UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM10-Kin
FORM 10-K
(Mark One)
☒ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.
For the fiscal year ended December 31 2017, 2023
OR
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.
For the transition period fromto
Commission file number814-01069
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) (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 |
Securities registered pursuant to Section 12(g) of the Act:
Common Limited Liability Company Units
(Title of Class)
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐No ☒
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐No ☒
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 and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of RegulationS-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ☐ ☒ No ☐
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of RegulationS-K is not contained herein, and will not be contained, to the best of the registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form10-K/A 10-K or any amendment to this Form10-K/A. 10-K. ☒
Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, anon-accelerated filer, or a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer” andfiler,” “smaller reporting company” and “emerging growth company” in Rule12b-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 Rule12b-2 of the Securities Exchange Act of 1934). Yes ☐No ☒
Indicate by check mark whether the Registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. Yes ☐ No ☒
If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction of an error to previously issued financial statements.☐
Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the registrant’s executive officers during the relevant recovery period pursuant to §240.10D-1(b). ☐
As of December 31, 2023, there was no established public market for the Registrant’s common units.
The number of the Registrant’s common units outstanding at March 22, 201828, 2024 was 20,134,698.18,034,649.
Documents Incorporated by Reference
TCW Direct Lending LLC will file with the Securities and Exchange Commission, not later than 120 days after the close of its fiscal year ended December 31, 2023, a definitive proxy statement containing the information required to be disclosed under Part III of Form 10-K.
Auditor Firm Id: 34 Auditor Name: Deloitte & Touche LLP Auditor Location: Los Angeles, California, United States of America
TCW DIRECT LENDING LLC
FORM10-K FOR THE YEAR ENDED DECEMBERDecember 31, 20172023
INDEX | PAGE | ||||||
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Item 1. | 1 | ||||||
Item 1A. | 15 | ||||||
Item 1B. | 28 | ||||||
Item 1C. | 28 | ||||||
Item 2. | 30 | ||||||
Item 3. | 30 | ||||||
Item 4. | 30 | ||||||
Item | |||||||
30 | |||||||
Item 6. | |||||||
30 | |||||||
Item 7. | Management’s Discussion and Analysis of Financial Condition and Results of Operations | ||||||
31 | |||||||
Item 7A. | |||||||
44 | |||||||
Item 8. | |||||||
45 | |||||||
Item 9. | Changes in and Disagreements with Accountants on Accounting and Financial Disclosure | 45 | |||||
Item 9A. | 45 | ||||||
Item 9B. | 45 | ||||||
46 | |||||||
46 | |||||||
Item 12. | Security Ownership of Certain Beneficial Owners and Management and Related Unitholder Matters | ||||||
46 | |||||||
Item 13. | Certain Relationships and Related Transactions, and Director Independence | ||||||
46 | |||||||
Item 14. | 46 | ||||||
Item 15. | 47 |
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CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
This report contains forward-looking statements that involve substantial risks and uncertainties. These forward- lookingforward-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:
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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 Act,as amended (the “1934 Act”), which preclude civil liability for certain forward-looking statements, do not apply to the forward- lookingforward-looking statements in this report because we are regulated under the 1940 Act as an investment company.
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In this annual report on Form10-K, except as otherwise indicated, the terms:
“TCW Direct Lending LLC” refers to TCW Direct Lending LLC, a Delaware limited liability company.
The “Adviser” refers to TCW Asset Management Company LLC, a Delaware limited liability company.
For simplicity, this report uses the terms “Company,” “we,” “us,” and “our” to include TCW Direct Lending LLC and where appropriate in the context, its wholly-owned subsidiaries.
Item 1. Business
Our Company
We are a direct lending investment company that seeks to generate attractive risk-adjusted returns primarily through direct investments in senior secured loans to middle market companies or other issuers. We are managed by the direct lendingprivate credit team (the “Private Credit Team” fka the “Direct Lending Team”) of the Adviser, a group of investment professionals that will use the same investment strategy employed by the Direct LendingPrivate Credit Team over the past 1723 years.
Although weWe are primarily focused on investing in senior secured debt obligations, although there may be occasions where our investmentsthe investment may be unsecured. We may also consider making an equity investment as the primary security, in combination with a debt investment.obligation, or as part of a total return strategy. Our investments will mostly be madeare 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 formed as corporations, partnerships andthrough a joint venture vehicle, partnership or other business entities. Our typical investment commitment has been, and is expected continue to be between $25 million and $150 million. We focus on portfolio companies in a variety of industries.special purpose vehicle (each, an “Investment Vehicle”). While we generally focus on investmentsinvest primarily in middle marketU.S. companies, there are certain instances where we may investinvested in larger or smaller companies. See “Part II—Item 7. Financial Information—Management’s Discussion and Analysis of Financial Condition and Results of Operations.” We will consider financings for many different purposes, including corporate acquisitions, growth opportunities, liquidity needs, rescue situations, recapitalizations,debtor-in-possession (“DIP”) loans, bridge loans and Chapter 11 exits.companies domiciled elsewhere.
The issuers in which we invest are typically highly leveraged, and, in most cases, these investments willare not be rated by any rating agency. If these investments were rated, we believe that they would likely receive a rating from a nationally recognized statistical rating organization of below investment grade, which is often referred to as “junk.” Exposure to below investment grade securities involves certain risks, and those securities are viewed as speculative with respect to the issuer’s capacity to pay interest and repay principal.
We were formed on April 1, 2014 as a limited liability company under the laws of the State of Delaware. Investment operations commenced on September 19, 2014 (the “Initial Closing Date”) when we issued limited liability company units (the “Common Units”) to persons not affiliated with the Adviser. We have elected to be regulated as a business development company (“BDC”) under the Investment Company Act of 1940, as amended (the “1940 Act”). We have 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. We are required to continue to meet the minimum distribution and other requirements for RIC qualification.
Because we are a RIC under the Code, our portfolio is subject to diversification and other requirements. 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 andtax-exempt interest. In addition to those diversification requirements, we will not invest more than 10% of investors’ aggregate capital commitments to us through the Common Units (the “Commitments”) in any single portfolio company.
On May 16, 2016,As of December 31, 2023, we established a wholly owned subsidiary,TCW-DL VF Holdings, Inc., structured ashave two wholly-owned subsidiaries - TCW DL VI Funding I, LLC and TCW DL CTH, LLC each a Delaware entity or tax blocker,limited liability company and each designed to hold an equity investment in a portfolio company organized as a limited liability company.
On September 19, 2016, we formed TCW Direct Lending Luxembourg VI S.à.r.l., (“TCW Direct Lending Luxembourg”) a private limited liability company under the laws of Luxembourg, of which the Company owns 100% of the membership interests.ours.
Throughout 2017, we formed several Delaware limited liability companies, all of which have a single member interest owned by us.1
We borrow money from time to time, but as a BDC, we generally are required to meet a coverage ratio of total assets to total borrowings and other senior securities, which will include all of our borrowings and any preferred units (the “Preferred Units”) that we may issue in the future, of at least 200%. In determining whether to borrow money, we will analyze the maturity, covenant package and rate structure of proposed borrowings as well as the risks of such borrowings compared to our investment outlook. The use of borrowed funds or the proceeds of Preferred Units issued by the Company to make investments would have its own specific set of benefits and risks, and all of the costs of borrowing funds or issuing preferred stock would be borne by the holders of the Common Units (each, a “Common Unitholder” and together with holders of the Preferred Units the “Unitholders” or “Members”). See “Item 1A. Risk Factors—Borrowing Money.”
The Adviser
Our investment activities are managed by the Adviser, which is registered as an investment adviser under the Investment Advisers Act of 1940, as amended (the “Advisers Act”). Subject to the overall supervision of our board of directors, the Adviser manages ourday-to-day operations and provides investment advisory and management services to us pursuant to the investment managementadvisory and advisorymanagement agreement (the “Advisory Agreement”) by and between the Adviser and us.
The Adviser is a Delaware limited liability company registered with the Securities and Exchange Commission (the “SEC”)SEC under the Advisers Act, and has been since 1970. The Adviser is a wholly owned subsidiary of The TCW Group, Inc. (the “TCW Group”); and together with its affiliated companies (“TCW”) manages or has committed to manage approximately $204.6$210 billion of assets as of December 31, 2017.2023. Such assets are managed in various formats, including managed accounts, funds, structured products and other investment vehicles, including Regiment Capital Special Situations Fund V, L.P. (together with us and its four predecessor funds, the “Direct Lending Funds”).vehicles.
The Adviser is responsible for sourcing investment opportunities, conducting industry research, performing diligence on potential investments, structuring our investments and monitoring our portfolio companies on an ongoing basis.
Our assets are managed by the Adviser’s Direct LendingPrivate Credit Team. The Direct LendingPrivate Credit Team joined the TCW Group in December 2012. The Direct LendingPrivate Credit Team was previously with Regiment Capital Advisors, LP, an independent investment manager based in Boston, Massachusetts. TCW Direct Lending LLC is the Direct LendingPrivate Credit Team’s sixth fund. The Direct LendingPrivate Credit Team is led by Richard Miller and currently includes a group of dedicated investment professionals who have substantial investing, corporate finance, and merger and acquisition expertise and also significant experience in leveraged transactions, high yield financings and restructurings.
Investment Strategy and Opportunity
We provide 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, historically, our investment bias iswas towards adjustable-rate, senior secured loans. We do not anticipate a secondary market developing for our private investments. We compensate for the inherent lack of liquidity in our private investments by seeking returns that are higher than those of similar, but more liquid, investments. We consider financings for many different purposes, including corporate acquisitions, growth opportunities, liquidity needs, rescue situations, recapitalizations, DIP loans, bridge loans and Chapter 11 exits. As a result, we may invest in companies that are experiencing, or are likely to experience, operational, capital structure, liquidity and/or other financial difficulties. These investments can be subject to greater credit and liquidity risks, and could be more prone to default. The typical investment size has been, and is expected to continue to be between $25 million and $150 million. Additionally, while we generally focus on investments in middle market companies, we may invest in larger or smaller companies.
Investment Strategy
The Direct LendingPrivate Credit Team applies its investment philosophy, strategy and approach to the management of the portfolio. The conditions of the economy or capital markets will not be used as an absolute indicator of the relative
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attractiveness of an investment opportunity considered. Rather, the investment must provide for adequate return relative to the risk assumed, regardless of the economic or capital market environment.
We pursue our investment objectives by adhering to a proactive strategy of exerting influence throughout each stage of the investment process from origination to exit. The tactics utilized in this strategy are paramount to our success and include selective origination, rigorous due diligence, customized structuring and active monitoring of the investment portfolio.
Selective Origination
The Direct LendingPrivate Credit Team has a long-term presence in the private capital markets and, as a result, has developed an extensive network of strategic relationships. These relationships include capital market intermediaries such as broker-dealers, investment bankers, commercial bankers, private equity sponsors, mergers and acquisitions advisers, restructuring professionals, accountants and other financial professionals through whom the Adviser believes we will be able to source investment opportunities. The Direct LendingPrivate Credit Team’s network also extends to the corporate community and includes senior management teams, independent industry consultants and other business executives who often refer opportunities to the members of the Direct LendingPrivate Credit Team and who the Adviser believes will continue to refer opportunities to us. We may also have the opportunity to invest in companies and with management teams that worked with previous private investment funds managed by the Adviser or the Direct LendingPrivate Credit Team or its other investment professionals.
A key to our investment strategy is to invest primarily in directly originated investment opportunities, as opposed to opportunities developed by financial intermediaries and then marketed widely to potential capital providers, which will rarely have economics, terms or conditions that will be acceptable to us. We expect to originateoriginated investment opportunities by independently developing such opportunities or by selectively identifying marketed and referred deals that can be significantly modified to meet our investment criteria. Originating transactions on a selective basis generally will allowallowed us to customize terms that are consistent with our investment profile and exert greater influence throughout the life of the investment.
In certain instances, we may partnerpartnered with other providers of capital, including strategic, financial, managerial or other related parties. Forging successful relationships with other investors may present us with additional opportunities, facilitate the closing of transactions or reduce risks.
Due Diligence
Given the Adviser’s approach to selectively originating transactions, its investment professionals will typically be in a position to be directly involved with each step of the investment process, beginning with due diligence. The Adviser’s investment philosophy is to perform a rigorous due diligence investigation designed to better understand a potential portfolio company’s risks and opportunities. This investigation will typically include comprehensive quantitative and qualitative analyses to identify and address risks.
The elements of the quantitative analysis may include:
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Qualitative analysis may include a review of:
Comprehensive due diligence is an iterative process requiring many areas of expertise. For this reason, the Adviser’s investment professionals may be assisted by independent professionals with specific capabilities. Typically, a third party accounting specialist will be engaged to help perform anin-depth review of a target company’s historical financial performance. This analysis will provide a basis for determining the feasibility of the company’s forecasts. In many instances, outside industry consultants will review the company’s strategy, operations, budgets, competitive position and technological standing. Outside counsel will perform legal diligence and draft the investment documents, including any agreements among capital providers. The information garnered through the due diligence process may result in the modification of a transaction’s terms and conditions or potentially the rejection of an investment opportunity.
Customized Structuring
The Adviser’s investment professionals design a customized financial solution to address our requirements and each portfolio company. Through due diligence, the Adviser strives to better understand a portfolio company being financed in order to develop an appropriate form of investment with an acceptable capital structure. Our investments may be structured as senior secured loans, unsecured senior loans, subordinated and mezzanine loans, convertible securities, equity securities, and equity-linked securities including options. The pricing associated with the investment reflects the risk inherent in such portfolio company, its capital structure and the type of investment. Once an agreement is reached between us and such portfolio company, it will be documented. This documentation will govern the relationship between us, such portfolio company and/or other creditors after the investment is made.
The objective of this structuring process is to provide the portfolio company’s management with the operating flexibility to effectively manage the business while creating accountability to its investors. The investment documentation typically will place limits on many of the portfolio company’s discretionary activities, such as capital expenditures, acquisitions, asset divestitures, dividends, as well as, for example, the reinvestment of tax receipts and insurance proceeds. Our investment documentation also typically requires extensive reporting by each portfolio company. Such reporting usually includes financial information and metrics useful in monitoring a portfolio company’s performance, as well asnon-financial developments such as material changes in environmental issues, labor relations, key customers and suppliers. In addition, the investment documentation may include a range of positive and negative financial covenants initially set to establish a minimum allowable performance standard.
Active Monitoring
The Adviser’s investment professionals actively monitor and manage our investment portfolio by thoroughly and continuously analyzing all outstanding investments. Specifically, the investment professionals monitor each
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portfolio company’s compliance with the terms and conditions of its financing agreement, including reporting requirements and financial covenants. The reported information is gathered, analyzed and used to measure the portfolio company’s performance and potential impact on the investment. The investment professionals also maintain ongoing contact with each portfolio company’s management in order to understand and anticipate
opportunities and issues. Interaction with management may range from regular discussions of financial results, site visits, periodic company and industry reviews to daily liquidity monitoring. If the portfolio company violates any of the terms, conditions or covenants of the financing agreement or other investment documentation, we typically will be in a position to take action to attempt to protect the investment and influence the actions of the portfolio company, if necessary.
Types of Investments
The following descriptions are not intended to be an exhaustive categorization of our investments and are subject to change at any time. They are presented merely to acquaint investors with the available investment instruments as they are anticipated by the Adviser as of the date of this filing. The allocation of our portfolio among the different types of investments will vary over time based upon the Adviser’s evaluation of each specific investment opportunity. Under normal circumstances, the Adviser will utilize some or all of the following investment types, which are described in greater detail below:
As previously noted, our investment period has ended. Accordingly, while we will not originate new loans, we may increase credit facilities to existing borrower or affiliates. 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. In general, we doThe investment philosophy, strategy and approach of the Private Credit Team has generally not expectinvolved the Direct Lendinguse 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 togenerally did not originate a significant amount of investments for us withpayment-in-kind (“PIK”) interest features although, we may have investments with PIK interest features, in limited circumstances.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. 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 will behas been towards adjustable-rate, senior secured loans. We do not anticipate a secondary market developing for our private investments.
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 part of a total return strategy. Our investments are mostly in corporations, partnerships or other business entities. Additionally, in certain circumstances, we mayco-invest with other investors and/or strategic partners indirectly in a company through a joint venture, partnership or other special purpose vehicle (each, an “Investment Vehicle”). While we invest primarily in U.S. companies, there may be certain instances where we will investinvested in companies domiciled elsewhere.
We consider financings for many different purposes, including corporate acquisitions, growth opportunities, liquidity needs, rescue situations, recapitalizations, DIP loans, bridge loans and Chapter 11 exits. As a result, we may investwe’ve invested in companies that are experiencing, or are likely to experience, operational, capital structure, liquidity and/or other financial difficulties. These investments can be subject to greater credit and liquidity risks, and could be more prone to default.
The Adviser will consider an investment for our portfolio only if it believes that the relevant portfolio company is likely to repay its obligations. For example, the Adviser may determine that a portfolio company is likely to meet debt service requirements from cash flow or other sources, including the sale of assets, despite such portfolio company’s highly leveraged position, or that a portfolio company that is experiencing financial distress, but appears able to pay its interest and principal, is an attractive investment opportunity. There can be no assurance that such analysis will uncover all factors that may impair the value of our investments.5
We may also provide interim or bridge financing to a portfolio company for working capital or other general corporate purposes. Interim or bridge financings are generally structured as loans and may be secured or unsecured. Such a portfolio company usually has a plan for repaying or refinancing at the time of the bridge loan funding, although there is a risk that such portfolio company will be unable to complete such refinancing successfully. In that case, the bridge loan typically converts into a more permanent investment usually at a higher cost to such portfolio company.
Collateral
Our debt investments are generally secured with one or more of (i) working capital assets, such as accounts receivable and inventory, (ii) tangible fixed assets, such as real property, machinery, buildings and equipment, (iii) intangible assets, such as trademarks or patents, or (iv) security interests in shares of stock of the company or its subsidiaries or affiliates.
We may invest in debt or equity instruments that are not secured by specific collateral but are backed only by the enterprise value of the company. Unsecured investments typically involve a greater risk of loss than secured investments. We will generally not invest unless, at the time of the investment, the Adviser believes the estimated value of the borrower’s business or the underlying assets of the business equals or exceeds the aggregate investment amount of all senior lenders, although there can be no assurance that the assets will be sufficiently liquid in order to satisfy the portfolio company’s obligations.
In the case of investments in anon-public company, such company’s shareholders may provide collateral in the form of secured guarantees and/or security interests in other assets that they own. We typically value the collateral by reference to such company’s financial statements or independent appraisals and may assign a value to the collateral that is higher or lower than the value assigned by such company.
Covenants
Debt investments generally have operational and performance-based covenants designed to monitor the performance of the borrower and to limit the activities of the borrower in an effort to protect the right of lenders to receive timely payments of interest and repayment of principal. Covenants may create positive or negative restrictions and, if violated, could result in a default on the debt obligations.
Default
We are subject to the risk that a company will default on its agreement with us due to a violation of provisions of the financing agreement or other investment documentation, including a failure to pay scheduled interest or make principal payments. If we accelerate the repayment of an investment because of a company’s violation of a covenant or other terms of a financing agreement or other investment documentation, such company might default on such payment. The risk of default generally will increase in the event of an economic downturn or, in the case of an adjustable-rate obligation, a substantial increase in interest rates. We may own a debt obligation of a borrower that is about to become insolvent. We may also invest in debt obligations that are issued in connection with a restructuring of the borrower under bankruptcy laws (also known as a DIP loan/financing).
Investments
Based on fair value as of December 31, 2017, ournon-controlled/non-affiliated portfolio was comprised of 26 debt investments and three equity investments. Of these investments, 99.0% were debt investments which were primarily senior secured, first lien or term loans and 1.0% were equity comprised of common stock and warrants. As of December 31, 2016, ournon-controlled/non-affiliated portfolio was comprised of 23 debt investments and one equity investment. Of these investments, 99.2% were debt investments which were primarily senior secured, first lien or term loans and 0.8% was common stock.
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 (“TCW Strategic Ventures”). TCW Strategic Ventures focuses primarily on making senior secured floating rate loans to middle-market borrowers. The aggregate fair value of this controlled/affiliated investment was $259.7$69.8 million and $247.2$84.1 million as of December 31, 20172023 and 2016,2022, respectively.
Based on fair values as of December 31, 2023, our portfolio consisted of debt and equity investments in seven and six portfolio companies, respectively, including TCW Strategic Ventures. Our portfolio was comprised of 62.5%
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debt investments which were primarily senior secured, first lien term loans and 37.5% equity investments, which were primarily common and preferred stocks; warrants; and our common and preferred membership interests in TCW Strategic Ventures. Debt investments in two portfolio companies were on non-accrual status as of December 31, 2023, representing 4.3% and 22.6% of our portfolio’s fair value and cost, respectively.
Based on fair values as of December 31, 2022, our portfolio consisted of debt and equity investments in eight and eight portfolio companies, respectively, including TCW Strategic Ventures. Our portfolio was comprised of 67.9% debt investments which were primarily senior secured, first lien term loans and 32.1% equity investments, which were primarily common and preferred stocks; warrants; and our common and preferred membership interests in TCW Strategic Ventures. Debt investments in three portfolio companies were on non-accrual status as of December 31, 2022, representing 6.6% and 18.8% of our portfolio’s fair value and cost, respectively.
For a further discussion of our investment activities and investment attributes as of December 31, 20172023 and 2016,2022, see “Item 7 Management’s Discussion and Analysis of Financial Condition and Results of Operations.
Investment Advisory and Management Agreement
On August 7, 201710, 2023 the Company’s Board of Directors (the “Board”) reapproved the Investment Advisory and Management Agreement (the “Advisory Agreement”) originally entered into by the Company on September 15, 2014 with the Adviser, our registered investment adviser under the Investment Advisers Act of 1940, as amended. Unless earlier terminated, the Advisory Agreement will remain in effect for a period of one year 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.
Pursuant to the Advisory Agreement, and subject to the overall supervision of the Board, the Adviser manages the Company’sday-to-day operations and provides investment advisory services to the Company. The Company pays 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 period during which the Company’s limited liability company units (the “Common Units”) are being offered (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 is calculated as if all capital commitments of the Company were made on the initial closing date, regardless of when Common Units were actually issued. The actual payment of the Management Fee with respect to the Closing Period was 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 began on the initial closing date and ended on September 19, 2017, the earlier of (a) three years from the initial closing date and (b) the date on which the undrawnUndrawn Commitment of each Common Unit has been reduced to zero. While the Management Fee will accrue from the initial closing date, the Adviser deferred payment of such fees to the extent that such fees cannot be paid from interest and fee income generated by our investments. During the year ended December 31, 2023, the Adviser agreed to waive all management fees earned subsequent to December 31, 2022.
In addition, the Adviser will receive an incentive fee (the “Incentive Fee”) as follows:
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The Incentive Fee will be calculated on a cumulative basis and the amount of the Incentive Fee payable in connection with any distribution (or deemed distribution) will be determined and, if applicable, paid in accordance with the foregoing formula each time amounts are to be distributed to the Unitholders.
If the Advisory Agreement terminates early for any reason other than (i) the Adviser voluntarily terminating the agreement or (ii) our terminating the agreement for cause (as set out in the Advisory Agreement), we will be required to pay the Adviser a final incentive fee payment (the “Final Incentive Fee Payment”). The Final Incentive Fee Payment will be calculated as of the date the Advisory Agreement is so terminated and will equal the amount of Incentive Fee that would be payable to the Adviser if (A) all our investments were liquidated for their current value (but without taking into account any unrealized appreciation of any portfolio investment), and any unamortized
deferred portfolio investment-related fees would be deemed accelerated, (B) the proceeds from such liquidation were used to pay all our outstanding liabilities, and (C) the remainder were distributed to Common 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.
Administration Agreement
On August 7, 2017,10, 2023, the Company’s Board reapproved the Administration Agreement with the Adviser, originally entered into on September 15, 2014, under which the Adviser (or one or more delegated service providers) oversees the maintenance of our financial records and otherwise assists 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 provides us with administrative and back office support. The Company reimburses 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 Members, 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 (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).
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Employees
Employees
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. Each of our executive officers are employees of our Adviser.
License Agreement
We have entered into a license agreement (the “License Agreement”) with an affiliate of the Adviser, pursuant to which we have been granted a royalty-free,non-exclusive license to use the name “TCW”. Under the License Agreement, we have a right to use the “TCW” name and logo, for a nominal fee, for so long as the Adviser or one of its affiliates remains our investment adviser. Other than with respect to this limited license, we will have no legal right to the “TCW” name or logo.
CompetitionDerivatives
We compete for investments with a number of BDCs and other investment funds (including private equity funds and venture capital funds), special purpose acquisition company sponsors, hedge funds that invest in private investments in public equities, traditional financial services companies such as commercial banks, and other sources of financing including alternative source of funding to companies considering an initial public offering. Many of these entities have greater financial and managerial resources than we do. Furthermore, many of our competitors areDerivatives were not subject to the regulatory restrictions that the 1940 Act and the Code will impose on us as a BDC and a RIC.
Derivatives
We do not expect derivatives to be a significant component of our investment strategy. We retain the flexibility, however, to utilize hedging techniques, such as interest rate swaps, to mitigate potential interest rate risk on our indebtedness. Such interest rate swaps would principally be used to protect us against higher costs on our indebtedness resulting from increases in both short-term and long-term interest rates.
We also may use various hedging and other risk management strategies to seek to manage additional risks, including changes in currency exchange rates and market interest rates. Such hedging strategies would be utilized to seek to protect the value of our portfolio investments, for example, against foreign currency fluctuations vis a vis the U.S. Dollar or possible adverse changes in the market value of securities held in our portfolio.
Regulation as a Business Development Company
On December 30, 2014 we elected to be regulated as a BDC under the 1940 Act. The 1940 Act contains prohibitions and restrictions relating to transactions between BDCs and their affiliates (including any investment advisers orsub-advisers), principal underwriters and affiliates of those affiliates or underwriters. In addition, a BDC must be organized for the purpose of investing in or lending primarily to private companies organized in the United States and making significant managerial assistance available to them.
As with other companies regulated by the 1940 Act, a BDC must adhere to certain substantive regulatory requirements. A majority of our board of directors must be persons who are not “interested persons,” as that term is defined in the 1940 Act. Additionally, we are required to provide and maintain a bond issued by a reputable fidelity insurance company to protect us against larceny and embezzlement. Furthermore, as a BDC, we are prohibited from protecting any director or officer against any liability to us or our Members arising from willful misfeasance, bad faith, gross negligence or reckless disregard of the duties involved in the conduct of any such person’s office. As a BDC, we are currently also required to meet a minimum coverage ratio of the value of total assets to total senior securities, which include all of our borrowings and any Preferred Units.
We may not change the nature of our business so as to cease to be, or withdraw our election as, a BDC unless authorized by vote of a majority of our outstanding voting securities, as required by the 1940 Act. A majority of the outstanding voting securities of a company is defined under the 1940 Act as the lesser of: (a) 67% or more of such company’s voting securities present at a meeting if more than 50% of the outstanding voting securities of such company are present or represented by proxy, or (b) more than 50% of the outstanding voting securities of such company.
We do not intend to acquire securities issued by any investment company that exceed the limits imposed by the 1940 Act. Under these limits, except for registered money market funds, we generally cannot acquire more than 3% of the voting securities of any investment company, invest more than 5% of the value of our total assets in the securities of one investment company, or invest more than 10% of the value of our total assets in the securities of investment companies in the aggregate. We may, however, rely on recently adopted Rule 12d1-4 under the 1940 Act and invest in excess of the limits described above. However, to the extent we rely on Rule 12d1-4, we will be subject to certain conditions and requirements
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under Rule 12d1-4. The portion of our portfolio invested in securities issued by investment companies ordinarily will subject the Members to additional expenses.
We may also be prohibited under the 1940 Act from knowingly participating in certain transactions with our affiliates without the prior approval of the members of our board of directors who are not interested persons and, in some cases, prior approval by the SEC through an exemptive order (other than in certain limited situations pursuant to current regulatory guidance). We have received an exemptive order from the SEC that permits us toco-invest with other funds or other pools of capital or persons managed by the Adviser or its affiliates. This order is subject to certain terms and conditions accordingly, there can be no assurance that we will be permitted toco-invest with other funds managed by Adviser, other than in the limited circumstances currently permitted by regulatory guidance.
We will be subject to periodic examination by the SEC for compliance with the 1940 Act.
Qualifying Assets
Under the 1940 Act, a BDC may not acquire any assets other than assets of the type listed in section 55(a) of the 1940 Act, which are referred to as qualifying assets, unless, at the time the acquisition is made, qualifying assets represent at least 70% of the company’s total assets. The principal categories of qualifying assets relevant to our business are the following:
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Managerial Assistance to Portfolio Companies
A BDC must be operated for the purpose of making investments in the types of securities described under “Qualifying Assets” above. However, in order to count portfolio securities as qualifying assets for the purpose of the 70% test, the BDC must either control the issuer of the securities or must offer to make available to the issuer of the securities significant managerial assistance; except that, where the BDC purchases such securities in conjunction with one or more other persons acting together, the BDC will satisfy this test if one of the other persons in the group may make available such managerial assistance. Making available managerial assistance means, among other things, any arrangement whereby the BDC, through its directors, officers or employees, offers to provide, and, if accepted, does in fact provide, significant guidance and counsel concerning the management, operations or business objectives and policies of a portfolio company.
Temporary Investments
Pending investment in other types of “qualifying assets,” as described above, our investments may consist of cash, cash equivalents, U.S. Government securities or high-quality debt securities maturing in one year or less from the time of investment, which is referred to herein, collectively, as temporary investments, such that at least 70% of our assets are qualifying assets.
Senior Securities
We are permitted, under specified conditions, to issue multiple classes of indebtedness and one class of Preferred Units senior to the Common Units, if our asset coverage, as defined in the 1940 Act, is at least equal to 200% immediately after each such issuance. While any Preferred Units or, in certain limited circumstances, debt securities are outstanding, we may be prohibited from making distributions to Common Unitholders or repurchasing Common Units unless we meet the applicable asset coverage ratios at the time of the distribution or repurchase. We may also borrow amounts up to 5% of the value of our total assets for generally up to 60 days without regard to the 200% asset coverage requirement described above. Finally, (i) Preferred Units must have the same voting rights as the Common Units (one unit, one vote), and (ii) holders of the Preferred Units (the “Preferred Unitholders”) must have the right, as a class, to appoint two directors to the board of directors.
Code of Ethics
We and the Adviser have each adopted thea code of ethics of the Adviser (the “Code of Ethics”) pursuant to Rule17j-1 under the 1940 Act and Rule204A-1 under the Advisers Act, respectively, that establisheswhich establish procedures for personal investments and restricts certain transactions by our personnel.transactions. The Codecode of Ethicsethics generally contains restrictions on investments by our employeespersonnel in securities that we may purchase or hold. This information will be available at the SEC’s public reference room at 100 F Street, N.E., Washington, D.C. 20549In addition, we have adopted a code of ethics applicable to our Principal Executive and on the SEC’s website at www.sec.gov. The public may obtain information on the operationPrincipal Accounting Officers pursuant to Section 406 of the SEC’s public reference room by calling the SEC at1-800-SEC-0330.Sarbanes-Oxley Act of 2002. You may also obtain copies of the Codecodes of Ethicsethics by written request addressed to the following: Beth Clarke, TCW, 1251 Avenue of the Americas, Suite 4700, New York, NY 10020.Gladys Xiques, Chief Compliance Officer, 515 South Flower Street, Los Angeles, California 90071.
Compliance Policies and Procedures
We and the Adviser have adopted and implemented written policies and procedures reasonably designed to detect and prevent violation of the federal securities laws and will be required to review these compliance policies and procedures annually for their adequacy and the effectiveness of their implementation and to designate a chief compliance officer to be responsible for administering the policies and procedures.
Proxy Voting Policies and Procedures
Since our principal business is the making of secured loans, we do not expect to be asked to vote by proxy with respect to publicly held securities. However, if and to the extent that we hold, and are asked to submit proxies with respect to publicly or privately held securities, we intend to delegate our proxy voting responsibility to the Adviser. The Proxy Voting Policies and Procedures of the Adviser are set forth below. The guidelines are reviewed periodically by the Adviser and our Independent Directors, and, accordingly, are subject to change.
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An investment adviser registered under the Advisers Act has a fiduciary duty to act solely in the best interests of its clients. As part of this duty, the Adviser recognizes that it must vote client securities in a timely manner free of conflicts of interest and in the best interests of its clients. These policies and procedures for voting proxies for the Adviser’s investment advisory clients are intended to comply with Section 206 of, and Rule206(4)-6 under, the Advisers Act.
If the Adviser has responsibility for voting proxies in connection with its investment advisory duties or has the responsibility to specify to an agent how to vote the client’s proxies, it exercises such voting responsibilities through the corporate proxy voting process. The Adviser believes that the right to vote proxies is a significant asset of its clients’ holdings. In order to provide a basis for making decisions in the voting of proxies for its clients, the Adviser has established a proxy voting committee (the “Proxy Committee”) and adopted proxy voting guidelines (the “Guidelines”) and procedures. The Proxy Committee generally meets quarterly (or at such other frequency as determined by the Proxy Committee), and its duties include establishing proxy voting guidelines and procedures, overseeing the internal proxy voting process, and reviewing proxy voting issues. The members of the Proxy
Committee include the Adviser’s personnel from the investment, compliance, legal and marketing departments. The Adviser also uses outside proxy voting services (each an “Outside Service”) to help manage the proxy voting process. An Outside Service facilitates its voting according to the Guidelines (or according to guidelines submitted by the Adviser’s clients) and helps maintain the Adviser’s proxy voting records. The Adviser’s proxy voting and record keeping is dependent on the timely provision of proxy ballots by custodians, clients and other third parties. Under circumstances described below involving potential conflicts of interest, the Adviser may also request an Outside Service to help decide certain proxy votes. In certain limited circumstances, the Adviser may enter into voting agreements or other contractual obligations that govern the voting of proxies. In the event of a conflict between any contractual requirements and the Guidelines, the Adviser will vote in accordance with its contractual obligations. As a matter of firm policy, the Adviser does not disclose to unaffiliated third parties how it expects to vote on upcoming proxies and does not disclose the way it voted proxies without a legitimate need to know such information.
The Guidelines provide a basis for the Adviser’s decisions in the voting of proxies for clients. When voting proxies, the Adviser’s utmost concern is that all decisions be made solely in the interests of the client and with the goal of maximizing the value of the client’s investments. With this goal in mind, the Guidelines cover various categories of voting decisions and generally specify whether the Adviser will vote for or against a particular type of proposal. The Adviser’s underlying philosophy, however, is that the portfolio managers, who are primarily responsible for evaluating the individual holdings of the Adviser’s clients, are best able to determine how best to further client interests and goals. The portfolio managers may, in their discretion, take into account the recommendations of the Adviser’s management, the Proxy Committee, and any Outside Service.
Individual portfolio managers, in the exercise of their best judgment and discretion, may from time to time override the Guidelines and vote proxies in a manner that they believe will enhance the economic value of clients’ assets, keeping in mind the best interests of the beneficial owners. The Guidelines provide procedures for documenting and, as required, approving such overrides. In the event a potential conflict does arise, the primary means by which the Adviser will avoid a conflict of interest is by casting votes solely in the interests of its clients and in the interests of maximizing the value of their portfolio holdings. In this regard, if a potential conflict of interest arises, but the proxy vote to be decided is predetermined under the Guidelines to be cast either in favor or against, then the Adviser will follow the Guidelines and vote accordingly. On the other hand, if a potential conflict of interest arises and there is no predetermined vote, or the Guidelines themselves refer such vote to the portfolio manager for decision, or the portfolio manager would like to override a predetermined vote, then the Guidelines provide procedures for determining whether a material conflict of interest exists and, if so, resolving such conflict.
The Adviser or an Outside Service will keep records of the following items for at least five years: (i) the Guidelines and any other proxy voting procedures; (ii) proxy statements received regarding client securities (unless such statements are available on the SEC’s EDGAR system); (iii) records of votes cast on behalf of clients (if maintained by an Outside Service, that Outside Service will provide copies of those records promptly upon request); (iv) records of written requests for proxy voting information and the Adviser’s response (whether a client’s request was oral or in writing); and (v) any documents the Adviser prepared that were material to making a decision on how to vote, or that memorialized the basis for the decision. Additionally, the Adviser or an Outside Service will maintain any documentation related to an identified material conflict of interest.
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Certain U.S. Federal Income Tax Consequences
The following is a summary of certain material U.S. federal income tax considerations related to an investment in the Units. This summary is based upon the provisions of the Code, as amended, the U.S. Treasury regulations promulgated thereunder, published rulings of the Internal Revenue Service (the “IRS”) and judicial decisions in effect as of the date hereof, all of which are subject to change, possibly with retroactive effect. The discussion does not purport to describe all of the U.S. federal income tax consequences that may be relevant to a particular investor in light of that investor’s particular circumstances (including alternative minimum tax consequences) and is not directed to investors subject to special treatment under the U.S. federal income tax laws, such as banks, dealers in securities, persons holding Units as part of hedging transaction, wash sale, conversion transaction or integrated transaction, real estate investment trusts, regulated investment companies, tax-exempt entities, U.S. Holders (as defined below) whose functional currency is not the U.S. dollar, certain financial institutions and insurance companies. In addition, this summary does not discuss any aspect of state, local or non-U.S. tax law and assumes that investors will hold their Units as capital assets (generally, assets held for investment).
For purposes of this discussion, a “U.S. Holder” is a Unitholder that is, for U.S. federal income tax purposes: (a) an individual who is a citizen or resident of the United States; (b) a corporation, or other entity taxable as a corporation, created or organized in or under the laws of the United States, any state thereof or the District of Columbia; (c) an estate, the income of which is subject to U.S. federal income taxation regardless of its source or (d) a trust if a court within the United States can exercise primary supervision over its administration and certain other conditions are met. A “Non-U.S. Holder” is a Unitholder who is neither a U.S. Holder nor a partnership for U.S. federal income tax purposes. For tax purposes, our fiscal year is the calendar year.
If a partnership (including an entity treated as a partnership for U.S. federal income tax purposes) holds Units, the tax treatment of a partner in the partnership will generally depend upon the status of the partner and the activities of the partnership. A prospective investor that will own Units through a partnership should consult its tax advisors with respect to the purchase, ownership and disposition of those Units.
Tax matters are complex and prospective investors in the Units are urged to consult their own tax advisors with respect to the U.S. federal income tax and state, local and non-U.S. tax consequences of an investment in the Units, including the potential application of U.S. withholding taxes.
Classification of the Company as Corporation for Tax Purposes
As a limited liability company, the Company is an eligible entity that is entitled to elect its classification for U.S. federal tax purposes. The Company has made an election to cause it to be classified as an association that is taxable as a corporation for U.S. federal income tax purposes. If the Company is unable to qualify as a RIC (the requirements of which are discussed below) during the liquidation of its portfolio following the Commitment Period, it may consider filing a new election to cause the Company to be classified as a partnership for U.S. federal tax purposes (from the effective date of such new election forward). The Company has no current intention of making such a new election and would only make such election if it determines it is in the best interests of Unitholders to do so.
Regulated Investment Company Classification
As a BDC, we elected, and intend to qualify annually, as a RIC under Subchapter M of the Code. As a RIC, we generally will not be required to pay corporate-level federal income taxes on any ordinary income or capital gains that we distribute to our Unitholders as dividends. To continue to qualify as a RIC, we must, among other things, meet certain source-of-income and asset diversification requirements (as described below). In addition, to qualify for RIC tax treatment, we must distribute to our Unitholders, for each taxable year, the sum of at least 90% of our “investment company taxable income” for that year, which is generally our ordinary income plus the excess of our realized net short-term capital gains over our realized net long-term capital losses, and 90% of its net tax-exempt interest (the “Annual Distribution Requirement”).
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Taxation as a Regulated Investment Company
If we:
then we will not be subject to federal income tax on the portion of our investment company taxable income and net capital gain (i.e., realized net long-term capital gains in excess of realized net short-term capital losses) that we distribute to Unitholders. We will be subject to U.S. federal income tax at the regular corporate rates on any income or capital gain not distributed (or deemed distributed) to Unitholders.
We will be subject to a 4% nondeductible federal excise tax on certain undistributed income unless we distribute in a timely manner an amount at least equal to the sum of (1) 98% of our ordinary income for each calendar year, (2) 98.2% of our capital gain net income for the one-year period ending October 31 in that calendar year and (3) any income realized, but not distributed, and on which we paid no federal income tax, in preceding years.
In order to maintain our qualification as a RIC for federal income tax purposes, we must, among other things:
We may be required to recognize taxable income in circumstances in which we do not receive cash. For example, if we hold debt obligations that are treated under applicable tax rules as having original issue discount (such as debt instruments with increasing interest rates or debt instruments issued with warrants), we must include in income each year a portion of the original issue discount that accrues over the life of the obligation, regardless of whether cash representing such income is received by us in the same taxable year. Because any original issue discount accrued will be included in our investment company taxable income for the year of accrual, we may be required to make a distribution to Unitholders in order to satisfy the Annual Distribution Requirement, even though we will not have received any corresponding cash amount.
We may have difficulty satisfying the diversification requirements as we liquidate our portfolio following the Commitment Period, since we will not be making additional investments. While we generally will not lose our status as a RIC as long as we do not acquire any nonqualifying securities or other property, under certain circumstances we may be deemed to have made an acquisition of nonqualifying securities or other property.
Because we may use debt financing, we will be subject to certain asset coverage ratio requirements under the 1940 Act and financial covenants under loan and credit agreements that could, under certain circumstances, restrict us from making distributions necessary to satisfy the Annual Distribution Requirement. If we are unable to obtain cash
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from other sources or are otherwise limited in our ability to make distributions, we could fail to qualify for RIC tax treatment and thus become subject to corporate-level income tax.
Certain of our investment practices may be subject to special and complex U.S. federal income tax provisions that may, among other things: (i) disallow, suspend or otherwise limit the allowance of certain losses or deductions; (ii) convert lower taxed long-term capital gain into higher taxed short-term capital gain or ordinary income; (iii) convert an ordinary loss or a deduction into a capital loss (the deductibility of which is more limited); (iv) cause us to recognize income or gain without a corresponding receipt of cash; (v) adversely affect the time as to when a purchase or sale of securities is deemed to occur; (vi) adversely alter the characterization of certain complex financial transactions; and (vii) produce income that will not be qualifying income for purposes of the 90% gross income test described above. We will monitor our transactions and may make certain tax elections in order to mitigate the potential adverse effect of these provisions.
