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DATE

Thursday, May 7, 2026 at 10 a.m. ET

CALL PARTICIPANTS

• President and CEO — Kenneth Kencel
• Chief Financial Officer — Shaul Vichness

TAKEAWAYS

• Net Investment Income -- $0.41 per share, including $0.02 per share of onetime debt financing expenses; adjusted net investment income was $0.43 per share compared to $0.44 per share in the prior quarter.
• Total Investment Income -- $46.3 million, down from $50 million sequentially, driven by lower portfolio yields from resetting loan base rates and tighter prior spreads.
• Second Quarter Distribution -- Declared at $0.38 per share (regular $0.36 plus $0.02 supplemental), to be paid July 28 to shareholders of record as of June 30.
• Net Asset Value (NAV) -- $17.50 per share, down 1.2% from $17.72 per share, with the decline attributed to spread widening on valuations and modest fair value decreases for certain underperforming portfolio companies.
• Gross Originations and Fundings -- Gross originations totaled $82.9 million and investment fundings were $85.4 million, both representing increases from $59.4 million and $80.4 million, respectively, in the prior quarter.
• Portfolio Composition -- First lien loans made up 89.7% of the portfolio by fair value; junior debt and equity accounted for 7.5% and 2.8%, respectively, with equity rising from 2.3% to 2.8% sequentially.
• Portfolio Diversification -- 236 portfolio companies held, with the top 10 holdings representing 13.2% of fair value; the largest single exposure remained just 1.6% of the total portfolio.
• Gross Debt-to-Equity Ratio -- Increased to 1.32x, up from 1.27x at year-end; net debt-to-equity ratio stood at 1.26x, up from 1.2x.
• Nonaccruals -- Five companies on nonaccrual at quarter end, representing 1.3% on a cost basis and 0.6% on a fair value basis, up modestly from the previous quarter; a new nonaccrual was added with a cost of $7.2 million and a fair value of $5 million.
• Internal Risk Ratings -- Weighted average risk rating was 4.3 at quarter end, up from an average origination rating of 4.0; 8.4% of the portfolio by fair value is on the internal watch list, marginally higher than 8.1% last quarter.
• Yield Metrics -- Weighted average yield on debt and income-producing investments at cost declined to 9.3% from 9.5% sequentially; average spread on new first lien investments was 471 basis points.
• Borrowing Cost Improvement -- Refinancing of the NCDL CLO-II transaction reduced borrowing costs from SOFR plus 250 basis points to SOFR plus 144, with the total weighted average cost of debt declining to SOFR plus 186 basis points from SOFR plus 203 basis points.
• Software Exposure -- Software businesses comprised less than 3% of the total investment portfolio by fair value, reflecting a long-term avoidance of higher-risk software lending.
• Deal Flow and Market Position -- Deal reviews increased 13% year over year; management cited "steady growth" in the new deal pipeline, highlighting momentum following a slow start to the quarter.
• Institutional Capital Base -- 96% of capital is institutional, which management views as an advantage in current market conditions with retail-driven volatility.

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RISKS

• Net Realized and Unrealized Losses -- GAAP net income was $0.18 per share, down from $0.32 per share, including $0.23 per share of net realized and unrealized losses, attributed to spread widening and portfolio fair value declines.
• Nonaccrual Increase -- Nonaccrual investments rose to 1.3% of cost and 0.6% of fair value, compared to 1.2% and 0.5% in the prior quarter.
• Reduced Investment Income -- Sequential declines in total investment income and net investment income, mainly due to lower base rates and tighter prior spreads.
• Slight Uptick in Watch List Assets -- Internal watch list assets increased to 8.4% of portfolio fair value, from 8.1% previously, reflecting incremental credit pressure.

SUMMARY

Management reported that wider direct lending spreads and a more stable or prolonged higher rate outlook are beginning to support higher yields on new deployments. The company increased its allocation to equity co-investments to 2.8%, up from 2.3%, with management explaining this as an effort to drive capital appreciation. Institutional allocations to private credit were reported to be up year over year, with management emphasizing positive institutional sentiment and highlighting the advantages of a 96% institutional capital mix. Recent refinancing efforts lowered total weighted average borrowing costs and extended the reinvestment period on major debt facilities, which management expects will support earnings stability.

• Management noted that business services and health care continue to drive much of the investment pipeline, while software exposure has intentionally remained low to avoid higher-risk lending.
• Kencel said, "the competitive dynamics that I think today are probably about as good as we've seen in the last several years," pointing to reduced competition from large retail-focused lenders and more favorable pricing conditions.
• Private equity sponsor activity was described as robust, with add-on acquisitions representing 25%-33% of lending use, supporting continued deal flow even in periods of slower M&A activity.
• The platform reviewed 13% more deals year over year, and management expects that the pullback by retail-driven BDCs will open opportunities for core middle market financings under more favorable terms and covenants.
• Equity co-investment allocations may rise further in the coming quarters, as described by Vichness, to drive incremental capital gains while maintaining a senior loan focus.

