

 

 

7,340

 

 

 

2,337

 

 

 

5,003

 

Up 100 basis points

 

 

3,670

 

 

 

1,169

 

 

 

2,501

 

Down 100 basis points

 

 

(291

)

 

 

(1,212

)

 

 

921

 

Down 200 basis points

 

 

(291

)

 

 

(2,088

)

 

 

1,797

 

 

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.

42


 

Issuer purchases of equity securities

None.

Item 3. Defaults Upon Senior Securities

None.

Item 4. Mine Safety Disclosures

None.

Item 5. Other Information

None.

 

43


 

Item 6. Exhibits.

(a) Exhibits

 

Exhibits

 

 

 

  3.1

Certificate of Formation (incorporated by reference to Exhibit 3.1 to a registration on Form 10 filed on April 18, 2014)

 

 

  3.4

Second Amended and Restated Limited Liability Company Agreement, dated September 19, 2014 (incorporated by reference to Exhibit 3.4 to a filing on Form 10-Q filed on November 7, 2014)

 

 

10.1

Investment Advisory and Management Agreement (incorporated by reference to Exhibit 10.1 to the registrant’s Current Report on Form 8-K filed on September 25, 2014).

 

 

10.2

Administration Agreement dated September 15, 2014, by and between TCW Direct Lending LLC and TCW Asset Management Company (incorporated by reference to Exhibit 10.2 to the registrant’s Quarterly Report on Form 10-Q filed on November 7, 2014).

 

 

10.6

Final form of the TCW Direct Lending Strategic Ventures LLC Amended and Restated Limited Liability Company Agreement, dated June 5, 2015 (incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K filed on June 10, 2015).

 

 

10.8

Third Amended and Restated Revolving Credit Agreement, dated April 10, 2017, by and among TCW Direct Lending LLC, as borrower, Natixis, New York Branch, as administrative agent, sole lead arranger and sole book manager, and the lenders party thereto (incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K filed on April 14, 2017).

 

 

10.10

First Amendment to the Third Amended and Restated Revolving Credit Agreement, dated April 6, 2020, by and among TCW Direct Lending LLC, as borrower, Natixis, New York Branch, as administrative agent, and the lenders party thereto (incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K filed on April 13, 2020).

 

 

10.11

Lender Group Joinder Agreement, dated May 27, 2020 by and among Zions Bancorporation, N.A. d/b/a California Bank & Trust, Natixis, New York Branch (as Administrative Agent) and TCW Direct Lending LLC (incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K filed on June 2, 2020).

 

 

10.12

Third Amendment to the Third Amended and Restated Revolving Credit Agreement, dated April 6, 2021, by and among TCW Direct Lending LLC, as borrower, Natixis, New York Branch, as administrative agent, and the lenders party thereto (incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K filed on April 12, 2021).

 

 

31.1*

Certification of President Pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934

 

 

31.2*

Certification of Chief Financial Officer Pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934

 

 

32.1*

Certification of President Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. 1350)

 

 

32.2*

Certification of Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. 1350)

 

 

99.1*

Financial Statements of TCW Direct Lending Strategic Ventures LLC for the six months ended June 30, 2022

 

* Filed herewith

 

44


 

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: August 11, 2022

By:

/s/ Richard T. Miller

 

 

 

Richard T. Miller

 

 

President

 

 

 

Date: August 11, 2022

By:

/s/ Andrew J. Kim

 

 

 

Andrew J. Kim

 

 

Chief Financial Officer

 

45


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