If, in any particular taxable year, we do not qualify as a RIC, all of our taxable income (including our net capital gains) will be subject to tax at regular corporate rates without any deduction for distributions to Unitholders, and distributions will be taxable to the Unitholders as ordinary dividends to the extent of our current and accumulated earnings and profits.
In the event we invest in non-U.S. securities, we may be subject to withholding and other non-U.S. taxes with respect to those securities. We do not expect to satisfy the conditions necessary to pass through to our Unitholders their share of the non-U.S. taxes paid by the Company.
ITEM 1A. RISK FACTORS
An investment in our securities involves certain risks relating to our structure and investment objective. The risks set forth below are not the only risks we face, and we face other risks which we have not yet identified, which we do not currently deem material or which are not yet predictable. If any of the following risks occur, our business, financial condition and results of operations could be materially adversely affected. In such case, our net asset value could decline, and you may lose all or part of your investment.
RISKS RELATED TO OUR BUSINESS
Risks RelatedMarket and geopolitical events could materially and adversely affect certain of our portfolio companies, and could materially and adversely affect our business, financial condition, results of operations and cash flows. The increasing interconnectivity between global economies and financial markets increases the likelihood that events or conditions in one region or financial market may adversely impact issuers in a different country, region or financial market. Our business and operations, as well as the business and operations of our portfolio companies, may be materially adversely affected by inflation (or expectations for inflation), interest rates, global demand for particular products or resources, natural disasters, climate change and climate-related events, pandemics, epidemics, terrorism, regulatory events and governmental or quasi-governmental actions. The occurrence of global events similar to those in recent years, such as terrorist attacks around the world, natural disasters, social and political discord or debt crises and downgrades, among others, may result in market volatility and may have long term effects on both the U.S. and global financial markets. It is difficult to predict when similar events affecting the U.S. or global financial markets may occur, the effects that such events may have and the duration of those effects. Any such event(s) could have a significant adverse impact on our business and operations, and on the business and operations of our portfolio companies.
Disruption and Instability in Capital Markets. The U.S. and global capital markets experienced extreme volatility and disruption in recent years, leading to recessionary conditions and depressed levels of consumer and commercial spending. For instance, recent failures in the banking sector have caused significant disruption and volatility in U.S. and global markets. Disruptions in the capital markets increased the spread between the yields realized on risk-free and higher risk securities, resulting in illiquidity in parts of the capital markets. We cannot assure you that these conditions will not worsen. If conditions worsen, a prolonged period of market illiquidity could have a material adverse effect on our business, financial condition and results of operations. Unfavorable economic conditions also could increase our funding costs, limit our access to the capital markets or result in a decision by
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lenders not to extend credit to us. These events could limit our investment originations, limit our ability to grow and negatively impact our operating results.
In addition, to the extent that recessionary conditions return, the financial results of small to mid-sized companies, like those in which we invest, will likely experience deterioration, which could ultimately lead to difficulty in meeting debt service requirements and an increase in defaults. Additionally, the end markets for certain of our portfolio companies’ products and services have experienced, and continue to experience, negative economic trends. The performances of certain of our portfolio companies have been, and may continue to be, negatively impacted by these economic or other conditions, which may ultimately result in:
Russia’s invasion of Ukraine in February 2022, the resulting responses by the U.S. and Structure
Lackother countries, and the potential for wider conflict, have increased and may continue to increase volatility and uncertainty in financial markets worldwide. The U.S. and other countries have imposed broad-ranging economic sanctions on Russia and Russian entities and individuals, and may impose additional sanctions, including on other countries that provide military or economic support to Russia. The invasion may widen beyond Ukraine and may escalate, including through retaliatory actions and cyberattacks by Russia and even other countries. These events may result in further and significant market disruptions and may adversely affect regional and global economies. Furthermore, the conflict between Russia and Ukraine and the varying involvement of Operating History
We commenced investment operations in 2014the United States and have limited performance history. Past performance, includingother NATO countries could present material uncertainty and risk with respect to us and the past performance of our investments or operations, and our ability to achieve our investment objectives. Additionally, to the prior Special Situation Fundsextent that third parties, investors, or other investment entitiesrelated customer bases have material operations or assets in Russia or Ukraine, they may have adverse consequences related to the ongoing conflict. The extent and accounts managed by the Adviser, is not necessarily indicative of our future results.
Experience Operating a BDC
The membersduration of the Advisermilitary action, sanctions and resulting market disruptions are impossible to predict, but could be substantial.
In addition, the political reunification of China and Taiwan, over which China continues to claim sovereignty, is a highly complex issue that has included threats of invasion by China. Political or economic disturbances (including an attempted unification of Taiwan by force), any economic sanctions implemented in response, and any escalation of hostility between China and Taiwan would likely have no prior experience managing a BDC,significant adverse impact on economies, markets and theindividual securities globally.
Historical Performance. The investment philosophy and techniques used by the Adviser to manage a BDC may differ from the investment philosophy and techniques it previously employed in identifying and managing past investments. Accordingly, there can be no assurance that the Adviser will replicate the historical performance of other investment funds accounts or investment vehicles with which it has been affiliated. As a result, our investment returns could be substantially lower than the returns achieved by such other investment funds, accounts or investment vehicles.funds.
Dependence on the Key Personnel and Other Management
MembersManagement. Unitholders have no right or power to participate in the management of the Company and may not receive detailed financial information regarding investments that is available to the Adviser. An investor in the Company must rely upon the ability of the Adviser (including the Direct LendingPrivate Credit Team and other investment professionals of the Adviser) to identify, structure and implement investments consistent with our investment objectives and policies. Accordingly, our success is dependent on the Adviser’s ability to retain and motivate highly-qualifiedhighly qualified professionals. The loss of services of the Adviser’s investment professionalsRichard T. Miller, Suzanne Grosso, Mark Gertzof and/or James S. Bold could have an adverse effect on our business, financial condition andor results of operations. Our future success also depends on the Adviser’s ability to identify, hire, train and retain other highly qualified and experienced investment and management professionals. Competition for such professionals is significant, and there can be no assurance that the Adviser will be able to attract or retain other highly qualified professionals in the future. The inability of the Adviser to attract and retain such professionals could have a material adverse effect upon our business, financial condition andor results of operations. In addition, we cannot assure you that
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Economic Interest of the Adviser. Because the Adviser will remainbe compensated in part on a basis tied to our performance, the Company’s investment adviserAdviser may have an incentive to make investments that are risky or speculative.
No Assurance of Profits. There is no assurance that we will be able to generate returns for our investors or that the returns will be commensurate with the risks of investing in the types of companies and transactions described herein. The marketability and value of any of our investments will depend upon many factors beyond our control. We will incur organizational expenses, Management Fees and other operating expenses which may exceed our income, and a Unitholder could lose the entire amount of its contributed capital.
Therefore, a prospective investor should only invest in the Company will continue to have access toif such investor can withstand a total loss of his or her investment. The past investment performance of the entities and accounts with which the Adviser and its investment professionals have been associated cannot be taken to guarantee future results of any investment in the Company.
Effect of Fees and Expenses on Returns. We pay Management Fees and Incentive Fees to the Adviser and generally bear our other Company Expenses. Generally, other than the Incentive Fee, fees and expenses will be paid regardless of whether we produce positive investment returns. The fees and expenses will reduce the actual returns to Unitholders, the distributions we make to Unitholders, and the overall value of the Unitholders’ investment. In addition, because the Management Fees payable by us to the Adviser will be calculated based on average gross assets of the Company on a consolidated basis, including the amortized cost of portfolio investments purchased with borrowed funds and other forms of leverage, the Adviser may be incentivized to use leverage, but will not utilize more than is permitted by applicable law or its information.
Reliance Upon UnaffiliatedCo-Lender
Inregulation. Under certain circumstances, wethe use of leverage mayco-invest with an unaffiliated lender, who is sometimes responsible for performing some increase the likelihood of default, which would impair the value of the legal due diligence onUnits. The Adviser agreed to waive all management fees earned subsequent to December 31, 2022.
Regulations Governing our Operation as a BDC. We may issue debt securities or Preferred Units and/or borrow money from banks or other financial institutions, which are collectively referred to herein as “senior securities,” up to the borrower and for negotiating somemaximum amount permitted by the 1940 Act. Under the provisions of the terms of the loan agreement that establishes the terms and conditions of the debt investment and the rights of the borrower and the lenders. In such circumstances, although1940 Act currently in force, we perform our own due diligence, we may rely in part on the quality of the due diligence performed by theco-lender and will be boundpermitted, as a BDC, to issue senior securities in amounts such that our asset coverage ratio, as defined in the 1940 Act, equals at least 200% (or 150% as described below under “— Additional Leverage”) of gross assets less all liabilities and indebtedness not represented by the negotiated termssenior securities, after each issuance of the loan documentation. There cansenior securities. Also, any amounts that we use to service our indebtedness would not be no assurance that the unaffiliatedco-lender has performed or will perform the same level of due diligence as we would perform or that theco-lender will negotiate terms that are consistent with the terms generally negotiated and obtained by us. If the unaffiliatedco-lender is acting as collateral agent under the
loan documentation and becomes insolvent, the assets securing the debt investment may be determined by a court or regulatory authorityavailable for distributions to be subject to the claims of theco-lender’s creditors. If that were to occur, we might incur delays and costs in realizing payment on the loan, or we might suffer a loss of principal and/or interest.
Reliance Upon Consultants
The Adviser may rely upon independent consultants in connection with its evaluation of proposed investments. However, no assurance can be given that these consultants will accurately evaluate such investments and we may incur liabilityour Unitholders. Furthermore, as a result of such consultants’ actions.issuing senior securities, we would also be exposed to typical risks associated with leverage, including an increased risk of loss.
If we issue Preferred Units, the Preferred Units would rank “senior” to the Units in our capital structure, the Preferred Unitholders would have separate voting rights on certain matters and might have other rights, preferences, or privileges more favorable than those of the Unitholders.
In addition, as a regulated BDC under the 1940 Act we may, among other things, be prohibited from knowingly participating in certain transactions with our affiliates without the prior approval of the members of our board of directors who are not interested persons and, in some cases, prior approval by the SEC through an exemptive order (other than in certain limited situations pursuant to current regulatory guidance). The Adviser has obtained exemptive relief from the SEC that, subject to certain conditions and limitations, permits us and other funds advised by the Adviser or certain affiliates of the Adviser (referred to herein as “potential co-investment funds”) to engage in certain co-investment transactions. Under the exemptive relief, in the case where the interest in a particular investment opportunity exceeds the size of the opportunity, then the investment opportunity will be allocated among us, Fund VII and any other potential co-investment funds based on available capital, which generally is determined based on the amount of cash on hand, existing commitments and reserves, if any, the targeted leverage level, targeted asset mix and other investment policies and restrictions set from time to time by the board or other governing body of the relevant fund or imposed by applicable laws, rules, regulations or interpretations.
Prior to August 2020, the Advisor calculated “available capital” based primarily on uncalled capital commitments and then-available borrowings for each fund or account. However, with a view toward more equitable and stable allocations going forward, the Advisor, as of August 2020, adjusted its policy to calculate “available
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capital” primarily on anticipated fund or account size (including total investor commitments and reasonably expected leverage).
We incur significant costs as a result of being registered under the Exchange Act. We incur legal, accounting and other expenses, including costs associated with the periodic reporting requirements, as well as additional corporate governance requirements, including requirements under the Sarbanes-Oxley. These requirements may place a strain on our systems and resources. The Exchange Act requires that we file annual, quarterly and current reports with respect to our business and financial condition. The Sarbanes-Oxley Act requires that we maintain effective disclosure controls and procedures and internal control over financial reporting, which requires significant resources and management oversight. We have implemented and may continue to implement procedures, processes, policies and practices for the purpose of addressing the standards and requirements applicable to public companies. These activities may divert management’s attention from other business concerns, which could have a material adverse effect on our business, financial condition, results of operations and cash flows. We have incurred and expect to incur significant annual expenses related to these steps and directors’ and officers’ liability insurance, director fees, reporting requirements of the SEC, transfer agent fees, additional administrative expenses payable to the Administrator to compensate it for hiring additional accounting, legal and administrative personnel, increased auditing and legal fees and similar expenses associated with being a public company.
Borrowing Money
. The use of leverage magnifies the potential for gain or loss on amounts invested and, therefore, increases the risks associated with investing in the Company. Subject to the borrowing limitation imposed on us by the 1940 Act, wethe Company and any wholly owned subsidiary of the Company has and may continue to borrow from or may issue senior debt securities to banks, insurance companies and other lenders. Our lenders will have fixed dollar claims on our assets that are superior to the claims of the Common Unitholders, and we would expect such lenders to seek recovery against our assets in the event of a default. If the value of our assets decreases, leveraging would cause net asset value to decline more sharply than it otherwise would have had we not leveraged. Similarly, any decrease in our income would cause net investment income to decline more sharply than it would have had we not borrowed. Leverage is generally considered a speculative investment technique. Our ability to service any debt that we incur dependswill depend largely on our financial performance and will be subject to prevailing economic conditions and competitive pressures.
As a BDC, we generally are required to meet a coverage ratio of total assets to total borrowings and other senior securities, which includeswill include all of our borrowings and any Preferred Units that we may issue in the future, of at least 200% (or 150% as described below under “—Additional Leverage”). If this ratio declines below 200%, we may not be able to incur additional debt, which could have a material adverse effect on our operations. The amount of leverage that we employ dependswill depend on the Adviser’s assessment of market and other factors at the time of any proposed borrowing. There can be no assurance that we will be able to obtain credit at all or on terms acceptable to us.
In addition, our existing credit facility imposes,facilities impose, and anyfuture debt facilityfacilities into which we may enter in the future would likely impose, financial and operating covenants that restrict our business activities, including limitations that could hinder our ability to finance additional loans and investments or to make the distributions required to maintain our status as a RIC under Subchapter M of the Code. In particular, it is anticipated that any futurethe credit facility would contain certain financial covenants, which may include requiring us to maintain a minimum amount of equity supporting the credit facility or comply with certain collateral quality and coverage tests.
Additional Leverage. As a BDC, under the Investment Company Act we generally are not permitted to incur borrowings, issue debt securities or issue preferred stock unless immediately after the borrowing or issuance the ratio of total assets (less total liabilities other than indebtedness) to total indebtedness plus preferred stock, is at least 200% or, if certain requirements, which are described below, are met, 150%.
Pursuant to Section 61(a) of the 1940 Act, BDCs may reduce the minimum asset coverage ratio from 200% to 150%, subject to certain approval requirements (including either stockholder approval or approval of the “required majority,” as such term is defined in Section 57(o) of the Investment Company Act), certain disclosure requirements and, in the case of a BDC that is not an issuer of common equity securities that are listed on a national securities exchange, such as the Company, the requirement that the BDC must extend to each person that is a stockholder as of the date of an approval described above the opportunity (which may include a tender offer) to sell
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the securities held by that stockholder as of that applicable approval date, with 25% of those securities to be repurchased in each of the four calendar quarters following the calendar quarter in which that applicable approval date takes place. As a result, BDCs may be able to incur additional indebtedness in the future, and the risks associated with an investment in BDCs may increase.
Failure to comply with these covenants could result inQualify as a default. In such a case,RIC. We will be subject to corporate-level income tax if we are unable to obtain a waiver of a default from the lenders, those lenders could accelerate repayment under that indebtedness, which may result in cross-acceleration of other indebtedness. An acceleration could have a material adverse impact on our business, financial condition and results of operations.
We cannot assure you that our future business will generate sufficient cash flow from operations or that future borrowings will be available to us under our credit facility or otherwise in an amount sufficient to enable us to repay future indebtedness or to fund any of our other liquidity needs. We may need to refinance all or a portion of our indebtedness before it matures or on maturity. We cannot assure you that we will be able to refinance any of our indebtedness on commercially reasonable terms or at all. If we cannot service our indebtedness, we may have to take actions, such as selling assets. We cannot assure you that any such actions, if necessary, could be effected on commercially reasonable terms or at all, or on terms that would not be disadvantageous to Members or on terms that would not require us to breach the terms and conditions of our existing or future debt agreements.
Effect of BDC and RIC Rules on Investment Strategy
Our having to comply with the various rules necessary to remain qualifiedqualify as a BDC and a RIC could adversely impact the implementation of our investment strategy and thus reduce returns to investors. For example, the diversification requirements imposed by the RIC rules could, in certain situations, preclude us from making certain investments.
The 1940 Act imposes numerous constraints on the operations of BDCs that do not apply to other types of investment vehicles. For example, under the 1940 Act, we are required as a BDC to invest at least 70% of our total assets in specified types of “qualifying assets,” primarily in private U.S. companies or thinly-traded U.S. public companies, cash, cash equivalents, U.S. government securities and other high-quality debt investments that mature in one year or less. We may be precluded from investing in what the Adviser believes are attractive investments if the investments are not qualifying assets for purposesSubchapter M of the 1940 Act. If we do not invest a sufficient portion of our assets in qualifying assets, we will be prohibited from making any additional investment that is not a qualifying asset. These rules could prevent us from makingfollow-on investments in existing portfolio companies (which could result in the dilution of our position).
Furthermore, any failure to comply with the requirements imposed on us as a BDC by the 1940 Act could cause the SEC to bring an enforcement action against us or expose us to claims of private litigants. In addition, upon approval of a majority of our outstanding voting securities as required by the 1940 Act, we may elect to withdraw our status as a BDC. If we decide to withdraw our election or otherwise fail to maintain our status as a BDC, we might be regulated as aclosed-end investment company that is required to register under the 1940 Act, which would subject us to additional regulatory restrictions, significantly decrease our operating flexibility and could significantly increase our cost of doing business. In addition, any such failure could cause an event of default under our then-outstanding indebtedness, which could have a material adverse effect on our business, financial condition and results of operations.
Regulations Governing our Operation as a BDC
We may issue debt securities or Preferred Units and/or borrow money from banks or other financial institutions, which are collectively referred to herein as “senior securities,” up to the maximum amount permitted by the 1940 Act. Under the provisions of the 1940 Act, we are permitted, as a BDC, to issue senior securities in amounts such that our asset coverage ratio, as defined in the 1940 Act, equals at least 200% of gross assets less all liabilities and indebtedness not represented by senior securities, after each issuance of senior securities. In addition, our inability to satisfy this test could cause an event of default under our then-existing indebtedness. If we cannot satisfy this test, we may be required to sell a portion of our investments at a time when such sales may be disadvantageous and, depending on the nature of our leverage, repay a portion of our indebtedness. Accordingly, any failure to satisfy this test could have a material adverse effect on our business, financial condition and results of operations. Also, any amounts that we use to service our indebtedness would not be available for distributions to our Members.
Furthermore, as a result of issuing senior securities, we would also be exposed to typical risks associated with leverage, including an increased risk of loss.
If we issue Preferred Units, the Preferred Units would rank “senior” to the Common Units in our capital structure, the Preferred Unitholders would have separate voting rights on certain matters and might have other rights, preferences, or privileges more favorable than those of the Common Unitholders.
Failure to Qualify as a RIC
Although we have elected to be treatedCode. To qualify as a RIC under Subchapter M of the Code, and operate in a manner so as to qualify for the U.S. federal income tax treatment applicable to RICs, we cannot assure you that we will be able to maintain RIC status. As a RIC, we generally do not pay U.S. federal corporate level income taxes on our income and net capital gains that we distribute to our Members on a timely basis.
We are also subject to U.S. federal corporate level income tax on any undistributed income or gains and may also be subject to certain U.S. federal excise taxes, as well as state, local and foreign taxes.
We will be subject to U.S. federal corporate-level income tax if we are unable to maintain our qualification as a RIC. To qualify as a RIC, we must meet certainsource-of-income, asset diversification and distribution requirements. The distribution requirement for a RIC is satisfied if we distribute at least 90% of our net ordinary income and net short-term capital gains in excess of net long-term capital losses, if any, to the MembersUnitholders on an annual basis. Because we have incurred debt, we are subject to certain asset coverage ratio requirements under the 1940 Act and financial covenants under loan and credit agreements that could, under certain circumstances, restrict us from making distributions necessary to qualify as a RIC. If we are unable to obtain cash from other sources, we may fail to qualify as a RIC and, thus, may be subject to corporate-level income tax. To qualify as a RIC, we must also meet certain asset diversification requirements at the end of each calendar quarter. Failure to meet these tests may result in the Company having to dispose of certain investments quickly at times we would not have otherwise done so,in order to qualify as a RIC, or to prevent the loss of such qualification asafter becoming a RIC. Because most of our investments will be in private or thinly traded public companies, any such dispositions may be made at disadvantageous prices and may result in substantial losses. In addition, we may have difficulty satisfying the diversification requirements after the Commitment Period as we liquidate our portfolio since we will generally not be making additional investments (except for certainfollow-on investments and investments that were significantly in process prior to the termination of the Commitment Period).investments. While we generally will not lose our status as a RIC as long as we do not acquire anynon-qualifying securities or other property, under certain circumstances we may be deemed to have made an acquisition ofnon-qualifying securities or other property. If we fail to qualify as a RIC for any reason and become subject to corporate-levelcorporate income tax, the resulting corporate income taxes could substantially reduce our net assets, the amount of income available for distributions to the MembersUnitholders and the amount of funds available for new investments. Such a failure would have a material adverse effect on us and the Members.Unitholders.
Conflicts of Interest
Conflicts of interest may exist from time to time between the Adviser and certain of its affiliates involved with us. For example, the terms of the Adviser’s management and incentive fees may create an incentive for the Adviser to approve and cause us to make more speculative investments than we would otherwise make in the absence of such fee structure.
The Direct Lending Team is separated from those partners and employees of the Adviser and its affiliates involved in the management of the investments of other funds, accounts and investment vehicles (the “Other Employees”) by an ethical wall, and accordingly, the Other Employees may be unable to make certain material information available to the Direct Lending Team. In addition, the Adviser’s other funds, accounts and investment vehicles may take positions in securities and/or issuers that are in a different part of the capital structure of an issuer or adverse to ours.
The members of the senior management and investment teams and the Investment Committee of the Adviser serve or may serve as officers, directors, principals or investment committee members of entities that operate in the same or a related line of business as we do, or of investment funds, accounts or investment vehicles (including TCW Direct Lending VII LLC (“Fund VII”) managed by the Adviser or its affiliates. In serving in these multiple capacities, they may have obligations to other clients or investors in those entities, the fulfillment of which may not be in our best interests or in the best interest of the Members. As a result, those individuals at the Adviser may face conflicts in the allocation of investment opportunities between us and other investment funds, accounts or investment vehicles advised by principals of, or affiliated with, the Adviser.
We and the Adviser, have obtained exemptive relief from the SEC that, subject to certain conditions and limitations, permits us and other funds, accounts and investment vehicles advised by the Adviser (including Fund VII) and certain affiliates of the Adviser (referred to as “potential co investment funds”) to engage in certain co investment transactions (the“Co-Investment Exemptive Order”). Under theCo-Investment Exemptive Order, in the case where the interest in a particular investment opportunity exceeds the size of the opportunity, then the investment opportunity will be allocated among us, Fund VII and any other potentialco-investment funds based on capital available for investment, which generally is determined based on the amount of cash on hand, existing commitments and reserves, if any, the targeted leverage level, targeted asset mix and other investment policies and restrictions set from time to time by the board or other governing body of the relevant fund or imposed by applicable laws, rules, regulations or interpretations.Wind Down. Since the Commitment Period ended in September 2017, we generally may not make new investments (other than certainfollow-on investments and investments that were significantly
in process prior to the termination of the Commitment Period). As a result, during the remainder of our term, fewer investments will be available to generate cash flow, decreasing the amount of distributions. The increased relative concentration of our portfolio in fewer investments increases the risk that losses in one of those investments will have a greater impact on the overall remaining portfolio. In addition, we will continue to incur expenses and therefore would not expectother liabilities for the remainder of our term, which will reduce the amount ultimately available for distribution to rely on theCo-Investment Exemptive Order exceptMembers. Amounts distributed to Members in connection withfollow-on or significantlyin-process investments. In situations where we cannotco-invest with other funds, accounts or investment vehicles managed by the Adviser or an affiliate of the Adviser due to the restrictions contained in the 1940 Act that are not addressed by theCo-Investment Exemptive Order or SEC guidance, the investment policies any dissolution and procedures of the Adviser generally require that such opportunities be offered to us, Fund VII and such other funds, accounts and investment vehicles on an alternating basis. There can be no assurance that we will be able to participate in all investment opportunities that are suitable to us.
Effect of Fees and Expenses on Returns
We pay Management Fees and Incentive Fees to the Adviser and generally bear other Operating Expenses. Generally, other than the Incentive Fee, fees and expenses are paid regardless of whether we produce positive investment returns. The fees and expenses reduce the actual returns to Members, the distributions we make to Members, and the overall value of the Members’ investment. In addition, because the Management Fees payable by us to the Adviser following the Commitment Period are calculated based on the cost of our investment portfolio, including that portion of the investment cost funded with leverage, the Adviserliquidation may be incentivizedsubject to use leverage, but will not utilize more than is permitted by applicable law or regulation. Under certain circumstances, the use of leverage may increase the likelihood of default, which would impair the value of the Common Units.
Economic Interest of the Adviser
Because the Adviser is compensated in part on a basis tiedclawback pursuant to our performance, the Adviser may have an incentive to make investments that are risky or speculative.
Resignation of the Adviser
The Adviser and the Administrator may resign at any time upon 60 days’ written notice under the terms of the Advisory Agreement and Administration Agreement, andLLC Agreement.
Further, some of our remaining investments (including certain equity investments) may require additional time beyond thesub-administrator may resign upon 60 days’ written notice in certain situations under Company’s current term before we can dispose of them at a favorable price or otherwise recoup our investment. On April 30, 2021, the termsBoard elected to extend the Company’s term until September 2022. Any further extensions will require Member approval. On July 11, 2022 the term of thesub-administration agreement, regardless Company was extended for a one-year period from September 19, 2022 to September 19, 2023 via a supermajority vote of whether we have found replacements. If the Adviser,Unitholders. On May 11, 2023 the Administrator orterm of thesub-administrator resigns, we may not be able Company was extended for an additional one-year period from September 19, 2023 to find replacements or hire internal management with similar expertise and ability to provideSeptember 19, 2024 via a supermajority vote of the same or equivalent services on acceptable terms within 60 days, or at all.Unitholders. If we are unable to do so quickly, our operations are likelyextend the Company’s term beyond September 19, 2024, we may be required to experience a disruption and our financial condition, business and results of operations as well as our ability to pay distributions are likely to be adversely affected. In addition, the coordinationdispose of our managementremaining investments at unfavorable prices.
Recourse to Our Assets. Our assets, including any investments made by us and any capital held by us, are available to satisfy all our liabilities and other obligations. If we become subject to a liability, parties seeking to have the liability satisfied may have recourse to our assets generally and not be limited to any particular asset, even in the circumstance where a specific investment activities is likelygave rise to suffer if we are unable to identify and reach an agreement with a single institution or group of executives having the expertise possessed by the Adviser, the Administrator, the sub-administrator and their affiliates. Even if comparable service providers or individuals performing such services are retained, whether internal or external, their integration into the business and lack of familiarity with our investment objectives may result in additional costs and time delays that may materially adversely affect our business, results of operations and financial condition. Any new advisory agreement also wouldliability.
Litigation Risks. We will be subject to approval bya variety of litigation risks, particularly if one or more of our portfolio companies face financial or other difficulties. Legal disputes, involving any or all of the Members.Company, the Adviser, or their affiliates, may arise from our activities and investments and could have a significant adverse effect on us.
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Limited Liability of the Adviser
. To the extent permissible by law, the Adviser will not be liable, responsible or accountable in damages or otherwise to us or to any MemberUnitholder for any breach of duty to us or the MemberUnitholders or for any act or failure to act pursuant to the Advisory Agreement or otherwise, except in certain limited circumstances provided by the 1940 Act and as set forth in the Advisory Agreement. In general, we will be required to indemnify the Adviser (and other related and/or affiliated parties) for certain losses arising out of its activities on behalf of us. Such obligations could reduce significantly the returns to the Member.
FluctuationsConflicts of Interest. Conflicts of interest may exist from time to time between the Adviser and certain of its affiliates involved with us.
RISKS RELATED TO OUR INVESTMENTS
Economic Recessions or Downturns. Many of the portfolio companies in Quarterly Results
Wewhich we make investments may be susceptible to economic slowdowns or recessions and may be unable to repay the loans we made to them during these periods. Therefore, our non-performing assets may increase and the value of our portfolio may decrease during these periods as we are required to record our investments at their current fair value. Adverse economic conditions also may decrease the value of collateral securing some of our loans and the value of our equity investments. Economic slowdowns or recessions could experience fluctuationslead to financial losses in our quarterly financial results due toportfolio and a number of factors, including the interest rates payable on the debt investments we make, the default rates on such investments, the level of our expenses, variationsdecrease in revenues, net investment income and the timing of the recognition of realized and unrealized gains or losses, the degree to which we encounter competition in our markets and generalassets. Unfavorable economic conditions. As a result of these factors, results for any period should not be relied upon as being indicative of performance in future periods.
Information System Failures
Our business is dependent onconditions also could increase our and third parties’ communicationsour portfolio companies’ funding costs, limit our and information systems, including those of the Adviser, the Administrator, their affiliates and third parties. Any failure or interruption of those systems, including as a result of the termination of an agreement with any third-party service providers or as a result of a cyber-attack, could cause delays or other problems in our activities. Our financial, accounting, data processing, backup or other operating systems and facilities or those of the Adviser, the Administrator, their affiliates or third parties may fail to operate properly or become disabled or damaged as a result of a number of factors including events that are wholly or partially beyond our control and adversely affect our business. There could be:
These events, in turn, could have a material adverse effect on our business, financial condition and operating results and negatively affect our ability to make distributions to Members.
Cybersecurity Risks
A cyber incident is considered to be any adverse event that threatens the confidentiality, integrity or availability of the Adviser’s or our information resources. These incidents may be an intentional attack or an unintentional event and could involve gaining unauthorizedportfolio companies’ access to the Adviser’scapital markets or result in a decision by lenders not to extend credit to us or our information systems for purposesportfolio companies. These events could prevent us from increasing investments and harm our operating results.
A portfolio company’s failure to satisfy financial or operating covenants imposed by us or other lenders could lead to defaults and, potentially, acceleration of misappropriatingthe time when the loans are due and foreclosure on its secured assets, stealing confidential information, corrupting data or causing operational disruption. The result of these incidentswhich could trigger cross-defaults under other agreements and jeopardize the portfolio company’s ability to meet its obligations under the debt that we hold. We may include disrupted operations, misstated or unreliable financial data, liability for stolen assets or information, increased cybersecurity protection and insurance costs, litigation and damage to our business relationships. We and the Adviser depend heavily on technology and computer systems in the course of our business functions. As these technologies have become more necessary forday-to-day operations, the risks posedincur additional expenses to the Adviser’s and our information systems, both internal and those provided by third-party service providers, will also increase.
We and the Adviser have implemented processes, procedures and internal controlsextent necessary to help mitigate cybersecurity risks and cyber intrusions, but these measures, as well as increased awareness of the nature and extent ofseek recovery upon default or to negotiate new terms with a risk of a cyber incident, do not guarantee that a cyber incident will not occur or that our financial results, operations or confidential information will not be negatively impacted by such an incident. Evendefaulting portfolio company. In addition, if we protect our technological infrastructure and the confidentiality of sensitive data, we may incur significant expenses in connection with our responses to any such attacks and the adoption and maintenance of additional appropriate security measures. We cannot be certain that advances in criminal capabilities, discovery of new vulnerabilities, attempts to exploit vulnerabilities in the Adviser’s or our respective vendors’ systems, data thefts, physical system or network break-ins or inappropriate access, or other developments will not compromise or breach the technology or other security measures protecting the networks and systems we and the Adviser use. Privacy and information security legal and regulatory changes, and compliance with those changes, may also result in cost increases due to system changes and the need to develop new administrative processes.
Ineffective Internal Controls
Our internal control over financial reporting may not prevent or detect misstatements because of its inherent limitations, including the possibility of human error, the circumvention or overriding of controls, or fraud. Even effective internal controls can provide only reasonable assurance with respect to the preparation and fair presentation of financial statements. If we fail to maintain the adequacy of our internal controls, including any failure to implement required new or improved controls, or if we experience difficulties in their implementation, our business and operating results could be harmed and we could fail to meet our financial reporting obligations.
Recourse to Our Assets
Our assets, including any investments made by us and any capital held by us, are available to satisfy all our liabilities and other obligations. If we become subject to a liability, parties seeking to have the liability satisfied may have recourse to our assets generally and not be limited to any particular asset, even in the circumstance where a specific investment gave rise to the liability.
Litigation Risks
We will be subject to a variety of litigation risks, particularly if one or more of our portfolio companies face financialwere to go bankrupt, depending on the facts and circumstances, including the extent to which we will actually provide significant managerial assistance to that portfolio company, a bankruptcy court might subordinate all or a portion of our claim to that of other difficulties. Legal disputes, involving anycreditors.
Reliance on Portfolio Company Management. The day-to-day operations of each portfolio company in which we invest will be the responsibility of such entity’s management team. In addition, we may make investments in portfolio companies where we have limited influence and the other investors in such portfolio company have economic or all of the Company,business interests or goals that are inconsistent with our business interests and goals. Although the Adviser or affiliates, may arise from our activities and investments and could have a significant adverse effect on us.
Inability to Take Advantagewill be responsible for monitoring the performance of Investment Opportunities with Affiliated Funds or Investors
The 1940 Act limits our ability to engage in transactions with affiliated funds and investors. For example, we are prohibited under the 1940 Act from participating in certain transactions with our affiliates without the prior approvaleach of our Independent Directors and, in some cases, of the SEC. Any person that owns, directly or indirectly, five percent or more of our outstanding voting securities will be our affiliate for purposes of the 1940 Act,investments and we are generally prohibited from buying or selling any security from orrequired, pursuant to such affiliate, absent the prior approval of the Independent Directors. Thea specific 1940 Act also prohibits certain “joint” transactions with certainprovision applicable to BDCs, to offer to provide each of our affiliates, which could includeco-investments in the same portfolio company, without prior approval of the Independent Directors and, in some cases, of the SEC. We are prohibited from buying or selling any security from or to any person who owns more than 25% of our voting securities or controls us (such as the Adviser) or certain of that person’s affiliates (such as other investment funds managed by the Adviser), or entering into prohibited joint transactions with such persons, absent the prior approval of the SEC. As a result of these restrictions, we may be prohibited from buying or selling any security (other than any security of which we are the issuer) from or to any portfolio company of a private equity fund managed by the Adviser or its affiliates without the prior approval of the SEC, which may limit the scope of investment opportunities that would otherwise be available to us. In situations where we cannotco-invest with other investment funds managed by the Adviser due to the restrictions contained in the 1940 Act that are not addressed by theCo-Investment Exemptive Order or SEC guidance, the investment policies and procedures of the Adviser generally require that such opportunities be offered to us, Fund VII and such other funds, accounts and investment vehicles on an alternating basis. Therecompanies managerial assistance, there can be no assurance that wethe existing management team of a portfolio company or any successor will be able to participateoperate any such entity in all investment opportunities that are suitable to us.
Wind Down
Since the Commitment Period ended in September 2017,accordance with our expectations. In this situation, we generally may not make new investments (other than certainfollow-on investments and investments that were significantly in process prior to the termination of the Commitment Period). As a result, during the remainder of our term, fewer investments will be available to generate cash flow, decreasing the amount of distributions. In addition, we will continue to incur expenses and other liabilities for the remainder of our term, which will reduce the amount ultimately available for distribution to Members. Amounts distributed to Members in connection with any dissolution and liquidation may be subject to clawback pursuant to the terms of the LLC Agreement.
Risks Related to Portfolio Company Investments
Portfolio Concentration
Although the regulatory restrictions applicable to RICs limit the amount that we may generally invest in any single portfolio company, our investments may not be adequately diversified. Aside from the diversification requirements that we will have to comply with as a RIC, we do not have any specific portfolio diversification or concentration limits. As a result, our portfolio may include a relatively limited number of large positions. If our investments are concentrated in a few issuersposition to limit or industries, any adverse change in one or more of such issuers or industries could have a material adverse effect on our investments. In addition, since the Commitment Period ended in September 2017, we may not make new investments (other than certainfollow-on investments or investments that were significantly in process prior to the end of the Commitment Period). As a result, our portfolio may become more concentrated as it begins to wind down under the terms of the LLC Agreement.
Special Risks of Highly-Leveraged or other Risky Portfolio Companies; Interest Rate Fluctuations
We can invest up to 100% of our total assets in debt and equity securities of portfolio companies that are highly leveraged and whose debt securities would be considered well below investment grade. We may invest in bridge loans, subordinated or mezzanine financing which is either unsecured or, if secured, will be subordinated to the interests of the senior lenders in the borrower’s capital structure. We may also invest in obligations of portfolio companies in connection with a restructuring under Chapter 11 of the U.S. Bankruptcy Code (i.e., a “DIP Financing”) if the obligations meet the credit standards of the Adviser.
These debt obligations tend to offer higher yields than investment grade securities to compensate investors for the higher risk, and are commonly referred to as “high risk securities” or, in the case of bonds, “junk bonds.” Lending to highly-leveraged or other risky borrowers is highly speculative. These investments may expose us to financial market risks, interest rate risks and credit risks that are significantly greater than the risks associated with other securities in which we may invest. An economic downturn or a period of rising interest rates, for example, could cause a decline in the prices of such securities. The prices of securities structured aszero-coupon orpay-in-kind securities may be more volatile than securities that pay interest periodically and in cash. In the event of a default by a portfolio company, we would experience a reduction of our income and could expect a decline in the fair value of the defaulted securities and may incur significant additional expenses to seek recovery.
Credit Risks
Debt investments are subject to credit risk. Credit risk relates to the ability of the borrower to make interest and principal payments on the loan or security as they become due. If the borrower fails to pay interest, our income might be reduced. If the borrower fails to repay principal,otherwise protect the value of that security and the value of the Company might be reduced. Our investments in debt securities are subject to risks of default. We may invest in debt securities made in connection with leveragedbuy-out transactions, recapitalizations and other highly-leveraged transactions. While our investments in senior loans typically will be secured by collateral, we may have difficulty liquidating the collateral or enforcing our rights under the terms of the senior loans in the event of the borrower’s default. There is no guarantee that the collateral securing a senior loan will be sufficient to protect us against losses or a decline in income in the event of a borrower’snon-payment of interest or principal. In the event that a borrower declares bankruptcy, a court could invalidate our security interest in the loan collateral or subordinate our rights under the senior loan to other creditors of the borrower. Also, we may invest part of our assets in loans and other debt obligations that are not fully secured.investment.
Limited
No Secondary Market for Securities
. Our investments are generally heavily negotiated and, accordingly, do not have the liquidity of conventional securities. Duesecurities and will not have readily available market prices. We value such investments at fair value as determined in good faith by the Adviser in accordance with our valuation policy. Because there is no single standard for determining fair value, determining fair value requires that judgment be applied to the specific facts and circumstances of each investment. In addition, due to their illiquid nature, we may not be able to dispose of our investments in a timely manner, at a fair price and/or in the manner that was thought to be viable when the investment was initiated (due to economic, legal, political or other factors). There is no assurance that we will be able to dispose of an investment in a particular security. The inability to dispose of a security could result in losses incurred by us, including the loss of our entire investment in such security. The debt of highly leveraged companies or companies in default also may be less liquid than other debt. If we voluntarily or involuntarily soldsell those types of debt securities, we might not receive the full value we expect.
Illiquidity of Collateral. Collateral may consist of assets that may not be readily liquidated, and there is no assurance that the liquidation of those assets will satisfy a company’s obligations. If a company defaults on a
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secured investment, the Company may receive assets other than cash or securities in full or partial satisfaction of such company’s obligations. The Company might not be able to realize the benefit of the assets for legal, practical or other reasons. The Company might hold those assets until it is determined to be appropriate to dispose of them.
Portfolio Concentration. Although the regulatory restrictions applicable to RICs limit the amount that we may generally invest in any single portfolio company, our investments may not be diversified. See “Item 1. Business—Regulation as a Business Development Company—Qualifying Assets” and “Item 1. Business—Certain U.S. Federal Income Tax Consequences—Taxation as a Regulated Investment Company.” Aside from the diversification requirements that we have to comply with as a RIC and other contractual investment limitations to which we are subject pursuant to the LLC Agreement, we do not have any specific portfolio diversification or concentration limits. As a result, our portfolio may include a relatively limited number of large positions. If our investments are concentrated in a few issuers or industries, any adverse change in one or more of such issuers or industries could have a material adverse effect on our investments. To the extent the aggregate Commitments of the Unitholders turn out to be substantially less than the amounts targeted, our portfolio may be even more concentrated than it would otherwise be. In addition, since the Commitment Period ended in September 2017, we may not make new investments (other than certain follow-on investments). As we continue to wind down under the terms of the LLC Agreement, our investment portfolio has become more concentrated, which may heighten the risk that an adverse change in one issuer or industry could have a material adverse impact on the Company’s performance.
Valuation Risk. Many of our portfolio securities may not have a readily available market price and the Adviser will value these securities at fair value as determined in good faith under procedures approved by our Board of Directors, which valuation is inherently subjective and may not reflect what we may actually realize for the sale of the investment. The majority of our investments are expected to be in instruments that do not have readily ascertainable market prices. The fair value of assets that are not publicly traded or whose market prices are not readily available will be determined by the Adviser in good faith under procedures approved by our Board of Directors. There is no single standard for determining fair value in good faith. As a result, determining fair value requires that judgment be applied to the specific facts and circumstances of each portfolio investment while employing a consistently applied valuation process for the types of investments we make.
Reliance upon Consultants. The Adviser may rely upon independent consultants in connection with its evaluation of proposed investments; however, no assurance can be given that these consultants will accurately evaluate such investments and we may incur liability as a result of such consultants’ actions.