INDUSTRY GLOSSARY

• First Lien Loan: A senior secured loan that has the highest priority claim on the collateral of the borrowing company in the event of default.
• Nonaccrual: A loan or investment where interest income is no longer being accrued due to doubts about collectability, often a sign of borrower distress.
• SOFR: Secured Overnight Financing Rate, a benchmark interest rate for dollar-denominated derivatives and loans, replacing LIBOR in the U.S. market.
• CLO: Collateralized Loan Obligation, a type of structured credit product backed primarily by a pool of loans.
• OID: Original Issue Discount, the difference between a bond’s face value and its issue price, reflecting implied yield to maturity.

Full Conference Call Transcript

Kenneth Kencel: Thank you, Robert. Good morning, everyone, and thank you all for joining us today. During my prepared remarks, I will start by discussing our first quarter results, and then I'll provide some thoughts on the current market conditions, our portfolio positioning and our forward outlook. I'll then hand the call over to Shai for a more detailed discussion of our financial performance. Starting with our financial results for the quarter. Despite the headline noise and market volatility, we are pleased with the overall performance of our investment portfolio and our financial performance to start the year.

This morning, we reported net investment income of $0.41 per share, which was impacted by onetime interest and debt financing expenses totaling approximately $0.02 per share. Excluding these nonrecurring items, net investment income totaled $0.43 per share compared to $0.44 per share during the fourth quarter of 2025. These results reflect the continued strong performance of our investment portfolio as well as the impact of lower base interest rates. Based on our earnings for the quarter, the Board has declared a total second quarter distribution of $0.38 per share, consisting of a regular quarter distribution of $0.36 per share and a supplemental distribution of $0.02 per share.

In the first quarter, gross originations totaled approximately $83 million compared to $59 million in the fourth quarter of last year. Investment activity in the quarter was primarily focused on senior secured first lien loans, and we remain focused on investing into our core traditional middle market pipeline. Net asset value was $17.50 per share as of March 31 compared to $17.72 per share as of December 31, 2025. The decline quarter-over-quarter was primarily due to the impact of spread widening on valuations as well as a slight decrease in the fair value of certain underperforming portfolio companies.

In terms of the current market conditions and economic environment, 2026 began in a manner very similar to how 2025 ended, characterized by market volatility, negative private credit headlines, and geopolitical tensions. This was driven by market concerns of AI disruption and software exposure, increased redemption activity in nontraded BDCs and the conflict in the Middle East. We believe there was a significant disconnect between the narrative in the media and the underlying fundamentals in private credit, particularly with our investment portfolio and the continued strength of our credit metrics. Against this backdrop, we have begun to see a widening of direct lending spreads, driven by the recent market concerns, volatility and disruption.

This shift in pricing and spreads is notable following several quarters of stability in the 4.50% to 4.75% over range for traditional first lien loans. Additionally, interest rate forecasts have shifted away from aggressive cuts toward a more stable trajectory and indicate a prolonged higher for longer environment. The Federal Reserve is now expecting to keep rates steady throughout the remainder of the year and some projections even show potential rate increases in 2027. This shift from earlier in the year is largely driven by persistent inflation, a resilient labor market as well as geopolitical tensions, which have created economic uncertainty.

Despite all of these factors, we continue to view private credit and direct lending as an attractive asset class with a compelling risk return profile. Following a slowdown in transaction activity earlier in the first quarter, we are now seeing momentum in new M&A activity, which is reflected in our pipeline for new deals, particularly over the last several weeks. We're encouraged by the steady growth in our pipeline and the quality of businesses seeking financing solutions. While there is some uncertainty in the economic environment and outlook, we continue to see signs of continued strength, including steady GDP growth, a low and stable unemployment rate and solid corporate earnings.

Based on our positioning and focus on the core middle market, we believe we are well positioned to take advantage of opportunities to deploy capital into higher-quality companies. Now turning to our investment activity. At the Churchill platform level, we continue to see a healthy number of transactions, particularly new deals for high-quality assets. As we expected due to the seasonality of the first quarter, the number of deals reviewed in the quarter was down sequentially relative to the strong fourth quarter of 2025. However, the number of deals reviewed in the first quarter increased 13% year-over-year compared to the first quarter of last year.

This follows a record year in 2025 in which Churchill closed or committed to over $16 billion across 389 transactions for the full year. NCDL continues to benefit from attractive opportunities and activity at the Churchill platform level, particularly in senior lending, which represents approximately 90% of the fair value of the overall portfolio. We also continue to operate at the upper end of our target leverage range, and we remain focused on actively reinvesting cash received from repayments and sales into high-quality assets. During the first quarter, investment fundings totaled approximately $85 million and repayments and sales totaled approximately $65 million.

It's also important to remind everyone that at Churchill, we focus on the traditional core middle market, benefiting from our differentiated sourcing and long-term track record. We continue to target companies with $10 million to $100 million of EBITDA, which we believe helps insulate us from the more aggressive structures and loosening terms prevalent in the upper middle market and the broadly syndicated loan space. We believe that risk-adjusted returns in this segment of the market, remain among the most compelling in private credit, particularly for scaled, highly selective managers with deep private equity relationships. We see the core middle market as a durable opportunity to generate long-term value and enhance portfolio diversification for our investors.

Turning to our investment portfolio and credit quality, Overall company performance across our portfolio remains resilient and healthy, which we believe reflects the quality of the deal flow we've experienced over the last several years. Additionally, our rigorous underwriting, high selectivity and focus on diversification have been critical to minimizing losses and generating strong returns across multiple market cycles. That same discipline extends to today's shifting macroeconomic landscape. Our weighted average internal risk rating was 4.3 at the end of the first quarter versus an original rating of 4.0 for all of our investments at the time of origination. Our internal watch list remains at a manageable level of approximately 8.4% of fair value.

Credit metrics and fundamentals within the NCDL portfolio remains strong with portfolio company total net leverage of 5.1x and interest coverage of 2.3x on traditional middle market first lien loans. These metrics are a direct reflection of a conservative structuring and relatively low attachment points that we target when underwriting new transactions. NCDL added 1 new nonaccrual during the first quarter with a total cost of $7.2 million and a fair value of $5 million. As of this March 31, nonaccruals represented 1.3% of our total investment portfolio on a cost basis and 0.6% on a fair value basis.

Despite the slight increase compared to the prior quarter, we believe these percentages continue to compare favorably versus current BDC industry averages and the long-term historical BDC average. We continue to believe the strength of our platform, including our experienced workout and portfolio management teams will continue to drive favorable results. As of March 31, we had 236 companies in our portfolio, and our top 10 portfolio companies represented approximately 13% of total fair value. This diversification remains a key focus of ours and is critical as we seek to maintain exceptional credit quality and originate additional attractive investment opportunities.

We've achieved this diversification with a continued high level of selectivity, facilitated by the significant proprietary deal flow our sourcing engine is able to generate from the breadth and depth of our PE relationships. Finally, recent market concerns regarding AI's potential disruption of software businesses have raised a lot of questions around private credit portfolio software exposure. We believe market volatility stemming from AI disruption underscores the importance of a diversified approach to portfolio construction. Looking at NCDL's portfolio, we have relatively low exposure to software as these are not the types of deals we tend to underwrite.

The rapid pace of innovation in the software sector, often coupled with higher leverage attachment points and less room for error were key reasons we passed on many of these software deals. In fact, as of March 31, software businesses represented less than 3% of NCDL's total investment portfolio at fair value. Our definition of software exposure includes any borrower whose primary function is the design, development and sale of software products and services and whose business model reflects the operating or structural characteristics of a software company regardless of industry classification.

This excludes technology adjacent companies such as managed service providers and systems integrators that may be assigned to the high-technology industry category under Moody's industry classifications, but do not derive revenue from licensing or subscription sales or proprietary software. While AI will certainly contribute to disruption in the technology sector, the full impact remains difficult to assess at this time. It's also worth noting that AI could prove beneficial for certain business models, particularly for some business service firms and software companies with large proprietary data sets and deeply embedded workflows. We continue to monitor AI and its potential impact across the portfolio as we have done long before these headlines emerged.

We maintain an active dialogue with the senior management teams of all of our borrowers as well as the private equity firms that own them so that we have an informed and real-time view on this and any other risks our borrowers may face. Additionally, we have numerous firm-wide initiatives in place to keep informed of AI, and we are looking far beyond just software companies. Overall, we feel positive as to how we are positioned relative to the risk that AI may pose to our portfolio companies. In summary, we are pleased with the continued strength of NCDL's overall portfolio despite the headline noise in the private credit market.

Credit metrics remain strong and stable, and we believe systemic risk concerns are overstated, and our focus on the core traditional middle market continues to offer structural advantages. We have been and continue to be a trusted and established investor in the core middle market with deep long-term relationships, which provides NCDL with a strong information and sourcing advantage. There are many reasons to be excited about the future of our business and the continued tailwinds of the private credit market. And we continue to see signs of increasing deal flow and attractive financing opportunities, which we are well positioned to take advantage of.