Credit Risks. Debt investments are subject to credit risk. Credit risk relates to the ability of the borrower to make interest and principal payments on the loan or security as they become due. If the borrower fails to pay interest, our income might be reduced. If the borrower fails to repay principal, the value of that security and the value of the Company might be reduced. Our investments in debt securities are subject to risks of default. We may invest in debt securities made in connection with leveraged buy-out transactions, recapitalizations and other highly leveraged transactions. While our investments in senior loans typically will be secured by collateral, we may have difficulty liquidating the collateral or enforcing our rights under the terms of the senior loans in the event of the borrower’s default. There is no guarantee that the collateral securing a senior loan will be sufficient to protect us against losses or a decline in income in the event of a borrower’s non-payment of interest or principal. In the event that a borrower declares bankruptcy, a court could invalidate our security interest in the loan collateral or subordinate our rights under the senior loan to other creditors of the borrower. Also, we may invest part of our assets in loans and other debt obligations that are not fully secured.
Interest Rate Risk. In general, the value of a debt security changes as prevailing interest rates change. For fixed-rate debt securities, when prevailing interest rates fall, the values of outstanding debt securities generally rise. When interest rates rise, the values of outstanding fixed-rate debt securities generally fall, and they may sell at a discount from their face amount. Our debt investments generally have adjustable interest rates. For that reason, the Adviser expects that when interest rates change, the amount of interest we receive in respect of such debt investments will change in a corresponding manner. However, the interest rates of some debt investments adjust only periodically. Between the times that interest rates on debt investments adjust, the interest rates on those investments may not correlate to prevailing interest rates. In recent years the U.S. Federal Reserve Board (the “Fed”) increased interest rates from historically low levels in an effort to cause inflation levels to align with the Fed's long-term inflation target, but those rates have appeared to stabilize somewhat more recently and might be lowered in the
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coming year. A wide variety of factors can cause interest rates to rise (e.g., central bank monetary policies, inflation rates, or general economic conditions).
Reliance Upon Unaffiliated Co-Lender. In certain circumstances we may co-invest with an unaffiliated lender, who will sometimes be responsible for performing some of the legal due diligence on the borrower and for negotiating some of the terms of the loan agreement that establishes the terms and conditions of the debt investment and the rights of the borrower and the lenders. In such circumstances, although we will perform our own due diligence, we may rely in part on the quality of the due diligence performed by the co-lender and will be bound by the negotiated terms of the loan documentation. There can be no assurance that the unaffiliated co-lender will perform the same level of due diligence as we would perform or that the co-lender will negotiate terms that are consistent with the terms generally negotiated and obtained by us. If the unaffiliated co-lender is acting as collateral agent under the loan documentation and becomes insolvent, the assets securing the debt investment may be determined by a court or regulatory authority to be subject to the claims of the co-lender’s creditors. If that were to occur, we might incur delays and costs in realizing payment on the loan, or we might suffer a loss of principal and/or interest.
Use of Investment Vehicles
We have made indirect investments in portfolio companies through TCW Strategic Ventures.. In general, the risks associated with indirect investments in portfolio companies through a joint venture, partnership or other special purpose vehicle like TCW Strategic Ventures (each, an “Investment Vehicle”) are similar to those associated with a direct investment in a portfolio company. While we will analyze the credit and business of a potential portfolio company in determining whether or not to make an investment in an Investment Vehicle, we arewill nonetheless be exposed to the creditworthiness of the Investment Vehicle like TCW Strategic Ventures.Vehicle. In the event of a bankruptcy proceeding against anthe Investment Vehicle, the risks outlined below under “—Insolvency Considerations with Respect to Portfolio Companies” will be applicable with equal effect. Additionally, in the case of a bankruptcy proceeding against the portfolio company, the assets of the portfolio company may be used to satisfy its obligations prior to the satisfaction of our investment in anthe Investment Vehicle (i.e., our investment in anthe Investment Vehicle would be structurally subordinated to the other obligations of the portfolio company). To the extent that we have invested in an Investment Vehicle, we bear our ratable share of any such company’s expenses, including management and performance fees (if applicable). With respect to each of these investments, our Common Unitholders bear their share of the management fee and incentive fee due to the Adviser, as well as indirectly bear any management and performance fees and other expenses of any such investment funds.
Insolvency Considerations Withwith Respect to Portfolio Companies
. Various laws enacted for the protection of creditors may apply to our debt investments. A bankruptcy proceeding against a borrower could delay or limit our ability to collect the principal and interest payments on that borrower’s debt obligations. In a lawsuit brought by creditors of a borrower, a court or a trustee in bankruptcy could take certain actions that would be adverse to us. For example:
Lender Liability
. In recent years, a number of judicial decisions in the United States have upheld the right of borrowers to sue lending institutions on the basis of various evolving legal theories (collectively termed “Lender
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Liability”). Generally, Lender Liability is founded upon the premise that an institutional lender has violated a duty (whether implied or contractual) of good faith and fair dealing owed to the borrower or has assumed a degree of control over the borrower resulting in the creation of a fiduciary duty owed to the borrower or its other creditors or shareholders. Lender Liability claims generally arise in bankruptcy but can also arise under state law claims. Lender Liability often involves claims of misconduct where a lender (a) intentionally takes an action that exacerbates the insolvency of a borrower or issuer or that results in the undercapitalization of a borrower or issuer to the detriment of other creditors of such borrower or issuer, (b) engages in other inequitable conduct to the detriment of such other creditors, (c) engages in fraud with respect to, or makes misrepresentations to, such other
creditors or (d) uses its influence as a shareholder to dominate or control a borrower or issuer to the detriment of other creditors of such borrower or issuer. We could be subject to allegations of Lender Liability because of the nature of certain of our investments. There is also a risk that where Lender Liability is alleged, a court may elect to subordinate the claim of the offending lender or bondholder to the claims of the disadvantaged creditor or creditors (a remedy called “Equitable Subordination”).
We do not intend to engage in conduct that would give rise to a claim of Lender Liability or Equitable Subordination. However, as a BDC, we are obligated to offer managerial assistance to each of our portfolio companies. To the extent any of our portfolio companies elect to accept such offer to provide managerial assistance, that level of involvement with a portfolio company could strengthen a Lender Liability or Equitable Subordination claim against us. Therefore, claims for Lender Liability or Equitable Subordination affecting our investments could arise as a result of any managerial assistance that we provide in order to fulfill our obligations as a BDC. Moreover, because of the nature of our investments, we may not always be the lead creditor, and security or other agents may act on behalf of the investors in a security owned by us. Therefore, claims for Lender Liability or Equitable Subordination affecting our investments could also arise without our direct managerial or other involvement.
Reliance
Special Risks of Highly Leveraged or other Risky Portfolio Companies. We can invest up to 100% of our total assets in debt and equity securities of portfolio companies that are highly leveraged and whose debt securities would be considered well below investment grade. We may also invest in obligations of portfolio companies in connection with a restructuring under Chapter 11 of the U.S. Bankruptcy Code (i.e., a debtor in possession financing) if the obligations meet the credit standards of the Adviser. Debtor in possession financings are arranged when an entity seeks the protections of the bankruptcy court under Chapter 11 of the U.S. Bankruptcy Code. These financings allow an entity to continue its business operations while reorganizing under Chapter 11. Such financings are senior liens on Portfolio Company Management
Theday-to-day operationsunencumbered security (i.e., security not subject to other creditor claims). These debt obligations tend to offer higher yields than investment grade securities to compensate investors for the higher risk and are commonly referred to as “high risk securities” or, in the case of eachbonds, “junk bonds.” Similarly, we may also invest in obligations of portfolio companies in connection with rescue situation and Chapter 11 exit financings. Rescue situation financings may avoid a company’s need to resort to bankruptcy and provide the company with working capital it needs to continue uninterrupted operations. Chapter 11 exit financings allow a company to deleverage its balance sheet and to emerge from a Chapter 11 bankruptcy. Lending to highly leveraged or other risky borrowers is highly speculative. These investments may expose us to financial market risks, interest rate risks and credit risks that are significantly greater than the risks associated with other securities in which we invest ismay invest. An economic downturn or a period of rising interest rates, for example, could cause a decline in the responsibilityprices of such entity’s management team.securities. The prices of securities structured as zero-coupon or pay-in-kind securities may be more volatile than securities that pay interest periodically and in cash. In the event of a default by a portfolio company, we would experience a reduction of our income and could expect a decline in the fair value of the defaulted securities and may incur significant additional expenses to seek recovery.
Risk of Bridge Financing. If we make or invest in a bridge loan or interim financing for a portfolio company that intends to refinance all or a portion of that loan, there is a risk that the borrower will be unable to complete such refinancing successfully. Such failure could lead to the portfolio company having to pay interest at increasing rates along with additional fees and expenses, the result of which may reduce the value of the portfolio company.
Risk of Subordinated or Mezzanine Financing. Our investments in subordinated or mezzanine financing will generally be unsecured or, if secured, will be subordinated to the interests of the senior lender in the borrower’s capital structure. In the event of a bankruptcy or insolvency involving the borrower where there are insufficient assets to satisfy the obligations of the borrower to its senior lender, there may be no assets available to meet its obligations to the holders of its subordinated or mezzanine debt, including the Company.
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Risks of Investing in Unitranche Loans. Unitranche loans provide leverage levels comparable to a combination of first lien and second lien or subordinated loans and may rank junior to other debt instruments issued by the portfolio company. From the perspective of a lender, in addition to making a single loan, a unitranche loan may allow the lender to choose to participate in the “first out” tranche, which will generally receive priority with respect to payments of principal, interest and any other amounts due, or to choose to participate only in the “last out” tranche, which is generally paid only after the first out tranche is paid. We may participate in “first out” and “last out” tranches of unitranche loans and make single unitranche loans, and we may suffer losses on such loans if the borrower is unable to make investmentsrequired payments when due.
Non-U.S. Investment Risk. We may invest up to 30% of our gross assets in portfolio companies where we have limited influence anddomiciled outside of the other investors in such portfolio company have economic or business interests or goalsUnited States (assuming that are inconsistent with our business interests and goals. Although the Adviser is responsible for monitoring the performance of eachremaining 70% of our investments and is required, pursuant to a specificgross assets constitute “qualifying assets” (as defined in the 1940 Act provisionand as described under “Item 1. Business—Regulation as a Business Development Company—Qualifying Assets”)). Non-U.S. obligations have risks not typically involved in domestic investments. For example, non-U.S. obligations not denominated in U.S. dollars will cause our investment performance to vary based on changes in the applicable currency exchange rate. Moreover, even if we attempt to BDCs, to offer to provide each of our portfolio companies managerial assistance, therehedge the currency exchange risk, these hedges may be expensive and may not completely protect us in all circumstances. Non-U.S. investing can be no assurance thatalso result in higher transaction and operating costs for the existing management team of a portfolio company or any successor will be able to operate any such entity in accordance with our expectations. In this situation, weCompany. Non-U.S. issuers may not be in a positionsubject to limit or otherwise protect the same accounting and disclosure requirements that U.S. issuers are subject to. The value of our investment.
Need forFollow-On Investments
non-U.S. investments may be affected by exchange control regulations, expropriation or nationalization of a company’s assets, non-U.S. taxes, delays in settlement of transactions, changes in governmental economic or monetary policies in the United States or abroad, or other political and economic factors. We may be called upon to providefollow-on funding or additional loans for, or have greater difficulty taking appropriate legal actions in non-U.S. courts. Non-U.S. countries may impose withholding taxes on income paid on the opportunity to increase our investmentdebt securities of issuers in our portfolio companies. There can be no assurance that we will be able to make or arrange forfollow-on investments or loans or that we will have sufficient funds to do so. Any decision not to makefollow-on investments or loans or the inability to make them may have a substantial negative impact on a portfolio company in need of funds or may diminish our proportionate ownership in such entity and thus our ability to influence the entity’s future conduct. The inability to makefollow-on investments or loans may also impede, diminish or reduce the number of attractive investments made available to us.those countries.
Risks of Using Derivative Instruments
. We may use derivative financial instruments for hedging or managing the risks associated with the assets we hold. The risks posed by such instruments can be extremely complex and difficult to evaluate, including (i) risks relating to our counterparties in such a transaction; (ii) imperfect correlation between movements in the currency, interest rate or other reference on which the derivative is based and movements in the assets of the underlying portfolio; and (iii) reduced ability to meet short-term obligations because of the percentage of our assets segregated to cover derivative obligations. In addition, by hedging a particular position, any potential gain from an increase in value of such position may be limited.
Non-U.S. Investment Risk
Under an applicable SEC rule, BDCs that use over a certain level of derivatives will be subject to a value-at-risk (“VaR”) leverage limit, a derivatives risk management program and testing requirements and requirements related to board reporting. These requirements will apply, unless a BDC qualifies as a “limited derivatives user,” as defined under the rule. Under the rule, a BDC may enter into an unfunded commitment agreement that is not a derivatives transaction, such as an agreement to provide financing to a portfolio company, if the BDC has, among other things, a reasonable belief, at the time it enters into such an agreement, that it will have sufficient cash and cash equivalents to meet its obligations with respect to all of its unfunded commitment agreements, in each case as it becomes due. Collectively, these requirements may limit our ability to use derivatives and/or enter into certain other financial contracts.
Need for Follow-On Investments. We may invest upbe called upon to 30%provide follow-on funding or additional loans for, or have the opportunity to increase our investment in, our portfolio companies. There can be no assurance that we will be able to make or arrange for follow-on investments or loans or that we will have sufficient funds to do so. Any decision not to make follow-on investments or loans or the inability to make them may have a substantial negative impact on a portfolio company in need of funds or may diminish our proportionate ownership in such entity and thus our ability to influence the entity’s future conduct. The inability to make follow-on investments or loans may also impede, diminish or reduce the number of attractive investments made available to us.
Inability to Take Advantage of Investment Opportunities with Affiliated Funds or Investors. The 1940 Act limits our ability to engage in transactions with affiliated funds and investors. For example, we are prohibited under the 1940 Act from participating in certain transactions with our affiliates without the prior approval of our gross assetsIndependent Directors and, in portfolio companies domiciled outsidesome cases, of the United States (assumingSEC. Any person that the remaining 70%owns, directly or indirectly, five percent or more of our gross assets constitute “qualifying assets” (as definedoutstanding voting securities will be our affiliate for purposes of the 1940 Act, and we are generally prohibited from buying or selling any security from or to such affiliate, absent the prior approval of the Independent
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Directors. The 1940 Act also prohibits certain “joint” transactions with certain of our affiliates, which could include co-investments in the same portfolio company, without prior approval of the Independent Directors and, in some cases, of the SEC. Although the Company benefits from exemptive relief obtained from the SEC by the Adviser and other funds advised by the Adviser to engage in certain “joint” transactions, the relief is limited and subject to certain conditions. We are prohibited from buying or selling any security from or to any person who owns more than 25% of our voting securities or controls us (such as the Adviser) or certain of that person’s affiliates (such as other investment funds managed by the Adviser), or entering into prohibited joint transactions with such persons, absent the prior approval of the SEC. As a result of these restrictions, we may be prohibited from buying or selling any security (other than any security of which we are the issuer) from or to any portfolio company of a private equity fund managed by the Adviser or its affiliates without the prior approval of the SEC, which may limit the scope of investment opportunities that would otherwise be available to us. In situations where we cannot co-invest with other investment funds managed by the Adviser due to the restrictions contained in the 1940 Act)).Non-U.S. obligations have risks not typically involvedAct, the investment policies and procedures of the Adviser generally require that such opportunities be offered to us and such other investment funds on an alternating basis. Therefore, there can be no assurance that we will be able to participate in domestic investments. For example,non-U.S. obligations not denominated in U.S. dollars will causeall investment opportunities identified by the Adviser that are suitable for us.
Effect of BDC and RIC Rules on Investment Strategy. Our having to comply with the various rules necessary to remain qualified as a BDC and a RIC could adversely impact the implementation of our investment performancestrategy and thus reduce returns to vary based on changesinvestors. For example, the diversification requirements imposed by the RIC rules could, in certain situations, preclude us from making certain investments.
Equity Securities Risks. Equity securities may include common stock, preferred stock or other securities representing an ownership interest or the applicable currency exchange rate. Moreover, even if we attemptright to hedgeacquire an ownership interest in an issuer. Equity risk is the currency exchange risk these hedges may be expensivethat stocks and other equity securities generally fluctuate in value more than debt securities and may not completely protect usdecline in all circumstances.Non-U.S. investing can also result in higher transaction and operating costs for the Company.Non-U.S. issuers may not be subject to the same accounting and disclosure requirements that U.S. issuers are subject to.value over short or extended periods. The value ofnon-U.S. investments stocks and other equity securities may be affected by foreign governmental laws, rules and regulations, including exchange control regulations,
expropriation or nationalization of a company’s assets, tax and bankruptcy related laws and policies restricting ownership of assets,non-U.S. taxes, delays in settlement of transactions, changes in governmentalan issuer’s financial condition, factors that affect a particular industry or industries, such as labor shortages or an increase in production costs and competitive conditions within an industry, or .as a result of changes in overall market, economic and political conditions that are not specifically related to a company or monetary policiesindustry, such as real or perceived adverse economic conditions, changes in the United Statesgeneral outlook for corporate earnings, changes in interest or abroad,currency rates or generally adverse investor sentiment.
RISKS RELATED TO UNITHOLDERS
Effect of Varying Terms of Classes of Units. Although we have no current intention to do so, pursuant to the LLC Agreement, we may issue Preferred Units. If we issue Preferred Units, there can be no assurance that such issuance would result in a higher yield or return to the holders of the Units. The issuance of Preferred Units would likely cause the net asset value of the Units to become more volatile. If the dividend rate on the Preferred Units were to approach the net rate of return on our investment portfolio, the benefit of leverage to the holders of the Units would be reduced. If the dividend rate on the Preferred Units were to exceed the net rate of return on our portfolio, the leverage would result in a lower rate of return to the holders of the Units than if we had not issued Preferred Units. Any decline in the net asset value of our investments would be borne entirely by the holders of the Units. Therefore, if the fair value of our portfolio were to decline, the leverage would result in a greater decrease in net asset value to the holders of the Units than if we were not leveraged through the issuance of Preferred Units.
Rights of Preferred Unitholders. Holders of any Preferred Units that we might issue would have the right, voting separately as a single class, to elect two members of the board at all times. In addition, if dividends for Preferred Units become two full years in arrears, the holders of those Preferred Units would have the right to elect a majority of the board until such arrearage is completely eliminated. Restrictions imposed on the declarations and payment of dividends or other politicaldistributions to the holders of the Units and economic factors. WePreferred Units, both by the 1940 Act and by the terms of our debt financings (if any), might impair our ability to qualify as a RIC for federal income tax purposes. While we would intend to redeem the Preferred Units to the extent necessary to enable us to distribute our income as required to qualify as a RIC, there can be no assurance that such actions could be effected in time to meet the tax requirements.
Retention of Proceeds. During the Commitment Period, the Company was permitted to retain, in whole or in part, any proceeds attributable to portfolio investments and use the amounts so retained to make new investments
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(up to the cost of portfolio investments attributable to such proceeds), pay Company fees and expenses, repay Company borrowings, or fund reasonable reserves for future Company expenses or other obligations (including obligations to make indemnification advances and payments), provided, that, after the expiration of the Commitment Period, no part of such retained amounts will be used to make any investment for which the Adviser would not be permitted to draw down Commitments. To the extent such retained amounts have been reinvested in investments, a Unitholder will remain subject to investment and other risks associated with such investments.
Obligations of Unitholders Relating to Credit Facilities. Under the Natixis Credit Agreement (as defined herein) we have granted security over and may have greater difficulty taking appropriate legal actionstransfer our right to drawdowns of capital from investors to our lenders or other creditors. Unitholders are required to fund drawdowns up to the amount of their respective Undrawn Commitments if an event of default under a credit facility or any other borrowing agreement occurs innon-U.S. courts.
Non-U.S. countries may impose withholding taxes, transfer taxes order to repay any indebtedness of the Company or any of its subsidiaries, and value added taxes on income paid on the debt securities of issuers or gains from our investments in those countries.
Risks Related to Economic and Market Conditions
General Economic and Financial Conditions
The successpayment by a Unitholder of any such amounts that have become due and payable by the Company out of such Unitholder’s Undrawn Commitment may be a condition to the effectiveness of (i) any transfer, withdrawal, termination or reduction of Commitments of such Unitholder or (ii) such Unitholder’s ability to cease funding its Commitment.
Consequences of Failure to Pay Commitment in Full. If a Unitholder fails to pay any installment of its Commitment, other Unitholders who have an outstanding Commitment may be required to fund their respective Commitments sooner than they otherwise would have absent such a default. In addition, if funding of Commitments by other Unitholders and our borrowings are inadequate to cover defaulted Commitments, we may be unable to pay our obligations when due or be subjected to penalties or may otherwise suffer adverse consequences that could materially adversely affect the returns to the Unitholders (including non-defaulting Unitholders). If a Unitholder defaults, there is no guarantee that we will recover the full amount of the defaulted Commitment, and such defaulting Unitholder may lose all or a portion of its economic interest in us.
No Registration; Limited Transferability of Units. The Units were offered without registration under the Securities Act or any other laws of applicable jurisdictions. All dispositions and transfers of the Units shall be made pursuant to an effective registration statement or in accordance with an exemption from registration contained in the Securities Act. Unitholders will not be permitted to transfer their Units unless (i) we and, if required by our lending arrangements, our lenders give consent and (ii) the transfer is made in accordance with applicable securities laws. Furthermore, the transferability of the Units may be subject to certain restrictions contained in the Subscription Agreement and the LLC Agreement and may be affected by restrictions on resale imposed under U.S. federal, U.S. state or another jurisdiction’s securities laws. A public market does not currently exist for the Units and one is not expected to develop. Withdrawal from an investment activityin the Units will not generally be permitted. In light of the restrictions imposed on any such transfer and in light of the limitations imposed on a Unitholder’s ability to withdraw all or part of its investment in Units, an investment in the Units should be viewed as illiquid and subject to high risk.
Withholding Risk for Foreign Investors. U.S. withholding tax rules require 30% withholding on distributions to Non-U.S. Holders unless there is influencedcertainty that such distributions are not subject to such withholding. The Company may make distributions at times of the year when there is uncertainty as to whether the amounts distributed are subject to such withholding. Accordingly, such distributions to Non-U.S. Holders may be subject to overwithholding by generalthe Company (or its withholding agent) and Non-U.S. Holders may be required to file a return with the Internal Revenue Service in order to receive a refund of such overwithheld amounts. Non-U.S. Holders should see the discussion under the heading “Item 1. Business—Certain U.S. Federal Income Tax Consequences.”
Tax Risks. Tax consequences to Unitholders from an investment in the Units are complex. Potential Unitholders are strongly urged to review the discussion in “Item 1. Business—Certain U.S. Federal Income Tax Consequences.”
GENERAL RISK FACTORS
Political, Social and Economic Uncertainty Risk. Social, political, economic and other conditions and events (such as natural disasters, epidemics and pandemics, terrorism, conflicts and social unrest) will occur that create uncertainty and have significant impacts on issuers, industries, governments and other systems, including the
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financial conditions, all ofmarkets, to which companies and their investments are beyond our controlexposed. As global systems, economies and the control of the Adviser. These conditions,financial markets are increasingly interconnected, events that once had only local impact are now more likely to have regional or even global effects. Events that occur in one country, region or financial market will, more frequently, adversely impact issuers in other countries, regions or markets, including in established markets such as the recent global economic crisisU.S. These impacts can be exacerbated by failures of governments and significant downturnssocieties to adequately respond to an emerging event or threat.
Uncertainty can result in or coincide with, among other things: increased volatility in the financial markets for securities, derivatives, loans, credit and currency; a decrease in the reliability of market prices and difficulty in valuing assets (including portfolio company assets); greater fluctuations in spreads on debt investments and currency exchange rates; increased risk of default (by both government and private obligors and issuers); further social, economic, and political instability; nationalization of private enterprise; greater governmental involvement in the economy or in social factors that impact the economy; changes to governmental regulation and supervision of the loan, securities, derivatives and currency markets and market participants and decreased or revised monitoring of such markets by governments or self-regulatory organizations and reduced enforcement of regulations; limitations on the activities of investors in such markets; controls or restrictions on foreign investment, capital controls and limitations on repatriation of invested capital; the significant loss of liquidity and the inability to purchase, sell and otherwise fund investments or settle transactions (including, but not limited to, a market freeze); unavailability of currency hedging techniques; substantial, and in some periods extremely high, rates of inflation, which can last many years and have substantial negative effects on credit and securities markets as well as the economy as a whole; recessions; and difficulties in obtaining and/or enforcing legal judgments.
We will also be negatively affected if the operations and effectiveness of us or a portfolio company (or any of the key personnel or service providers of the foregoing) is compromised or if necessary or beneficial systems and processes are disrupted.
Changes to U.S. Tariff and Import/Export Regulations. There has been ongoing discussion and commentary regarding potential, significant changes to U.S. trade policies, treaties and tariffs, resulting in significant uncertainty about the future relationship between the United States and other countries with respect to trade policies, treaties and tariffs. These developments, or the perception that any of them could occur, may materially adversely affecthave a material adverse effect on global economic conditions and the stability of global financial markets, and may significantly reduce global trade and, in particular, trade between the impacted nations and the United States. Any of these factors could depress economic activity and restrict our operating results,portfolio companies’ access to suppliers or customers and have a material adverse effect on their business, financial condition and abilityresults of operations, which in turn would negatively impact us.
Changes in Applicable Law. We must comply with various legal requirements, including requirements imposed by United States and non-U.S. anti-money laundering laws, securities laws, commodities laws, tax laws and pension laws. Should any of those laws change over the life of the Company, the legal requirements to implement our business strategy and/or meet our return objectives.which we and the Adviser may be subject could differ materially from current requirements. In addition, if a Unitholder fails to comply with applicable anti-money laundering laws and similar laws, the Company may mandatorily repurchase such Unitholder’s Units.
Terrorist Action
. There is a risk of terrorist attacks on the United States and elsewhere causing significant loss of life and property damage and disruptions in global market. Economic and diplomatic sanctions may be in place or imposed on certain states and military action may be commenced. The impact of such events is unclear, but could have a material effect on general economic conditions and market liquidity.
Changes
Dependence on Information Systems and Systems Failures. Our business is highly dependent on the communications and information systems of the Adviser, its affiliates and third parties. Further, in Applicable Lawthe ordinary course of our business we or the Adviser may engage certain third party service providers to provide us with services necessary for our business. Any failure or interruption of those systems or services, including as a result of the termination or suspension of an agreement with any third party service providers, could cause delays or other problems in our activities. Our financial, accounting, data processing, backup or other operating systems and facilities may fail to operate properly or become disabled or damaged as a result of a number of factors including events that are wholly or partially beyond our control and adversely affect our business. There could be:
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We must comply with various legal requirements,These events, in turn, could have a material adverse effect on our operating results.
Cybersecurity Risks and Cyber Incidents. Our business depends on the communications and information systems of our Adviser and its affiliates, our portfolio companies and third-party service providers. These systems are subject to potential cybersecurity attacks and incidents, including requirements imposedthrough adverse events that threaten the confidentiality, integrity or availability of our information resources. Cyber hacking could also cause significant disruption and harm to the companies in which we invest. Additionally, digital and network technologies (collectively, “cyber networks”) might be at risk of cyberattacks that could potentially seek unauthorized access to digital systems for purposes such as misappropriating sensitive information, corrupting data or causing operational disruption. Cyberattacks might potentially be carried out by United Statespersons using techniques that could range from efforts to electronically circumvent network security or overwhelm websites to intelligence gathering andnon-U.S. anti-money laundering laws, securities laws, commodities laws, tax laws social engineering functions aimed at obtaining information necessary to gain access. These attacks could involve gaining unauthorized access to our information systems for purposes of misappropriating assets, stealing confidential information, corrupting data or causing operational disruption and pension laws. Shouldresult in disrupted operations, misstated or unreliable financial data, liability for stolen assets or information, increased cybersecurity protection and insurance costs, litigation and damage to our business relationships, any of which could, in turn, have a material adverse effect on our operating results and negatively affect the value of our securities and our ability to pay distributions to our unitholders.
As our reliance on technology has increased, so have the risks posed to our information systems, both internal and those laws change overprovided by the life of the Company, the legal requirements to whichAdviser and third-party service providers. In addition, we and the Adviser currently or in the future are expected to routinely transmit and receive confidential and proprietary information by email and other electronic means. We and the Adviser may not be able to ensure secure capabilities with all of our clients, vendors, service providers, counterparties and other third parties to protect the confidentiality of the information.
In addition, we, the Adviser and many of our third-party service providers currently have work from home policies. Such a policy of remote working could strain our technology resources and introduce operational risks, including heightened cybersecurity risks and other risks described above. Remote working environments may be subject could differ materially from current requirements.
Risks Relatedless secure and more susceptible to our Common Units
No Assurance of Profits
hacking attacks, including phishing and social engineering attempts. There is no assurance that weany efforts to mitigate cybersecurity risks undertaken by us or our Adviser will be able to generate returns foreffective. Network, system, application and data breaches as a result of cybersecurity risks or cyber incidents could result in operational disruptions or information misappropriation that could have a material adverse effect on our investors or that the returns will be commensurate with the risks of investing in the types of companies and transactions described herein. The marketability and value of any of our investments will depend upon many factors beyond our control. We will incur organizational expenses, Management Fees and other operating expenses which may exceed our income, and a Member could lose the entire amount of its contributed capital. Therefore, a prospective investor should only invest in the Company if such investor can withstand a total loss of his or her investment. The past investment performance of the entities and accounts with which the Adviser and its investment professionals have been associated cannot be taken to guarantee futurebusiness, results of any investment in the Company.
Effectoperations and financial condition of Varying Terms of Classes of Units
Although we have no current intention to do so, we may issue Preferred Units pursuant to our operating agreement (the “LLC Agreement”). If we issue Preferred Units, there can be no assurance that such issuance would result in a higher yield or return to the holders of the Common Units. The issuance of Preferred Units would likely cause the net asset value of the Common Units to become more volatile. If the dividend rate on the Preferred Units were to approach the net rate of return on our investment portfolio, the benefit of leverage to the holders of the Common Units would be reduced. If the dividend rate on the Preferred Units were to exceed the net rate of return on our portfolio, the leverage would result in a lower rate of return to the holders of the Common Units than if we had not issued Preferred Units. Any decline in the net asset value of our investments would be borne entirely by the holders of the Common Units. Therefore, if the fair valueus and of our portfolio werecompanies.
ITEM 1B. UNRESOLVED STAFF COMMENTS
None.
ITEM 1C. CYBERSECURITY
Our Board of Directors (the “Board”) is responsible for overseeing our risk management program, and cybersecurity is a critical element of this program. Management is responsible for the day-to-day administration of the Company’s risk management program and its cybersecurity policies, processes, and practices. The Adviser’s cybersecurity policies, standards, processes, and practices are based on recognized frameworks established by the National Institute of Standards and Technology, the International Organization for Standardization and other
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applicable industry standards and are fully integrated into the Adviser’s overall risk management processes. In general, the Adviser seeks to decline,address material cybersecurity threats through a company-wide approach that addresses the leverage would resultconfidentiality, integrity, and availability of the Adviser’s information systems or the information that the Adviser collects and stores, by assessing, identifying and managing cybersecurity issues as they occur.
Cybersecurity Risk Management and Strategy
The Adviser’s cybersecurity risk management strategy focuses on several areas:
The Adviser conducts periodic assessment and testing of its policies, standards, processes, and practices in a manner intended to address cybersecurity threats and events. This includes penetration testing of network infrastructure and phishing tests targeting the Adviser’s employees. The results of such assessments and reviews are evaluated by management and reported to the holdersBoard, and the Adviser adjusts its cybersecurity policies, standards, processes, and practices as necessary based on the information provided by these assessments and reviews.
Governance
The Board, in coordination with the Adviser, oversees the Company’s risk management program, including the management of the Common Units than if we were not leveraged through the issuance of Preferred Units.
Obligations of Common Unitholders Relating to Credit Facilities
Under our current credit facilitycybersecurity threats. The Board receives regular updates and any credit facility we may enter intoreports on developments in the future, we have granted,cybersecurity space, including risk management practices, recent developments, vulnerability assessments, third-party and may inindependent reviews, the future grant,threat environment, and information security overissues encountered by the Company’. The Board also receives prompt and may be requiredtimely information regarding any material cybersecurity risk, as well as ongoing updates regarding any such risk. On an annual basis, the Board and the Adviser discuss the Company’s approach to transfer our rightoverseeing cybersecurity threats.
The Adviser has established an internal working group that includes relevant representation from senior management including the CCO, COO and CISO who work collaboratively to drawdowns of capitalimplement a program designed to protect the Company’s information systems from investorscybersecurity threats and to our lenders or other creditors. Common Unitholders will be requiredpromptly respond to fund drawdowns up to the amount of their respective Undrawn Commitments if an event of default under our credit facility or any other borrowing agreement occurs in order to repay any indebtedness of the Company.
Consequences of Failure to Pay Commitment in Full
If a Member fails to pay any installment of its Commitment, other Members who have an outstanding Commitment may be required to fund their respective Commitments sooner than they otherwise would have absent such a default. In addition, if funding of Commitments by other Members and our borrowings are inadequate to cover defaulted Commitments, we may be unable to pay our obligations when due or be subjected to penalties or may otherwise suffer adverse consequences that could materially adversely affect the returns to the Members (includingnon-defaulting Members). If a Member defaults, there is no guarantee that we will recover the full amount of the defaulted Commitment, and such defaulting Member may lose all or a portion of its economic interest in us.
No Registration; Limited Transferability of Common Units
The Common Units are being offered without registration under the Securities Act or any other laws of applicable jurisdictions. All dispositions and transfers of the Common Units shall be made pursuant to an effective registration statement ormaterial cybersecurity incidents in accordance with an exemptionthe Company’s incident response and recovery plans. Through ongoing communication with these teams, the CISO and senior management are informed about and monitor the prevention,
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detection, mitigation and remediation of cybersecurity threats and incidents in real time, and report such threats and incidents to the Board when appropriate.
The CISO has served in various roles in information technology and information security for many years and holds relevant professional certifications. The Adviser’s COO and CCO each hold educational and professional degrees in their respective fields, and each has numerous years of experience managing risk at the Company and at similar companies, including assessing cybersecurity threats.
Material Effects of Cybersecurity Incidents
Risks from registration contained incybersecurity threats, including as a result of any previous cybersecurity incidents, have not materially affected and are not reasonably likely to materially affect the Securities Act. Members will not be permitted to transfer their Common Units unless (i) we and, if required by our lending arrangements, our lenders give consent and (ii) the Transfer is made in accordance with applicable securities laws. Furthermore, the transferabilityCompany, including its business strategy, results of the Common Units may be subject to certain restrictions contained in the Subscription Agreement and the LLC Agreement and may be affected by restrictions on resale imposed under U.S. federal, U.S. stateoperations, or another jurisdiction’s securities laws. A public market does not currently exist for the Units and one is not expected to develop. Withdrawal from an investment in the Common Units will not generally be permitted. In light of the restrictions imposed on any such transfer and in light of the limitations imposed on a Member’s ability to withdraw all or part of its investment in Common Units, an investment in the Common Units should be viewed as illiquid and subject to high risk.
None.ITEM 2. PROPERTIES
We maintain our principal executive office at 200 Clarendon Street, 51st Floor, Boston, MAMassachusetts 02116. We do not own any real estate. We believe that our present facilities are adequate to meet our current needs. If new or additional space is required, we believe that adequate facilities are available at competitive prices in the same area.
ITEM 3. 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. While the outcome of these legal proceedings cannot be predicted with certainty, we do not expect that these proceedings will have a material effect upon our financial condition or results of operations.
None.
None.
PART II
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY 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 since that date 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 Members. 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.
ITEM 6. SELECTED FINANCIAL DATA
The table below sets forth our consolidated selected financial data for the years ended December 31, 2017, 2016 and 2015 and the period from May 13, 2014 (Inception) to December 31, 2014. The selected consolidated income statement, balance sheet and other data for the years ended December 31, 2017, 2016, 2015 and 2014 havepreviously required by Item 301 of Regulation S-K has been derived from our audited consolidated financial statements, which are included elsewhereomitted in this Form10-K and ourreliance on SEC filings.
The selected financial information and other data presented below should be read in conjunction with the information contained in “Item 7.Release No. 33-10890, Management’s Discussion and Analysis, ofSelected Financial ConditionData, and Results of Operations,” the audited consolidated financial statements and the notes thereto included elsewhere in this annual report on Form10-K:Supplementary Financial Information.
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Year Ended December 31, | Inception to December 31, | |||||||||||||||
2017 | 2016 | 2015 | 2014 | |||||||||||||
($ in thousands, except unit data) | ||||||||||||||||
Statement of Operations Data | ||||||||||||||||
Income | ||||||||||||||||
Total investment income | $ | 151,429 | $ | 111,425 | $ | 31,421 | $ | 1,463 | ||||||||
Expenses | ||||||||||||||||
Net expenses | 47,354 | 46,222 | 44,360 | 5,102 | ||||||||||||
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Net investment income (loss) | 104,075 | 65,203 | (12,939 | ) | (3,639 | ) | ||||||||||
Net realized gain (loss) onnon-controlled/non-affiliated investments | (88 | ) | 519 | 2,350 | 129 | |||||||||||
Net realized gain distributions from controlled affiliated investments | 1,432 | — | — | — | ||||||||||||
Net change in unrealized appreciation/depreciation onnon-controlled/non-affiliated investments | (1,979 | ) | (17,114 | ) | (6,453 | ) | 2,187 | |||||||||
Net change in unrealized appreciation on controlled affiliated investments | 876 | 13,193 | 6,075 | — | ||||||||||||
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Net increase (decrease) in Members’ Capital from operations | $ | 104,316 | $ | 61,801 | $ | (10,967 | ) | $ | (1,323 | ) | ||||||
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Income (Loss) per unit | $ | 5.17 | $ | 3.07 | $ | (0.58 | ) | $ | (0.16 | ) |
Balance Sheet Data Cash and cash equivalents Non-controlled/non-affiliated investments Controlled affiliated investments Total assets Total debt Total liabilities Total Members’ Capital Net asset value per unit (accrual base), End of year/period Other Data Number of portfolio companies atyear-end Common Unitholder Total Return(1) Weighted-average yield of debt and income producing securities(2) Fair value of debt investments as a percentage of principal Year Ended December 31, 2017 2016 2015 2014 ($ in thousands, except unit data) $ 209,784 $ 214,913 $ 180,436 $ 6,967 1,163,294 1,083,226 586,626 112,500 259,698 247,164 206,635 — 1,655,257 1,558,101 1,008,801 125,627 378,000 590,000 329,000 55,000 379,837 594,997 357,498 61,099 1,275,420 963,104 651,303 64,528 $ 78.70 $ 93.55 $ 99.35 $ 99.84 26 23 11 2 9.5 % 8.3 % (3.3 )% (2.0 )% 10.5 % 10.3 % 9.5 % 8.1 % 96.5 % 96.7 % 97.9 % 100. 0 %
ITEM 7. 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 financial statements and notes thereto appearing elsewhere in this report. This discussion also should be read in conjunction with the “Cautionary Statement Regarding Forward Looking Statements” set forth on page iiiii of this annual report.
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 will beare 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 andtax-exempt interest.
Each investor was required to enter into a subscription agreement in connection with its Commitment (a “Subscription Agreement”). Under the terms of the subscription agreements, the Company may generally draw down all or any portion of the undrawn commitment with respect to each Common Unit upon at least ten business days’ prior written notice to the Common Unitholders. Investors have entered into subscription agreements for 20,134,698 Common Units of the Company issued and outstanding representing a total of $2.013 billion of committed capital. On July 11, 2022, our Members approved a reduction in Undrawn Commitments by $10.43 per unit, resulting in an approximately 41.18% reduction of overall remaining available capital commitments. We effected this commitment reduction by reducing the number of outstanding undrawn units and thereby reducing total Units from 20,134,698 to 18,034,649. Such Unit reduction was proportionately effected for each Member and therefore has no impact on each Member’s percentage interest in us.
On May 18, 2016,As of December 31, 2023, we established a wholly owned subsidiary,TCW-DL VF Holdings, Inc., ashave two wholly-owned subsidiaries - TCW DL VI Funding I, LLC and TCW DL CTH, LLC, each a Delaware entitylimited liability company and each designed to hold an equity investment in a portfolio company organized as a limited liability company.of ours.
On September 19, 2016, we formed TCW Direct Lending Luxembourg VI S.à.r.l., (“TCW Direct Lending Luxembourg”) a private limited liability company under the laws of Luxembourg, of which we own 100% of the membership interests.Revenues
Throughout 2017, the Company formed several Delaware limited liability companies, all of which have a single member interest owned by the Company.
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. In general,As our investment period has ended, we dowill not expect the Direct Lending Teamoriginate new loans, but may increase credit facilities to originate a significant amount of investments for us withpayment-in-kind (“PIK”) interest features, although we may have investments with PIK interest features in limited circumstances.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 will behas 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.
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 mayco-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 may beare certain instances where we will investinvested in companies domiciled elsewhere.
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Expenses
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 (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
Our discussion and analysis of our financial condition and results of operations are based upon our financial statements which have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”). The preparation of these financial statements requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses. Changes in the economic environment, financial markets and any other parameters used in determining such estimates could cause actual results to differ.
In addition to the discussion below, our critical accounting policies are further described in Note 2 to the consolidated financial statements. We consider these accounting policies to be critical because they involve management judgments and assumptions, require estimates about matters that are inherently uncertain and are important for understanding and evaluating our reported financial results. These judgments will affect the reported amounts of assets and liabilities and our disclosure of contingent assets and liabilities at the dates of the financial statements and the reported amounts of revenue and expenses during the reporting periods. With different estimates or assumptions, materially different amounts could be reported in our financial statements. The critical accounting policies should be read in connection with our risk factors as disclosed in “Item 1A. Risk Factors.”
Investments at Fair Value
Investments which we hold for which market quotes are not readily available or are not considered reliable are valued at fair value andaccording to procedures approved by our Board of Directors based on similar instruments, internal assumptions and the weighting of the best available pricing inputs. On May 12, 2022, pursuant to Rule 2a-5 under the 1940 Act, the Board designated the Adviser as the "valuation designee" with respect to the fair valuation of the Company's portfolio securities, subject to oversight by and periodic reporting to the Board. Prior to this date, fair valuations were approved by the Board in accordance with the Company's valuation policy.