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

Shaul Vichness: Thank you, Ken, and good morning, everyone. I will now review our first quarter financial results in more detail. This morning, we reported net investment income of $0.41 per share for the first quarter compared to $0.44 per share in the fourth quarter of 2025. As Ken highlighted earlier, net investment income in the quarter was negatively impacted by approximately $0.02 per share of nonrecurring expenses related to the refinancing of the NCDL CLO-II transaction. As we spoke about on last quarter's call, the refinancing was aimed at optimizing our debt financing and reducing ongoing borrowing costs. Excluding this nonrecurring expense, net investment income was $0.43 per share in the first quarter.

Total investment income declined to $46.3 million compared to $50 million in the fourth quarter of 2025. This was primarily driven by the decline in portfolio yields as a result of underlying loan contracts resetting to lower base rates, along with tighter spreads that we saw throughout the fourth quarter of last year. However, as Ken mentioned, we are now seeing spreads modestly wider. Our gross debt-to-equity ratio at March 31 was 1.32x compared to 1.27x at year-end 2025. Our net debt-to-equity ratio, net of cash, was 1.26x compared to 1.2x at the end of the fourth quarter. In April, we paid our first quarter distribution of $0.40 per share.

And for the second quarter, we have declared a $0.38 per share distribution, which consists of a regular distribution of $0.36 per share and a supplemental distribution of $0.02 per share. Both distributions will be paid on July 28 to shareholders of record as of June 30. As we reiterated last quarter, we are operating with a supplemental dividend program that sees us paying out a portion of the excess earnings over and above our regular dividend of $0.36 per share. This should allow us to deliver the benefits of higher returns to shareholders when market returns are higher as well as provide stability to NAV while allowing us to reinvest earnings for growth.

For the most recent quarter, we generated approximately $0.05 of incremental earnings above our regular distribution, and we are distributing $0.02 of the excess earnings in the form of the supplemental distribution. Our total GAAP net income for the first quarter was $0.18 per share compared to $0.32 per share in the fourth quarter of 2025. First quarter net income included $0.23 per share of net realized and unrealized losses. Net realized losses of $0.07 per share were primarily driven by the restructuring of 2 underperforming debt positions, partially offset by realized gains from full or partial repayments and sales of investments during the quarter.

Net unrealized losses of $0.16 per share were primarily due to the impact of benchmark spread widening as well as decreases in the fair value of certain underperforming portfolio companies, partially offset by the reversal of unrealized losses on debt positions that were restructured during the period. At the end of the first quarter, net asset value was $17.50 per share compared to $17.72 per share as of December 31, 2025, a modest decline of 1.2%. NCDL's investment portfolio had a fair value of $2 billion, consistent with the prior quarter as we have been actively reinvesting proceeds received from repayments into new transactions.

Gross originations totaled $82.9 million and gross investment fundings totaled $85.4 million compared to $59.4 million and $80.4 million of gross originations and gross investment fundings, respectively, in the fourth quarter of 2025. During the first quarter, sales and repayments totaled $65 million, a rate of approximately 3.3%, slightly lower than last quarter's 4.2% and our long-range assumption of 5% per quarter, attributable to lower M&A activity in the first quarter, as highlighted by Ken. We had full repayments on 3 deals totaling $48 million and partial prepayments for another $11 million. We expect to continue to redeploy capital received from repayments with a view towards maintaining leverage at the upper end of our target range.

Additionally, we remain focused on redeploying capital into traditional middle market transactions across the capital structure with the vast majority of new investments into senior first lien loans. As of March 31, our total investment portfolio consisted of 236 names compared to 227 names at year-end 2025. This diversification remains a key focus of ours with our top 10 portfolio companies representing just 13.2% of the fair value of the portfolio, consistent with the prior quarter. Our largest exposure is only 1.6% of the total portfolio, and our average position size remains at 0.4%.

In terms of asset deployment and selection, our new originations during the first quarter were again weighted towards senior loans with $70.2 million out of the $82.9 million of gross originations deployed into this strategy. The balance was deployed into subordinated debt and equity in the first quarter with $10.6 million invested in equity positions across 7 names. We've intentionally deployed more dollars into our equity bucket in recent quarters versus junior debt, modestly increasing the percentage of equity to drive capital appreciation. Spreads on new investments in the first quarter were relatively consistent with the prior quarter with the average spread on first lien loans at approximately 471 basis points.

Our weighted average yield on debt and income-producing investments at cost declined to 9.3% at the end of the quarter compared to 9.5% at the end of the fourth quarter. As far as portfolio allocation is concerned, at March 31, first lien loans represented approximately 89.7% of the total portfolio, while junior debt and equity comprised 7.5% and 2.8%, respectively. Our allocation strategy remains unchanged as we continue to target a portfolio comprised of roughly 90% senior loans with the balance allocated to junior debt and equity.

We strongly believe that our focus on the traditional middle market segment will benefit NCDL shareholders over the long term as we see meaningfully higher spreads and tighter documentation terms in the traditional middle market compared to the upper middle and BSL markets. Now turning to credit quality. Overall, we continue to be very pleased with the health and strength of our investment portfolio and the performance of our portfolio companies remain strong. During the first quarter, we placed 1 portfolio company on nonaccrual status. And at quarter end, NCDL had only 5 names on nonaccrual, representing just 0.6% on a fair value basis and 1.3% of the portfolio at cost.

This compares to 0.5% on a fair value basis and 1.2% at cost at the end of the fourth quarter. At March 31, our weighted average internal risk rating was 4.3%, relatively consistent with the prior quarter, and our watch list consisting of names with an internal risk rating of 6 or worse, remains at a relatively low level of 8.4% at the end of the first quarter, up slightly from the 8.1% we reported in the prior quarter. And finally, our conservative approach to underwriting is highlighted by our weighted average net leverage across the portfolio at 5.1x and interest coverage of 2.3x as of the end of the quarter. So to the right-hand side of our balance sheet.

Our debt-to-equity ratio at March 31 was 1.32x gross compared to 1.27x at December 31, 2025, and on a net basis, 1.26x net of our cash position at quarter end. Our goal remains to redeploy capital received from repayments and maintain leverage towards the upper end of our target range of 1 to 1.25x debt to equity. And our focus in the near term is on optimizing the asset mix within the portfolio and actively reinvesting cash received from repayments and sales into high-quality assets. As I mentioned earlier, in February of this year, we closed the refinancing of the NCDL CLO-II transaction, reducing borrowing costs in that deal from SOFR plus 250 basis points to SOFR plus 144.

In addition, we were able to secure a 5-year reinvestment period. This strong capital markets execution reflects the reputation that NCDL and Churchill have in the debt capital markets and represents a meaningful improvement in borrowing costs for NCDL. Our total weighted average cost of debt declined to SOFR plus 186 basis points at March 31 compared to SOFR plus 203 basis points as of year-end 2025. We will continue to look for ways to optimize the debt capital structure of NCDL going forward. I'll now turn it back to Ken for closing remarks.

Kenneth Kencel: Thank you, Shai. In closing, we are pleased with our financial performance to start the year, which reflects the overall health and strength of our investment portfolio. We also remain confident that NCDL is well-positioned for the remainder of 2026 with an experienced investment team and our ability to originate high-quality investments in various market conditions and economic environments. We continue to benefit from our competitive advantages in the core middle market as well as our long-term successful track record. Thank you all for joining us today and for your interest in NCDL. I will now turn the call over to the operator for Q&A.

Operator: [Operator Instructions] And the first question comes from the line of Brian McKenna with Citizens.

Brian Mckenna: So you generated a 9.4% NII ROE in the quarter. Is this 9% to 9.5% level a good way to think about returns for the portfolio over the next few quarters? And then I'm curious, do you have any other levers you can pull to try and grind this higher over time?

Shaul Vichness: Hey, Brian. Thanks. It's Shai. I appreciate the question. Look, I think what we've seen, and as Ken commented, right, the direction of travel with respect to interest rates, base rates appears to be sort of higher for longer as we look out now relative to a dynamic that we faced even just a quarter ago where the expectation was for rate cuts. Couple that with spreads on new deployment that while it was relatively flat quarter-over-quarter as comparing Q4 to Q1, we are seeing some widening on spreads, as Ken mentioned in his remarks. So I think you put those 2 together, and I think that the earnings picture going forward should be relatively stable, right?

And on balance, the wider spreads on new origination as we redeploy repayments should be helpful. Offsetting that, obviously, we saw lower M&A in Q1, while pipeline is very strong now and frankly, sort of up relative to where it was in the beginning of Q1. That lower repayment rate obviously will drive a little bit less acceleration of OID on repayment. But you put all that together, and I think broadly speaking, it looks like a pretty stable earnings picture going forward. From a leverage perspective, obviously, we're operating at the upper end of our leverage range, so we don't have a lot of room to push leverage, but thinking about continuing to optimize the borrowing costs.