Fair Value Hierarchy: Assets and liabilities are classified by us into three levels based on valuation inputs used to determine fair value into three levels.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:
Registered Investment Companies,Equity, (Level 1), include registeredopen-end investment companies that are includes common stock valued based uponat the reported net asset value of such investment.
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 observableobservable; however, a significant portion of the inputs and the internal assumptions applied are unobservable.
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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), include includes common stock.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.
Pricing inputs and weightings applied to determine value require subjective determination. Accordingly, valuations do not necessarily represent the amounts that may eventually be realized form sales or other dispositions of investments.
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 additionalone-year periods by the Company, in its full discretion. The Company can further extend the term of the fund for additionalone-year periods, upon notice to and consent from the funds management committee. On February 25, 2021, Company extended the fund’s term one additional year, until June 5, 2022. On February 1, 2022, the Company further extended the fund's term to June 5, 2023.On April 17, 2023, the Company further extended the fund's term one additional year, until June 5, 2024. The Company is entitled to income and principal distributed by the fund.
Investment Activity
As of December 31, 2023, our portfolio consisted of debt and equity investments in seven and six portfolio companies, respectively, including TCW Strategic Ventures. Based on fair valuevalues as of December 31, 2017,2023, ournon-controlled/non-affiliated portfolio consistedwas comprised of 26 debt investments and three equity investments. Of these investments, 99.0% were62.5% debt investments which were primarily senior secured, first lien or term loans and 1.0%37.5% equity investments, which were equity comprised ofprimarily common stock and warrants. Basedpreferred stocks; warrants; and our common and preferred membership interests in TCW Strategic Ventures. Debt investments in two portfolio companies were on fair valuenon-accrual status as of December 31, 2016,2023, representing 4.3% and 22.6% of ournon-controlled/non-affiliated portfolio’s fair value and cost, respectively.
Based on fair values as of December 31, 2022, our portfolio consisted of 23 debt and equity investments in eight and one equity investment. Of these investments, 99.2% wereeight portfolio companies, respectively, including TCW Strategic Ventures. Our portfolio was comprised of 67.9% debt investments which were primarily senior secured, first lien or term loans and 0.8% was32.1% equity investments, which were primarily common stock.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, 2022, representing 6.6% and 18.8% of our portfolio’s fair value and cost, respectively.
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The table below describes ournon-controlled/non-affiliated debt and equity investments by industry classification and enumerates the percentage, by fair value, of the total portfolio assets in industriesby industry as of December 31, 2017:2023:
Industry | Percent of | ||||
| 22 | % | |||
Metals & Mining | 18 | % | |||
Investment Funds & Vehicles | 16 | % | |||
Diversified Consumer Services | 14 | % | |||
Pharmaceuticals | 10 | % | |||
Household Durables | 9 | % | |||
Hotels, Restaurants & Leisure | 7 | % | |||
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Interest income fromnon-controlled/non-affiliated investments, including interest incomepaid-in-kind, was $128.8 million, $96.0 million and $30.5 million for the years ended December 31, 2017, 2016 and 2015, respectively.
Results of Operations
Our operating results for the years ended December 31, 2017, 20162023, 2022 and 20152021 were as follows (dollar amounts in thousands):
Year Ended December 31, | ||||||||||||
2017 | 2016 | 2015 | ||||||||||
Total investment income | $ | 151,429 | $ | 111,425 | $ | 31,421 | ||||||
Net expenses | 47,354 | 46,222 | 44,360 | |||||||||
|
|
|
|
|
| |||||||
Net investment income (loss) | 104,075 | 65,203 | (12,939 | ) | ||||||||
Net realized gain (loss) onnon-controlled/non-affiliated investments | (88 | ) | 519 | 2,350 | ||||||||
Net realized gain distributions from controlled affiliated investments | 1,432 | — | — | |||||||||
Net change in unrealized appreciation/depreciation onnon-controlled/non-affiliated investments | (1,979 | ) | (17,114 | ) | (6,453 | ) | ||||||
Net change in unrealized appreciation/depreciation on controlled affiliated investment | 876 | 13,193 | 6,075 | |||||||||
|
|
|
|
|
| |||||||
Net increase (decrease) in Members’ Capital from operations | $ | 104,316 | $ | 61,801 | $ | (10,967 | ) |
|
| For the Year Ended December 31, |
| |||||||||
|
| 2023 |
|
| 2022 |
|
| 2021 |
| |||
Total investment income |
| $ | 53,243 |
|
| $ | 43,224 |
|
| $ | 47,832 |
|
Net expenses |
|
| 15,666 |
|
|
| 13,068 |
|
|
| 12,129 |
|
Net investment income |
|
| 37,577 |
|
|
| 30,156 |
|
|
| 35,703 |
|
Net realized loss on investments |
|
| (26,768 | ) |
|
| — |
|
|
| (51,828 | ) |
Net change in unrealized appreciation/(depreciation) on investments |
|
| 5,423 |
|
|
| 13,192 |
|
|
| 120,141 |
|
Net realized gain on short-term investments |
|
| 4,292 |
|
|
| 63 |
|
|
| 13 |
|
Net increase in Members’ Capital from operations |
| $ | 20,524 |
|
| $ | 43,411 |
|
| $ | 104,029 |
|
Total investment income
Total investment income for the years ended December 31, 2017, 20162023, 2022 and 20152021 was $151.4$53.2 million, $111.4$43.2 million and $31.4$47.8 million, respectively, and included interest income as well as interest incomepaid-in-kind fromnon-controlled/non-affiliated investmentswas comprised of $128.8 million, $96.0 million and $30.5 million, respectively, as well as dividend income of $22.6 million, $14.8 million and $0.9 million, respectively, from TCW Strategic Ventures, a controlled affiliated investment which commenced operationsthe following (dollar amounts in 2015.thousands):
Net
|
| For the Year Ended December 31, |
| |||||||||
|
| 2023 |
|
| 2022 |
|
| 2021 |
| |||
Interest income |
| $ | 26,854 |
|
| $ | 13,499 |
|
| $ | 25,045 |
|
Interest income paid-in-kind |
|
| 17,571 |
|
|
| 24,367 |
|
|
| 15,362 |
|
Dividend income |
|
| 8,596 |
|
|
| 5,200 |
|
|
| 7,200 |
|
Other fee income |
|
| 222 |
|
|
| 158 |
|
|
| 225 |
|
Total investment income |
| $ | 53,243 |
|
| $ | 43,224 |
|
| $ | 47,832 |
|
The increase in total investment income (loss)
Our net investment income (loss) forduring the years ended December 31, 2017, 20162023 compared to the year ended December 31, 2022, was primarily due to an increase in interest rates on our debt investments during the year ended December 31, 2023 compared to the year ended December 31, 2022. During the year ended December 31, 2022, most of our debt investments earned interest income based on their respective interest rate floors, whereas during the year ended December 31, 2023 all of our debt investments earned interest above their respective interest rate floors. Additionally, dividend income increased due to dividends from our equity investments in TCW Strategic Ventures and 2015SSI Parent, LLC (fka School Specialty, Inc.).
34
The decrease in total investment income during the year ended December 31, 2022 compared to the year ended December 31, 2021, was $104.1primarily due to lower aggregate interest income and interest income paid-in-kind from our debt investments driven by the decrease in the average par value of debt during the year ended December 31, 2022 compared to the year ended December 31, 2021, as well as lower dividend income from TCW Strategic Ventures. The average par value of debt (based on the ending balance of each month of the year) was $437.5 million $65.2during the year ended December 31, 2022 compared to $531.1 million and ($12.9) million, respectively. The increase induring the year ended December 31, 2021.
Net investment income
Our net investment income for the years ended December 31, 20172023, 2022 and 20162021 was $37.6 million, $30.2 million and $35.7 million, respectively.
The increase in net investment income during the year ended December 31, 2023 compared to the year ended December 31, 2022 was primarily due to higher total investment income as described above partially offset by higher net expenses. The increase in net expenses was primarily attributable to current operationshigher interest and credit facility expenses and higher interest expense on repurchase transactions partially offset by the waiver of management fees from the Adviser. The increases in interest and credit facility expenses and interest expense on repurchase transactions were due to a higher weighted average interest rate during the year ended December 31, 2023 compared to the year ended December 31, 2022. Total management fees of $4.0 million were waived by the Adviser during the year ended December 31, 2023 as the Adviser agreed to waive all management fees earned subsequent to December 31, 2022.
The decrease in net investment income during the year ended December 31, 2022 compared to the year ended December 31, 2021 was primarily due to lower total investment income as described above coupled with higher total expenses. The increase in the number of debt investments year over year, in addition to a greater number of debt investments which earned interest income for the entire year. The net investment loss for the year-ended December 31, 2015total expenses was primarily attributable to management fees charged on commitments from the Initial Closing Date andhigher interest and credit facility expenses and higher other expenses partially offset by lower management fees. The increase in interest and credit facility expenses and other expenses is due to our higher average debt outstanding balance and weighted average interest rate during the year ended December 31, 2022 compared to the year ended December 31, 2021. The decrease in management fees is due to the decrease in the investment cost basis for which exceeded investment incomethe first quarter management fees are based on during the year ended December 31, 2022 compared to the year ended December 31, 2021. The management fees during the first quarter of the year ended December 31, 2021 were calculated based on the cost of investments as we increased investment operations throughout 2015.
OperatingTotal expenses for the years ended December 31, 2017, 20162023, 2022 and 20152021 were as follows (dollar amounts in thousands):
Year Ended December 31, |
| For the Year Ended December 31, |
| |||||||||||||||||||||
2017 | 2016 | 2015 |
| 2023 |
|
| 2022 |
|
| 2021 |
| |||||||||||||
Expenses |
|
|
|
|
|
|
|
|
| |||||||||||||||
Interest and credit facility expenses |
| $ | 7,986 |
|
| $ | 5,648 |
|
| $ | 4,777 |
| ||||||||||||
Interest expense on repurchase transactions |
|
| 5,922 |
|
|
| 1,566 |
|
|
| 152 |
| ||||||||||||
Management fees | $ | 25,101 | $ | 30,202 | $ | 35,244 |
|
| 4,000 |
|
|
| 4,015 |
|
|
| 5,293 |
| ||||||
Interest and credit facility expenses | 19,639 | 13,503 | 6,717 | |||||||||||||||||||||
Professional fees | 1,921 | 1,581 | 742 |
|
| 717 |
|
|
| 679 |
|
|
| 610 |
| |||||||||
Administrative fees | 1,258 | 1,104 | 684 |
|
| 547 |
|
|
| 629 |
|
|
| 766 |
| |||||||||
Directors’ fees | 298 | 290 | 289 |
|
| 320 |
|
|
| 327 |
|
|
| 320 |
| |||||||||
Other expenses | 404 | 377 | 372 |
|
| 174 |
|
|
| 204 |
|
|
| 211 |
| |||||||||
|
|
| ||||||||||||||||||||||
Total expenses | $ | 48,621 | $ | 47,057 | $ | 44,048 |
| $ | 19,666 |
|
| $ | 13,068 |
|
| $ | 12,129 |
| ||||||
|
|
| ||||||||||||||||||||||
Expenses recaptured/(reimbursed) by the Investment Adviser | (1,267 | ) | (835 | ) | 312 | |||||||||||||||||||
|
|
| ||||||||||||||||||||||
Net expenses | $ | 47,354 | $ | 46,222 | $ | 44,360 | ||||||||||||||||||
|
|
| ||||||||||||||||||||||
Expenses waived by the Adviser |
|
| (4,000 | ) |
|
| — |
|
|
| — |
| ||||||||||||
Net Expenses |
| $ | 15,666 |
|
| $ | 13,068 |
|
| $ | 12,129 |
|
Our total operating expenses were $48.6$19.7 million, $47.1$13.1 million and $44.0$12.1 million for the years ended December 31, 2017, 20162023, 2022 and 2015,2021, respectively. Our operating expenses includeincluded management fees attributed to the Adviser of $25.1$4.0 million, $30.2$4.0 million and $35.2$5.3 million for the years ended December 31, 2017, 20162023, 2022 and 2015,2021, respectively. Management
35
As previously described, the increase in total expenses during the year ended December 31, 2023 compared to the year ended December 31, 2022 was primarily attributable to higher interest and credit facility expenses and interest expense on repurchase transactions. The increase in interest and credit facility expenses and interest expense on repurchase transactions is due to a higher weighted average interest rate during the year ended December 31, 2023 compared to the year ended December 31, 2022.
As previously described, the increase in total expenses during the year ended December 31, 2022 compared to the year ended December 31, 2021 was primarily attributable to higher interest and credit facility expenses and interest expense on repurchase transactions partially offset by lower management fees. The increase in interest and credit facility expenses and interest expense on repurchase transactions is due to our higher average debt outstanding balance and higher weighted average interest rate during the year ended December 31, 2022 compared to the year ended December 31, 2021. The decrease in management fees is due to the decrease in the investment cost basis for which the first quarter management fees are based on during the year ended December 31, 2022 compared to the year ended December 31, 2021. The management fees during the first quarter of the year ended December 31, 2021 were calculated based on the cost of investments as of December 31, 2020 which was $810.3 million compared to the management fee calculated during the first quarter of the year ended December 31, 2022 which was based on the cost of investments as of December 31, 2021 which was $540.9 million.
Net expenses for the year ended December 31, 2015 included $5.02023 include $4.0 million forof management fees that were waived by the final placementsAdviser. In connection with the extension of Common Unitsour term from September 19, 2023 to September 19, 2024 via a supermajority vote of the Initial Closing Date of September through those closings. Operating expenses in all categories increased during the year-endedUnitholders, our Adviser agreed to waive management fees earned from and after December 31, 2017 versus the prior year as well as during the year-ended December 31, 2016 compared to the prior year primarily due to year over year increase in our investment portfolio. For the period ended December 31, 2016, professional fees included $0.2 million in fees associated with the formation of TCW Direct Lending Luxembourg.2022.
Net expenses include an expense (reimbursement)/recapture of ($1.3) million, ($0.8) million and $0.3 million in the years ended December 31, 2017, 2016 and 2015, respectively. The expense reimbursement during the years ended December 31, 2017 and 2016 is due to the expense limitation on operating expenses as outlined in the Advisory Agreement. The expense recapture during the year ended December 31, 2015 offset the expense reimbursement by the Investment Adviser of $0.3 million in the period from Inception to December 31, 2014, related to the expense limitation on organization expenses as outlined in the Advisory Agreement.
Net realized gain (loss)loss onnon-controlled/non-affiliated investments
Our net realized gain (loss)loss onnon-controlled/non-affiliated investments for the years ended December 31, 2017, 20162023, 2022 and 2015 were ($0.1)2021 was $26.8 million, $0.5$0 and $51.8 million, and $2.4 million, respectively.
Our net realized loss onnon-controlled/non-affiliated investments during the year-endedyear ended December 31, 20172023 was primarily dueentirely attributable to lossesthe following investments (dollar amounts in thousands):
Issuer |
| Investment |
| Realized Gain (Loss) |
|
| |
Retail & Animal Intermediate, LLC |
| Subordinated Loan |
| $ | (23,151 | ) | * |
Guardia LLC |
| Revolver |
|
| (1,929 | ) | * |
Animal Supply Holdings, LLC |
| Class A Common |
|
| (1,573 | ) | * |
PNI Litigation Trust (Guardia LLC) |
| Preferred Equity |
|
| (115 | ) | * |
Net Realized Loss |
|
|
| $ | (26,768 | ) |
|
* Includes reversals of previously recognized unrealized appreciation/(depreciation).
The Company did not have any realized gain or loss on our dispositioninvestments during the year ended December 31, 2022 as no investments were disposed of our term loan to Controladora Dolphin Discovery, S.A De C.V. Mexico of $1.4 million, offset by gains on Challenge Manufacturing Company, LLC of $0.4 million, Harvest Hill Beverage Company of $0.3 million, and Robertshaw US Holding Corp. of $0.2 million.during the year ended December 31, 2022.
Our net realized gainloss onnon-controlled/non-affiliated investments during the year-endedyear ended December 31, 20162021 was primarily dueattributable to the realizationfollowing investments (dollar amounts in thousands):
36
Issuer |
| Investment |
| Realized Gain (Loss) |
|
| |
Carrier & Technology Holdings, LLC* |
| Term Loan |
| $ | (41,407 | ) | ** |
Guardia LLC* |
| Term Loan |
|
| (10,057 | ) | ** |
Guardia LLC* |
| Revolver |
|
| (7,362 | ) | ** |
RT Holdings Parent, LLC (fka RTI Holding Company, LLC) |
| Warrants |
|
| (1,380 | ) |
|
Frontier Spinning Mills, Inc. |
| Term Loan |
|
| 3,450 |
| ** |
Quantum Corporation |
| Common Stock |
|
| 4,414 |
|
|
All others |
| Various |
|
| 514 |
|
|
Net Realized Loss |
|
|
| $ | (51,828 | ) |
|
*Guardia LLC (fka Carrier & Technology Solutions, LLC) and Carrier & Technology Holdings, LLC are related entities that formerly comprised a single portfolio company in which the Company had an investment in.
** Includes reversals of gains related to our first out term loan to Harvest Hill Beverage Company and our term loan to ASC Acquisition Holding.previously recognized unrealized appreciation/(depreciation).
Net change in unrealized appreciation/(depreciation) on investments
Our net realized gainchange in unrealized appreciation/(depreciation) onnon-controlled/non-affiliated investments during the year-ended December 31, 2015 was primarily related to the transfer of investments (see Investment Activity) to TCW Strategic Ventures and corresponding realization of origination fees from the investments transferred.
Net realized gain distributions from controlled affiliated investments
Our net realized gain distributions from controlled affiliated investments for the years ended December 31, 2017, 20162023, 2022 and 2015 were $1.42021 was $5.4 million, $0.0$13.2 million and $0.0$120.1 million, respectively. The
Our net change in unrealized appreciation/(depreciation) for the year ended December 31, 2023 was primarily attributable to the following investments (dollar amounts in thousands):
Issuer |
| Investment |
| Change in |
|
| |
Retail & Animal Intermediate, LLC |
| Subordinated Loan |
| $ | 23,151 |
| * |
H-D Advanced Manufacturing Company |
| Term Loan |
|
| 8,415 |
|
|
Cedar Ultimate Parent, LLC |
| Class A Preferred Units |
|
| 8,228 |
|
|
SSI Parent, LLC (fka School Specialty, Inc.) |
| Common Stock |
|
| 4,509 |
|
|
TCW DLSV LLC |
| Preferred membership Interests |
|
| 3,639 |
|
|
SSI Parent, LLC (fka School Specialty, Inc.) |
| Class A Preferred Stock |
|
| 2,338 |
|
|
Pace Industries, Inc. |
| Term Loan |
|
| (2,839 | ) |
|
Retail & Animal Intermediate, LLC |
| Delayed Draw Priming Term Loan |
|
| (5,058 | ) |
|
Animal Supply Company, LLC |
| Term Loan |
|
| (6,313 | ) |
|
Pace Industries, Inc. |
| HoldCo Term Loan |
|
| (31,455 | ) |
|
All others |
| Various |
|
| 808 |
|
|
Net change in unrealized appreciation/(depreciation) |
|
|
| $ | 5,423 |
|
|
37
* Includes reversals of previously recognized unrealized appreciation/(depreciation).
Our net change in unrealized appreciation/(depreciation) for the year ended December 31, 2022 was primarily attributable to the following investments (dollar amounts in thousands):
Issuer |
| Investment |
| Change in |
|
| |
H-D Advanced Manufacturing Company |
| Term Loan |
| $ | 33,767 |
|
|
SSI Parent, LLC (fka School Specialty, Inc.) |
| Common Stock |
|
| 27,419 |
|
|
TCW DLSV LLC |
| Preferred membership Interests |
|
| 12,447 |
|
|
SSI Parent, LLC (fka School Specialty, Inc.) |
| Class B Preferred Stock |
|
| 3,839 |
|
|
Animal Supply Company, LLC |
| Term Loan |
|
| (2,048 | ) |
|
Cedar Ultimate Parent, LLC |
| Class D Preferred Units |
|
| (2,262 | ) |
|
Retail & Animal Intermediate, LLC |
| Subordinated Loan |
|
| (4,248 | ) |
|
Cedar Ultimate Parent, LLC |
| Class A Preferred Units |
|
| (4,503 | ) |
|
Quantum Corporation |
| Common Stock |
|
| (7,825 | ) |
|
Pace Industries, Inc. |
| HoldCo Term Loan |
|
| (42,162 | ) |
|
All others |
| Various |
|
| (1,232 | ) |
|
Net change in unrealized appreciation/(depreciation) |
|
|
| $ | 13,192 |
|
|
38
Our net change in unrealized appreciation/(depreciation) for the year ended December 31, 2021 was primarily attributable to the following investments (dollar amounts in thousands):
Issuer |
| Investment |
| Change in |
|
| |
Carrier & Technology Holdings, LLC |
| Term Loan |
| $ | 42,546 |
| * |
RT Holdings Parent, LLC (fka RTI Holding Company, LLC) |
| Class A Units |
|
| 15,726 |
|
|
TCW Direct Lending Strategic Ventures LLC |
| Preferred membership Interests |
|
| 13,125 |
|
|
OTG Management, LLC |
| Term Loans |
|
| 15,193 |
|
|
Guardia LLC |
| Term Loan |
|
| 9,388 |
| * |
SSI Parent, LLC (fka School Specialty, Inc.) |
| Preferred Stock |
|
| 7,708 |
|
|
Pace Industries, Inc. |
| Term Loan |
|
| 7,285 |
|
|
Cedar Ultimate Parent, LLC |
| Class A Preferred Units |
|
| 6,658 |
|
|
Guardia LLC |
| Revolver |
|
| 4,825 |
| * |
RT Holdings Parent, LLC |
| Warrants |
|
| 3,477 |
|
|
Noramco, LLC |
| Term Loan |
|
| 2,858 |
|
|
Cedar Ultimate Parent, LLC |
| Class D Preferred Units |
|
| 2,262 |
|
|
Quantum Corporation |
| Common Stock |
|
| (3,275 | ) | * |
Retail & Animal Intermediate, LLC (fka ASC Acquisition Holdings, LLC) |
| Subordinated Loan |
|
| (5,095 | ) |
|
H-D Advanced Manufacturing Company |
| Term Loan |
|
| (6,580 | ) |
|
All others |
| Various |
|
| 4,040 |
|
|
Net change in unrealized appreciation/(depreciation) |
|
|
| $ | 120,141 |
|
|
* Includes reversals of previously recognized unrealized appreciation/(depreciation).
Net realized gain on short-term investments
During the years ended December 31, 2023, 2022 and 2021 we earned $4.3 million, $0.1 million and $13 thousand, respectively, in realized gains from our short-term investments in government treasuries.
Net increase in members’ capital from operations
Our net increase in members’ capital from operations during the years ended December 31, 2023, 2022 and 2021 was $20.5 million, $43.4 million and $104.0 million, respectively.
The relative decrease during the year ended December 31, 2017 reflects a distribution from TCW Strategic Ventures during the period from its net short- and long-term gains.
Net change in unrealized appreciation/depreciation onnon-controlled/non-affiliated investments
Our net change in unrealized appreciation/depreciation onnon-controlled/non-affiliated investments for the years ended December 31, 2017, 2016 and 2015 were ($2.0) million, ($17.1) million and ($6.5) million, respectively. Our net change in unrealized appreciation/depreciation for the year ended December 31, 2017 was2023 is primarily due to our term loan toH-D Manufacturing Company which recordedthe higher net increases in fair value of $22.9 million,unrealized depreciation on investments and higher net realized losses on investments partially offset by fair value decreases of $14.1 million attributable to our term loan to Patriot National, Inc., $5.4 million to our term loan to Cedar Electronics Holdings, Corp., $2.2 million on our term loan to Frontier Spinning Mills, Inc., $2.7 million in prior period reversals of unrealized gains on various positions that we exitedhigher net investment income.
The relative decrease during the year ended December 31, 2017, as well as other mark to market adjustments during the year.
Our net change in unrealized appreciation/depreciation for the year ended December 31, 2016 was2022 is primarily due to our term loan toH-D Manufacturing Company which recordedthe higher net decreases in fair value of $23.9 million,unrealized depreciation on investments coupled with lower net investment income and partially offset by fair value increases in our term loan to OTG Management LLC of $1.8 million, as well as other mark to market adjustments resulting from market yield spreads during the year.lower net realized loss on investments.
Our net change in unrealized appreciation/ depreciation for the year ended December 31, 2015 primarily related to a change to our method for valuing the investments. As of December 31, 2015, unless noted, we are utilizing the midpoint of a valuation range provided by an external, independent valuation firm and approved by the Board. The Board may approve a value other than the midpoint if it believes that is the fair value. Previously, we utilized a point within the range of values provided by an external, independent valuation firm based on qualitative and quantitative assessment of factors. This change to the midpoint was approved by our Board. This unrealized depreciation was partially offset by unrealized gains from investments originated in 2015.
Net change in unrealized appreciation/depreciation on controlled/affiliated investments
Our net change in unrealized appreciation/depreciation on controlled/affiliated investments were $0.9 million, $13.2 million and $6.1 million for the years ended December 31, 2017, 2016 and 2015, respectively. The net change in unrealized appreciation/depreciation on controlled/affiliated investments during the years ended December 31, 2017, 2016 and 2015 primarily resulted from loans originated in 2017, 2016 and 2015, respectively, as well as undistributed profits from TCW Strategic Ventures. This appreciation was partially offset by depreciation driven by an adoption of a more quantitative approach to pricing, similar to thenon-controlled/non-affiliated investments.
Net increase (decrease) in members’ capital from operations
Our net increase (decrease) in members’ capital from operations was $104.3 million, $61.8 million and ($11.0) million for the years ended December 31, 2017, 2016 and 2015, respectively. Therelative increase during the year ended December 31, 2017 compared to prior year2021 is primarily attributabledue to the increase inhigher net unrealized appreciation on investments, partially offset by lower net investment income and higher net realized and unrealized gainloss on investments, coupled with relatively flat operating expenses. The increase during the year ended December 31, 2016 reflects the increase in operations and loan originations through December 31, 2016, compared to the year ended December 31, 2015. The decrease in the year ended December 31, 2015 primarily relates to the commencement of investment operations and management fees charged on new commitments, as well as ongoing costs.investments.
TCW Direct Lending Strategic Ventures LLC (“TCW Strategic Ventures”)
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 will focusfocuses primarily on making senior secured floating rate loans to middle-market borrowers. The Agreement iswas effective June 5, 2015.
39
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.
The Company’s investments in controlled affiliated investments for the years ended December 31, 2017 and 2016 were as follows (dollar amounts in thousands):
Fair Value as of January 1, 2017 | Purchases | Sales | Change in Unrealized Gains and (Losses) | Fair Value as of December 31, 2017 | Dividend Income | Realized Gain Distribution | ||||||||||||||||||||||
Controlled Affiliates | ||||||||||||||||||||||||||||
TCW Direct Lending Strategic Ventures LLC | $ | 247,164 | $ | 75,658 | $ | (64,000 | ) | $ | 876 | $ | 259,698 | $ | 22,618 | $ | 1,432 | |||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
Total Controlled Affiliates | $ | 247,164 | $ | 75,658 | $ | (64,000 | ) | $ | 876 | $ | 259,698 | $ | 22,618 | $ | 1,432 | |||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value as of January 1, 2016 | Purchases | Sales | Change in Unrealized Gains and (Losses) | Fair Value as of December 31, 2016 | Dividend Income | |||||||||||||||||||
Controlled Affiliates | ||||||||||||||||||||||||
TCW Direct Lending Strategic Ventures LLC | $ | 206,635 | $ | 104,337 | $ | (77,001 | ) | $ | 13,193 | $ | 247,164 | $ | 14,797 | |||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
Total Controlled Affiliates | $ | 206,635 | $ | 104,337 | $ | (77,001 | ) | $ | 13,193 | $ | 247,164 | $ | 14,797 | |||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
During the years ended December 31, 2017 and 2016, we did not recognize any realized gains (losses) on controlled affiliated investments. During the years ended December 31, 2017 and 2016, we recognized $1.4 million and $0.0 million of net realized gain distributions fromOn April 30, 2021, TCW Strategic Ventures. The net realized gain during the year ended December 31, 2017 reflects a distribution from TCW Strategic Ventures during the period from its net short- and long-term gains.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.
On July 11, 2022, our Members approved a reduction in Undrawn Commitments by $10.43 per unit, resulting in an approximately 41.18% reduction of overall remaining available capital commitments. We effected this commitment reduction by reducing the number of outstanding undrawn units and thereby reducing total Units from 20,134,698 to 18,034,649. Such Unit reduction was proportionately effected for each Member and therefore has no impact on each Member’s percentage interest in us. As of December 31, 2017, 20162023, 2022 and 2015,2021, aggregate Commitments, Undrawn Commitments and subscribed for Units of the Company are as follows (dollar amounts in thousands):
December 31, |
| December 31, |
| |||||||||||||||||||||
2017 | 2016 | 2015 |
| 2023 |
|
| 2022 |
|
| 2021 |
| |||||||||||||
Commitments | $ | 2,013,470 | $ | 2,013,470 | $ | 2,013,470 |
| $ | 1,803,465 |
|
| $ | 1,803,465 |
|
| $ | 2,013,470 |
| ||||||
Undrawn commitments | $ | 309,125 | $ | 920,589 | $ | 1,349,024 |
| $ | 199,120 |
|
| $ | 199,120 |
|
| $ | 409,125 |
| ||||||
Percentage of commitments funded | 84.6 | % | 54.3 | % | 33.0 | % |
|
| 89.0 | % |
|
| 89.0 | % |
|
| 79.7 | % | ||||||
Units | 20,134,698 | 20,134,698 | 20,134,698 |
|
| 18,034,649 |
|
|
| 18,034,649 |
|
|
| 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.
On April 10, 2017, the Company and Natixiswe 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.
40
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, 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) adjusted eurodollar rate calculated in a customary manner plus 1.95%, (b) commercial paper rate plus 1.95%, or (c) a base rate calculated in a customary manner (which will never be less than the adjusted eurodollar 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 December 31, 2017,2023, we were in compliance with such covenants.
As of December 31, 2017, the Available Commitment underOn January 10, 2023, we entered into a Fourth Amendment to the Third Amended and Restated Revolving Credit Agreement is $727 million. As(the "Fourth Amended Credit Agreement"). The Fourth Amended Credit Agreement replaces the Eurocurrency Rate with a Daily Simple SOFR Rate, Term SOFR Rate and Adjusted Term SOFR Rate (each as defined in the Fourth Amended Credit Agreement) for purposes of December 31, 2016,calculating interest on the Available Commitment was $622 million. Priorloan. Each Term SOFR Loan shall bear interest on the outstanding principal amount thereof for each Interest Period at a rate per annum equal to the Adjusted Term SOFR Rate for such Interest Period plus the interest rate spread or "Applicable Margin." Each Daily SOFR Loan will bear interest on the outstanding principal amount thereof at a rate per annum equal to Daily Simple SOFR plus the Applicable Margin. The Term SOFR Loan and Daily SOFR Loan have an Applicable Margin of 1.95%.
On April 7, 2023, we entered into the Fifth Amendment to the Third Amended and Restated Revolving Credit Agreement (the "Fifth Amended Credit Agreement"). The Fifth Amended Credit Agreement removed the Available Commitment decreasedAdjusted Term SOFR Rate for purposes of calculating interest on the loan but kept the Daily Simple SOFR and Term SOFR rates as is. It also updated the Applicable Margin from $622 million0.95% to $303 million as1.15% for Base Rate Loans and from 1.95% to 2.15% for all other loan types. The revolving credit line was also reduced from $177,000 to $152,000 and lastly, the maturity date of March 29, 2017 and decreased from $750 millionthe loan was extended 364 days to $622 million as of August 30, 2016 in conjunction with capital activity that decreased the remaining Undrawn Commitments together with the Recallable AmountApril 5, 2024.
41
A summary of our Members.
Ascontractual payment obligations as of December 31, 20172023 and December 31, 2016,2022 is as follows (dollar amounts in thousands):
Revolving Credit Agreement |
| Total Facility |
|
| Borrowings |
|
| Available |
| |||
Total Debt Obligations – December 31, 2023 |
| $ | 152,000 |
|
| $ | 77,050 |
|
| $ | 74,950 |
|
Total Debt Obligations – December 31, 2022 |
| $ | 177,000 |
|
| $ | 126,250 |
|
| $ | 50,750 |
|
(1) The amount available considers any limitations related to the amounts outstanding under the Credit Facility were $378 million and $590 million, respectively. debt facility borrowing.
The carrying amount of the amount outstanding under the Credit Facility, which is categorized as Level 2 within the fair value hierarchy as of September 30, 2017 and December 31, 2016,2023 and 2022, 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 condition. We incurred financing costsconditions of $10.1 million in connectionthe Credit Facility.
Costs associated with the April 10, 2017 Third Amended and Restated Revolving Credit Agreement. These costs have beenFacility are recorded as deferred financing costs on our Consolidated Statements of Assets and Liabilities and the costs are being amortized over the life of the Credit Facility. We incurred financing costs of $0.9 million and $0.5 million in connection with the April 6, 2021 Third Amended Credit Agreement and the April 7, 2023 Fifth Amended Credit Agreement, respectively. As of December 31, 20172023 and December 31, 2016, $8.72022, $0.1 million and $2.0$0.1 million, respectively, of such prepaid deferred financing costs had yet to be amortized.
The summary information regarding the Credit Facility for the years ended December 31, 2017, 20162023, 2022 and 2015 is2021 was as follows (dollar amounts in thousands):
Year Ended December 31, |
| For the Year Ended December 31, |
| |||||||||||||||||||||
2017 | 2016 | 2015 |
| 2023 |
|
| 2022 |
|
| 2021 |
| |||||||||||||
Borrowing interest expense | $ | 13,635 | $ | 10,308 | $ | 3,039 | ||||||||||||||||||
Unused fees | 2,525 | 829 | 1,660 | |||||||||||||||||||||
Credit facility interest expense |
| $ | 7,139 |
|
| $ | 4,484 |
|
| $ | 2,842 |
| ||||||||||||
Undrawn commitment fees |
|
| 241 |
|
|
| 240 |
|
|
| 250 |
| ||||||||||||
Administrative fees | 68 | 75 | 75 |
|
| 65 |
|
|
| 67 |
|
|
| 65 |
| |||||||||
Amortization of financing costs | 3,411 | 2,291 | 1,943 | |||||||||||||||||||||
|
|
| ||||||||||||||||||||||
Amortization of deferred financing costs |
|
| 541 |
|
|
| 857 |
|
|
| 1,620 |
| ||||||||||||
Total | $ | 19,639 | $ | 13,503 | $ | 6,717 |
| $ | 7,986 |
|
| $ | 5,648 |
|
| $ | 4,777 |
| ||||||
|
|
| ||||||||||||||||||||||
Weighted average interest rate | 3.31 | % | 2.24 | % | 1.97 | % |
|
| 7.13 | % |
|
| 3.76 | % |
|
| 2.43 | % | ||||||
Average outstanding balance | $ | 411,569 | $ | 459,691 | $ | 154,751 |
| $ | 98,800 |
|
| $ | 117,768 |
|
| $ | 115,250 |
|
Contractual Obligations
A summaryWe may, from time to time, enter into repurchase agreements with Barclays Bank PLC (“Barclays”), whereby we sell to Barclays our short-term investments and concurrently enter into an agreement to repurchase the same investments at an agreed-upon price at a future date, generally within 30-days (the “Repurchase Transaction”).
In accordance with ASC 860, Transfers and Servicing, these Repurchase Transactions meet the criteria for secured borrowings. Accordingly, the short-term investments remain on our Consolidated Statements of Assets and Liabilities as an asset, and we record a liability to reflect our contractual payment obligationsrepurchase obligation to Barclays (the “Repurchase Obligation”). The Repurchase Obligation is secured by the short-term investments that are the subject of the repurchase agreement.
We had no outstanding Repurchase Obligations as of December 31, 20172023 and 2016 is as follows (dollar amounts in thousands):2022. Interest expense incurred under these Repurchase Transactions was $5.9 million, $1.6 million, and $0.2 million for the years ended December 31, 2023, 2022, and 2021, respectively.
42
Revolving Credit Agreement | Total Facility Commitment | Borrowings Outstanding | Available Amount(1) | |||||||||
Total Debt Obligations – December 31, 2017 | $ | 750,000 | $ | 378,000 | $ | 349,000 | ||||||
Total Debt Obligations – December 31, 2016 | $ | 750,000 | $ | 590,000 | $ | 32,000 |
The CompanyWe had the following unfunded commitments and unrealized gains/(losses)losses by investment as of December 31, 20172023 and 2016 by investment2022 (dollar amounts in thousands):
December 31, | ||||||||||||||||||||
2017 | 2016 | |||||||||||||||||||
Unfunded Commitments | Maturity/ Expiration | Amount | Unrealized (Losses)(1) | Amount | Unrealized Gains (Losses) | |||||||||||||||
ASC Acquisition Holdings LLC | December 2018 | $ | 11,207 | $ | (326 | ) | $ | 13,076 | $ | (26 | ) | |||||||||
ENA Holdings Corporation | May 2021 | 4,804 | (19 | ) | 4,804 | 5 | ||||||||||||||
FQSR, LLC | December 2018 | 2,415 | (17 | ) | N/A | N/A | ||||||||||||||
Help At Home, Inc. | August 2020 | 6,757 | — | 6,757 | 61 | |||||||||||||||
OTG Management LLC | February 2018 | 3,005 | (30 | ) | 10,291 | 62 | ||||||||||||||
Patriot National, Inc. | November 2021 | N/A | N/A | 6,429 | 58 | |||||||||||||||
Quantum Corporation | November 2017 | N/A | N/A | 16,371 | 180 | |||||||||||||||
Quicken Parent Corp. | April 2021 | 518 | (15 | ) | 1,725 | 22 | ||||||||||||||
Ruby Tuesday, Inc. | December 2022 | 4,575 | (41 | ) | N/A | N/A | ||||||||||||||
School Specialty, Inc., | April 2019 | 6,450 | (19 | ) | N/A | N/A | ||||||||||||||
Mavenir Private Holdings II Ltd. (UK) (an affiliate of Mavenir, Inc.,) | August 2022 | N/A | N/A | 2,014 | 6 | |||||||||||||||
Mavenir, Inc., (fka Xura, Inc.) | August 2022 | N/A | N/A | 3,020 | 9 | |||||||||||||||
Vertellus Performance Chemicals LLC | September 2019 | 4,218 | (63 | ) | N/A | N/A | ||||||||||||||
|
|
|
|
|
|
|
| |||||||||||||
Total | $ | 43,949 | $ | (530 | ) | $ | 64,487 | $ | 377 | |||||||||||
|
|
|
|
|
|
|
|
|
|
|
| December 31, 2023 |
|
| December 31, 2022 |
| ||||||||||
Unfunded Commitments |
| Maturity/ |
| Amount |
|
| Unrealized |
|
| Amount |
|
| Unrealized |
| ||||
Pace Industries, Inc. |
| June 2025 |
| $ | 3,671 |
|
| $ | 158 |
|
| $ | 2,086 |
|
| $ | — |
|
Retail & Animal Intermediate, LLC |
| November 2025 |
|
| 2,242 |
|
|
| 2,241 |
|
|
| 4,981 |
|
|
| — |
|
Ruby Tuesday Operations LLC (fka Ruby Tuesday, Inc.) |
| February 2025 |
|
| 4,921 |
|
|
| — |
|
|
| 4,921 |
|
|
| — |
|
Total |
|
|
| $ | 10,834 |
|
| $ | 2,399 |
|
| $ | 11,988 |
|
| $ | — |
|
The Company’s total capital commitment to its underlying investment in TCW Direct Lending Strategic Ventures LLC is $481.6 million.$481,600. As of December 31, 20172023 and December 31, 2016,2022, the Company’s unfunded commitment to TCW Strategic Ventures was $241.2 million$219,646.
In accordance with our Second Amended and $252.9 million, respectively.
43
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We are subject to financial market risks, including changes in interest rates. At December 31, 2017, 100.0%2023, 98.2% of our debt investments bore interest based on floating rates, such as LIBOR, EURIBOR, the Federal Funds Rate or the Prime Rate.SOFR. The interest rates on such investments generally reset by reference to the current market index after one to sixnine months. At December 31, 2017,2023, the percentage of our floating rate debt investments that bore interest based on an interest rate floor was 0.0%. Floating rate investments subject to a floor generally reset by reference to the current market index after one to sixnine 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 December 31, 20172023 consolidated statement of assets and liabilities,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):
Basis Point Change | Interest Income | Interest Expense | Net Income | |||||||||||||||||||||
|
| Interest Income |
|
| Interest Expense |
|
| Net Investment Income (Loss) |
| |||||||||||||||
Up 300 basis points | $ | 41,872 | $ | 11,498 | $ | 30,374 |
| $ | 8,502 |
|
| $ | 2,344 |
|
| $ | 6,158 |
| ||||||
Up 200 basis points | 27,915 | 7,665 | 20,250 |
|
| 5,668 |
|
|
| 1,562 |
|
|
| 4,106 |
| |||||||||
Up 100 basis points | 13,957 | 3,833 | 10,124 |
|
| 2,834 |
|
|
| 781 |
|
|
| 2,053 |
| |||||||||
Down 100 basis points | (1,130 | ) | (3,986 | ) | 2,856 |
|
| (2,834 | ) |
|
| (781 | ) |
|
| (2,053 | ) | |||||||
Down 200+ basis points | (0 | ) | (6,132 | ) | 6,132 | |||||||||||||||||||
Down 200 basis points |
|
| (5,668 | ) |
|
| (1,562 | ) |
|
| (4,106 | ) | ||||||||||||
Down 300 basis points |
|
| (8,502 | ) |
|
| (2,344 | ) |
|
| (6,158 | ) |
44
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA
See the audited financial statements set forth herein commencing on pageF-1 of this annual report on Form10-K.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
ITEM 9A. CONTROLS AND PROCEDURES
Evaluation of Disclosure 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 Rule13a-15 under the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Based on that evaluation, our President and Chief Financial Officer have concluded that our current disclosure controls and procedures are effective, at a reasonable assurance level, in recording, processing, summarizing and reporting, on a timely basis, information required to be disclosed by us in the reports that we file or submit under the Exchange Act and are effective in ensuring that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is accumulated and communicated to our management, including our President and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.