Obviously, we made great strides on that in the most recent quarter, and we'll continue to look for opportunities there as well. So all told, I think it looks like a pretty stable picture from our perspective.

Brian Mckenna: Okay. That's helpful. And then to your point, you are a little bit more constrained on leverage today. But as you get repayments come back and you'll redeploy that capital, where are you seeing the most attractive deployment opportunities today from a sector perspective? And then should we expect any material shift in the underlying mix of assets over time?

Shaul Vichness: Yes. Ken, do you want to take the sector piece, and I'll take the mix?

Kenneth Kencel: Sure. Yes. Yes. No, happy to do that. Look, I think the mix of investment opportunities we're seeing continues to be pretty broad-based across business services, health care services as well. As you know, we've never been a large-scale software lender. So I think the good news there is, as you saw, it's a very small percentage of our portfolio. And I would say, moreover, the types of software businesses we're financing tend to be much more utility-like and embedded in the systems of their underlying clients. So I would say other than broad-based business services where there's been a lot of activity, health care as well, that continues.

I think what's really interesting, though, about the market is in addition to the spread widening that Shai alluded to, which we're very much seeing, is this disruption relative to the private BDCs, the larger retail dominated private BDCs pulling back in the upper middle market is creating opportunities for us with larger companies, right? If you look back over the last several years, those were the firms that were going fairly aggressively into new deals. They were competing with the BSL market and even into the upper middle market to provide financing for those companies, typically on more aggressive structures, in many cases, even doing covenant-lite.

With that bid pulled away and those large-scale, I would call them, large-cap private credit lenders, I think what we're seeing now is an opportunity for core middle market lenders like Churchill to do slightly larger financings, but on our terms and our structure, meaning traditional covenants, reasonable leverage and better pricing. So I think it opens up a broader runway, if you will. And I think that's a big change, and we are definitely seeing that. Overall, deal activity has been very good. And I think that there continues to be an aspect of consolidation among the largest core middle market lenders.

The core 5 or 6 firms today really dominate the traditional middle market, and obviously, we're pleased to be one of them and to have great deal flow and things have picked up quite a bit in the last couple of months. It was a little bit slower in the first month or 2 of the year. We were kind of working through our backlog from Q4, which was huge. But now we're seeing activity pick up again. And some of this disruption, I think, is actually going to be helpful in a number of ways.

Shaul Vichness: Yes, I was just going to jump in on sort of the mix. So the only comment I would make there, and you saw a modest uptick in the equity percentage in the portfolio this quarter. So at 2.8%. I think prior quarter, we were at 2.3% and that's sort of been steadily increasing over the 5 quarters from just below 2% to now close to 3%. And that's been intentional, right? So essentially favoring the levered senior trade, which will continue to be the vast majority of what we do, probably a slightly higher allocation to equity co-investments as well to try to drive some capital appreciation and taking that allocation from sub debt.

And you've kind of seen that shift. I still think equity is going to be in that kind of low single-digit percentage, but we might expect to see a modest increase in that equity allocation over the coming quarters as well as we attempt to drive a little bit more capital appreciation in the vehicle.

Brian Mckenna: Okay. Thanks, guys. And then one more, if I can here. For you, Ken, Churchill clearly has scale tenured institutional business. You've talked about this at length. But I'm curious, what are you hearing from your institutional LPs and those allocators as it relates to the opportunity in direct lending today? And also how they're thinking about their overall diversification and really where their exposures sit across their portfolios.

Kenneth Kencel: Yes. No, that's a great question. And I can tell you, overall, we were just out to Tokyo. I was in Seoul. I traveled to Canada as well. So I was up in Toronto meeting with investors. And obviously, just coming back from Milken, where we had, I think, 20-some-odd meetings with investors there. The sentiment on the institutional side is very strong. And I can tell you that there's quite a contrast between the retail redemption dynamics which thankfully, we're not as exposed to.

As I think you're aware, and I think we've said this before, as a firm, we're 96% institutional, which is actually very important when you think about the dynamics and origination dynamics in the market today. We actually get private equity firms that are asking us now how exposed are we to retail, and we tell them we're 96% institutional. That's an incredibly positive point as they think about our ability to fund those companies on a go-forward basis. Similarly, on the institutional side, they continue to allocate. Allocations were up year-over-year institutionally, and it has not rolled over. The dynamics that we're seeing on the retail side are very, very different institutionally.

They view private credit as a fundamental asset class. They are looking very much at performance. They are certainly surprised by the headlines. And I think in virtually every case where we've gone down into the details, they've come back and said, this is exactly what we're hearing from our other institutional managers. The quality remains very good. There is no evidence of any issues in the portfolios, in particular, with you all, where we've had, in many cases, decades-long relationships. This is exactly what we expected. We are -- stay the course, continue to allocate and feel very good about the risk-adjusted returns in private credit.

And I think recognize that the bit of disruption we've seen in that kind of upper middle market large-cap private equity dynamic could open up a broader runway for us. So the institutional color is much more positive than the retail side. I will say when the headline started -- first started rolling out, it did -- it definitely was important for us to get out there and talk about it. But other managers have done the same. And I would say that the feedback across the board from our institutional relationships is, yes, that's what we're hearing. We're hearing that.

They're getting questions from their investment committee about, gee, why are we reading all about private credit and what's the backdrop of these stories. But the reality is that the fundamentals in the portfolio are very good, and they're hearing that across the board. And so we're feeling very good about institutional fundraising. As I think you know, we closed our largest fund ever, one of the largest private credit funds raised in the last 5 years, a $16 billion middle market senior loan fund we closed at the end of last year, and we continue to see strong interest in our product.

Operator: The next question comes from the line of Cory Johnson with UBS.

Cory Johnson: I just wanted to touch on a little bit of some of the topics you kind of already just talked about, where from -- I guess, what are you hearing from your portfolio companies in terms of like M&A? And then given the fact that you're looking more into allocating towards equity, what are the possibilities for realizations or perhaps some reversals of the unrealized losses going forward?

Kenneth Kencel: So yes, I would say -- yes, I can take that shot. I would say 2 things and certainly feel free to weigh in. Obviously, private equity liquidity and realizations have been low for the last several years. Obviously, GP-led secondaries have helped that. I think pretty much every sponsor that I'm aware of in our portfolio is either doing a GP-led secondary CV or is considering doing them. So I think that's taken some of the pressure off. But look, I think we feel very good about the equity investments we made. We do think over time that they will generate a nice additive capital gain within the portfolio.

We actually think the risk-adjusted opportunity right now in private equity is somewhat better than junior debt. So what you're seeing is an allocation -- a modest allocation shift to continue to lean in on senior lending, continue to view the levered senior loan trade as a very attractive trade. But we do see opportunities to co-invest alongside our private equity sponsors and generate attractive long-term capital gains. What we do think that M&A activity picked up quarter-over-quarter every single quarter in the last 3 quarters of 2025. So we do see a modest pickup in M&A activity. I do think that part of that was driven by the stabilization and modest decline in interest rates.

So we'll see how that goes through the rest of this year. But the M&A activity in the core middle market was quite robust last year, and we continue to see a pretty good market there. So we're hopeful that private equity realizations will start to tick up more meaningfully. But in the meantime, we feel very good about our private equity portfolio and our investments, and we think they represent excellent long-term value. Shai, I don't know if you have any other comments?

Shaul Vichness: Yes. Yes. No, I would just add, too, in terms of use of proceeds when thinking about our lending activity, right, a meaningful percentage, call it, 25% to 1/3 of those proceeds are being used for add-on acquisitions. So our borrowers remain very active in terms of pursuing tuck-in acquisitions even in a modestly lower new deal M&A environment, although new deals, add-on acquisitions, growth CapEx, et cetera, still represent the vast majority of the deployment that we're seeing across the board. So I would just add that comment that our sponsors remain very active with their existing portfolio companies even in a slightly lower M&A environment over the first quarter.

Cory Johnson: And just one follow-up. You mentioned being able to possibly get into larger deals given the fact that like the retail pullback and such. But I was wondering, is there -- are there areas where you're seeing any increased competition, perhaps players moving down market, looking for opportunities or perhaps given the fact that they may be shying away from software a bit they're looking to play in other spaces. Are there any areas where you're seeing additional competition?

Kenneth Kencel: No. In fact, I'd say it's exactly the opposite. I think that the larger retail-oriented private credit shops or the firms that have been raising significant retail capital, we've seen them in a number of situations, very real situations in the last couple of months, pull back, either pull back on pitching more aggressive structures or where we're in deals with them and they are reluctant to step up and do a more significant amount of the add-ons, add-on acquisitions and provide more capital. So I would say it's the opposite from the large cap players.

Look, I mean, if you're facing a large number of redemptions and your plan is to limit those to 5% a quarter and you're looking at 15% or 20% redemption requests, you have to plan for another 3 or 4 quarters of 5% redemptions, right? So you've got to make sure you freed up enough liquidity and be prudent about that. So I don't think it's unnatural behavior. It's exactly, I think, what you have to do in light of in light of the redemption pressure that you're seeing. So we are actually not seeing those firms look to come down market at all.