Management’s Annual Report on Internal Control Over Financial Reporting
Management is responsible for establishing and maintaining adequate internal control over financial reporting as defined inRule 13a-15(f) under the Exchange Act.
Our internal control over financial reporting includes policies and procedures that pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect transactions and disposition of assets; provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with U.S. GAAP, and that receipts and expenditures are being made only in accordance with the authorization of our management and directors; and provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material effect on our financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projection of any evaluation of effectiveness to future periods is subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Management conducted an assessment of the effectiveness of our internal control over financial reporting as of December 31, 2017,2023, based upon the Internal Control—Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on this assessment, management has concluded that, as of December 31, 2017,2023, we maintained in all material respects, effective internal control over financial reporting. Pursuant to rules established by the SEC, this annual report does not include an attestation report of our independent registered public accounting firm regarding internal control over financial reporting.
Changes in Internal Control Over Financial Reporting
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.
ITEM 9B. OTHER INFORMATION
None.45
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
The information required by this Item has been omitted and will be incorporated herein by reference, when filed, to our Proxy Statement, which is expected to be filed not later than 120 days after the end of our fiscal year ended December 31, 2017.2023.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this Item has been omitted and will be incorporated herein by reference, when filed, to our Proxy Statement, which is expected to be filed not later than 120 days after the end of our fiscal year ended December 31, 2017.2023.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED UNITHOLDER MATTERS
The information required by this Item has been omitted and will be incorporated herein by reference, when filed, to our Proxy Statement, which is expected to be filed not later than 120 days after the end of our fiscal year ended December 31, 2017.2023.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
The information required by this Item has been omitted and will be incorporated herein by reference, when filed, to our Proxy Statement, which is expected to be filed not later than 120 days after the end of our fiscal year ended December 31, 2017.2023.
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
The information required by this Item has been omitted and will be incorporated herein by reference, when filed, to our Proxy Statement, which is expected to be filed not later than 120 days after the end of our fiscal year ended December 31, 2017.2023.
46
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
a) List separately all financial statements filed
The financial statements included in this Annual Report on Form10-K are listed on pageF-1 and commence on pageF-3.
(b) The following exhibits are filed as part of this report or incorporated herein by reference to exhibits previously filed with the SEC.
47
48
101.DEF | Inline XBRL Taxonomy Extension Definition Linkbase Document |
101.LAB | Inline XBRL Taxonomy Extension Label Linkbase Document |
101.PRE | Inline XBRL Taxonomy Extension Presentation Linkbase Document |
104 | Cover Page Interactive Data File (embedded within the Inline XBRL document) |
None.
ITEM 16. Form 10-K Summary
None.
49
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: March | 28, 2024 | By: | /s/ Richard T. Miller | |||||
Richard T. Miller | ||||||||
| ||||||||
Chairman of the Board, President and Director |
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
Date: March 28, 2024 | By: | /s/ Richard T. Miller | ||||||
Richard T. Miller | ||||||||
Chairman of the Board, President and Director | ||||||||
(Principal Executive Officer) | ||||||||
Date: March | 28, 2024 | By: | /s/ David R. Adler | |||||
David R. Adler | ||||||||
Director | ||||||||
Date: March | 28, 2024 | By: | /s/ William Cobb | |||||
William Cobb | ||||||||
Director | ||||||||
Date: March | 28, 2024 | By: | /s/ Donald M. Mykrantz | |||||
Donald M. Mykrantz | ||||||||
| ||||||||
Director | ||||||||
Date: March 28, 2024 | By: | /s/ Andrew J. Kim | ||||||
Andrew J. Kim | ||||||||
Chief Financial Officer | ||||||||
(Principal Financial and Accounting Officer) |
50
TCW Direct Lending LLC
Index to Consolidated Financial Statements
F-2 | ||||
Consolidated Schedule of Investments as of December 31, | ||||
F-4 | ||||
Consolidated Statements of Assets and Liabilities as of December 31, | ||||
F-14 | ||||
F-15 | ||||
F-16 | ||||
F-17 | ||||
F-18 |
F-1
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Unitholders and the Board of Directors of TCW Direct Lending LLC
Opinion on the Financial Statements and Financial Highlights
We have audited the accompanying consolidated statements of assets and liabilities including the consolidated schedules of investments, of TCW Direct Lending LLC (the “Company”), including the consolidated schedule of investments, as of December 31, 20172023 and 2016,2022, the related consolidated statements of operations, changes in members’ capital, and cash flows for each of the three years in the period then ended, December 31, 2017, the financial highlights for each of the five years ended December 31, 2017, 2016 and 2015, and forin the period from May 13, 2014 (Inception) to December 31, 2014,then ended, and the related notes.notes (collectively referred to as the “financial statements”). In our opinion, the financial statements and financial highlights present fairly, in all material respects, the financial position of the Company as of December 31, 20172023 and 2016, and2022, the results of its operations, changes in members’ capital and cash flows for each of the three years in the period then ended, December 31, 2017, and the financial highlights for each of the five years ended December 31, 2017, 2016 and 2015, and forin the period from May 13, 2014 (Inception) to December 31, 2014,then ended, in conformity with accounting principles generally accepted in the United States of America.
Basis for Opinion
These financial statements and financial highlights are the responsibility of the Company’sCompany's management. Our responsibility is to express an opinion on the Company’sCompany's financial statements and financial highlights based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements and financial highlights, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements and financial highlights. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements and financial highlights. Our procedures included confirmation of investments owned as of December 31, 20172023 and 2016,2022, by correspondence with the custodian, loan agents, and borrowers; when replies were not received, we performed other auditing procedures. We believe that our audits provide a reasonable basis for our opinion.
/s/ Deloitte & Touche LLP
Critical Audit Matter
The critical audit matter communicated below is a matter arising from the current-period audit of the financial statements that was communicated or required to be communicated to the audit committee and that (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.
Investments, at fair value - Level 3 Investment Valuations and Fair Value Measurements – Refer to Note 3
Critical Audit Matter Description
The Company held certain investments with fair values based on significant unobservable inputs that reflect management’s determination of assumptions that market participants might reasonably use in valuing the investments. These investments are classified as Level 3 investments under accounting principles generally accepted in the United States of America. These investments included debt and equity securities, each of which lack observable market prices. Such investments are valued based on specific pricing models, internal assumptions and the weighting of the available pricing inputs. A market approach is generally used to determine fair value of equity instruments and a discounted cash flow approach or enterprise value waterfall is generally used for debt
F-2
instruments. Valuation may also include a shadow rating method. The fair value of the Company’s Level 3 investments was $371,795,690 as of December 31, 2023.
We identified the valuation of Level 3 investments as a critical audit matter because of the judgments necessary for management to select appropriate valuation techniques and to use significant unobservable inputs to estimate the fair value of the investment. Such securities are valued based on specific pricing models, internal assumptions and the weighting of the best available pricing inputs as determined by management. This required a high degree of auditor judgement and increased effort, including the need to involve our fair value specialists who possess significant quantitative and modeling expertise, to audit and evaluate the appropriateness of these models and internal assumptions and the weighting of the best available pricing inputs in determining the fair value of these investments.
How the Critical Audit Matter Was Addressed in the Audit
Our audit procedures related to the valuation techniques and unobservable inputs used by management to estimate the fair value of Level 3 investments included the following, among others:
Los Angeles, California
March 22, 201828, 2024
We have served as the Company’s auditor since 2014.
F-3
TCW DIRECT LENDING LLC
Consolidated Schedule of Investments
As of December 31, 20172023
Industry | Issuer | Acquisition Date | Investment | % of Net Assets | Par Amount | Maturity Date | Amortized Cost | Fair Value | ||||||||||||||||||||
Non-Controlled/Non-Affiliated Investments Debt | ||||||||||||||||||||||||||||
Auto Components | ||||||||||||||||||||||||||||
Challenge Manufacturing Company LLC | 04/20/17 | Term Loan - 8.57% (LIBOR + 7.00%, 1.00% Floor) | 4.3% | $ | 54,824,000 | 04/20/22 | $ | 53,763,399 | $ | 55,372,240 | ||||||||||||||||||
|
|
|
|
|
|
|
| |||||||||||||||||||||
4.3% | 54,824,000 | 53,763,399 | 55,372,240 | |||||||||||||||||||||||||
|
|
|
|
|
|
|
| |||||||||||||||||||||
Chemicals | ||||||||||||||||||||||||||||
Vertellus Performance Chemicals LLC(1) | 09/22/17 | First Lien Term Loan - 8.32% (LIBOR + 6.75%, 1.25% Floor) | 3.3% | 42,076,364 | 09/22/22 | 41,132,324 | 41,655,600 | |||||||||||||||||||||
|
|
|
|
|
|
|
| |||||||||||||||||||||
3.3% | 42,076,364 | 41,132,324 | 41,655,600 | |||||||||||||||||||||||||
|
|
|
|
|
|
|
| |||||||||||||||||||||
Commercial Services & Supplies | ||||||||||||||||||||||||||||
School Specialty, Inc.(1) | 04/07/17 | Delayed Draw Term Loan - 7.81% (LIBOR + 6.25%, 1.00% Floor) | 0.5% | 5,643,846 | 04/07/22 | 5,643,846 | 5,677,709 | |||||||||||||||||||||
School Specialty, Inc. | 04/07/17 | Term Loan - 7.71% (LIBOR + 6.25%, 1.00% Floor) | 3.4% | 43,513,046 | 04/07/22 | 42,636,070 | 43,774,125 | |||||||||||||||||||||
|
|
|
|
|
|
|
| |||||||||||||||||||||
3.9% | 49,156,892 | 48,279,916 | 49,451,834 | |||||||||||||||||||||||||
|
|
|
|
|
|
|
| |||||||||||||||||||||
Construction & Engineering | ||||||||||||||||||||||||||||
Intren, LLC | 07/18/17 | Term Loan - 8.11% (LIBOR + 6.75%, 1.25% Floor) | 1.2% | 15,943,681 | 07/18/23 | 15,649,247 | 15,561,033 | |||||||||||||||||||||
|
|
|
|
|
|
|
| |||||||||||||||||||||
1.2% | 15,943,681 | 15,649,247 | 15,561,033 | |||||||||||||||||||||||||
|
|
|
|
|
|
|
| |||||||||||||||||||||
Distributors | ||||||||||||||||||||||||||||
ASC Acquisition Holdings, LLC(1) | 12/16/16 | First Lien Term Loan - 8.89% (LIBOR + 7.50%, 1.00% Floor) | 2.4% | 31,942,266 | 12/15/21 | 31,436,772 | 31,015,940 | |||||||||||||||||||||
|
|
|
|
|
|
|
| |||||||||||||||||||||
2.4% | 31,942,266 | 31,436,772 | 31,015,940 | |||||||||||||||||||||||||
|
|
|
|
|
|
|
| |||||||||||||||||||||
Diversified Consumer Services | ||||||||||||||||||||||||||||
Pre-Paid Legal Services, Inc. | 05/21/15 | First Lien Term Loan - 6.82% (LIBOR + 5.25%, 1.25% Floor) | 1.4% | 17,166,352 | 07/01/19 | 17,139,337 | 17,166,352 | |||||||||||||||||||||
|
|
|
|
|
|
|
| |||||||||||||||||||||
1.4% | 17,166,352 | 17,139,337 | 17,166,352 | |||||||||||||||||||||||||
|
|
|
|
|
|
|
| |||||||||||||||||||||
Diversified Financial Services | ||||||||||||||||||||||||||||
Patriot National, Inc. | 11/09/16 | First Lien Term Loan - 12.00% inc PIK (PRIME + 5.50%, 3.00% Floor, 2.00% PIK) | 0.1% | 913,180 | 11/09/21 | 913,180 | 644,705 | |||||||||||||||||||||
Patriot National, Inc. | 11/09/16 | First Lien Term Loan - 12.00% inc PIK (PRIME + 5.50%, 3.00% Floor, 2.00% PIK) | 2.5% | 45,796,009 | 11/09/21 | 45,512,536 | 32,331,983 | |||||||||||||||||||||
|
|
|
|
|
|
|
| |||||||||||||||||||||
2.6% | 46,709,189 | 46,425,716 | 32,976,688 | |||||||||||||||||||||||||
|
|
|
|
|
|
|
| |||||||||||||||||||||
Verus Financial, LLC | 04/11/16 | First Lien Term Loan - 8.95% (LIBOR + 7.25%, 0.75% Floor) | 1.3% | 16,734,375 | 04/12/21 | 16,515,332 | 16,684,172 | |||||||||||||||||||||
|
|
|
|
|
|
|
| |||||||||||||||||||||
3.9% | 63,443,564 | 62,941,048 | 49,660,860 | |||||||||||||||||||||||||
|
|
|
|
|
|
|
|
Industry |
| Issuer |
| Acquisition |
| Investment |
| % of Net Assets |
|
| Par |
|
| Maturity |
| Amortized |
|
| Fair Value |
| ||||
| DEBT(1) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Distributors |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
| Animal Supply Company, LLC(2)(3) |
| 08/14/20 |
| Term Loan - 14.15% inc PIK |
|
| 5.2 | % |
| $ | 28,354,729 |
|
| 08/14/25 |
| $ | 27,414,761 |
|
| $ | 19,054,378 |
| |
| Retail & Animal Intermediate, LLC(3) |
| 07/29/22 |
| Delayed Draw Priming Term Loan - 20.00% inc PIK |
|
| 0.0 | % |
|
| 2,816,305 |
|
| 11/14/25 |
|
| 2,816,305 |
|
|
| — |
| |
|
|
|
|
|
|
|
| 5.2 | % |
|
|
|
|
|
|
| 30,231,066 |
|
|
| 19,054,378 |
| ||
Diversified Consumer Services |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
| SSI Parent, LLC (fka School Specialty, Inc.)(4) |
| 09/15/20 |
| Term Loan - 13.46% |
|
| 2.4 | % |
|
| 8,808,264 |
|
| 12/29/26 |
|
| 8,788,376 |
|
|
| 8,808,264 |
| |
|
|
|
|
|
|
|
| 2.4 | % |
|
|
|
|
|
|
| 8,788,376 |
|
|
| 8,808,264 |
| ||
Hotels, Restaurants & Leisure |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
| Ruby Tuesday Operations LLC(4) |
| 02/24/21 |
| Term Loan - 17.46% inc PIK |
|
| 1.8 | % |
|
| 6,696,255 |
|
| 02/24/25 |
|
| 6,696,255 |
|
|
| 6,696,255 |
| |
| Ruby Tuesday Operations LLC(4) |
| 02/01/23 |
| Incremental Term Loan - 21.46% inc PIK |
|
| 0.8 | % |
|
| 1,750,883 |
|
| 02/24/25 |
|
| 1,750,883 |
|
|
| 2,940,257 |
| |
|
|
|
|
|
|
|
| 2.6 | % |
|
|
|
|
|
|
| 8,447,138 |
|
|
| 9,636,512 |
| ||
Household Durables |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
|
|
| 05/19/15 |
| Term Loan - 13.46% |
|
| 3.8 | % |
|
| 14,018,452 |
|
| 12/31/26 |
|
| 14,018,421 |
|
|
| 14,018,452 |
| |
|
|
| 01/30/19 |
| Incremental Term Loan - 15.00% inc PIK |
|
| 1.4 | % |
|
| 5,020,439 |
|
| 12/31/26 |
|
| 5,020,439 |
|
|
| 5,020,439 |
| |
|
|
|
|
|
|
|
| 5.2 | % |
|
|
|
|
|
|
| 19,038,860 |
|
|
| 19,038,891 |
| ||
Industrial Conglomerates |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
|
|
| 06/30/15 |
| Term Loan - 13.96% inc PIK |
|
| 26.8 | % |
|
| 98,278,214 |
|
| 11/12/25 |
|
| 98,230,450 |
|
|
| 98,278,214 |
| |
|
|
|
|
|
|
|
| 26.8 | % |
|
|
|
|
|
|
| 98,230,450 |
|
|
| 98,278,214 |
| ||
Metals & Mining |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
| Pace Industries, Inc.(2) (4) |
| 06/01/20 |
| HoldCo Term Loan - 7.53% inc PIK |
|
| 0.0 | % |
|
| 95,788,448 |
|
| 06/01/40 |
|
| 78,137,869 |
|
|
| — |
| |
| Pace Industries, Inc.(4) |
| 06/01/20 |
| Term Loan - 13.78% inc PIK |
|
| 17.2 | % |
|
| 65,816,181 |
|
| 06/01/25 |
|
| 65,803,789 |
|
|
| 62,986,086 |
| |
| Pace Industries, Inc.(4) |
| 10/07/22 |
| Revolver - 13.81% inc PIK |
|
| 4.1 | % |
|
| 15,746,858 |
|
| 06/01/25 |
|
| 15,746,858 |
|
|
| 15,069,743 |
| |
|
|
|
|
|
|
|
| 21.3 | % |
|
|
|
|
|
|
| 159,688,516 |
|
|
| 78,055,829 |
| ||
Pharmaceuticals |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
| Noramco, LLC |
| 07/01/16 |
| Term Loan - 13.92% inc PIK |
|
| 11.9 | % |
|
| 43,900,104 |
|
| 01/31/25 |
|
| 43,900,103 |
|
|
| 43,505,002 |
| |
|
|
|
|
|
|
|
| 11.9 | % |
|
|
|
|
|
|
| 43,900,103 |
|
|
| 43,505,002 |
| ||
| Total Debt Investments |
|
|
|
|
|
| 75.4 | % |
|
|
|
|
|
|
| 368,324,509 |
|
|
| 276,377,090 |
|
F-4
TCW DIRECT LENDING LLC
Consolidated Schedule of Investments (continued)(Continued)
As of December 31, 2017
Industry | Issuer | Acquisition Date | Investment | % of Net Assets | Par Amount | Maturity Date | Amortized Cost | Fair Value | ||||||||||||||||||
Diversified Telecommunication Services | ||||||||||||||||||||||||||
Alaska Communications Systems Holdings, Inc. | 03/28/17 | First Lien Term Loan - 8.57% (LIBOR + 7.00%, 1.00% Floor) | 1.1% | $ | 13,765,500 | 03/13/23 | $ | 13,555,491 | $ | 13,627,845 | ||||||||||||||||
|
|
|
|
|
|
|
| |||||||||||||||||||
1.1% | 13,765,500 | 13,555,491 | 13,627,845 | |||||||||||||||||||||||
|
|
|
|
|
|
|
| |||||||||||||||||||
Food Products | ||||||||||||||||||||||||||
Bumble Bee Holdings, Inc. | 08/15/17 | Term Loan B1 - 9.44% (LIBOR + 8.00%, 1.00% Floor) | 2.6% | 33,246,972 | 08/15/23 | 32,621,648 | 32,881,255 | |||||||||||||||||||
Connors Bros. Clover Leaf Seafoods Company (Canada) (an affiliate of Bumble Bee Holdings, Inc.)(2) | 08/15/17 | Term Loan B2 - 9.44% (LIBOR + 8.00%, 1.00% Floor) | 0.7% | 9,419,428 | 08/15/23 | 9,242,264 | 9,315,814 | |||||||||||||||||||
Harvest Hill Beverage Company | 01/20/16 | First Out Term Loan - 8.07% (LIBOR + 6.50%, 1.00% Floor) | 6.6% | 84,157,361 | 01/19/21 | 83,387,224 | 83,820,732 | |||||||||||||||||||
|
|
|
|
|
|
|
| |||||||||||||||||||
9.9% | 126,823,761 | 125,251,136 | 126,017,801 | |||||||||||||||||||||||
|
|
|
|
|
|
|
| |||||||||||||||||||
Health Care Providers & Services | ||||||||||||||||||||||||||
Help at Home, LLC(1)(3) | 08/03/15 | Term Loan B - 8.84% (LIBOR + 7.50%, 1.25% Floor) | 3.7% | 46,554,054 | 08/03/20 | 46,184,725 | 46,786,824 | |||||||||||||||||||
|
|
|
|
|
|
|
| |||||||||||||||||||
3.7% | 46,554,054 | 46,184,725 | 46,786,824 | |||||||||||||||||||||||
|
|
|
|
|
|
|
| |||||||||||||||||||
Hotels, Restaurants & Leisure | ||||||||||||||||||||||||||
FQSR, LLC(1) | 03/23/17 | Delayed Draw Term Loan - 7.95% (LIBOR + 6.25%, 1.00% Floor) | 1.0% | 13,662,000 | 03/24/22 | 13,662,000 | 13,634,676 | |||||||||||||||||||
FQSR, LLC | 03/23/17 | Term Loan - 7.95% (LIBOR + 6.25%, 1.00% Floor) | 0.5% | 6,848,250 | 03/24/22 | 6,460,623 | 6,834,553 | |||||||||||||||||||
|
|
|
|
|
|
|
| |||||||||||||||||||
1.5% | 20,510,250 | 20,122,623 | 20,469,229 | |||||||||||||||||||||||
|
|
|
|
|
|
|
| |||||||||||||||||||
OTG Management, LLC(1) | 06/30/16 | Delayed Draw Term Loan - 9.98% (LIBOR + 8.50%, 1.00% Floor) | 0.6% | 7,286,419 | 08/26/21 | 7,286,419 | 7,279,132 | |||||||||||||||||||
OTG Management, LLC | 06/30/16 | First Lien Term Loan - 9.88% (LIBOR + 8.50%, 1.00% Floor) | 5.9% | 75,012,754 | 08/26/21 | 73,917,551 | 74,937,741 | |||||||||||||||||||
|
|
|
|
|
|
|
| |||||||||||||||||||
6.5% | 82,299,173 | 81,203,970 | 82,216,873 | |||||||||||||||||||||||
|
|
|
|
|
|
|
| |||||||||||||||||||
Ruby Tuesday, Inc.(1) | 12/21/17 | Term Loan - 11.64% inc PIK (LIBOR + 8.00%, 1.00% Floor, 2.00% PIK) | 3.2% | 42,090,000 | 12/21/22 | 39,790,887 | 40,574,760 | |||||||||||||||||||
|
|
|
|
|
|
|
| |||||||||||||||||||
11.2% | 144,899,423 | 141,117,480 | 143,260,862 | |||||||||||||||||||||||
|
|
|
|
|
|
|
| |||||||||||||||||||
Household Durables | ||||||||||||||||||||||||||
Cedar Electronics Holdings, Corp.(3) | 07/01/15 | Senior Term Loan - 10.67% inc PIK (LIBOR + 6.00%, 0.50% Floor, 3.00% PIK) | 1.3% | 23,103,293 | 06/26/20 | 22,839,243 | 17,119,540 | |||||||||||||||||||
|
|
|
|
|
|
|
| |||||||||||||||||||
1.3% | 23,103,293 | 22,839,243 | 17,119,540 | |||||||||||||||||||||||
|
|
|
|
|
|
|
| |||||||||||||||||||
Industrial Conglomerates | ||||||||||||||||||||||||||
H-D Advanced Manufacturing Company | 06/30/15 | First Lien First Out Term Loan - 12.19% inc PIK (LIBOR + 7.00%, 1.00% Floor, 3.50% PIK) | 2.4% | 31,019,030 | 06/30/20 | 30,788,816 | 30,491,706 |
Industry |
| Issuer |
| Investment |
| % of Net |
|
| Shares |
|
| Amortized |
|
| Fair Value |
| ||||
| EQUITY |
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Diversified Consumer Services |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
| SSI Parent, LLC (fka School Specialty, Inc.)(4)(5)(7) |
| Class A Preferred Stock |
|
| 4.2 | % |
|
| 806,264 |
|
| $ | 8,062,637 |
|
| $ | 15,399,637 |
| |
| SSI Parent, LLC (fka School Specialty, Inc.)(4)(5)(7) |
| Class B Preferred Stock |
|
| 1.3 | % |
|
| 359,474 |
|
|
| 356,635 |
|
|
| 4,888,847 |
| |
| SSI Parent, LLC (fka School Specialty, Inc.)(4)(5)(7) |
| Common Stock |
|
| 8.7 | % |
|
| 80,700 |
|
|
| 53,889 |
|
|
| 31,928,148 |
| |
|
|
|
|
|
| 14.2 | % |
|
|
|
|
| 8,473,161 |
|
|
| 52,216,632 |
| ||
Hotels, Restaurants & Leisure |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
| RT Holdings Parent, LLC(2)(4)(7) |
| Class A Units |
|
| 5.3 | % |
|
| 5,475,885 |
|
|
| 5,133,708 |
|
|
| 19,487,032 |
| |
| RT Holdings Parent, LLC(2)(4)(7) |
| Warrant, expires 12/21/27 |
|
| 0.9 | % |
|
| 912,647 |
|
|
| — |
|
|
| 3,247,928 |
| |
| RT Holdings Parent, LLC(2)(4)(7) |
| Class P-1 Units |
|
| 0.1 | % |
|
| 105,624 |
|
|
| 133,086 |
|
|
| 376,000 |
| |
| RT Holdings Parent, LLC(2)(4)(7) |
| Class P-2 Units |
|
| 0.0 | % |
|
| 53,104 |
|
|
| 66,914 |
|
|
| 110,000 |
| |
|
|
|
|
|
| 6.3 | % |
|
|
|
|
| 5,333,708 |
|
|
| 23,220,960 |
| ||
Household Durables |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
| Cedar Ultimate Parent, LLC(2)(4)(7) |
| Class A Preferred Units |
|
| 5.4 | % |
|
| 9,297,990 |
|
|
| 9,187,902 |
|
|
| 19,981,009 |
| |
| Cedar Ultimate Parent, LLC(2)(4)(7) |
| Class E Common Units |
|
| 0.0 | % |
|
| 300,000 |
|
|
| — |
|
|
| — |
| |
| Cedar Ultimate Parent, LLC(2)(4)(7) |
| Class D Preferred Units |
|
| 0.0 | % |
|
| 2,900,000 |
|
|
| — |
|
|
| — |
| |
|
|
|
|
|
| 5.4 | % |
|
|
|
|
| 9,187,902 |
|
|
| 19,981,009 |
| ||
Investment Funds & Vehicles |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
| TCW Direct Lending Strategic Ventures(2)(4)(6) |
| Common membership Interests |
|
| 0.0 | % |
|
| 800 |
|
|
| — |
|
|
| — |
| |
| TCW Direct Lending Strategic Ventures(4)(6) |
| Preferred membership Interests |
|
| 19.0 | % |
|
| 66,880 |
|
|
| 66,880,000 |
|
|
| 69,780,704 |
| |
|
|
|
|
|
| 19.0 | % |
|
|
|
|
| 66,880,000 |
|
|
| 69,780,704 |
| ||
Metals & Mining |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
| Pace Industries, Inc.(2)(4)(7) |
| Common Stock |
|
| 0.0 | % |
|
| 971,418 |
|
|
| 2,110,522 |
|
|
| — |
| |
|
|
|
|
|
| 0.0 | % |
|
|
|
|
| 2,110,522 |
|
|
| — |
| ||
Technologies Hardware, Storage and Peripherals |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
| Quantum Corporation(2) |
| Common Stock |
|
| 0.2 | % |
|
| 1,766,327 |
|
|
| 6,481,788 |
|
|
| 618,214 |
| |
|
|
|
|
|
| 0.2 | % |
|
|
|
|
| 6,481,788 |
|
|
| 618,214 |
| ||
| Total Equity Investments |
|
|
|
| 45.1 | % |
|
|
|
|
| 98,467,081 |
|
|
| 165,817,519 |
| ||
| Total Debt & Equity Investments(8) |
|
|
|
| 120.5 | % |
|
|
|
|
| 466,791,590 |
|
|
| 442,194,609 |
| ||
| Cash Equivalents |
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
| First American Government Obligation Fund, Yield 5.30% |
|
|
|
| 0.6 | % |
|
| 2,372,278 |
|
|
| 2,372,278 |
|
|
| 2,372,278 |
| |
| Total Cash Equivalents |
|
|
|
| 0.6 | % |
|
|
|
|
| 2,372,278 |
|
|
| 2,372,278 |
| ||
| Short-term Investments |
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
| U.S. Treasury Bill, Yield 5.26% |
|
|
|
| 134.1 | % |
|
| 500,000,000 |
|
|
| 491,965,556 |
|
|
| 491,965,556 |
| |
| Total Short-term Investments |
|
|
|
| 134.1 | % |
|
|
|
|
| 491,965,556 |
|
|
| 491,965,556 |
| ||
| Total Investments (255.4%) |
|
|
|
|
|
|
|
|
| $ | 961,129,424 |
|
| $ | 936,532,443 |
| |||
| Net unrealized depreciation on unfunded commitments (-0.7%) |
|
|
|
|
|
|
|
|
|
|
|
|
| (2,399,435 | ) | ||||
| Liabilities in Excess of Other Assets (-154.7%) |
|
|
|
|
|
|
|
|
|
|
|
|
| (567,393,553 | ) | ||||
| Net Assets (100.0%) |
|
|
|
|
|
|
|
|
|
|
|
| $ | 366,739,455 |
|
F-5
TCW DIRECT LENDING LLC
Consolidated Schedule of Investments (continued)(Continued)
As of December 31, 2017
Industry | Issuer | Acquisition Date | Investment | % of Net Assets | Par Amount | Maturity Date | Amortized Cost | Fair Value | ||||||||||||||||||||||
Industrial Conglomerates (con’t) | ||||||||||||||||||||||||||||||
H-D Advanced Manufacturing Company(3) | 06/30/15 | First Lien Last Out Term Loan - 12.19% inc PIK (LIBOR + 7.00%, 1.00% Floor, 3.50% PIK) | 8.5% | $ | 114,839,275 | 06/30/20 | $ | 114,049,255 | $ | 108,752,793 | ||||||||||||||||||||
|
|
|
|
|
|
|
| |||||||||||||||||||||||
10.9% | 145,858,305 | 144,838,071 | 139,244,499 | |||||||||||||||||||||||||||
|
|
|
|
|
|
|
| |||||||||||||||||||||||
Information Technology Services | ||||||||||||||||||||||||||||||
ENA Holding Corporation(1) | 05/06/16 | First Lien Term Loan - 8.69% (LIBOR + 7.00%, 1.00% Floor) | 2.2% | 28,205,599 | 05/06/21 | 27,880,298 | 28,205,599 | |||||||||||||||||||||||
|
|
|
|
|
|
|
| |||||||||||||||||||||||
2.2% | 28,205,599 | 27,880,298 | 28,205,599 | |||||||||||||||||||||||||||
|
|
|
|
|
|
|
| |||||||||||||||||||||||
Internet & Direct Marketing Retail | ||||||||||||||||||||||||||||||
Lulu’s Fashion Lounge, LLC | 08/28/17 | First Lien Term Loan - 8.57% (LIBOR + 7.00%, 1.00% Floor) | 1.2% | 14,510,234 | 08/28/22 | 14,103,199 | 14,785,929 | |||||||||||||||||||||||
|
|
|
|
|
|
|
| |||||||||||||||||||||||
1.2% | 14,510,234 | 14,103,199 | 14,785,929 | |||||||||||||||||||||||||||
|
|
|
|
|
|
|
| |||||||||||||||||||||||
Metals & Mining | ||||||||||||||||||||||||||||||
Pace Industries, Inc. | 06/30/15 | First Lien Term Loan - 12.09% inc PIK (LIBOR + 8.25%, 1.00% Floor, 2.50% PIK) | 6.9% | 89,797,392 | 06/30/20 | 89,142,751 | 88,181,039 | |||||||||||||||||||||||
|
|
|
|
|
|
|
| |||||||||||||||||||||||
6.9% | 89,797,392 | 89,142,751 | 88,181,039 | |||||||||||||||||||||||||||
|
|
|
|
|
|
|
| |||||||||||||||||||||||
Pharmaceuticals | ||||||||||||||||||||||||||||||
Noramco, LLC(3) | 07/01/16 | Senior Term Loan - 9.72% inc PIK (LIBOR + 8.00%, 1.00% Floor, 0.38% PIK) | 4.1% | 53,784,989 | 07/01/21 | 53,355,500 | 52,655,505 | |||||||||||||||||||||||
|
|
|
|
|
|
|
| |||||||||||||||||||||||
4.1% | 53,784,989 | 53,355,500 | 52,655,505 | |||||||||||||||||||||||||||
|
|
|
|
|
|
|
| |||||||||||||||||||||||
Software | ||||||||||||||||||||||||||||||
Mavenir Private Holdings II Ltd. (UK) (an affiliate of Mavenir, Inc.)(2) | 08/19/16 | First Lien Term Loan - 11.89% inc PIK (LIBOR + 9.50%, 1.00% Floor, 1.00% PIK) | 2.0% | 25,974,225 | 08/19/22 | 25,974,225 | 25,792,405 | |||||||||||||||||||||||
Mavenir, Inc. (fka Xura, Inc.) | 08/19/16 | First Lien Term Loan- 11.89% inc PIK (LIBOR + 9.50%, 1.00% Floor, 1.00% PIK) | 5.3% | 67,431,025 | 08/19/22 | 65,909,677 | 66,959,008 | |||||||||||||||||||||||
Quicken Parent Corp. | 04/01/16 | First Lien Term Loan - 10.35% inc PIK (LIBOR + 8.50%, 1.00% Floor, 0.50% PIK) | 1.8% | 23,267,580 | 04/01/21 | 23,147,248 | 22,592,820 | |||||||||||||||||||||||
Quicken Parent Corp.(1) | 04/01/16 | Revolver - 10.18% (LIBOR + 8.50%, 1.00% Floor) | 0.0% | 345,000 | 04/01/21 | 345,000 | 331,890 | |||||||||||||||||||||||
|
|
|
|
|
|
|
| |||||||||||||||||||||||
1.8% | 23,612,580 | 23,492,248 | 22,924,710 | |||||||||||||||||||||||||||
|
|
|
|
|
|
|
| |||||||||||||||||||||||
9.1% | 117,017,830 | 115,376,150 | 115,676,123 | |||||||||||||||||||||||||||
|
|
|
|
|
|
|
| |||||||||||||||||||||||
Technologies Hardware, Storage and Peripherals | ||||||||||||||||||||||||||||||
Quantum Corporation | 10/21/16 | Delayed Draw Term Loan- 9.65% (LIBOR + 8.25%, 1.00% Floor) | 1.3% | 16,371,429 | 10/21/21 | 16,174,444 | 16,093,114 | |||||||||||||||||||||||
Quantum Corporation | 10/21/16 | Incremental Delayed Draw Term Loan - 9.65% (LIBOR + 8.25%, 1.00% Floor) | 1.3% | 16,371,429 | 06/30/20 | 15,038,649 | 16,174,972 |
Name of Investment |
| Fair Value at |
|
| Gross Addition |
|
| Gross Reduction |
|
| Realized Gains |
|
| Net Change in |
|
| Fair Value at |
|
| Interest/Dividend/ |
| |||||||
Animal Supply Holdings LLC Class A Common |
| $ | — |
|
| $ | — |
|
| $ | — |
|
| $ | (1,572,727 | ) |
| $ | 1,572,727 |
|
| $ | — |
|
| $ | — |
|
Animal Supply Company, LLC Term Loan - 9.50% |
|
| 22,624,644 |
|
|
| 2,742,303 |
|
|
| — |
|
|
| — |
|
|
| (6,312,569 | ) |
|
| 19,054,378 |
|
|
| 2,748,900 |
|
Guardia LLC (fka Carrier & Technology, LLC) Revolver - 8.75% |
|
| 2,604,562 |
|
|
| 1,072 |
|
|
| — |
|
|
| (1,928,556 | ) |
|
| (677,078 | ) |
|
| — |
|
|
| — |
|
PNI Litigation Trust (fka Guardia) Preferred Equity |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (115,715 | ) |
|
| 115,715 |
|
|
| — |
|
|
| — |
|
Retail & Animal Intermediate, LLC Delayed Draw Priming Term Loan |
|
| — |
|
|
| 2,816,304 |
|
|
| — |
|
|
| — |
|
|
| (2,816,304 | ) |
|
| — |
|
|
| 312,939 |
|
Retail and Animal Intermediate Subordinated Loan - 7.00% |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (23,151,201 | ) |
|
| 23,151,201 |
|
|
| — |
|
|
| — |
|
Total Non-Controlled Affiliated Investments |
| $ | 25,229,206 |
|
| $ | 5,559,679 |
|
| $ | — |
|
| $ | (26,768,199 | ) |
| $ | 15,033,692 |
|
| $ | 19,054,378 |
|
| $ | 3,061,839 |
|
F-6
TCW DIRECT LENDING LLC
Consolidated Schedule of Investments (continued)(Continued)
As of December 31, 2017
Industry | Issuer | Acquisition Date | Investment | % of Net Assets | Par Amount | Maturity Date | Amortized Cost | Fair Value | ||||||||||||||||||||||
Technologies Hardware, Storage and Peripherals (con’t) | ||||||||||||||||||||||||||||||
Quantum Corporation | 10/21/16 | Term Loan - 9.62% (LIBOR + 8.25%, 1.00% Floor) | 3.1 | % | $ | 40,928,571 | 10/21/21 | $ | 40,256,156 | $ | 40,314,643 | |||||||||||||||||||
|
|
|
|
|
|
|
| |||||||||||||||||||||||
5.7 | % | 73,671,429 | 71,469,249 | 72,582,729 | ||||||||||||||||||||||||||
|
|
|
|
|
|
|
| |||||||||||||||||||||||
Textiles, Apparel & Luxury Goods | ||||||||||||||||||||||||||||||
Differential Brands Group, Inc. | 01/28/16 | Term Loan - 12.20% (LIBOR + 10.50%, 0.50% Floor) | 2.0 | % | 27,695,500 | 01/28/21 | 27,397,588 | 25,479,860 | ||||||||||||||||||||||
Frontier Spinning Mills, Inc.(3) | 05/19/15 | Last Out Term LoanB - 9.57% (LIBOR + 8.25%, 1.00% Floor) | 0.6 | % | 13,004,548 | 04/30/20 | 12,944,409 | 8,023,806 | ||||||||||||||||||||||
|
|
|
|
|
|
|
| |||||||||||||||||||||||
2.6 | % | 40,700,048 | 40,341,997 | 33,503,666 | ||||||||||||||||||||||||||
|
|
|
|
|
|
|
| |||||||||||||||||||||||
Total Debt Investments | 90.3 | % | 1,175,797,333 | 1,151,531,820 | ||||||||||||||||||||||||||
|
|
|
|
|
| |||||||||||||||||||||||||
Shares | ||||||||||||||||||||||||||||||
Equity | ||||||||||||||||||||||||||||||
Diversified Financial Services | ||||||||||||||||||||||||||||||
Verus Financial, LLC(4) | 05/20/16 | Common Stock | 0.7 | % | 8,750 | 7,779,536 | 9,194,318 | |||||||||||||||||||||||
Hotels, Restaurants & Leisure | ||||||||||||||||||||||||||||||
RTI Holding Company, LLC (an affiliate of Ruby Tuesday, Inc.) | 12/21/17 | Warrant, expires 12/21/27 | 0.1 | % | 1,470,632 | 1,379,747 | 1,345,231 | |||||||||||||||||||||||
Technologies Hardware, Storage and Peripherals | ||||||||||||||||||||||||||||||
Quantum Corporation | 12/18/17 | Common Stock | 0.1 | % | 161,784 | 871,974 | 910,844 | |||||||||||||||||||||||
Quantum Corporation | 12/14/17 | Warrant, expires 12/14/22 | 0.0 | % | 108,052 | 294,237 | 311,476 | |||||||||||||||||||||||
|
|
|
|
|
| |||||||||||||||||||||||||
Total Equity Investments | 0.9 | % | 10,325,494 | 11,761,869 | ||||||||||||||||||||||||||
|
|
|
|
|
| |||||||||||||||||||||||||
TotalNon-Controlled/Non-Affiliated Investments* | 91.2 | % | 1,186,122,827 | 1,163,293,689 | ||||||||||||||||||||||||||
|
|
|
|
|
| |||||||||||||||||||||||||
Cost | ||||||||||||||||||||||||||||||
Controlled/Affiliated Investments | ||||||||||||||||||||||||||||||
Investment Funds & Vehicles | ||||||||||||||||||||||||||||||
TCW Direct Lending Strategic Ventures LLC(2)(5) | Preferred membership interests | 20.4 | % | 239,554 | $ | 239,553,673 | $ | 259,698,273 | ||||||||||||||||||||||
Common membership interests | 0.0 | % | 800 | — | — | |||||||||||||||||||||||||
|
|
|
|
|
| |||||||||||||||||||||||||
Total Controlled/Affiliated Investments | 20.4 | % | $ | 239,553,673 | $ | 259,698,273 | ||||||||||||||||||||||||
|
|
|
|
|
|
|
| |||||||||||||||||||||||
Cash Equivalents | ||||||||||||||||||||||||||||||
Blackrock Liquidity Funds, Yield 1.00% | 0.0 | % | 4,556 | $ | 4,556 | $ | 4,556 | |||||||||||||||||||||||
|
|
|
|
|
|
Name of Investment |
| Fair Value at |
|
| Gross Addition |
|
| Gross Reduction |
|
| Realized Gains |
|
| Net Change |
|
| Fair Value at |
|
| Interest/Dividend/ |
| |||||||
Cedar Electronics Holdings, Corp Incremental Term Loan - 15.00% |
| $ | 4,316,274 |
|
| $ | 704,165 |
|
| $ | — |
|
| $ | — |
|
| $ | — |
|
| $ | 5,020,439 |
|
| $ | 773,261 |
|
Cedar Electronics Holdings, Corp Term Loan - 9.50% |
|
| 15,126,452 |
|
|
| 532 |
|
|
| (1,107,870 | ) |
|
| — |
|
|
| (662 | ) |
|
| 14,018,452 |
|
|
| 2,083,627 |
|
Cedar Ultilate Parent, LLC Class A Preferred Unit |
|
| 11,753,031 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 8,227,978 |
|
|
| 19,981,009 |
|
|
| — |
|
Cedar Ultilate Parent, LLC Class D Preferred Unit |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
Cedar Ultilate Parent, LLC Class E Preferred Unit |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
Pace Industries, Inc. Common Stock |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
Pace Industries, Inc. Term Loan - 3.50% |
|
| 31,455,178 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (31,455,178 | ) |
|
| — |
|
|
| 17,031 |
|
Pace Industries, Inc. Term Loan - 9.75% |
|
| 57,579,326 |
|
|
| 8,245,605 |
|
|
| — |
|
|
| — |
|
|
| (2,838,845 | ) |
|
| 62,986,086 |
|
|
| 8,439,162 |
|
Pace Industries, LLC Revolver Opco |
|
| 8,616,757 |
|
|
| 7,130,100 |
|
|
| — |
|
|
| — |
|
|
| (677,114 | ) |
|
| 15,069,743 |
|
|
| 1,831,440 |
|
RT Holdings Parent, LLC Class A Unit |
|
| 19,103,720 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 383,312 |
|
|
| 19,487,032 |
|
|
| — |
|
RT Holdings Parent, LLC Warrant |
|
| 3,184,225 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 63,703 |
|
|
| 3,247,928 |
|
|
| — |
|
Ruby Tuesday Operations, LLC Term Loan |
|
| 6,715,899 |
|
|
| 999,628 |
|
|
| (1,019,272 | ) |
|
| — |
|
|
| — |
|
|
| 6,696,255 |
|
|
| 1,327,622 |
|
Ruby Tuesday Operations, LLC Incremental Term Loan |
|
| — |
|
|
| 1,750,882 |
|
|
| — |
|
|
| — |
|
|
| 1,189,375 |
|
|
| 2,940,257 |
|
|
| 318,000 |
|
Ruby Tuesday Operations, LLC Revolver - 2.78% |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 62,186 |
|
Ruby Tuesday P-1 Units |
|
| 368,005 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 7,995 |
|
|
| 376,000 |
|
|
| — |
|
Ruby Tuesday P-2 Units |
|
| 106,999 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 3,001 |
|
|
| 110,000 |
|
|
| — |
|
SSI Parent, LLC (fka School Specialty, Inc.) Common Stock |
|
| 27,419,241 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 4,508,907 |
|
|
| 31,928,148 |
|
|
| 6,196,400 |
|
SSI Parent, LLC (fka School Specialty, Inc.) Preferred Stock A |
|
| 13,061,335 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 2,338,302 |
|
|
| 15,399,637 |
|
|
| — |
|
SSI Parent, LLC (fka School Specialty, Inc.) Preferred Stock B |
|
| 4,529,373 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 359,474 |
|
|
| 4,888,847 |
|
|
| — |
|
SSI Parent, LLC (fka School Specialty, Inc.) Term Loan - 9.25% |
|
| 35,383,037 |
|
|
| — |
|
|
| (26,467,962 | ) |
|
| — |
|
|
| (106,811 | ) |
|
| 8,808,264 |
|
|
| 2,351,953 |
|
TCW Direct Lending Strategic Ventures LLC Common Membership Interests |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
TCW Direct Lending Strategic Ventures LLC Preferred Membership Interests |
|
| 84,141,713 |
|
|
| — |
|
|
| (18,000,000 | ) |
|
| — |
|
|
| 3,638,991 |
|
|
| 69,780,704 |
|
|
| 2,400,000 |
|
Total Controlled Affiliated Investments |
| $ | 322,860,565 |
|
| $ | 18,830,912 |
|
| $ | (46,595,104 | ) |
| $ | — |
|
| $ | (14,357,572 | ) |
| $ | 280,738,801 |
|
| $ | 25,800,682 |
|
F-7
TCW DIRECT LENDING LLC
Consolidated Schedule of Investments (continued)(Continued)
As of December 31, 2017
Total Investments 111.6% | $ | 1,425,681,056 | $ | 1,422,996,518 | ||||||||||||||||||||
|
|
|
| |||||||||||||||||||||
Net unrealized depreciation on unfunded | $ | (530,006 | ) | |||||||||||||||||||||
|
| |||||||||||||||||||||||
Liabilities in Excess of Other Assets (11.6%) | $ | (147,046,261 | ) | |||||||||||||||||||||
|
| |||||||||||||||||||||||
Net Assets 100.0% | $ | 1,275,420,251 | ||||||||||||||||||||||
|
|
SOFR - Secured Overnight Financing Rate, generally 1-Month or 3-Month
Aggregate acquisitions and aggregate dispositions of investments, other than government securities, totaled $27,282,868 and $81,882,519, respectively, for the period ended December 31, 2023. 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 |
| ||||
| ||||
| ||||
|
See Notes to Consolidated Financial StatementsStatements.