In fact, if anything, we're seeing them pull back new commitments or add-on commitments to existing borrowers. And I would say the other dynamic is that newer entrants are almost certainly going to be playing in the lower end of the middle market. And I think that you've seen a considerable uptick in the competitive dynamics in the lower middle market where we typically don't play. But if the solution that a private equity firm is looking for is $400 million or $500 million and you raised a $400 million or $500 million fund, you're not going to put the whole deal in the fund.

So the new entrants, by definition, are going into the lower middle market transactions, and that's where we're seeing the competitive dynamics play out. Unfortunately, that's not an area that we operate in. But I do think it's putting pressure on the lower end of the market. And I think on the upper end of the market, the good news there is that with the large-cap private credit players backing away, understandably, it presents an opportunity for us to step up. So I think we're extraordinarily well positioned. We have a tremendous amount of dry powder across our platform. And the competitive dynamics that I think today are probably about as good as we've seen in the last several years.

There are a handful of us that are institutionally backed. So we're not seeing that retail pressure. We have plenty of capital. It's drawdown capital. So we draw down as we make the investments. So I think we can be prudent about where we deploy. So look, I think that the dynamics that are playing out in the market now play extraordinarily well to our strengths, and I think we're incredibly well positioned. Low software exposure, low PIK exposure because we were never playing in those ARR, large cap. In fact, we've never done an ARR transaction in our history.

So I think when you look at all the fundamentals, the market is very much coming our way in terms of deal activity and our ability to deploy capital. So we feel very good about where we're sitting today and certainly don't see the competitive dynamics being an issue for us right now at all.

Operator: [Operator Instructions] And the next question comes from the line of Arren Cyganovich with Truist Securities.

Arren Cyganovich: I was hoping to get into maybe, help us square what we're hearing from peers, which I think you kind of sort of addressed in your last comments of seeing a pretty active pipeline and also wider spreads. Typically, when we see a wider spread environment, the pipelines or the deal activity slows as borrowers adjust to the new pricing terms and structures. Maybe you just discuss why you're seeing essentially a better kind of outcome maybe than most are seeing.

Kenneth Kencel: So I guess I would say a couple of things. One is we have been extraordinarily active through 2025. We had a bit of a pullback with all the negative headlines and obviously, the onset of the war. And I think that created a bit of uncertainty. I think the private equity firms that were considering selling portfolio companies or putting those businesses up for sale, pressed pause, if you will. But the pipeline has come back very strong and deal activity remains very good. So I think on the pure deal activity front, core middle market, very active.

Now as far as the competitive dynamics and spreads, I think it is in large part a function of the fact that the retail capital that was raised by definition, as you all know this, has to be deployed immediately. So they were -- those lenders were being more aggressive about pricing because they had to be. They had to put the money to work very quickly. Otherwise, it would impact their ongoing yields.

So when you pulled away the -- effectively the retail drive to kind of the need to put up capital very quickly, I think that sets up a much more balanced dynamic that allows traditional direct lenders like ourselves to normalize and to obtain spreads that would be more consistent with where we feel they should be, and they've been with respect to the core middle market. So a 450 to 475, which was definitely tighter than it was over the last several years. That's kind of where it was landing toward the second half of 2025. That number today is more like 5% to 5.25%, maybe even 5.5%.

So I think it's purely a function of pulling out a fair amount of capacity that needed to find a home very, very quickly. And that was particularly true in the larger middle market companies, upper middle market businesses where that large cap bid would start to appear. So I think it's taken some of the pressure off. And I think that the size and scale that's required in the core middle market leaves it to a handful of us that can consistently write $250 million, $500 million, even $750 million commitments on a regular basis. And I think we're benefiting from that. Correspondingly, at the low end, I think you've got lots of new entrants.

And as a result, a lot of firms that are trying to get on the board and to do deals and their efforts ideally lead deals. And so the competitive dynamics there, I think, are very different. But once you get to the point where you're talking about $250 million or more in commitment size, you're limiting the number of firms that can do that on a regular basis that have long-standing relationships in the private equity community.

And once you pulled away the upper the large-cap retail bid, I think you end up with a situation where we've got more pricing flexibility and frankly, the ability to capture larger deals, but to do them on terms and structure that look a lot more like what we promised our investors and what we focused on.

Operator: This concludes the question-and-answer session. I'd like to turn the call back over to Ken Kencel for closing remarks.

Kenneth Kencel: Great. Well, thank you very much, everyone, for joining us, and thank you for the excellent questions. We appreciate your support and dialogue. And obviously, we'll continue to update you all as we move forward, but we feel very good about the market and the opportunity going forward, and we appreciate your support. Thanks again.

Operator: This concludes today's conference. You may disconnect your lines at this time, and we thank you for your participation.