F-8
TCW DIRECT LENDING LLC
Consolidated Schedule of Investments
As of December 31, 20162022
Industry | Issuer | Acquisition Date | Investment | % of Net Assets | Par Amount | Maturity Date | Amortized Cost | Fair Value |
| Issuer |
| Acquisition |
| Investment |
| % of Net Assets |
|
| Par |
|
| Maturity |
| Amortized |
|
| Fair Value |
| ||||||||||||||||||||||||
Non-Controlled/Non-Affiliated Investments Debt |
| DEBT(1) |
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||||||||||||||||
Chemicals | ||||||||||||||||||||||||||||||||||||||||||||||||||||
GSE Environmental, Inc. | 09/26/16 | First Lien Term Loan - 11.00% (LIBOR + 10.00%, 1.00% Floor) | 1.3% | $ | 12,106,276 | 08/11/21 | $ | 12,106,276 | $ | 12,227,339 | ||||||||||||||||||||||||||||||||||||||||||
|
|
|
| |||||||||||||||||||||||||||||||||||||||||||||||||
1.3% | 12,106,276 | 12,106,276 | 12,227,339 | |||||||||||||||||||||||||||||||||||||||||||||||||
|
|
|
| |||||||||||||||||||||||||||||||||||||||||||||||||
Computers & Peripherals | ||||||||||||||||||||||||||||||||||||||||||||||||||||
Quantum Corporation(1) | 10/21/16 | Term Loan - 8.50% (LIBOR + 7.50%, 1.00% Floor) | 4.3% | 40,928,571 | 10/21/21 | 40,093,378 | 41,378,786 | |||||||||||||||||||||||||||||||||||||||||||||
|
|
|
| |||||||||||||||||||||||||||||||||||||||||||||||||
4.3% | 40,928,571 | 40,093,378 | 41,378,786 | |||||||||||||||||||||||||||||||||||||||||||||||||
|
| �� |
|
| ||||||||||||||||||||||||||||||||||||||||||||||||
Distributors |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||||||||||||||||
ASC Acquisition Holdings, LLC(2) | 12/16/16 | Term Loan - 8.50% (LIBOR + 7.50%, 1.00% Floor) | 4.1% | 39,227,344 | 12/15/21 | 38,449,671 | 39,148,889 | |||||||||||||||||||||||||||||||||||||||||||||
|
|
|
|
| Animal Supply Company, LLC(3) |
| 08/14/20 |
| Term Loan - 13.16% inc PIK |
|
| 5.8 | % |
| $ | 24,672,459 |
|
| 08/14/25 |
| $ | 24,672,459 |
|
| $ | 22,624,644 |
| |||||||||||||||||||||||||
4.1% | 39,227,344 | 38,449,671 | 39,148,889 |
| Retail & Animal Intermediate, LLC(2)(3) |
| 08/14/20 |
| Subordinated Loan - 7.00% inc PIK |
|
| 0.0 | % |
|
| 28,849,033 |
|
| 11/14/25 |
|
| 23,151,201 |
|
|
| - |
| |||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| 5.8 | % |
|
|
|
|
|
|
| 47,823,660 |
|
|
| 22,624,644 |
| ||||||||||||||||||||||||||||
Diversified Consumer Services |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||||||||||||||
Pre-Paid Legal Services, Inc. | 05/21/15 | First Lien Term Loan - 6.50% (LIBOR + 5.25%, 1.25% Floor) | 1.9% | 18,667,515 | 07/01/19 | 18,618,087 | 18,760,853 |
| SSI Parent, LLC (fka School Specialty, Inc.)(4) |
| 09/15/20 |
| Term Loan - 12.43% |
|
| 9.0 | % |
|
| 35,383,037 |
|
| 12/29/26 |
|
| 35,256,338 |
|
|
| 35,383,037 |
| |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| 9.0 | % |
|
|
|
|
|
|
| 35,256,338 |
|
|
| 35,383,037 |
| ||||||||||||||||||||||||||||
Diversified Financial Services |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||||||||||||||
1.9% | 18,667,515 | 18,618,087 | 18,760,853 |
| Guardia LLC (2) (3) |
| 07/02/18 |
| Revolver - 11.38% inc PIK |
|
| 0.7 | % |
|
| 11,679,652 |
|
| 07/02/23 |
|
| 1,927,484 |
|
|
| 2,604,562 |
| |||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| 0.7 | % |
|
|
|
|
|
|
| 1,927,484 |
|
|
| 2,604,562 |
| ||||||||||||||||||||||||||||
Diversified Financial Services | ||||||||||||||||||||||||||||||||||||||||||||||||||||
Hotels, Restaurants & Leisure |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||||||||||||||
| Ruby Tuesday Operations LLC(4) |
| 02/24/21 |
| Term Loan - 16.06% inc PIK |
|
| 1.7 | % |
|
| 6,715,899 |
|
| 02/24/25 |
|
| 6,715,899 |
|
|
| 6,715,899 |
| |||||||||||||||||||||||||||||
|
|
|
|
|
| 1.7 | % |
|
|
|
|
|
|
| 6,715,899 |
|
|
| 6,715,899 |
| ||||||||||||||||||||||||||||||||
Household Durables |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||||||||||||||
|
|
| 05/19/15 |
| Term Loan - 12.07% |
|
| 3.8 | % |
|
| 15,126,452 |
|
| 12/18/23 |
|
| 15,125,760 |
|
|
| 15,126,452 |
| |||||||||||||||||||||||||||||
|
|
| 01/30/19 |
| Incremental Term Loan - 15.00% inc PIK |
|
| 1.1 | % |
|
| 4,316,274 |
|
| 12/18/23 |
|
| 4,316,274 |
|
|
| 4,316,274 |
| |||||||||||||||||||||||||||||
|
|
|
|
|
| 4.9 | % |
|
|
|
|
|
|
| 19,442,034 |
|
|
| 19,442,726 |
| ||||||||||||||||||||||||||||||||
Industrial Conglomerates |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||||||||||||||
|
|
| 06/30/15 |
| Term Loan - 12.92% inc PIK |
|
| 31.0 | % |
|
| 130,270,359 |
|
| 11/12/25 |
|
| 130,170,471 |
|
|
| 121,802,785 |
| |||||||||||||||||||||||||||||
|
|
|
|
|
| 31.0 | % |
|
|
|
|
|
|
| 130,170,471 |
|
|
| 121,802,785 |
| ||||||||||||||||||||||||||||||||
Metals & Mining |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||||||||||||||
Patriot National, Inc.(3) | 11/09/16 | Term Loan - 8.25% (LIBOR + 7.25%, 1.00% Floor) | 5.6% | 53,571,429 | 11/09/21 | 53,137,809 | 54,053,572 |
| Pace Industries, Inc.(2) (4) |
| 06/01/20 |
| HoldCo Term Loan - 6.74% inc PIK |
|
| 8.0 | % |
|
| 89,108,152 |
|
| 06/01/40 |
|
| 78,137,869 |
|
|
| 31,455,178 |
| |||||||||||||||||||||
Verus Financial, LLC | 04/12/16 | First Lien Term Loan - 8.13% (LIBOR + 7.25%, 0.75% Floor) | 1.8% | 17,171,875 | 04/12/21 | 16,878,420 | 17,257,734 |
| Pace Industries, Inc.(4) |
| 06/01/20 |
| Term Loan - 12.85% inc PIK |
|
| 14.6 | % |
|
| 57,579,326 |
|
| 06/01/25 |
|
| 57,558,184 |
|
|
| 57,579,326 |
| |||||||||||||||||||||
|
|
|
|
| Pace Industries, Inc.(4) |
| 10/07/22 |
| Revolver - 12.96% inc PIK |
|
| 2.2 | % |
|
| 8,616,757 |
|
| 06/01/25 |
|
| 8,616,757 |
|
|
| 8,616,757 |
| |||||||||||||||||||||||||
7.4% | 70,743,304 | 70,016,229 | 71,311,306 |
|
|
|
|
|
| 24.8 | % |
|
|
|
|
|
|
| 144,312,810 |
|
|
| 97,651,261 |
| ||||||||||||||||||||||||||||
|
|
|
| |||||||||||||||||||||||||||||||||||||||||||||||||
Food Products | ||||||||||||||||||||||||||||||||||||||||||||||||||||
Pharmaceuticals |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||||||||||||||
AmeriQual Group, LLC | 03/31/16 | First Lien Term Loan - 8.63% (LIBOR + 7.75%, 0.75% Floor) | 1.4% | 13,686,575 | 01/20/21 | 13,513,544 | 13,755,008 |
| Noramco, LLC |
| 07/01/16 |
| Term Loan - 12.13% inc PIK |
|
| 11.1 | % |
|
| 44,121,541 |
|
| 12/31/23 |
|
| 44,068,922 |
|
|
| 43,636,205 |
| |||||||||||||||||||||
Harvest Hill Beverage Company | 01/20/16 | First Lien, First Out Term Loan - 5.00% (LIBOR + 4.00%, 1.00% Floor) | 1.4% | 13,785,149 | 01/19/21 | 13,617,666 | 13,674,867 |
|
|
|
| 11.1 | % |
|
|
|
|
|
|
| 44,068,922 |
|
|
| 43,636,205 |
| ||||||||||||||||||||||||||
Harvest Hill Beverage Company(4) | 01/20/16 | First Lien, Last Out Term Loan - 7.25% (LIBOR + 6.25%, 1.00% Floor) | 10.8% | 103,961,373 | 01/19/21 | 102,698,294 | 103,961,373 |
| Total Debt Investments |
|
|
|
| 89.0 | % |
|
|
|
|
|
|
| 429,717,618 |
|
|
| 349,861,119 |
| ||||||||||||||||||||||||
|
|
|
| |||||||||||||||||||||||||||||||||||||||||||||||||
12.2% | 117,746,522 | 116,315,960 | 117,636,240 | |||||||||||||||||||||||||||||||||||||||||||||||||
|
|
|
| |||||||||||||||||||||||||||||||||||||||||||||||||
13.6% | 131,433,097 | 129,829,504 | 131,391,248 | |||||||||||||||||||||||||||||||||||||||||||||||||
|
|
|
| |||||||||||||||||||||||||||||||||||||||||||||||||
Health Care Providers & Services | ||||||||||||||||||||||||||||||||||||||||||||||||||||
Help at Home, LLC(4)(5) | 08/03/15 | Term Loan B - 8.75% (LIBOR + 7.50%, 1.25% Floor) | 4.5% | 42,837,838 | 08/03/20 | 42,442,790 | 43,223,378 | |||||||||||||||||||||||||||||||||||||||||||||
|
|
|
| |||||||||||||||||||||||||||||||||||||||||||||||||
4.5% | 42,837,838 | 42,442,790 | 43,223,378 | |||||||||||||||||||||||||||||||||||||||||||||||||
|
|
|
|
F-9
TCW DIRECT LENDING LLC
Consolidated Schedule of Investments (continued)
As of December 31, 2016
Industry | Issuer | Acquisition Date | Investment | % of Net Assets | Par Amount | Maturity Date | Amortized Cost | Fair Value | ||||||||||||||||||||||||
Hotels, Restaurants & Leisure | ||||||||||||||||||||||||||||||||
| Controladora Dolphin Discovery, S.A De C.V. Mexico(6) | | 10/09/15 | Senior Secured Notes - 11.00% (LIBOR + 10.00%, 1.00% Floor) | 4.1% | $ | 39,572,542 | 10/09/20 | $ | 38,977,211 | $ | 39,414,252 | ||||||||||||||||||||
OTG Management, LLC(7) | 06/30/16 | First Lien Term Loan - 9.50% (LIBOR + 8.50%, 1.00% Floor) | 7.8% | 75,012,754 | 08/26/21 | 73,617,664 | 75,462,830 | |||||||||||||||||||||||||
|
|
|
|
|
|
|
| |||||||||||||||||||||||||
11.9% | 114,585,296 | 112,594,875 | 114,877,082 | |||||||||||||||||||||||||||||
|
|
|
|
|
|
|
| |||||||||||||||||||||||||
Household Durables | ||||||||||||||||||||||||||||||||
Cedar Electronics Holdings, Corp.(4) | 07/01/15 | Senior Term Loan - 6.94% (LIBOR + 6.00%, 0.50% Floor) | 2.2% | 21,427,500 | 06/26/20 | 21,076,157 | 20,784,675 | |||||||||||||||||||||||||
Robertshaw US Holding Corp. | 06/15/16 | Term Loan B - 8.50% (LIBOR + 7.00%, 1.50% Floor) | 6.4% | 62,523,495 | 06/18/19 | 62,196,483 | 61,773,213 | |||||||||||||||||||||||||
Robertshaw US Holding Corp. | 06/15/16 | Term Loan C - 8.50% (LIBOR + 7.00%, 1.50% Floor) | 0.5% | 4,750,013 | 06/18/19 | 4,750,013 | 4,693,013 | |||||||||||||||||||||||||
Robertshaw US Holding Corp. | 08/29/16 | Term Loan D - 8.50% (LIBOR + 7.00%, 1.50% Floor) | 1.0% | 9,831,637 | 06/18/19 | 9,723,758 | 9,713,657 | |||||||||||||||||||||||||
|
|
|
|
|
|
|
| |||||||||||||||||||||||||
7.9% | 77,105,145 | 76,670,254 | 76,179,883 | |||||||||||||||||||||||||||||
|
|
|
|
|
|
|
| |||||||||||||||||||||||||
10.1% | 98,532,645 | 97,746,411 | 96,964,558 | |||||||||||||||||||||||||||||
|
|
|
|
|
|
|
| |||||||||||||||||||||||||
Industrial Conglomerates | ||||||||||||||||||||||||||||||||
H-D Advanced Manufacturing Company | 06/30/15 | First Lien First Out Term Loan -5.50% inc PIK (LIBOR + 4.50%, 1.00% Floor, 0.50% PIK) | 3.2% | 32,914,262 | 06/30/20 | 32,570,243 | 30,346,950 | |||||||||||||||||||||||||
H-D Advanced Manufacturing Company(4) | 06/30/15 | First Lien Last Out Term Loan -13.80% inc PIK (LIBOR + 7.00%, 1.00% Floor, 5.80% PIK) | 8.4% | 110,785,456 | 06/30/20 | 109,043,607 | 80,873,383 | |||||||||||||||||||||||||
|
|
|
|
|
|
|
| |||||||||||||||||||||||||
11.6% | 143,699,718 | 141,613,850 | 111,220,333 | |||||||||||||||||||||||||||||
|
|
|
|
|
|
|
| |||||||||||||||||||||||||
Information Technology Services | ||||||||||||||||||||||||||||||||
ENA Holding Corporation(8) | 05/06/16 | First Lien Term Loan - 8.00% (LIBOR + 7.00%, 1.00% Floor) | 3.3% | 31,628,680 | 05/06/21 | 31,154,835 | 31,660,309 | |||||||||||||||||||||||||
|
|
|
|
|
|
|
| |||||||||||||||||||||||||
3.3% | 31,628,680 | 31,154,835 | 31,660,309 | |||||||||||||||||||||||||||||
|
|
|
|
|
|
|
| |||||||||||||||||||||||||
Metals & Mining | ||||||||||||||||||||||||||||||||
Pace Industries, Inc. | 06/30/15 | Senior Secured Notes - 9.25% (LIBOR + 8.25%, 1.00% Floor) | 9.0% | 88,875,000 | 06/30/20 | 87,943,929 | 86,742,000 | |||||||||||||||||||||||||
|
|
|
|
|
|
|
| |||||||||||||||||||||||||
9.0% | 88,875,000 | 87,943,929 | 86,742,000 | |||||||||||||||||||||||||||||
|
|
|
|
|
|
|
| |||||||||||||||||||||||||
Pharmaceuticals | ||||||||||||||||||||||||||||||||
Noramco, LLC(4) | 07/01/16 | Senior Term Loan - 9.00% (LIBOR + 8.00%, 1.00% Floor) | 6.4% | 61,177,080 | 07/01/21 | 60,751,282 | 61,972,382 | |||||||||||||||||||||||||
|
|
|
|
|
|
|
| |||||||||||||||||||||||||
6.4% | 61,177,080 | 60,751,282 | 61,972,382 | |||||||||||||||||||||||||||||
|
|
|
|
|
|
|
| |||||||||||||||||||||||||
Road & Rail | ||||||||||||||||||||||||||||||||
Total Military Management, Inc.(4) | 04/14/15 | Second Out Term Loan - 7.75% (LIBOR + 6.75%, 1.00% Floor) | 8.4% | 81,523,810 | 10/14/20 | 80,216,095 | 81,279,238 | |||||||||||||||||||||||||
|
|
|
|
|
|
|
| |||||||||||||||||||||||||
8.4% | 81,523,810 | 80,216,095 | 81,279,238 | |||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
TCW DIRECT LENDING LLC
Consolidated Schedule of Investments (Continued)
As of December 31, 20162022
Industry |
| Issuer |
| Investment |
| % of Net |
|
| Shares |
|
| Amortized |
|
| 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 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
| SSI Parent, LLC (fka School Specialty, Inc.)(2)(4)(6)(8) |
| Class A Preferred Stock |
|
| 3.3 | % |
|
| 806,264 |
|
|
| 8,062,637 |
|
|
| 13,061,335 |
| |
| SSI Parent, LLC (fka School Specialty, Inc.)(2)(4)(6)(8) |
| Class B Preferred Stock |
|
| 1.2 | % |
|
| 359,474 |
|
|
| 356,635 |
|
|
| 4,529,373 |
| |
| SSI Parent, LLC (fka School Specialty, Inc.)(2)(4)(6)(8) |
| Common Stock |
|
| 7.0 | % |
|
| 80,700 |
|
|
| 53,889 |
|
|
| 27,419,241 |
| |
| PNI Litigation Trust (Guardia LLC) (2)(3) |
| Preferred Equity |
|
| 0.0 | % |
|
| 115,715 |
|
|
| 115,715 |
|
|
| — |
| |
|
|
|
|
|
| 11.5 | % |
|
|
|
|
| 8,588,876 |
|
|
| 45,009,949 |
| ||
Hotels, Restaurants & Leisure |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
| RT Holdings Parent, LLC(2)(4)(8) |
| Class A Units |
|
| 4.9 | % |
|
| 5,475,885 |
|
|
| 5,133,708 |
|
|
| 19,103,720 |
| |
| RT Holdings Parent, LLC(2)(4)(8) |
| Warrant, expires 12/21/27 |
|
| 0.8 | % |
|
| 912,647 |
|
|
| — |
|
|
| 3,184,225 |
| |
| RT Holdings Parent, LLC(2)(4)(8) |
| Class P-1 Units |
|
| 0.1 | % |
|
| 105,624 |
|
|
| 133,086 |
|
|
| 368,005 |
| |
| RT Holdings Parent, LLC(2)(4)(8) |
| Class P-2 Units |
|
| 0.0 | % |
|
| 53,104 |
|
|
| 66,914 |
|
|
| 106,999 |
| |
|
|
|
|
|
| 5.8 | % |
|
|
|
|
| 5,333,708 |
|
|
| 22,762,949 |
| ||
Household Durables |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
| Cedar Ultimate Parent, LLC(2)(4)(8) |
| Class A Preferred Units |
|
| 3.0 | % |
|
| 9,297,990 |
|
|
| 9,187,902 |
|
|
| 11,753,031 |
| |
| 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 |
|
| 0.0 | % |
|
| 2,900,000 |
|
|
| — |
|
|
| — |
| |
|
|
|
|
|
| 3.0 | % |
|
|
|
|
| 9,187,902 |
|
|
| 11,753,031 |
| ||
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 | % |
|
| 84,880 |
|
|
| 84,880,000 |
|
|
| 84,141,713 |
| |
|
|
|
|
|
| 21.4 | % |
|
|
|
|
| 84,880,000 |
|
|
| 84,141,713 |
| ||
Metals & Mining |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
| Pace Industries, Inc.(2)(4)(8) |
| Common Stock |
|
| 0.0 | % |
|
| 971,418 |
|
|
| 2,110,522 |
|
|
| — |
| |
|
|
|
|
|
| 0.0 | % |
|
|
|
|
| 2,110,522 |
|
|
| — |
| ||
Technologies Hardware, Storage and Peripherals |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
| Quantum Corporation(2) |
| Common Stock |
|
| 0.5 | % |
|
| 1,766,327 |
|
|
| 6,481,788 |
|
|
| 1,925,296 |
| |
|
|
|
|
|
| 0.5 | % |
|
|
|
|
| 6,481,788 |
|
|
| 1,925,296 |
| ||
| Total Equity Investments |
|
|
|
| 42.2 | % |
|
|
|
|
| 118,155,523 |
|
|
| 165,592,938 |
| ||
| Total Debt & Equity Investments(9) |
|
|
|
| 131.2 | % |
|
|
|
|
| 547,873,141 |
|
|
| 515,454,057 |
| ||
| Cash Equivalents |
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
| First American Government Obligation Fund, Yield 4.06% |
|
|
|
| 1.1 | % |
|
| 4,223,290 |
|
|
| 4,223,290 |
|
|
| 4,223,290 |
| |
| Total Cash Equivalents |
|
|
|
| 1.1 | % |
|
|
|
|
| 4,223,290 |
|
|
| 4,223,290 |
| ||
| Short-term Investments |
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
| U.S. Treasury Bill, Yield 4.53% |
|
|
|
| 127.4 | % |
|
| 510,000,000 |
|
|
| 501,075,000 |
|
|
| 501,075,000 |
| |
| Total Short-term Investments |
|
|
|
| 127.4 | % |
|
|
|
|
| 501,075,000 |
|
|
| 501,075,000 |
| ||
| Total Investments (259.6%) |
|
|
|
|
|
|
|
|
| $ | 1,053,171,431 |
|
| $ | 1,020,752,347 |
| |||
| Net unrealized depreciation on unfunded commitments (0.0%) |
|
|
|
|
|
|
|
|
|
|
|
|
| — |
| ||||
| Liabilities in Excess of Other Assets (-159.6%) |
|
|
|
|
|
|
|
|
|
|
|
|
| (627,537,291 | ) | ||||
| Net Assets (100.0%) |
|
|
|
|
|
|
|
|
|
|
|
| $ | 393,215,056 |
|
Industry | Issuer | Acquisition Date | Investment | % of Net Assets | Par Amount | Maturity Date | Amortized Cost | Fair Value | ||||||||||||||||||||||
Software | ||||||||||||||||||||||||||||||
Quicken Parent Corp.(9) | 04/01/16 | First Lien Term Loan - 9.50% (LIBOR + 8.50%, 1.00% Floor) | 2.6% | $ | 24,710,625 | 04/01/21 | $ | 24,542,712 | $ | 25,031,863 | ||||||||||||||||||||
Sierra Private Holdings II Ltd.(6)(10) | 08/19/16 | UK Term Loan - 9.50% (LIBOR + 8.50%, 1.00% Floor) | 2.9% | 27,477,510 | 08/19/22 | 26,785,778 | 27,559,943 | |||||||||||||||||||||||
Xura, Inc. - US(6)(11) | 08/19/16 | First Lien Term Loan - 9.50% (LIBOR + 8.50%, 1.00% Floor) | 4.3% | 41,216,265 | 08/19/22 | 40,178,666 | 41,339,914 | |||||||||||||||||||||||
|
|
|
|
|
|
|
| |||||||||||||||||||||||
9.8% | 93,404,400 | 91,507,156 | 93,931,720 | |||||||||||||||||||||||||||
|
|
|
|
|
|
|
| |||||||||||||||||||||||
Textiles, Apparel & Luxury Goods | ||||||||||||||||||||||||||||||
Differential Brands Group, Inc. | 01/28/16 | Term Loan - 10.00% (LIBOR + 9.00%, 0.50% Floor) | 2.9% | 28,413,000 | 01/28/21 | 28,008,033 | 27,702,675 | |||||||||||||||||||||||
Frontier Spinning Mills, Inc.(4) | 05/19/15 | Last Out Term Loan B - 9.25% (LIBOR + 8.25%, 1.00% Floor) | 1.1% | 13,611,553 | 04/30/20 | 13,522,149 | 10,807,573 | |||||||||||||||||||||||
|
|
|
|
|
|
|
| |||||||||||||||||||||||
4.0% | 42,024,553 | 41,530,182 | 38,510,248 | |||||||||||||||||||||||||||
|
|
|
|
|
|
|
| |||||||||||||||||||||||
Total Debt Investments | 111.6% | 1,096,614,550 | 1,074,599,669 | |||||||||||||||||||||||||||
|
|
|
|
|
| |||||||||||||||||||||||||
Shares | Cost | |||||||||||||||||||||||||||||
Equity | ||||||||||||||||||||||||||||||
Verus Financial, LLC(12) | 05/20/16 | Common Stock | 0.9% | 8,750 | 8,368,247 | 8,626,399 | ||||||||||||||||||||||||
|
|
|
|
|
| |||||||||||||||||||||||||
TotalNon-Controlled/Non-Affiliated Investments* | 112.5% | $ | 1,104,982,797 | $ | 1,083,226,068 | |||||||||||||||||||||||||
|
|
|
|
|
| |||||||||||||||||||||||||
Controlled/Affiliated Investments | ||||||||||||||||||||||||||||||
Investment Funds &Vehicles | ||||||||||||||||||||||||||||||
TCW Direct Lending Strategic Ventures LLC(6)(13) | 06/05/15 | Preferred membership interests | 25.7% | 227,896 | $ | 227,895,573 | $ | 247,164,240 | ||||||||||||||||||||||
Common membership interests | 0.0% | 800 | — | — | ||||||||||||||||||||||||||
|
|
|
|
|
| |||||||||||||||||||||||||
Total Controlled/Affiliated Investments | 25.7% | $ | 227,895,573 | $ | 247,164,240 | |||||||||||||||||||||||||
|
|
|
|
|
| |||||||||||||||||||||||||
Cash Equivalents | ||||||||||||||||||||||||||||||
Blackrock Liquidity Funds, Yield 1.00% | 20.4% | 197,000,436 | $ | 197,000,436 | $ | 197,000,436 | ||||||||||||||||||||||||
|
|
|
|
|
| |||||||||||||||||||||||||
Total Investments 158.6% | $ | 1,529,878,806 | $ | 1,527,390,744 | ||||||||||||||||||||||||||
|
|
|
| |||||||||||||||||||||||||||
Net unrealized appreciation on unfunded commitments (0.0%) | $ | 376,683 | ||||||||||||||||||||||||||||
|
| |||||||||||||||||||||||||||||
Liabilities in Excess of Other Assets (58.6%) | $ | (564,663,883 | ) | |||||||||||||||||||||||||||
|
| |||||||||||||||||||||||||||||
Net Assets 100.0% | $ | 963,103,544 | ||||||||||||||||||||||||||||
|
|
F-10
TCW DIRECT LENDING LLC
Consolidated Schedule of Investments (continued)(Continued)
As of December 31, 20162022
Name of Investment |
| Fair Value at |
|
| Gross |
|
| Gross |
|
| Realized |
|
| Net Change in |
|
| Fair Value at |
|
| Interest/ |
| |||||||
Animal Supply Holdings LLC Class A Common |
| $ | — |
|
| $ | — |
|
| $ | — |
|
| $ | — |
|
| $ | — |
|
| $ | — |
|
| $ | — |
|
ASC Acquisition Holdings LLC Term Loan - 9.50% |
|
| 22,248,202 |
|
|
| 2,473,422 |
|
|
| (49,166 | ) |
|
| — |
|
|
| (2,047,814 | ) |
|
| 22,624,644 |
|
|
| 2,508,518 |
|
Guardia LLC (fka Carrier & Technology, LLC) Revolver - 8.75% |
|
| 2,807,357 |
|
|
| — |
|
|
| (514,460 | ) |
|
| — |
|
|
| 311,665 |
|
|
| 2,604,562 |
|
|
| — |
|
PNI Litigation Trust (fka Guardia) Preferred Equity |
|
| — |
|
|
| 115,715 |
|
|
| — |
|
|
| — |
|
|
| (115,715 | ) |
|
| — |
|
|
| — |
|
Retail and Animal Intermediate Subordinated Loan - 7.00% |
|
| 4,247,569 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (4,247,569 | ) |
|
| — |
|
|
| 1,338 |
|
Total Non-Controlled Affiliated Investments |
| $ | 29,303,128 |
|
| $ | 2,589,137 |
|
| $ | (563,626 | ) |
| $ | — |
|
| $ | (6,099,433 | ) |
| $ | 25,229,206 |
|
| $ | 2,509,855 |
|
F-11
TCW DIRECT LENDING LLC
Consolidated Schedule of Investments (Continued)
As of December 31, 2022
Name of Investment |
| Fair Value at |
|
| Gross |
|
| Gross |
|
| Realized |
|
| Net |
|
| Fair Value at |
|
| Interest/ |
| |||||||
Cedar Electronics Holdings, Corp Incremental Term Loan - 15.00% |
| $ | 3,710,871 |
|
| $ | 605,403 |
|
| $ | — |
|
| $ | — |
|
| $ | — |
|
| $ | 4,316,274 |
|
| $ | 613,223 |
|
Cedar Electronics Holdings, Corp Term Loan - 9.50% |
|
| 15,126,452 |
|
|
| 696 |
|
|
| — |
|
|
| — |
|
|
| (696 | ) |
|
| 15,126,452 |
|
|
| 1,806,572 |
|
Cedar Ultimate Parent, LLC Class A Preferred Unit |
|
| 16,255,955 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (4,502,924 | ) |
|
| 11,753,031 |
|
|
| — |
|
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 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (42,162,362 | ) |
|
| 31,455,178 |
|
|
| 55,064 |
|
Pace Industries, Inc. Term Loan - 9.75% |
|
| 53,963,182 |
|
|
| 3,624,893 |
|
|
| — |
|
|
| — |
|
|
| (8,749 | ) |
|
| 57,579,326 |
|
|
| 5,867,755 |
|
Pace Industries, LLC Revolver Opco |
|
|
|
|
| 8,616,757 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 8,616,757 |
|
|
| 38,972 |
| |
RT Holdings Parent, LLC Class A Unit |
|
| 20,859,289 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (1,755,569 | ) |
|
| 19,103,720 |
|
|
| — |
|
RT Holdings Parent, LLC Warrant |
|
| 3,476,546 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (292,321 | ) |
|
| 3,184,225 |
|
|
| — |
|
Ruby Tuesday Operations, LLC Term Loan - 13.25% |
|
| 8,635,037 |
|
|
| 469,635 |
|
|
| (2,388,773 | ) |
|
| — |
|
|
| — |
|
|
| 6,715,899 |
|
|
| 1,623,615 |
|
Ruby Tuesday P-1 Units |
|
| — |
|
|
| 133,087 |
|
|
| — |
|
|
| — |
|
|
| 234,918 |
|
|
| 368,005 |
|
|
| — |
|
Ruby Tuesday P-2 Units |
|
| — |
|
|
| 66,914 |
|
|
| — |
|
|
| — |
|
|
| 40,085 |
|
|
| 106,999 |
|
|
| — |
|
SSI Parent, LLC (fka School Specialty, Inc.) Common Stock |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 27,419,241 |
|
|
| 27,419,241 |
|
|
| — |
|
SSI Parent, LLC (fka School Specialty, Inc.) Preferred Stock A |
|
| 12,093,956 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 967,379 |
|
|
| 13,061,335 |
|
|
| — |
|
SSI Parent, LLC (fka School Specialty, Inc.) Preferred Stock B |
|
| 690,190 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 3,839,183 |
|
|
| 4,529,373 |
|
|
| — |
|
SSI Parent, LLC (fka School Specialty, Inc.) Term Loan - 9.25% |
|
| 35,532,773 |
|
|
| 46,673 |
|
|
| (148,903 | ) |
|
| — |
|
|
| (47,506 | ) |
|
| 35,383,037 |
|
|
| 3,692,955 |
|
TCW Direct Lending Strategic Ventures LLC Common Membership Interests |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
TCW Direct Lending Strategic Ventures LLC Preferred Membership Interests |
|
| 88,334,811 |
|
|
| — |
|
|
| (16,640,000 | ) |
|
| — |
|
|
| 12,446,902 |
|
|
| 84,141,713 |
|
|
| 5,200,000 |
|
Total Controlled Affiliated Investments |
| $ | 334,558,602 |
|
| $ | 13,564,058 |
|
| $ | (19,177,676 | ) |
| $ | — |
|
| $ | (6,084,419 | ) |
| $ | 322,860,565 |
|
| $ | 18,898,156 |
|
F-12
TCW DIRECT LENDING LLC
Consolidated Schedule of Investments (Continued)
As of December 31, 2022
LIBOR - London Interbank Offered Rate, generally 1-Month or 3-Month
SOFR - Secured Overnight Financing Rate, generally 1-Month or 3-Month
Aggregate acquisitions and aggregate dispositions of investments, other than government securities, totaled $33,038,685 and $26,229,218, respectively, for the period ended December 31, 2022. Aggregate acquisitions includes investment assets received as payment in kind. Aggregate dispositions includes principal paydowns on and maturities of debt investments.
Country Breakdown Portfolio |
| ||||
| ||||
| ||||
|
See Notes to Consolidated Financial StatementsStatements.
F-13
TCW DIRECT LENDING LLC
Consolidated Statements of Assets and Liabilities
(Dollar amounts in thousands, except unit data)
December 31, 2023
As of December 31, 2017 | As of December 31, 2016 | |||||||
Assets | ||||||||
Investments, at fair value | ||||||||
Noncontrolled/non-affiliated investments (amortized cost of $1,186,123 and $1,104,983, respectively) | $ | 1,163,294 | $ | 1,083,226 | ||||
Controlled affiliated investments (cost of $239,554 and $227,896, respectively) | 259,698 | 247,164 | ||||||
Cash and cash equivalents | 209,784 | 214,913 | ||||||
Interest receivable | 12,485 | 9,738 | ||||||
Deferred financing costs | 8,698 | 1,972 | ||||||
Receivable from Investment Adviser | 1,203 | 578 | ||||||
Unrealized appreciation on unfunded commitments | — | 403 | ||||||
Prepaid and other assets | 95 | 107 | ||||||
|
|
|
| |||||
Total Assets | $ | 1,655,257 | $ | 1,558,101 | ||||
|
|
|
| |||||
Liabilities | ||||||||
Credit facility payable | $ | 378,000 | $ | 590,000 | ||||
Unrealized depreciation on unfunded commitments | 530 | 26 | ||||||
Interest and credit facility expense payable | 418 | 260 | ||||||
Directors’ fees payable | — | 3 | ||||||
Payable for investments purchased | — | 3,840 | ||||||
Other accrued expenses and other liabilities | 889 | 868 | ||||||
|
|
|
| |||||
Total Liabilities | $ | 379,837 | $ | 594,997 | ||||
|
|
|
| |||||
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) | (309,125 | ) | (920,589 | ) | ||||
Common Unitholders’ return of capital | (394,008 | ) | (102,960 | ) | ||||
Common Unitholders’ offering costs | (853 | ) | (853 | ) | ||||
Accumulated Common Unitholders’ tax reclassification | (9,215 | ) | (9,596 | ) | ||||
|
|
|
| |||||
Common Unitholders’ capital | 1,300,269 | 979,472 | ||||||
Accumulated net realized loss | (20,543 | ) | (13,710 | ) | ||||
Accumulated net investment loss | (1,091 | ) | (546 | ) | ||||
Net unrealized depreciation on investments | (3,215 | ) | (2,112 | ) | ||||
|
|
|
| |||||
Total Members’ Capital | $ | 1,275,420 | $ | 963,104 | ||||
|
|
|
| |||||
Total Liabilities and Members’ Capital | $ | 1,655,257 | $ | 1,558,101 | ||||
|
|
|
| |||||
Net Asset Value Per Unit (accrual base) (Note 9) | $ | 78.70 | $ | 93.55 | ||||
|
|
|
|
|
| As of December 31, |
| |||||
|
| 2023 |
|
| 2022 |
| ||
Assets |
|
|
|
|
|
| ||
Investments, at fair value |
|
|
|
|
|
| ||
Non-controlled/non-affiliated investments (amortized cost of $148,612 and $180,721, respectively) |
| $ | 142,401 |
|
| $ | 167,364 |
|
Non-controlled affiliated investments (amortized cost of $30,231 and $51,440, respectively) |
|
| 19,054 |
|
|
| 25,229 |
|
Controlled affiliated investments (amortized cost of $287,948 and $315,712, respectively) |
|
| 280,739 |
|
|
| 322,861 |
|
Cash and cash equivalents |
|
| 2,372 |
|
|
| 4,223 |
|
Short-term investments |
|
| 491,966 |
|
|
| 501,075 |
|
Interest receivable |
|
| 2,466 |
|
|
| 1,665 |
|
Deferred financing costs |
|
| 122 |
|
|
| 120 |
|
Prepaid and other assets |
|
| 34 |
|
|
| 52 |
|
Total Assets |
| $ | 939,154 |
|
| $ | 1,022,589 |
|
Liabilities |
|
|
|
|
|
| ||
Payable for short-term investments purchased |
| $ | 491,966 |
|
| $ | 501,075 |
|
Credit facility payable |
|
| 77,050 |
|
|
| 126,250 |
|
Unrealized depreciation on unfunded commitments |
|
| 2,399 |
|
|
| — |
|
Interest and credit facility expense payable |
|
| 571 |
|
|
| 721 |
|
Management fees payable |
|
| — |
|
|
| 999 |
|
Other accrued expenses and other liabilities |
|
| 429 |
|
|
| 329 |
|
Total Liabilities |
|
| 572,415 |
|
|
| 629,374 |
|
Commitments and Contingencies (Note 5) |
|
|
|
|
|
| ||
Members’ Capital |
|
|
|
|
|
| ||
Common Unitholders’ commitment: (18,034,649 units issued and outstanding) |
|
| 1,803,465 |
|
|
| 1,803,465 |
|
Common Unitholders’ undrawn commitment: (18,034,649 issued and outstanding) |
|
| (199,120 | ) |
|
| (199,120 | ) |
Common Unitholders’ return of capital |
|
| (1,115,045 | ) |
|
| (1,112,130 | ) |
Common Unitholders’ offering costs |
|
| (853 | ) |
|
| (853 | ) |
Accumulated Common Unitholders’ tax reclassification |
|
| (13,904 | ) |
|
| (13,904 | ) |
Common Unitholders’ capital |
|
| 474,543 |
|
|
| 477,458 |
|
Accumulated overdistributed earnings |
|
| (107,804 | ) |
|
| (84,243 | ) |
Total Members’ Capital |
|
| 366,739 |
|
|
| 393,215 |
|
Total Liabilities and Members’ Capital |
| $ | 939,154 |
|
| $ | 1,022,589 |
|
Net Asset Value Per Unit (accrual base) (Note 11) |
| $ | 31.38 |
|
| $ | 32.84 |
|
See Notes to Consolidated Financial StatementsStatements.
F-14
TCW DIRECT LENDING LLC
Consolidated Statements of Operations
(Dollar amounts in thousands, except unit data)
December 31, 2023
Year Ended December 31, 2017 | Year Ended December 31, 2016 | Year Ended December 31, 2015 | ||||||||||
Investment Income: | ||||||||||||
Interest income fromnon-controlled/non-affiliated investments | $ | 117,063 | $ | 92,880 | $ | 30,527 | ||||||
Interest income fromnon-controlled/non-affiliated investmentspaid-in-kind | 11,748 | 3,096 | — | |||||||||
Dividend income from controlled affiliated investments | 22,618 | 14,797 | 894 | |||||||||
Other fee income | — | 652 | — | |||||||||
|
|
|
|
|
| |||||||
Total investment income | 151,429 | 111,425 | 31,421 | |||||||||
|
|
|
|
|
| |||||||
Expenses: | ||||||||||||
Management fees | 25,101 | 30,202 | 35,244 | |||||||||
Interest and credit facility expenses | 19,639 | 13,503 | 6,717 | |||||||||
Professional fees | 1,921 | 1,581 | 742 | |||||||||
Administrative fees | 1,258 | 1,104 | 684 | |||||||||
Directors’ fees | 298 | 290 | 289 | |||||||||
Other expenses | 404 | 377 | 372 | |||||||||
|
|
|
|
|
| |||||||
Total expenses | 48,621 | 47,057 | 44,048 | |||||||||
Expenses recaptured/(reimbursed) by the Investment Adviser | (1,267 | ) | (835 | ) | 312 | |||||||
|
|
|
|
|
| |||||||
Net expenses | 47,354 | 46,222 | 44,360 | |||||||||
|
|
|
|
|
| |||||||
Net investment income (loss) | $ | 104,075 | $ | 65,203 | $ | (12,939 | ) | |||||
|
|
|
|
|
| |||||||
Net realized and unrealized gain (loss) on investments | ||||||||||||
Net realized gain (loss) onnon-controlled/non- affiliated investments | $ | (88 | ) | $ | 519 | $ | 2,350 | |||||
Net realized gain distributions from controlled affiliated investments | 1,432 | — | — | |||||||||
Net change in unrealized appreciation/depreciation onnon-controlled/non-affiliated investments | (1,979) | (17,114) | (6,453) | |||||||||
Net change in unrealized appreciation/depreciation on controlled affiliated investments | 876 | 13,193 | 6,075 | |||||||||
|
|
|
|
|
| |||||||
Net realized and unrealized gain (loss) on investments | $ | 241 | $ | (3,402 | ) | $ | 1,972 | |||||
|
|
|
|
|
| |||||||
Net increase (decrease) in Members’ Capital from operations | $ | 104,316 | $ | 61,801 | $ | (10,967 | ) | |||||
|
|
|
|
|
| |||||||
Basic and diluted: | ||||||||||||
Income (loss) per unit | $ | 5.17 | $ | 3.07 | $ | (0.58 | ) |
|
| For the Year Ended December 31, |
| |||||||||
|
| 2023 |
|
| 2022 |
|
| 2021 |
| |||
Investment Income |
|
|
|
|
|
|
|
|
| |||
Non-controlled/non-affiliated investments: |
|
|
|
|
|
|
|
|
| |||
Interest income |
| $ | 21,354 |
|
| $ | 4,879 |
|
| $ | 14,802 |
|
Interest income paid-in-kind |
|
| 2,954 |
|
|
| 16,929 |
|
|
| 9,919 |
|
Other fee income |
|
| 72 |
|
|
| 8 |
|
|
| 98 |
|
Non-controlled affiliated investments: |
|
|
|
|
|
|
|
|
| |||
Interest income |
|
| 270 |
|
|
| 11 |
|
|
| 579 |
|
Interest income paid-in-kind |
|
| 2,767 |
|
|
| 2,474 |
|
|
| 2,117 |
|
Other fee income |
|
| 25 |
|
|
| 25 |
|
|
| 23 |
|
Controlled affiliated investments: |
|
|
|
|
|
|
|
|
| |||
Interest income |
|
| 5,230 |
|
|
| 8,609 |
|
|
| 9,664 |
|
Interest income paid-in-kind |
|
| 11,850 |
|
|
| 4,964 |
|
|
| 3,326 |
|
Dividend income |
|
| 8,596 |
|
|
| 5,200 |
|
|
| 7,200 |
|
Other fee income |
|
| 125 |
|
|
| 125 |
|
|
| 104 |
|
Total investment income |
|
| 53,243 |
|
|
| 43,224 |
|
|
| 47,832 |
|
Expenses |
|
|
|
|
|
|
|
|
| |||
Interest and credit facility expenses |
|
| 7,986 |
|
|
| 5,648 |
|
|
| 4,777 |
|
Interest expense on repurchase transactions |
|
| 5,922 |
|
|
| 1,566 |
|
|
| 152 |
|
Management fees (Note 4) |
|
| 4,000 |
|
|
| 4,015 |
|
|
| 5,293 |
|
Professional fees |
|
| 717 |
|
|
| 679 |
|
|
| 610 |
|
Administrative fees |
|
| 547 |
|
|
| 629 |
|
|
| 766 |
|
Directors’ fees |
|
| 320 |
|
|
| 327 |
|
|
| 320 |
|
Other expenses |
|
| 174 |
|
|
| 204 |
|
|
| 211 |
|
Total expenses |
|
| 19,666 |
|
|
| 13,068 |
|
|
| 12,129 |
|
Expenses waived by the Adviser |
|
| (4,000 | ) |
|
| — |
|
|
| — |
|
Net expenses |
|
| 15,666 |
|
|
| 13,068 |
|
|
| 12,129 |
|
Net investment income |
|
| 37,577 |
|
|
| 30,156 |
|
|
| 35,703 |
|
Net realized and unrealized (loss) gain on investments |
|
|
|
|
|
|
|
|
| |||
Net realized (loss) gain: |
|
|
|
|
|
|
|
|
| |||
Non-controlled/non-affiliated investments |
|
| — |
|
|
| — |
|
|
| 6,998 |
|
Non-controlled affiliated investments |
|
| (26,768 | ) |
|
| — |
|
|
| (58,826 | ) |
Net change in unrealized appreciation/(depreciation): |
|
|
|
|
|
|
|
|
| |||
Non-controlled/non-affiliated investments |
|
| 4,747 |
|
|
| 25,375 |
|
|
| 12,177 |
|
Non-controlled affiliated investments |
|
| 15,034 |
|
|
| (6,099 | ) |
|
| 51,092 |
|
Controlled affiliated investments |
|
| (14,358 | ) |
|
| (6,084 | ) |
|
| 56,872 |
|
Net realized gain on short-term investments |
|
| 4,292 |
|
|
| 63 |
|
|
| 13 |
|
Net realized and unrealized (loss) gain on investments |
|
| (17,053 | ) |
|
| 13,255 |
|
|
| 68,326 |
|
Net increase in Members’ Capital from operations |
| $ | 20,524 |
|
| $ | 43,411 |
|
| $ | 104,029 |
|
Basic and diluted: |
|
|
|
|
|
|
|
|
| |||
Income per unit |
| $ | 1.14 |
|
| $ | 2.41 |
|
| $ | 5.17 |
|
See Notes to Consolidated Financial StatementsStatements.
F-15
TCW DIRECT LENDING LLC
Consolidated Statements of Changes in Members’ Capital
(Dollar amounts in thousands, except unit data)
December 31, 2023
Year Ended December 31, 2017 | Year Ended December 31, 2016 | Year Ended December 31, 2015 | ||||||||||
Net Increase (Decrease) in Members’ Capital Resulting from Operations: | ||||||||||||
Net investment income (loss) | $ | 104,075 | $ | 65,203 | $ | (12,939 | ) | |||||
Net realized gain on investments | 1,344 | 519 | 2,350 | |||||||||
Net change in unrealized appreciation/depreciation on investments | (1,103 | ) | (3,921 | ) | (378 | ) | ||||||
|
|
|
|
|
| |||||||
Net Increase (Decrease) in Members’ Capital from Operations | 104,316 | 61,801 | (10,967 | ) | ||||||||
Distributions to Members from: | ||||||||||||
Net investment income | (109,356 | ) | (72,270 | ) | — | |||||||
Net realized gains | (3,060 | ) | (3,205 | ) | — | |||||||
Return of capital | (291,048 | ) | (102,960 | ) | — | |||||||
Return of unused capital | (250,000) | — | — | |||||||||
|
|
|
|
|
| |||||||
Total Distributions to Members | (653,464 | ) | (178,435 | ) | — | |||||||
Increase in Members’ Capital Resulting from Capital Activity | ||||||||||||
Contributions | 861,464 | 428,435 | 598,595 | |||||||||
Offering costs | — | — | (853) | |||||||||
|
|
|
|
|
| |||||||
Total Increase in Members’ Capital Resulting from Capital Activity | 861,464 | 428,435 | 597,742 | |||||||||
|
|
|
|
|
| |||||||
Total Increase in Members’ Capital | 312,316 | 311,801 | 586,775 | |||||||||
|
|
|
|
|
| |||||||
Members’ Capital, beginning of year | 963,104 | 651,303 | 64,528 | |||||||||
|
|
|
|
|
| |||||||
Members’ Capital, end of year | $ | 1,275,420 | $ | 963,104 | $ | 651,303 | ||||||
|
|
|
|
|
| |||||||
Accumulated net investment loss | $ | (1,091 | ) | $ | (546 | ) | $ | (17,431 | ) | |||
|
|
|
|
|
|
|
| Common |
|
| Accumulated Undistributed (Overdistributed) Earnings |
|
| Total |
| |||
Members’ Capital at December 31, 2020 |
| $ | 735,256 |
|
| $ | (166,981 | ) |
| $ | 568,275 |
|
Net Increase (Decrease) in Members’ Capital Resulting from Operations: |
|
|
|
|
|
|
|
|
| |||
Net investment income |
|
| — |
|
|
| 35,703 |
|
|
| 35,703 |
|
Net realized loss on investments |
|
| — |
|
|
| (51,815 | ) |
|
| (51,815 | ) |
Net change in unrealized appreciation/(depreciation) on investments |
|
| — |
|
|
| 120,141 |
|
|
| 120,141 |
|
Distributions to Members from: |
|
|
|
|
|
|
|
|
| |||
Distributable earnings |
|
| — |
|
|
| (38,000 | ) |
|
| (38,000 | ) |
Return of capital |
|
| (245,000 | ) |
|
| — |
|
|
| (245,000 | ) |
Total (Decrease) Increase in Members’ Capital for the year ended December 31, 2021 |
|
| (245,000 | ) |
|
| 66,029 |
|
|
| (178,971 | ) |
Tax reclassification of Members' Capital |
|
| (168 | ) |
|
| 168 |
|
|
| — |
|
Members’ Capital at December 31, 2021 |
|
| 490,088 |
|
|
| (100,784 | ) |
|
| 389,304 |
|
Net Increase (Decrease) in Members’ Capital Resulting from Operations: |
|
|
|
|
|
|
|
|
| |||
Net investment income |
|
| — |
|
|
| 30,156 |
|
|
| 30,156 |
|
Net realized gain on investments |
|
| — |
|
|
| 63 |
|
|
| 63 |
|
Net change in unrealized appreciation/(depreciation) on investments |
|
| — |
|
|
| 13,192 |
|
|
| 13,192 |
|
Distributions to Members from: |
|
|
|
|
|
|
|
|
| |||
Distributable earnings |
|
| — |
|
|
| (26,873 | ) |
|
| (26,873 | ) |
Return of capital |
|
| (12,627 | ) |
|
| — |
|
|
| (12,627 | ) |
Total (Decrease) Increase in Members’ Capital for the year ended December 31, 2022 |
|
| (12,627 | ) |
|
| 16,538 |
|
|
| 3,911 |
|
Tax reclassification of Members' Capital |
|
| (3 | ) |
|
| 3 |
|
|
| — |
|
Members’ Capital at December 31, 2022 |
|
| 477,458 |
|
|
| (84,243 | ) |
|
| 393,215 |
|
Net Increase (Decrease) in Members’ Capital Resulting from Operations: |
|
|
|
|
|
|
|
|
| |||
Net investment income |
|
| — |
|
|
| 37,577 |
|
|
| 37,577 |
|
Net realized loss on investments |
|
| — |
|
|
| (22,476 | ) |
|
| (22,476 | ) |
Net change in unrealized appreciation/(depreciation) on investments |
|
| — |
|
|
| 5,423 |
|
|
| 5,423 |
|
Distributions to Members from: |
|
|
|
|
|
|
|
|
| |||
Distributable earnings |
|
| — |
|
|
| (44,085 | ) |
|
| (44,085 | ) |
Return of capital |
|
| (2,915 | ) |
|
| — |
|
|
| (2,915 | ) |
Total Decrease in Members’ Capital for the year ended December 31, 2023 |
|
| (2,915 | ) |
|
| (23,561 | ) |
|
| (26,476 | ) |
Members’ Capital at December 31, 2023 |
| $ | 474,543 |
|
| $ | (107,804 | ) |
| $ | 366,739 |
|
See Notes to Consolidated Financial StatementsStatements.
F-16
TCW DIRECT LENDING LLC
Consolidated Statements of Cash Flows
(Dollar amounts in thousands, except unit data)
December 31, 2023
Year Ended December 31, 2017 | Year Ended December 31, 2016 | Year Ended December 31, 2015 | ||||||||||
Cash Flows from Operating Activities | ||||||||||||
Net increase in net assets resulting from operations | $ | 104,316 | $ | 61,801 | $ | (10,967 | ) | |||||
Adjustments to reconcile the net increase in net assets resulting from operations to net cash provided by (used in) operating activities: | ||||||||||||
Purchases of investments | (503,814 | ) | (947,347 | ) | (859,314 | ) | ||||||
Interest income paidin-kind | (11,748 | ) | (3,096 | ) | — | |||||||
Proceeds from sales and paydowns of investments | 429,340 | 414,455 | 181,821 | |||||||||
Net realized gain (loss) on investments | 88 | (519 | ) | (2,350 | ) | |||||||
Change in net unrealized appreciation/depreciation on investments | 1,103 | 3,921 | 378 | |||||||||
Amortization of premium and accretion of discount, net | (6,664 | ) | (4,948 | ) | (1,268 | ) | ||||||
Amortization of deferred financing costs | 3,411 | 2,291 | 1,942 | |||||||||
Increase (decrease) in operating assets and liabilities: | ||||||||||||
(Increase) decrease in interest receivable | (2,747 | ) | (7,085 | ) | (2,024 | ) | ||||||
(Increase) decrease in receivable from Investment Adviser | (625 | ) | (578 | ) | 311 | |||||||
(Increase) decrease in receivable for investments sold | — | 27,098 | (27,098 | ) | ||||||||
(Increase) decrease in prepaid offering costs | — | — | 663 | |||||||||
(Increase) decrease in prepaid and other assets | 12 | 50 | (157 | ) | ||||||||
Increase (decrease) in investments purchased payable | (3,840 | ) | 3,840 | — | ||||||||
Increase (decrease) in interest and credit facility expense payable | 158 | (236 | ) | 454 | ||||||||
Increase (decrease) in directors’ fees payable | (3 | ) | 3 | (160 | ) | |||||||
Increase (decrease) in management fees payable | — | (27,737 | ) | 24,244 | ||||||||
Increase (decrease) in initial organizational expense payable to affiliate | — | — | (682 | ) | ||||||||
Increase (decrease) in offering costs payable to affiliate | — | — | (663 | ) | ||||||||
Increase (decrease) in other accrued expenses and liabilities | 21 | 631 | (208 | ) | ||||||||
|
|
|
|
|
| |||||||
Net cash provided by (used in) operating activities | $ | 9,008 | $ | (477,456 | ) | $ | (695,078 | ) | ||||
|
|
|
|
|
| |||||||
Cash Flows from Financing Activities | ||||||||||||
Contributions from Members | $ | 674,000 | $ | 250,000 | $ | 598,595 | ||||||
Unused contributions returned to Members | (250,000 | ) | — | — | ||||||||
Distributions to Members | (216,000 | ) | — | — | ||||||||
Capital call due from Members, net | — | 933 | (833 | ) | ||||||||
Offering costs paid | — | — | (853 | ) | ||||||||
Deferred financing costs paid | (10,137 | ) | — | (2,362 | ) | |||||||
Proceeds from credit facility | 384,696 | 1,076,000 | 850,000 | |||||||||
Repayments of credit facility | (596,696 | ) | (815,000 | ) | (576,000 | ) | ||||||
|
|
|
|
|
| |||||||
Net cash (used in) provided by financing activities | $ | (14,137 | ) | $ | 511,933 | $ | 868,547 | |||||
|
|
|
|
|
| |||||||
Net (decrease) increase in cash and cash equivalents | $ | (5,129 | ) | $ | 34,477 | $ | 173,469 | |||||
Cash and cash equivalents, beginning of year | $ | 214,913 | $ | 180,436 | $ | 6,967 | ||||||
|
|
|
|
|
| |||||||
Cash and cash equivalents, end of year | $ | 209,784 | $ | 214,913 | $ | 180,436 | ||||||
|
|
|
|
|
| |||||||
Supplemental andnon-cash financing activities | ||||||||||||
Interest expense paid | $ | 13,635 | $ | 10,246 | $ | 3,023 | ||||||
Deemed purchase and return of capital from Investment Funds & Vehicles | $ | — | $ | 26,068 | $ | — | ||||||
Investments transferred (exchanged)in-kind | $ | — | $ | — | $ | 111,656 | ||||||
Deemeddistribution/re-contribution from Members’ (Note 9) | $ | 187,464 | $ | 178,435 | $ | — | ||||||
Deemeddistribution/re-contribution from Investment Funds and Vehicles | $ | — | $ | 1,643 | $ | — |
|
| For the Year Ended December 31, |
| |||||||||
|
| 2023 |
|
| 2022 |
|
| 2021 |
| |||
Cash Flows from Operating Activities |
|
|
|
|
|
|
|
|
| |||
Net increase in net assets resulting from operations |
| $ | 20,524 |
|
| $ | 43,411 |
|
| $ | 104,029 |
|
Adjustments to reconcile the net increase in net assets resulting from operations to net cash provided by operating activities: |
|
|
|
|
|
|
|
|
| |||
Purchases of investments |
|
| (9,712 | ) |
|
| (8,672 | ) |
|
| (7,665 | ) |
Purchases of short-term investments |
|
| (491,966 | ) |
|
| (501,075 | ) |
|
| (549,930 | ) |
Interest income paid in-kind |
|
| (17,571 | ) |
|
| (24,367 | ) |
|
| (15,362 | ) |
Proceeds from sales and paydowns of investments |
|
| 81,883 |
|
|
| 26,229 |
|
|
| 241,550 |
|
Proceeds from sales of short-term investments |
|
| 501,075 |
|
|
| 549,930 |
|
|
| 599,748 |
|
Net realized loss on investments |
|
| 26,768 |
|
|
| — |
|
|
| 51,828 |
|
Change in net unrealized (appreciation)/depreciation on investments |
|
| (5,423 | ) |
|
| (13,192 | ) |
|
| (120,141 | ) |
Amortization of premium and accretion of discount, net |
|
| (286 | ) |
|
| (126 | ) |
|
| (981 | ) |
Amortization of deferred financing costs |
|
| 541 |
|
|
| 857 |
|
|
| 1,620 |
|
Increase (decrease) in operating assets and liabilities: |
|
|
|
|
|
|
|
|
| |||
(Increase) decrease in interest receivable |
|
| (801 | ) |
|
| (57 | ) |
|
| 3,752 |
|
(Increase) decrease in prepaid and other assets |
|
| 18 |
|
|
| 21 |
|
|
| 9 |
|
Increase (decrease) in payable for short-term investments purchased |
|
| (9,109 | ) |
|
| (48,855 | ) |
|
| (49,818 | ) |
Increase (decrease) in interest and credit facility expense payable |
|
| (150 | ) |
|
| 454 |
|
|
| (190 | ) |
Increase (decrease) in management fees payable |
|
| (999 | ) |
|
| (56 | ) |
|
| (643 | ) |
Increase (decrease) in other accrued expenses and liabilities |
|
| 100 |
|
|
| 167 |
|
|
| (193 | ) |
Net cash provided by operating activities |
|
| 94,892 |
|
|
| 24,669 |
|
|
| 257,613 |
|
Cash Flows from Financing Activities |
|
|
|
|
|
|
|
|
| |||
Return of capital |
|
| (2,915 | ) |
|
| (12,627 | ) |
|
| (245,000 | ) |
Distributions to Members |
|
| (44,085 | ) |
|
| (26,873 | ) |
|
| (38,000 | ) |
Deferred financing costs paid |
|
| (543 | ) |
|
| (478 | ) |
|
| (883 | ) |
Proceeds from credit facility |
|
| 2,000 |
|
|
| 11,000 |
|
|
| — |
|
Repayments of credit facility |
|
| (51,200 | ) |
|
| — |
|
|
| — |
|
Net cash used in financing activities |
|
| (96,743 | ) |
|
| (28,978 | ) |
|
| (283,883 | ) |
Net decrease in cash and cash equivalents |
|
| (1,851 | ) |
|
| (4,309 | ) |
|
| (26,270 | ) |
Cash and cash equivalents, beginning of period |
|
| 4,223 |
|
|
| 8,532 |
|
|
| 34,802 |
|
Cash and cash equivalents, end of period |
| $ | 2,372 |
|
| $ | 4,223 |
|
| $ | 8,532 |
|
Supplemental and non-cash financing activities |
|
|
|
|
|
|
|
|
| |||
Interest expense paid |
| $ | 7,309 |
|
| $ | 4,020 |
|
| $ | 2,985 |
|
See Notes to Consolidated Financial Statements.Statements.
F-17
TCW DIRECT LENDING LLC
Notes to Consolidated Financial Statements
(dollar amountDollar amounts in thousands, except for unit data)
December 31, 20172023
1. Organization and Basis of Presentation
Organization: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$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.
On May 18, 2016,As of December 31, 2023, the Company established a wholly owned subsidiary,TCW-DL VF Holdings, Inc., ashas two wholly-owned subsidiaries - TCW DL VI Funding I, LLC and TCW DL CTH, LLC each a Delaware entitylimited liability company and each designed to hold an equity investment in a portfolio company organized as a limited liability company.
On September 19, 2016, the Company formed TCW Direct Lending Luxembourg VI S.à.r.l., (“TCW Direct Lending Luxembourg”) a private limited liability company under the laws of Luxembourg, of which the Company owns 100% of the membership interests. The Company incurred $0.2 million in professional fees in connection with the formation of TCW Direct Lending Luxembourg, all of which were expensed as incurred.Company's.
Throughout 2017, the Company formed several Delaware limited liability companies, all of which have a single member interest owned by 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 will continuecontinued until the sixth anniversary of the Initial Closing Date (as defined below), September 14, 2020 unless extended or sooner dissolved as provided in the limited liability agreement or by operation of law.19, 2020. The Company may extend the term for two additionalone-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 firstone-year period. Thereafter, the term may be extended for successiveone-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 19, 2021 to September 19, 2022. On July 11, 2022 the term of the Company was extended for a one-year period from September 19, 2022 to September 19, 2023 via a supermajority vote of the Unitholders. On May 11, 2023 the term of the Company was extended for an additional one-year period from September 19, 2023 to September 19, 2024 via a supermajority vote of the Unitholders.
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 effectfollow-on investments up to an aggregate maximum of 10%10% of Capital Commitments (as defined below), provided that any suchfollow-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 2022, the Company’s Members approved a proposal to allow the Company to make pre-identified follow-on investments in specific portfolio companies as well as their holding companies, subsidiaries, successors or other affiliates, up to an aggregate maximum of 10% of Capital Commitments. Such approval is valid throughout the remaining Company term.
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$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$100.00 per unit. The amount of capital that remains to be drawn down and contributed is referred to as an “Undrawn Commitment”.
F-18
TCW DIRECT LENDING LLC
Notes to Consolidated Financial Statements (Continued)
(dollar amountDollar amounts in thousands, except for unit data)
December 31, 20172023
1. Organization and Basis of Presentation (continued)(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 December 31, 2017,2023, aggregate Commitments, Undrawn Commitments, the percentage of Commitments funded and the number of subscribed for Units of the Company were as follows:
|
| Commitments |
|
| Undrawn |
|
| % of |
|
| Units |
| ||||
Common Unitholder |
| $ | 1,803,465 |
|
| $ | 199,120 |
|
|
| 89.0 | % |
|
| 18,034,649 |
|
Commitments | Undrawn Commitments | % of Commitments Funded | Units | |||||||||||||
Common Unitholder | $ | 2,013,470 | $ | 309,125 | 84.6 | % | 20,134,698 |
Recallable Amount: A Common Unitholder may be required tore-contribute amounts distributed equal to 75%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 December 31, 20172023 was $100,875.$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 Topic 946”). The Company has consolidated the results of its wholly owned subsidiary in its consolidated financial statements in accordance with ASC Topic 946.
Reclassifications: Certain prior period amounts in the Consolidated Statements of Assets and Liabilities relating to net unrealized appreciation/depreciation on unfunded commitments have been reclassified to separately present gross balances of net unrealized appreciation and net unrealized depreciation on unfunded commitments. These reclassifications have been made to conform to the current period presentation. Certain prior period amounts in the Consolidated Statements of Operations relating to interest incomepaid-in-kind (“PIK”) have been reclassified out of interest income to disclose PIK interest income separately, in accordance with updated RegulationS-X. These reclassifications have been made to conform to the current period presentation.
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 Topic 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 Topic 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 theover-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 isand interest income paid-in-kind are recorded on an accrual basis unless doubtful of collection or the related investment is in default. Realized gains and losses on investments are recorded on a specific identification basis. The Company typically receives a fee in the form of a discount to the purchase price at the time it funds an investment in a loan. The discount is accreted to interest income over the life of the respective loan, using the effective-interest method assuming there are no questions as to collectability,
TCW DIRECT LENDING LLC
Notes to Consolidated Financial Statements (Continued)
(dollar amount in thousands, except for unit data)
December 31, 2017
2. Significant Accounting Policies (continued)
and reflected in the amortized cost basis of the investment. Discounts associated with a revolver as well as fees associated with a delayed draw that remains unfunded are treated as a discount to the issuers’ term loan. Ongoing facility, commitment or other additional fees including prepayment fees, consent fees and forbearance fees are recognized immediatelyas interest income in the period in which it was earned. Income received in exchange for the provision of services such as administration and managerial services are recognized as other fee income in the period in which it was earned.
F-19
TCW DIRECT LENDING LLC
Notes to Consolidated Financial Statements (Continued)
(Dollar amounts in thousands, except unit data)
December 31, 2023
2. Significant Accounting Policies (Continued)
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.
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 earnedprincipal 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.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 considers all investments with a maturity of three months or less at the time of acquisition to be cash equivalents. AtAs of December 31, 20172023, cash and cash equivalents is comprised of demand deposits and highly liquid investments with maturities of three months or less. Cash equivalents are carried at amortized costs which approximates fair value and are classified as Level 1 in the GAAP valuation hierarchy.
Short-term investments: The Company considers all investments with original maturities beyond three months at the date of purchase and one year or less from the balance sheet date to be short-term investments. As of December 31, 2023, short-term investments is comprised of U.S. Treasury bills, all of which approximateare carried at fair value.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 Recently Adopted:Pronouncements: In February 2015,June 2022, the FASB issued Accounting Standard Update (“ASU”)2015-02,Amendments to the Consolidation Analysis (“ASU2015-02”), which amends the consolidation requirements in ASC 810, Consolidation, and significantly changes the consolidation analysis required under GAAP. The FASB’s focus during deliberations was largely on the investment management industry. The key amendments that had a significant impact on Company’s consolidation conclusion included:
ASU2015-02 became effective for the Company on January 1, 2016. The adoption of ASU2015-02 had no material impact on the Company’s consolidated financial statements.
In May 2015, the FASB issued ASUNo. 2015-07,2022-03, Fair Value Measurement (Topic 820): Disclosures for Investmentsof Equity Securities Subject to Contractual Sale Restrictions (“ASU 2022-03”). ASU 2022-03 (1) clarifies the guidance in Certain Entities That Calculate Net Asset Value per Share (or Its Equivalent), which removes the requirement to categorize withinASC 820 on the fair value hierarchy all investments for which fair valuemeasurement of an equity security that is measured using the net asset value per share practical expedient.subject to a contractual sale restriction and (2) requires specific disclosures related to such an equity security. ASU2015-07 2022-03 is effective for annual reporting periods, and the interim periods within those periods, beginning after December 15, 2015. The adoption of ASUNo. 2015-07 had no material impact on the Company’s consolidated financial statements.
TCW DIRECT LENDING LLC
Notes to Consolidated Financial Statements (Continued)
(dollar amount in thousands, except for unit data)
December 31, 2017
2. Significant Accounting Policies (continued)
In October 2016, the U.S. Securities and Exchange Commission adopted new rules and amended existing rules (together, the “Final Rules”) intended to modernize the reporting and disclosure of information by registered investment companies and BDCs. In part, the Final Rules amend RegulationS-X and require standardized, enhanced disclosure about derivatives in investment company financial statements, as well as other amendments. The compliance date for the amendments to RegulationS-X is August 1, 2017, and the Company has implemented the applicable requirements into this report, namely the separate disclosure of PIK interest income on the Consolidated Statements of Operations and disclosure of realized gains/(losses) on controlled affiliated investments.
Accounting Pronouncements Not Yet Adopted:On May 28, 2014, the FASB issued ASUNo. 2014-09,Revenue from Contracts with Customers (Topic 606). The guidance in this update supersedes the revenue recognition requirements in Topic 605,Revenue Recognition, and most industry-specific guidance throughout the Industry Topics of the Codification. Additionally, this Update supersedes some cost guidance included in Subtopic605-35,Revenue Recognition–Construction-Type and Production-Type Contracts. This update will be effective for fiscal years beginning after December 15, 2017. The2023 and interim periods within that fiscal year, with early adoption of thispermitted. On January 1, 2024, the Company adopted ASU 2022-03 and the adoption did not have a material impact on the Company’s consolidated financial statements.
In January 2016, the FASB issued ASU2016-01,Financial Instruments (Subtopic825-10): Recognition and Measurement of Financial Assets and Liabilities. The amendments in this update makes improvements to the requirements for accounting for equity investments and simplify the impairment assessment of equity investments. For public entities this update will be effective for fiscal years beginning after December 15, 2017. The adoption of this ASU did not have a material impact on the Company’s consolidated financial statements.
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.
F-20
TCW DIRECT LENDING LLC
Notes to Consolidated Financial Statements (Continued)
(Dollar amounts in thousands, except unit data)
December 31, 2023
3. Investment Valuations and Fair Value Measurements (Continued)
Investments for which market quotes are not readily available or are not considered reliable are valued at fair value and approved by the Board of Directors (the “Board”) based on similar instruments, internal assumptions and the weighting of the best available pricing inputs.
On May 12, 2022, pursuant to Rule 2a-5 under the 1940 Act, the Board designated the Adviser as the "valuation designee" with respect to the fair valuation of the Company's portfolio securities, subject to oversight by and periodic reporting to the Board. Prior to this date, fair valuations were approved by the Board in accordance with the Company's valuation policy. The Adviser's internal valuation process did not change as a result of Rule 2a-5, and it continues to receive a report from an independent third-party valuation firm for fair valued securities.
Fair Value Hierarchy:Assets and liabilities are classified into three levels by the Company based on valuation inputs used to determine fair value into three levels: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.
TCW DIRECT LENDING LLC
Notes to Consolidated Financial Statements (Continued)
(dollar amount in thousands, except for unit data)
December 31, 2017
3. Investment Valuations and Fair Value Measurements (continued)
Level 1 Assets (Investments): The valuation techniques and significant inputs used to determine fair value are as follows:
Registered Investment Companies, (Level 1),include registeredopen-end investment companies that are valued based upon the reported net asset value of such investment.
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), includeincludes 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.
F-21
TCW DIRECT LENDING LLC
Notes to Consolidated Financial Statements (Continued)
(Dollar amounts in thousands, except unit data)
December 31, 2023
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 additionalone-year periods by the Company, in its full discretion. The Company can further extend the term of the fund for additionalone-year periods, periods. upon notice to and consent from the fund’s management committee. On February 25, 2021, Company extended the fund’s term one additional year, until June 5, 2022. On February 1, 2022, the Company further extended the fund's term one additional year, until June 5, 2023. On April 17, 2023, the Company further extended the fund's term one additional year, until June 5, 2024. The Company is entitled to income and principal distributed by the fund.
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, 2017:2023:
Investments | Level 1 | Level 2 | Level 3 | NAV | Total |
| Level 1 |
|
| Level 2 |
|
| Level 3 |
|
| NAV |
|
| Total |
| ||||||||||||||||||||
Debt | $ | — | $ | — | $ | 1,151,532 | $ | — | $ | 1,151,532 |
| $ | — |
|
| $ | — |
|
| $ | 276,377 |
|
| $ | — |
|
| $ | 276,377 |
| ||||||||||
Equity | 911 | — | 10,851 | — | 11,762 |
|
| 618 |
|
|
| — |
|
|
| 95,419 |
|
|
| — |
|
|
| 96,037 |
| |||||||||||||||
Investment Funds & Vehicles(1) | — | — | — | 259,698 | 259,698 |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 69,781 |
|
|
| 69,781 |
| |||||||||||||||
Short- term investments |
|
| 491,966 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 491,966 |
| ||||||||||||||||||||
Cash equivalents | 5 | — | — | — | 5 |
|
| 2,372 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 2,372 |
| |||||||||||||||
|
|
|
|
| ||||||||||||||||||||||||||||||||||||
Total Assets | $ | 916 | $ | — | $ | 1,162,383 | $ | 259,698 | $ | 1,422,997 | ||||||||||||||||||||||||||||||
|
|
|
|
| ||||||||||||||||||||||||||||||||||||
Total |
| $ | 494,956 |
|
| $ | — |
|
| $ | 371,796 |
|
| $ | 69,781 |
|
| $ | 936,533 |
|
(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 |
TCW DIRECT LENDING LLC
Notes to permit reconciliation of the fair value hierarchy to the amounts presented in the Consolidated Financial Statements (Continued)
(dollar amount in thousands, except for unit data)
December 31, 2017
3. Investment Valuationsof Assets and Fair Value Measurements (continued)
The following is a summary by major security type of the fair valuations according to inputs used in valuing investments listed in the Consolidated Schedule of Investments as of December 31, 2016:2022:
Investments | Level 1 | Level 2 | Level 3 | NAV | Total |
| Level 1 |
|
| Level 2 |
|
| Level 3 |
|
| NAV |
|
| Total |
| ||||||||||||||||||||
Debt | $ | — | $ | — | $ | 1,074,600 | $ | — | $ | 1,074,600 |
| $ | — |
|
| $ | — |
|
| $ | 349,861 |
|
| $ | — |
|
| $ | 349,861 |
| ||||||||||
Equity | — | — | 8,626 | — | 8,626 |
|
| 1,925 |
|
|
| — |
|
|
| 79,526 |
|
|
| — |
|
|
| 81,451 |
| |||||||||||||||
Investment Funds & Vehicles(1) | — | — | — | 247,164 | 247,164 |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 84,142 |
|
|
| 84,142 |
| |||||||||||||||
Short- term investments |
|
| 501,075 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 501,075 |
| ||||||||||||||||||||
Cash equivalents | 197,001 | — | — | — | 197,001 |
|
| 4,223 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 4,223 |
| |||||||||||||||
|
|
|
|
| ||||||||||||||||||||||||||||||||||||
Total Assets | $ | 197,001 | $ | — | $ | 1,083,226 | $ | 247,164 | $ | 1,527,391 | ||||||||||||||||||||||||||||||
|
|
|
|
| ||||||||||||||||||||||||||||||||||||
Total |
| $ | 507,223 |
|
| $ | — |
|
| $ | 429,387 |
|
| $ | 84,142 |
|
| $ | 1,020,752 |
|
F-22
TCW DIRECT LENDING LLC
Notes to Consolidated Financial Statements (Continued)
(Dollar amounts in thousands, except unit data)
December 31, 2023
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 yearyears ended December 31, 2017:2023 and 2022:
Debt | Equity | Total | ||||||||||
Balance, January 1, 2017 | $ | 1,074,600 | $ | 8,626 | $ | 1,083,226 | ||||||
Purchases* | 436,485 | 2,547 | 439,032 | |||||||||
Sales and paydowns of investments | (363,879 | ) | (1,461 | ) | (365,340 | ) | ||||||
Net amortization of discount/(premium) | 6,664 | — | 6,664 | |||||||||
Net realized gains (losses) | (88 | ) | — | (88 | ) | |||||||
Net change in unrealized appreciation/depreciation | (2,250 | ) | 1,139 | (1,111 | ) | |||||||
|
|
|
|
|
| |||||||
Balance, December 31, 2017 | $ | 1,151,532 | $ | 10,851 | $ | 1,162,383 | ||||||
|
|
|
|
|
| |||||||
Change in net unrealized appreciation/depreciation in investments held as of December 31, 2017 | $ | (458 | ) | $ | 1,139 | $ | 681 |
|
| Debt |
|
| Equity |
|
| Total |
| |||
Balance, January 1, 2023 |
| $ | 349,861 |
|
| $ | 79,526 |
|
| $ | 429,387 |
|
Purchases, including payments received in-kind |
|
| 27,283 |
|
|
| — |
|
|
| 27,283 |
|
Sales and paydowns of investments |
|
| (63,882 | ) |
|
| — |
|
|
| (63,882 | ) |
Amortization of premium and accretion of discount, net |
|
| 286 |
|
|
| — |
|
|
| 286 |
|
Net realized losses |
|
| (25,080 | ) |
|
| (1,688 | ) |
|
| (26,768 | ) |
Net change in unrealized appreciation/(depreciation) |
|
| (12,091 | ) |
|
| 17,581 |
|
|
| 5,490 |
|
Balance, December 31, 2023 |
| $ | 276,377 |
|
| $ | 95,419 |
|
| $ | 371,796 |
|
Change in net unrealized appreciation/(depreciation) in investments held as of December 31, 2023 |
| $ | (34,565 | ) |
| $ | 15,893 |
|
| $ | (18,672 | ) |
|
| Debt |
|
| Equity |
|
| Total |
| |||
Balance, January 1, 2022 |
| $ | 341,742 |
|
| $ | 55,638 |
|
| $ | 397,380 |
|
Purchases, including payments received in-kind |
|
| 32,723 |
|
|
| 316 |
|
|
| 33,039 |
|
Sales and paydowns of investments |
|
| (9,589 | ) |
|
| — |
|
|
| (9,589 | ) |
Amortization of premium and accretion of discount, net |
|
| 126 |
|
|
| — |
|
|
| 126 |
|
Net change in unrealized appreciation/(depreciation) |
|
| (15,141 | ) |
|
| 23,572 |
|
|
| 8,431 |
|
Balance, December 31, 2022 |
| $ | 349,861 |
|
| $ | 79,526 |
|
| $ | 429,387 |
|
Change in net unrealized appreciation/(depreciation) in investments held as of December 31, 2022 |
| $ | (15,141 | ) |
| $ | 23,297 |
|
| $ | 8,156 |
|
The following tables provide a reconciliation of the beginning and ending balances for total investments that use Level 3 inputs for the year ended December 31, 2016:
Debt | Equity | Total | ||||||||||
Balance, January 1, 2016 | $ | 586,626 | $ | — | $ | 586,626 | ||||||
Purchases* | 765,459 | 8,750 | 774,209 | |||||||||
Sales and paydowns of investments | (265,175 | ) | (382 | ) | (265,557 | ) | ||||||
Accretion of original issue discounts | 4,948 | — | 4,948 | |||||||||
Net realized gains | 519 | — | 519 | |||||||||
Net change in unrealized appreciation/depreciation | (17,777 | ) | 258 | (17,519 | ) | |||||||
|
|
|
|
|
| |||||||
Balance, December 31, 2016 | $ | 1,074,600 | $ | 8,626 | $ | 1,083,226 | ||||||
|
|
|
|
|
| |||||||
Change in net unrealized appreciation/depreciation in investments held as of December 31, 2016 | $ | (16,222 | ) | $ | 258 | $ | (15,964 | ) |
TCW DIRECT LENDING LLC
Notes to Consolidated Financial Statements (Continued)
(dollar amount in thousands, except for unit data)
December 31, 2017
3. Investment Valuations and Fair Value Measurements (continued)
TransfersCompany did not have any transfers between levels of the fair value hierarchy are reported at the beginning of the reporting period in which they occur. Duringduring the years ended December 31, 20172023 and 2016, the Company did not have any transfers between levels.2022.
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 December 31, 2017.2023.
Investment Type |
| Fair Value |
|
| Valuation |
| Unobservable Input |
| Range |
| Weighted |
| Impact to | |
Debt |
| $ | 43,506 |
|
| Income Method |
| Discount Rate |
| 13.6% to 16.5% |
| 15.1% |
| Decrease |
Debt |
| $ | 126,124 |
|
| Market Method |
| EBITDA Multiple |
| 5.8x to 9.5x |
| N/A |
| Increase |
Debt |
| $ | 106,747 |
|
| Market Method |
| Revenue Multiple |
| 0.1x to 0.7x |
| N/A |
| Increase |
Equity |
| $ | 72,198 |
|
| Market Method |
| EBITDA Multiple |
| 5.8x to 8.5x |
| N/A |
| Increase |
Equity |
| $ | 23,221 |
|
| Market Method |
| Revenue Multiple |
| 0.1x to 0.7x |
| N/A |
| Increase |
* Weighted based on fair value
|
| |||||||||||
|
|
|
|
| ||||||||
| ||||||||||||
| ||||||||||||
|
|
|
|
| ||||||||
|
|
|
|
| ||||||||
|
|
Level 3 Valuation
F-23
TCW DIRECT LENDING LLC
Notes to Consolidated Financial Statements (Continued)
(Dollar amounts in thousands, except unit data)
December 31, 2023
3. Investment Valuations and Quantitative Information:Fair Value Measurements (Continued)
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, 2016.2022.
|
| |||||||||||
|
|
|
|
| ||||||||
| ||||||||||||
|
|
|
|
| ||||||||
|
Investment Type |
| Fair Value |
|
| Valuation |
| Unobservable Input |
| Range |
| Weighted |
| Impact to | |
Debt |
| $ | 43,636 |
|
| Income Method |
| Discount Rate |
| 14.6% to 17.6% |
| 16.1% |
| Decrease |
Debt |
| $ | 141,246 |
|
| Market Method |
| EBITDA Multiple |
| 6.0x to 9.0x |
| N/A |
| Increase |
Debt |
| $ | 29,341 |
|
| Market Method |
| Revenue Multiple |
| 0.1x to 0.2x |
| N/A |
| Increase |
Debt |
| $ | 2,605 |
|
| Market Method |
| Indicative Bid |
| 17.8% to 29.7% |
| N/A |
| Increase |
Debt |
| $ | 133,033 |
|
| Market Method |
| EBITDA Multiple |
| 7.0x to 11.0x |
| N/A |
| Increase |
|
|
|
|
|
|
| Revenue Multiple |
| 0.3x to 0.7x |
| N/A |
| Increase | |
Equity |
| $ | 11,753 |
|
| Market Method |
| EBITDA Multiple |
| 6.0x to 6.5x |
| N/A |
| Increase |
Equity |
| $ | 22,763 |
|
| Market Method |
| Revenue Multiple |
| 0.1x to 0.2x |
| N/A |
| Increase |
Equity |
| $ | — |
|
| Market Method |
| Indicative Bid |
| 0.0% to 0.0% |
| N/A |
| Increase |
Equity |
| $ | 45,010 |
|
| Market Method |
| EBITDA Multiple |
| 7.0x to 11.0x |
| N/A |
| Increase |
|
|
|
|
|
|
| Revenue Multiple |
| 0.3x to 0.7x |
| N/A |
| Increase |
Valuation Process:Oversight for determining
* Weighted based on fair value is the responsibility of the Board of the Company (with input from the Adviser and an external, independent valuation firm retained by the Company). The Company and the Adviser value the investments at fair value on a quarterly basis and whenever required by the Company’s operating agreement. The Company has engaged an external, independent valuation firm to assist the Board in determining the fair market value of the Company’s investments for which market quotations are not readily available.
Unless noted, the Company is utilizinggenerally utilizes the midpoint of a valuation range provided by an external, independent valuation firm. Based on its review of the external, independent valuation firm’s range and related documentation, the Adviser documents the valuation recommendations. The Adviser discusses its valuation recommendation with the Company’s audit committee, based on / along with the independent valuation report. After the Company’s audit committee reviews the valuation recommendations, the Board discusses the portfolio company and investment valuations with the Adviser and determines the fair value of these investments in good faith. The Board may approve a value other than the midpoint if it believes that is the fair value.
TCW DIRECT LENDING LLC
Notes to Consolidated Financial Statements (Continued)
(dollar amount in thousands, except for unit data)
December 31, 2017
3. Investment Valuations and Fair Value Measurements (continued)
The Adviser uses all relevant factors in recommending fair value including, without limitation, any of the following factors as may be deemed relevant by the Board: current financial position and current and historical operating results of the issuer; sales prices of recent public or private transactions in the same or similar securities, including transactions on any securities exchange on which such securities are listed or in theover-the-counter market; general level of interest rates; recent trading volume of the security; restrictions on transfer including the Company’s right, if any, to require registration of its securities by the issuer under the securities laws; any liquidation preference or other special feature or term of the security; significant recent events affecting the portfolio company, including any pending private placement, public offering, merger, or acquisition; the price paid by the Company to acquire the asset; the percentage of the issuer’s outstanding securities that is owned by the Company and all other factors affecting value.
4. Agreements and Related Party Transactions
Advisory Agreement :Agreement: On September 15, 2014, the Company entered into an Investment Advisory and Management Agreement (the “Advisory Agreement”) with the Adviser, its registered investment adviser under the Investment Advisers Act of 1940, as amended. The Advisory Agreement was approved by the Board at anin-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 10, 2023, the Company’s Board reapproved the Advisory Agreement.
Management Fee: Pursuant to the Advisory Agreement, and subject to the overall supervision of the Board, the Adviser will manage the Company’sday-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%0.375% (i.e., 1.50%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%0.1875% (i.e., 0.75%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
F-24
TCW DIRECT LENDING LLC
Notes to Consolidated Financial Statements (Continued)
(Dollar amounts in thousands, except unit data)
December 31, 2023
4. Agreements and Related Party Transactions (Continued)
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 ourthe Company’s investments.
For the years ended December 31, 2017, 20162023, 2022 and 2015,2021, Management Fees incurred amounted to $25,101, $30,202$4,000, $4,015 and $35,244, respectively (net of $175, $0 and $0,$5,293, respectively, of fee income as described below inTransactionwhich $0, $999 and Offset Fees), of which $0, $0 and $27,737$1,055 remained payable at December 31, 2017, 20162023, 2022 and 2015,2021, respectively. Net expenses include an expense reimbursement
As described in Note 1, the Company's term was extended from September 19, 2023 to September 19, 2024 via a supermajority vote of $1,267the Unitholders. In connection with such extension, the Adviser agreed to waive management fees earned from and $835 in the years endedafter December 31, 2017 and 2016, respectively. Net expenses include an expense recapture of $312 in the year ended December 31, 2015 which offset the expense reimbursement by the Investment Adviser of $312 in the period from the Inception Date to December 31, 2014 related to the expense limitation on organization expenses as outlined in the Advisory Agreement.2022.
Transaction and Offset 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. Notwithstanding the foregoing, for administrative or other reasons, certain fees described in clauses (i) through (iv) above (including any fees for administrative agent services provided by the Adviser or an
TCW DIRECT LENDING LLC
Notes to Consolidated Financial Statements (Continued)
(dollar amount in thousands, except for unit data)
December 31, 2017
4. Agreements and Related Party Transactions (continued)
affiliate with respect to a particular loan or portfolio of loans made by the Company) may be paid to the Adviser or the affiliate (rather than directly to the Company), in which case the amount of such fees (net of any related expenses associated with the
generation of such fees borne by the Adviser or such affiliate that have not been and will not be reimbursed by the Portfolio Company) shall be paid to the Company or shall offset amounts (including the Management Fee) otherwise payable by the Company to the Adviser.
Since inception of the Company, the Adviser was paid $827 in such fees, of which $175 was paid during the year ended December 31, 2017. In accordance with the limited liability company agreement, $175 was applied towards management fees for the year ended December 31, 2017 and $652 of such fees had been recorded as fee income during the year ended December 31, 2016. No fees were paid to the Adviser for the year ended December 31, 2015.
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%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%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%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%20% of additional amounts otherwise distributable to Unitholders, with the remaining 80%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.
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.
For theNo Incentive Fees were incurred during years ended December 31, 2017, 20162023, 2022 and 2015, no Incentive Fees were incurred.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.
F-25
TCW DIRECT LENDING LLC
Notes to Consolidated Financial Statements (Continued)
(dollar amountDollar amounts in thousands, except for unit data)
December 31, 20172023
4. Agreements and Related Party Transactions (continued)(Continued)
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 (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,$481,600, representing approximately 80%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.
The Company’s investments in controlled affiliated investments for the year ended December 31, 2017 were as follows:
Fair Value as of January 1, 2017 | Purchases | Sales | Change in Unrealized Gains and (Losses) | Fair Value as of December 31, 2017 | Dividend Income | Realized Gain Distribution | ||||||||||||||||||||||
Controlled Affiliates | ||||||||||||||||||||||||||||
TCW Direct Lending Strategic Ventures LLC | $ | 247,164 | $ | 75,658 | $ | (64,000 | ) | $ | 876 | $ | 259,698 | $ | 22,618 | $ | 1,432 | |||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
Total Controlled Affiliates | $ | 247,164 | $ | 75,658 | $ | (64,000 | ) | $ | 876 | $ | 259,698 | $ | 22,618 | $ | 1,432 | |||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Company’s investments in controlled affiliated investments for the year ended December 31, 2016 were as follows:
Fair Value as of January 1, 2016 | Purchases | Sales | Change in Unrealized Gains and (Losses) | Fair Value as of December 31, 2016 | Dividend Income | |||||||||||||||||||
Controlled Affiliates | ||||||||||||||||||||||||
TCW Direct Lending Strategic Ventures LLC | $ | 206,635 | $ | 104,337 | $ | (77,001 | ) | $ | 13,193 | $ | 247,164 | $ | 14,797 | |||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
Total Controlled Affiliates | $ | 206,635 | $ | 104,337 | $ | (77,001 | ) | $ | 13,193 | $ | 247,164 | $ | 14,797 | |||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
TCW DIRECT LENDING LLC
Notes to Consolidated Financial Statements (Continued)
(dollar amount in thousands, except for unit data)
December 31, 2017
4. Agreements and Related Party Transactions (continued)
For the years ended December 31, 2017 and 2016, the Company did not recognize any realized gains (losses) on controlled affiliated investments. During the years ended December 31, 2017 and 2016, we recognized $1.4 million and $0.0 million of net realized gain distributions from TCW On April 30, 2021, Strategic Ventures. The net realized gain during the year ended December 31, 2017 reflects a distribution from TCW Strategic Ventures during the period from its net short- and long-term gains.Ventures’ revolving credit facility was terminated.
5. Commitments and Contingencies
The Company had the following unfunded commitments and unrealized gains/(losses)depreciation by investment as of December 31, 20172023 and 2016:2022:
December 31, | ||||||||||||||||||
2017 | 2016 | |||||||||||||||||
Unfunded Commitments | Maturity/ Expiration | Amount | Unrealized (Losses)(1) | Amount | Unrealized Gains (Losses) | |||||||||||||
ASC Acquisition Holdings LLC | December 2018 | $ | 11,207 | $ | (326 | ) | $ | 13,076 | $ | (26 | ) | |||||||
ENA Holdings Corporation | May 2021 | 4,804 | (19 | ) | 4,804 | 5 | ||||||||||||
FQSR, LLC | December 2018 | 2,415 | (17 | ) | N/A | N/A | ||||||||||||
Help At Home, Inc. | August 2020 | 6,757 | — | 6,757 | 61 | |||||||||||||
OTG Management LLC | February 2018 | 3,005 | (30 | ) | 10,291 | 62 | ||||||||||||
Patriot National, Inc. | November 2021 | N/A | N/A | 6,429 | 58 | |||||||||||||
Quantum Corporation | November 2017 | N/A | N/A | 16,371 | 180 | |||||||||||||
Quicken Parent Corp. | April 2021 | 518 | (15 | ) | 1,725 | 22 | ||||||||||||
Ruby Tuesday, Inc. | December 2022 | 4,575 | (41 | ) | N/A | N/A | ||||||||||||
School Specialty, Inc., | April 2019 | 6,450 | (19 | ) | N/A | N/A | ||||||||||||
Mavenir Private Holdings II Ltd. (UK) (an affiliate of Mavenir, Inc.,) | August 2022 | N/A | N/A | 2,014 | 6 | |||||||||||||
Mavenir, Inc., (fka Xura, Inc.) | August 2022 | N/A | N/A | 3,020 | 9 | |||||||||||||
Vertellus Performance Chemicals LLC | September 2019 | 4,218 | (63 | ) | N/A | N/A | ||||||||||||
|
|
|
|
|
|
|
| |||||||||||
Total | $ | 43,949 | $ | (530 | ) | $ | 64,487 | $ | 377 | |||||||||
|
|
|
|
|
|
|
|
|
|
|
| December 31, 2023 |
|
| December 31, 2022 |
| ||||||||||
Unfunded Commitments |
| Maturity/ |
| Amount |
|
| Unrealized |
|
| Amount |
|
| Unrealized |
| ||||
Pace Industries, Inc. |
| June 2025 |
| $ | 3,671 |
|
| $ | 158 |
|
| $ | 2,086 |
|
| $ | — |
|
Retail & Animal Intermediate, LLC |
| November 2025 |
|
| 2,242 |
|
|
| 2,241 |
|
|
| 4,981 |
|
|
| — |
|
Ruby Tuesday Operations LLC (fka Ruby Tuesday, Inc.) |
| February 2025 |
|
| 4,921 |
|
|
| — |
|
|
| 4,921 |
|
|
| — |
|
Total |
|
|
| $ | 10,834 |
|
| $ | 2,399 |
|
| $ | 11,988 |
|
| $ | — |
|
The Company’s total capital commitment to its underlying investment in Strategic Ventures is $481,600.$481,600. As of December 31, 2017,2023 and 2022, the Company’s unfunded commitment to Strategic Ventures is $241,246.$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 December 31, 2017,2023, 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.
F-26
TCW DIRECT LENDING LLC
Notes to Consolidated Financial Statements (Continued)
(dollar amountDollar amounts in thousands, except for unit data)
December 31, 20172023
6. Members’ Capital
During the years ended December 31, 20172023, 2022 and 2016,2021, the Company did not sell or issue any Common Units. As described in Note 1, on July 11, 2022 the Company’s Members approved a reduction in Undrawn Commitments by $10.43 per unit, resulting in an approximately 41.18% reduction of overall remaining available capital commitments. The activity for the years ended December 31, 2017, 20162023, 2022 and 2015 is a2021 was as follows:
Years Ended December 31, | ||||||||||||
2017 | 2016 | 2015 | ||||||||||
Units at beginning of period | 20,134,698 | 20,134,698 | 20,134,698 | |||||||||
Units issued and committed | — | — | — | |||||||||
|
|
|
|
|
| |||||||
Units issued and committed at end of period | 20,134,698 | 20,134,698 | 20,134,698 | |||||||||
|
|
|
|
|
|
|
| For the Year Ended December 31, |
| |||||||||
|
| 2023 |
|
| 2022 |
|
| 2021 |
| |||
Units at beginning of year |
|
| 18,034,649 |
|
|
| 20,134,698 |
|
|
| 20,134,698 |
|
Units reduced during the period |
|
| — |
|
|
| (2,100,049 | ) |
|
| — |
|
Units issued and committed at end of year |
|
| 18,034,649 |
|
|
| 18,034,649 |
|
|
| 20,134,698 |
|
For the years ended December 31, 2017, 20162023, 2022 and 20152021, the Company processed $187,464, $178,435 and $0, respectively, of$0 deemed distributions andre-contributions.
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 million$750,000 (the “Maximum Commitment”) (the “Credit Facility”), subject to the lesser of the “Borrowing Base” assets or the “MaximumMaximum 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 April 10, 2017Third 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%2.35%, (b) commercial paper rate plus 2.35%2.35%, or (c) a base rate calculated in a customary manner (using the higher of the Federal Funds Rate plus 0.50%0.50%, the Prime Rate and the Floating LIBOR Rate plus 1.00%1.00%) plus 1.35%1.35%. Moreover, the Credit Agreement’s stated maturity date was extended from November 10, 2017 to April 10, 2020.
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.
F-27
TCW DIRECT LENDING LLC
Notes to Consolidated Financial Statements (Continued)
(Dollar amounts in thousands, except unit data)
December 31, 2023
7. Credit Facility (Continued)
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 10, 2020.7, 2023. Borrowings under the Third Amended Credit Agreement bear interest at a rate equal to either (a) adjusted eurodollar rate calculated in a customary manner plus 1.95%, (b) commercial paper rate plus 1.95%, or (c) a base rate calculated in a customary manner (which will never be less than the adjusted eurodollar 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 December 31, 2017,2023, the Company was in compliance with such covenants.
As of December 31, 2017,On January 10, 2023, the Available Commitment underCompany entered into a Fourth Amendment to the Third Amended and Restated Revolving Credit Agreement is $727 million. As(the "Fourth Amended Credit Agreement"). The Fourth Amended Credit Agreement replaces the Eurocurrency Rate with a Daily Simple SOFR Rate, Term SOFR Rate and Adjusted Term SOFR Rate (each as defined in the Fourth Amended Credit Agreement) for purposes of December 31, 2016,calculating interest on the Available Commitment was $622 million. Priorloan. Each Term SOFR Loan shall bear interest on the outstanding principal amount thereof for each Interest Period at a rate per annum equal to the Adjusted Term SOFR Rate for such Interest Period plus the interest rate spread or "Applicable Margin." Each Daily SOFR Loan will bear interest on the outstanding principal amount thereof at a rate per annum equal to Daily Simple SOFR plus the Applicable Margin. The Term SOFR Loan and Daily SOFR Loan have an Applicable Margin of 1.95%.
On April 7, 2023, the Company entered into the Fifth Amendment to the Third Amended and Restated Revolving Credit Agreement (the "Fifth Amended Credit Agreement"). The Fifth Amended Credit Agreement removed the Available Commitment decreasedAdjusted Term SOFR Rate for purposes of calculating interest on the loan but kept the Daily Simple SOFR and Term SOFR rates as is. It also updated the Applicable Margin from $622 million0.95% to $303 million as of March 29, 20171.15% for Base Rate Loans and decreased from $750 million1.95% to $622 million as of August 30, 2016 in conjunction with capital activity that decreased2.15% for all other loan types. The revolving credit line was also reduced from $177,000 to $152,000 and lastly, the remaining Undrawn Commitments together with the Recallable Amountmaturity date of the Company’s Members. loan was extended 364 days to April 5, 2024.
As of December 31, 20172023 and 2016,2022, the Available Commitment under the Amended Credit Agreement was $74,950 and $61,750, respectively.
As of December 31, 2023 and 2022, the amounts outstanding under the Credit Facility were $378 million$77,050 and $590 million,$126,250, respectively. The carrying amount of the Credit Facility, which is categorized as Level 2 within the fair value hierarchy as of December 31, 20172023 and 2016,2022, approximates its fair value. Valuation techniques and significant inputs used to determine fair value include Company details,details; credit, market and liquidity risk and events,events; financial health of the Company,Company; place in the capital structure,structure; interest raterate; and terms and condition. The Company incurred financing costsconditions of $10.1 million in connectionthe Credit Facility.
Costs associated with the April 10, 2017 Third Amended and Restated Revolving Credit Agreement. The CompanyFacility are recorded these costs as deferred financing costs on itsour Consolidated Statements of AssetAssets and Liabilities and the costs are being amortized over the life of the Credit Facility. The Company incurred financing costs of $883 and $456 in connection with the April 6, 2021 Third Amended Credit Agreement and the April 7, 2023 Fifth Amended Credit Agreement, respectively. As of December 31, 2017, 20162023 and 2015, $8.7 million, $2.0 million2022, $122 and $4.3 million,$120, respectively, of such prepaid deferred financing costs had yet to be amortized.
F-28
TCW DIRECT LENDING LLC
Notes to Consolidated Financial Statements (Continued)
(dollar amountDollar amounts in thousands, except for unit data)
December 31, 20172023
7. Credit Facility (continued)(Continued)
The summary information regarding the Credit Facility for the years ended December 31, 2017, 20162023, 2022 and 2015 were2021 was as follows:
Year Ended December 31, |
| For the Year Ended December 31, |
| |||||||||||||||||||||
2017 | 2016 | 2015 |
| 2023 |
|
| 2022 |
|
| 2021 |
| |||||||||||||
Borrowing interest expense | $ | 13,635 | $ | 10,308 | $ | 3,039 | ||||||||||||||||||
Unused fees | 2,525 | 829 | 1,660 | |||||||||||||||||||||
Credit facility interest expense |
| $ | 7,139 |
|
| $ | 4,484 |
|
| $ | 2,842 |
| ||||||||||||
Undrawn commitment fees |
|
| 241 |
|
|
| 240 |
|
|
| 250 |
| ||||||||||||
Administrative fees | 68 | 75 | 75 |
|
| 65 |
|
|
| 67 |
|
|
| 65 |
| |||||||||
Amortization of financing costs | 3,411 | 2,291 | 1,943 | |||||||||||||||||||||
|
|
| ||||||||||||||||||||||
Amortization of deferred financing costs |
|
| 541 |
|
|
| 857 |
|
|
| 1,620 |
| ||||||||||||
Total | $ | 19,639 | $ | 13,503 | $ | 6,717 |
| $ | 7,986 |
|
| $ | 5,648 |
|
| $ | 4,777 |
| ||||||
|
|
| ||||||||||||||||||||||
Weighted average interest rate | 3.31% | 2.24% | 1.97% |
|
| 7.13 | % |
|
| 3.76 | % |
|
| 2.43 | % | |||||||||
Average outstanding balance | $ | 411,569 | $ | 459,691 | $ | 154,751 |
| $ | 98,800 |
|
| $ | 117,768 |
|
| $ | 115,250 |
|
8. Repurchase Transactions
The Company may, from time to time, enter into repurchase agreements with Barclays Bank PLC (“Barclays”), whereby the Company sells to Barclays its short-term investments and concurrently enters into an agreement to repurchase the same investments at an agreed-upon price at a future date, generally within 30-days (the “Repurchase Transaction”).
In accordance with ASC 860, Transfers and Servicing, these Repurchase Transactions meet the criteria for secured borrowings. Accordingly, the short-term investments remain on the Company’s Consolidated Statements of Assets and Liabilities as an asset, and the Company records a liability to reflect its repurchase obligation to Barclays (the “Repurchase Obligation”). The Repurchase Obligation is secured by the short-term investments that are the subject of the repurchase agreement.
The Company has no outstanding Repurchase Obligations as December 31, 2023 and 2022. Interest expense incurred under these Repurchase Transactions was $5,922, $1,566, and $152 for the years ended December 31, 2023, 2022, and 2021, respectively.
9. Income Taxes
The Company has elected to be treated as a BDC under the 1940 Act and has elected to be treated as a RIC under the Code. So long as the Company maintains its status as a RIC, it will generally not pay corporate-level U.S. Federal income or excise taxes on any ordinary income or capital gains that it distributes at least annually to its common unitholders as dividends. The Company elected to be taxed as a RIC in 2015. The Company evaluates tax positions taken or expected to be taken in the course of preparing its financial statements to determine whether the tax positions are“more-likely-than-not” “more-likely-than-not” to be sustained by the applicable tax authority. Tax positions not deemed to meet the“more-likely-than-not” “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: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 December 31, 2017, 20162023, 2022 and 2015,2021, the Company’s aggregate investment unrealized appreciation and depreciation for federal income tax purposes were as follows:
Year Ended December 31, |
| For the Year Ended December 31, |
| |||||||||||||||||||||
2017 | 2016 | 2015 |
| 2023 |
|
| 2022 |
|
| 2021 |
| |||||||||||||
Cost of investments for federal income tax purposes | $ | 1,445,098 | $ | 1,346,589 | $ | 795,312 |
| $ | 983,943 |
|
| $ | 1,051,514 |
|
| $ | 1,088,923 |
| ||||||
Unrealized appreciation | $ | 31,987 | $ | 32,909 | $ | 5,828 |
| $ | 76,582 |
|
| $ | 57,357 |
|
| $ | 37,008 |
| ||||||
Unrealized depreciation | $ | 54,788 | $ | 49,108 | $ | 7,879 |
| $ | (123,992 | ) |
| $ | (88,118 | ) |
| $ | (80,537 | ) | ||||||
Net unrealized appreciation (depreciation) on investments | $ | (22,801 | ) | $ | (16,199 | ) | $ | (2,051 | ) | |||||||||||||||
Net unrealized depreciation on investments |
| $ | (47,410 | ) |
| $ | (30,761 | ) |
| $ | (43,529 | ) |
F-29
TCW DIRECT LENDING LLC
Notes to Consolidated Financial Statements (Continued)
(dollar amountDollar amounts in thousands, except for unit data)
December 31, 20172023
8.9. Income Taxes (continued)(Continued)
The following reclassifications have been made for the permanent difference between book and tax accounting as of December 31, 2017, 20162023, 2022 and 2015.2021. These differences result primarily from net operating losses, and differences in accounting for partnership interests.interests, and amendment fees reclassified as capital gains.
Year Ended December 31, | ||||||||||||
2017 | 2016 | 2015 | ||||||||||
Common Unitholders tax reclassification | $ | 381 | $ | 24 | $ | (9,620 | ) | |||||
Undistributed net investment income | $ | 4,736 | $ | 7,112 | $ | 15,987 | ||||||
Accumulated net realized loss | $ | (5,117 | ) | $ | (7,136 | ) | $ | (6,367 | ) |
|
| For the Year Ended December 31, |
| |||||||||
|
| 2023 |
|
| 2022 |
|
| 2021 |
| |||
Common Unitholders tax reclassification |
| $ | — |
|
| $ | (3 | ) |
| $ | (168 | ) |
Undistributed net investment (loss) income |
| $ | 6,552 |
|
| $ | (3,239 | ) |
| $ | 2,341 |
|
Accumulated net realized gain (loss) |
| $ | (6,552 | ) |
| $ | 3,242 |
|
| $ | (2,173 | ) |
The tax character of shareholder distributions attributable to the years ended December 31, 2017, 20162023, 2022 and 2015 were2021 was as follows:
Year Ended December 31, |
| For the Year Ended December 31, |
| |||||||||||||||||||||
Paid distribution attributable to: | 2017 | 2016 | 2015 | |||||||||||||||||||||
|
| 2023 |
|
| 2022 |
|
| 2021 |
| |||||||||||||||
Ordinary income | $ | 111,193 | $ | 75,344 | $ | — |
| $ | 44,085 |
|
| $ | 26,873 |
|
| $ | 38,000 |
| ||||||
Long term gain | $ | 1,223 | $ | 131 | $ | — | ||||||||||||||||||
Return of capital | $ | 291,048 | $ | 102,960 | $ | — |
| $ | 2,915 |
|
| $ | 12,627 |
|
| $ | 245,000 |
|
The tax components of distributable earnings on a tax basis for years ended December 31, 2017, 20162023, 2022 and 20152021 were as follows:
Year Ended December 31, |
| For the Year Ended December 31, |
| |||||||||||||||||||||
2017 | 2016 | 2015 |
| 2023 |
|
| 2022 |
|
| 2021 |
| |||||||||||||
Net tax appreciation (depreciation) | $ | (22,801 | ) | $ | (16,199 | ) | $ | — |
| $ | (49,810 | ) |
| $ | (30,761 | ) |
| $ | (43,667 | ) | ||||
Ordinary and post-October capital loss deferrals | $ | (1,715 | ) | $ | — | $ | — | |||||||||||||||||
Capital loss carryover |
| $ | (57,757 | ) |
| $ | (53,201 | ) |
| $ | (56,792 | ) | ||||||||||||
Other cumulative effect of timing differences |
| $ | (236 | ) |
| $ | (281 | ) |
| $ | — |
|
As of December 31, 2023, the Company had a short-term capital loss carryforward of $0 and a long-term capital loss carryforward of $57,757 for federal income tax purposes, which may be carried forward indefinitely. These capital loss carryforwards are available to offset net realized gains in future years, thereby reducing future taxable gains distributions.
The Company did notnot have any unrecognized tax benefits at December 31, 2017,2023 or 2022, 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 forregarding returns filed for the prior three and four years, respectively.
F-30
TCW DIRECT LENDING LLC
Notes to Consolidated Financial Statements (Continued)
(dollar amountDollar amounts in thousands, except for unit data)
December 31, 20172023
10. Unconsolidated Significant Subsidiaries
In accordance with Rules 3-09 and 4-08(g) of Regulation S-X (“Rule 3-09” and “Rule 4-08(g),” respectively), the Company must determine which of its unconsolidated controlled portfolio companies are considered “significant subsidiaries,” if any. In evaluating these investments, Rule 1-02(w)(2) of Regulation S-X stipulates two tests to be utilized by a business development corporation to determine if any of our controlled investments are considered significant subsidiaries for financial reporting purposes: the investment test and the income test. Rule 3-09 requires separate audited financial statements of an unconsolidated majority owned subsidiary in an annual report if any of the tests exceed the thresholds noted in Rule 1-02(w)(2) whereas Rule 4-08(g) only requires summarized financial information in an annual/quarterly report if the thresholds are exceeded.
9.
Our investment in TCW Strategic Ventures as of December 31, 2023 exceeded the threshold in at least one of the Rule 3-09 tests. Accordingly, we are attaching the audited financial statements of TCW Strategic Ventures to this Form 10-K. As of December 31, 2023, our investment in Pace Industries, Inc. exceeded the threshold in at least one of the Rule 4-08(g) tests. As of December 31, 2022, our investments in Pace Industries and SSI Parent, LLC (fka School Specialty, Inc.) exceeded the threshold in at least one of the Rule 4-08(g) tests. Included below is the summarized financial information for Pace Industries, Inc. and SSI Parent, LLC (fka School Specialty, Inc.):
|
| As of December 31, |
| |||||
|
| 2023 |
|
| 2022 |
| ||
Selected Balance Sheet Information - Pace Industries, Inc. |
|
|
|
|
|
| ||
Total assets |
| $ | 388,832 |
|
| $ | 452,200 |
|
Total liabilities |
|
| 633,417 |
|
|
| 605,728 |
|
Equity |
|
| (244,585 | ) |
|
| (153,528 | ) |
|
| As of December 30, |
|
| As of December 31, |
| ||
|
| 2023(1) |
|
| 2022(1) |
| ||
Selected Balance Sheet Information - SSI Parent, LLC (fka School Specialty, Inc.) |
|
|
|
|
|
| ||
Total assets |
| $ | 268,744 |
|
| $ | 284,445 |
|
Total liabilities |
|
| 115,154 |
|
|
| 245,465 |
|
Equity |
|
| 153,590 |
|
|
| 38,980 |
|
|
| For the Twelve Months Ended December 31, |
|
| For the Twelve Months Ended December 31, |
|
| For the Twelve Months Ended December 31, |
| |||
|
| 2023 |
|
| 2022 |
|
| 2021 |
| |||
Selected Income Statement Information - Pace Industries, Inc. |
|
|
|
|
|
|
|
|
| |||
Total revenue |
| $ | 556,108 |
|
| $ | 657,261 |
|
| $ | 579,995 |
|
Net loss |
|
| (95,542 | ) |
|
| (113,346 | ) |
|
| (25,788 | ) |
|
| For the Twelve Months Ended December 30, |
|
| For The Twelve Months Ended December 31, |
|
| For The Twelve Months Ended December 25, |
| |||
|
| 2023(1) |
|
| 2022(1)(2) |
|
| 2021(1) |
| |||
Selected Income Statement Information - SSI Parent, LLC (fka School Specialty, Inc.) |
|
|
|
|
|
|
|
|
| |||
Total revenue |
| $ | 697,677 |
|
| $ | 690,847 |
|
| $ | 615,759 |
|
Net income |
|
| 171,528 |
|
|
| 27,368 |
|
|
| 10,569 |
|
(1) The fiscal year of SSI Parent, LLC (fka School Specialty, Inc) ends on the last Saturday in December each year.
(2) Total revenue for the twelve months ended December 31, 2022 has been updated to reflect the retrospective application of SSI Parent, LLC's (fka School Specialty, Inc) discontinued operations.
F-31
TCW DIRECT LENDING LLC
Notes to Consolidated Financial Statements (Continued)
(Dollar amounts in thousands, except unit data)
December 31, 2023
11. Financial Highlights
Selected data for a unit outstanding throughout the years ended December 31, 2017, 20162023, 2022, 2021, 2020 and 2015 and for the period from May 13, 2014 (Inception) through December 31, 20142019 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 Year Ended December 31, |
| ||||||||||||||||||||||||||||||||||
For the year ended December 31, 2017 | For the year ended December 31, 2016 | For the year ended December 31, 2015 | For the Period May 13, 2014 (Inception) to December 31, 2014 |
| 2023(1) |
|
| 2022(1) |
|
| 2021(1) |
|
| 2020(1) |
|
| 2019(1) |
| ||||||||||||||||||
Net Asset Value Per Unit (accrual base), Beginning of Year | $ | 93.55 | $ | 99.35 | $ | 99.84 | $ | 100.00 |
| $ | 32.84 |
|
| $ | 39.65 |
|
| $ | 48.54 |
|
| $ | 63.74 |
|
| $ | 65.69 |
| ||||||||
|
|
|
| |||||||||||||||||||||||||||||||||
Net Increase in Common Unitholder NAV from Prior Year/ Period(1) | — | — | 0.09 | — | ||||||||||||||||||||||||||||||||
|
|
|
| |||||||||||||||||||||||||||||||||
Adjustment due to reduction of undrawn commitments(2) |
|
| — |
|
|
| (7.02 | ) |
|
| — |
|
|
| — |
|
|
| — |
| ||||||||||||||||
Income from Investment Operations: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||
Net investment income (loss)(2) | 5.17 | 3.24 | (0.64 | ) | (0.44 | ) | ||||||||||||||||||||||||||||||
Net realized and unrealized gain (loss) | 0.01 | (0.18 | ) | 0.06 | 0.28 | |||||||||||||||||||||||||||||||
|
|
|
| |||||||||||||||||||||||||||||||||
Net investment income |
|
| 2.08 |
|
|
| 1.67 |
|
|
| 1.78 |
|
|
| 4.00 |
|
|
| 7.34 |
| ||||||||||||||||
Net realized and unrealized (loss) gain |
|
| (0.94 | ) |
|
| 0.74 |
|
|
| 3.39 |
|
|
| (3.72 | ) |
|
| (2.89 | ) | ||||||||||||||||
Total from investment operations | 5.18 | 3.06 | (0.58 | ) | (0.16 | ) |
|
| 1.14 |
|
|
| 2.41 |
|
|
| 5.17 |
|
|
| 0.28 |
|
|
| 4.45 |
| ||||||||||
Less Distributions: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||
From net investment income | (5.43 | ) | (3.59 | ) | — | — |
|
| (2.44 | ) |
|
| (1.49 | ) |
|
| (1.89 | ) |
|
| (3.74 | ) |
|
| (6.20 | ) | ||||||||||
From net realized gains | (0.14 | ) | (0.16 | ) | — | — | ||||||||||||||||||||||||||||||
Return of capital | (14.46 | ) | (5.11 | ) | — | — |
|
| (0.16 | ) |
|
| (0.71 | ) |
|
| (12.17 | ) |
|
| (11.74 | ) |
|
| (0.20 | ) | ||||||||||
|
|
|
| |||||||||||||||||||||||||||||||||
Total distributions(3) | (20.03 | ) | (8.86 | ) | — | — |
|
| (2.60 | ) |
|
| (2.20 | ) |
|
| (14.06 | ) |
|
| (15.48 | ) |
|
| (6.40 | ) | ||||||||||
|
|
|
| |||||||||||||||||||||||||||||||||
Net Asset Value Per Unit (accrual base), End of Year | $ | 78.70 | $ | 93.55 | $ | 99.35 | $ | 99.84 |
| $ | 31.38 |
|
| $ | 32.84 |
|
| $ | 39.65 |
|
| $ | 48.54 |
|
| $ | 63.74 |
| ||||||||
|
|
|
| |||||||||||||||||||||||||||||||||
Common Unitholder Total Return(4) | 9.5 | % | 8.3 | % | (3.3 | )% | (2.0 | )% |
|
| 6.41 | % |
|
| 13.30 | % |
|
| 20.66 | % |
|
| 0.78 | % |
|
| 10.83 | % | ||||||||
|
|
|
| |||||||||||||||||||||||||||||||||
Common Unitholder IRR(5) | 6.9 | % | 4.5 | % | — | % | — | % |
|
| 8.33 | % |
|
| 8.46 | % |
|
| 8.30 | % |
|
| 7.24 | % |
|
| 8.18 | % | ||||||||
|
|
|
| |||||||||||||||||||||||||||||||||
Ratios and Supplemental Data |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||
Members’ Capital, end of period | $ | 1,275,420 | $ | 963,104 | $ | 651,303 | $ | 64,528 | ||||||||||||||||||||||||||||
Units outstanding, end of period | 20,134,698 | 20,134,698 | 20,134,698 | 8,240,510 | ||||||||||||||||||||||||||||||||
Ratios based on average net assets of Member’s Capital: | ||||||||||||||||||||||||||||||||||||
Members’ Capital, end of year |
| $ | 366,739 |
|
| $ | 393,215 |
|
| $ | 389,304 |
|
| $ | 568,275 |
|
| $ | 874,228 |
| ||||||||||||||||
Units outstanding, end of year |
|
| 18,034,649 |
|
|
| 18,034,649 |
|
|
| 20,134,698 |
|
|
| 20,134,698 |
|
|
| 20,134,698 |
| ||||||||||||||||
Ratios based on average net assets of Members’ Capital: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||
Ratio of total expenses to average net assets | 4.21 | % | 6.10 | % | 13.14 | % | 133.05 | %(6) |
|
| 5.02 | % |
|
| 3.33 | % |
|
| 2.38 | % |
|
| 3.10 | % |
|
| 3.42 | % | ||||||||
Expenses recaptured by Investment Adviser | (0.11 | )% | (0.11 | )% | 0.09 | % | (8.41 | )%(7) | ||||||||||||||||||||||||||||
|
|
|
| |||||||||||||||||||||||||||||||||
Expenses waived by Investment Adviser |
|
| (1.02 | %) |
| — % |
|
| — % |
|
| — % |
|
| — % |
| ||||||||||||||||||||
Ratio of net expenses to average net assets | 4.10 | % | 5.99 | % | 13.23 | % | 124.64 | %(6) |
|
| 4.00 | % |
|
| 3.33 | % |
|
| 2.38 | % |
|
| 3.10 | % |
|
| 3.42 | % | ||||||||
Ratio of financing cost to average net assets | 1.70 | % | 1.75 | % | 2.00 | % | 17.11 | % |
|
| 2.04 | % |
|
| 1.44 | % |
|
| 0.94 | % |
|
| 1.68 | % |
|
| 2.11 | % | ||||||||
Ratio of net investment income (loss) before expense recapture to average net assets | 8.91 | % | 8.34 | % | (3.77 | )% | (93.53 | )%(6) | ||||||||||||||||||||||||||||
Ratio of net investment income (loss) to average net assets | 9.02 | % | 8.45 | % | (3.86 | )% | (85.11 | )%(6) | ||||||||||||||||||||||||||||
Ratio of net investment income before expense waiver to average net assets |
|
| 8.58 | % |
|
| 7.67 | % |
|
| 7.02 | % |
|
| 11.38 | % |
|
| 17.23 | % | ||||||||||||||||
Ratio of net investment income to average net assets |
|
| 9.60 | % |
|
| 7.67 | % |
|
| 7.02 | % |
|
| 11.38 | % |
|
| 17.23 | % | ||||||||||||||||
Credit facility payable | 378,000 | 590,000 | 329,000 | 55,000 |
| $ | 77,050 |
|
| $ | 126,250 |
|
| $ | 115,250 |
|
| $ | 115,250 |
|
| $ | 364,065 |
| ||||||||||||
Asset coverage ratio | 4.4 | 2.6 | 3.0 | 2.2 |
|
| 5.76 |
|
|
| 4.11 |
|
|
| 4.38 |
|
|
| 5.93 |
|
|
| 3.40 |
| ||||||||||||
Portfolio turnover rate | 30 | % | 37 | % | 42 | % | 61 | % |
|
| 2.01 | % |
|
| 1.71 | % |
|
| 1.29 | % |
|
| 14.68 | % |
|
| 5.12 | % |
F-32
TCW DIRECT LENDING LLC
Notes to Consolidated Financial Statements (Continued)
(dollar amountDollar amounts in thousands, except for unit data)
December 31, 20172023
11. Financial Highlights (Continued)
10. Selected Quarterly Financial Data (Unaudited)
Quarter Ended | ||||||||||||||||
December 31, 2017 | September 30, 2017 | June 30, 2017 | March 31, 2017 | |||||||||||||
Total investment income | $ | 40,245 | $ | 33,455 | $ | 43,765 | $ | 33,964 | ||||||||
Net investment income | 32,062 | 20,099 | 29,867 | 22,047 | ||||||||||||
Net realized and unrealized gains (losses) | (11,214 | ) | 24,494 | (1,933 | ) | (11,106 | ) | |||||||||
Net increase in Members’ Capital from operations | 20,848 | 44,593 | 27,934 | 10,941 | ||||||||||||
Basic and diluted earnings per Unit | 1.04 | 2.21 | 1.39 | 0.54 | ||||||||||||
Net asset value per unit at quarter end | 78.70 | 78.95 | 86.17 | 88.31 | ||||||||||||
Quarter Ended | ||||||||||||||||
December 31, 2016 | September 30, 2016 | June 30, 2016 | March 31, 2016 | |||||||||||||
Total investment income | $ | 32,502 | $ | 30,655 | $ | 27,953 | $ | 20,315 | ||||||||
Net investment income | 20,979 | 18,277 | 16,610 | 9,337 | ||||||||||||
Net realized and unrealized gains (losses) | 968 | 2,405 | (1,345 | ) | (5,430 | ) | ||||||||||
Net increase in Members’ Capital from operations | 21,947 | 20,682 | 15,265 | 3,907 | ||||||||||||
Basic and diluted earnings per Unit | 1.09 | 1.03 | 0.76 | 0.19 | ||||||||||||
Net asset value per unit at quarter end | 93.55 | 92.46 | 93.14 | 99.54 | ||||||||||||
Quarter Ended | ||||||||||||||||
December 31, 2015 | September 30, 2015 | June 30, 2015 | March 31, 2015 | |||||||||||||
Total investment income | $ | 14,012 | $ | 10,702 | $ | 4,397 | $ | 2,310 | ||||||||
Net investment income (loss) | 3,689 | 498 | (5,138 | ) | (11,988 | ) | ||||||||||
Net realized and unrealized gains (losses) | (9,731 | ) | 4,492 | 7,325 | (114 | ) | ||||||||||
Net increase (decrease) in Members’ Capital from operations | (6,042 | ) | 4,490 | 2,187 | (12,102 | ) | ||||||||||
Basic and diluted earnings per Unit | (0.30 | ) | 0.15 | 0.11 | (0.54 | ) | ||||||||||
Net asset value per unit at quarter end | 99.35 | 99.65 | 99.41 | 99.30 |
11.12. 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.statements other than those described below.
On January 2, 2024, the Company entered into a Repurchase Transaction with Barclay's which settled on January 25, 2024 in the amount of $491,875.
F-31F-33