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TCW Direct Lending VII

Filed: 9 Aug 21, 2:48pm
Table of Contents

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

 

FORM 10-Q

 

(Mark One)

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

For the quarterly period ended June 30, 2021

OR

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

For the transition period from                 to                 

Commission file number 814-01246

 

TCW DIRECT LENDING VII LLC

(Exact Name of Registrant as Specified in Its Charter)

 

 

Delaware 82-2252672

(State or Other Jurisdiction of

Incorporation or Organization)

 

(I.R.S. Employer

Identification No.)

200 Clarendon Street, Boston, MA 02116
(Address of Principal Executive Offices) (Zip Code)

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

Not applicable

Former Name, Former Address and Former Fiscal Year, If Changed Since Last Report.

 

Securities registered pursuant to Section 12(b) of the Act.

 

Title of each class

 

Trading

Symbol(s)

 

Name of each exchange

on which registered

None Not applicable Not applicable

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  ☒    No  ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes  ☒    No  ☐

Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer

    Accelerated filer 

Non-Accelerated filer

    Smaller reporting company         

Emerging growth company        

     

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  ☐

Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Securities Exchange Act of 1934).    Yes  ☐    No  ☒

As of June 30, 2021, there was no established public market for the Registrant’s common units. The number of the Registrant’s common units outstanding at August 9, 2021 was 13,734,010.

 

 

 


Table of Contents

TCW DIRECT LENDING VII LLC

FORM 10-Q FOR THE QUARTER ENDED June 30, 2021

Table of Contents

 

  

INDEX

  PAGE
    NO.    
 

PART I.

 

FINANCIAL INFORMATION

  

Item 1.

 

Financial Statements

  
 

Consolidated Schedule of Investments as of June  30, 2021 (unaudited) and December 31, 2020

   2 
 

Consolidated Statements of Assets and Liabilities as of June  30, 2021 (unaudited) and December 31, 2020

   14 
 

Consolidated Statements of Operations for the three and six months ended June 30, 2021 and 2020 (unaudited)

   15 
 

Consolidated Statements of Changes in Members’ Capital for the six months ended June 30, 2021 and 2020 (unaudited)

   16 
 

Consolidated Statement of Cash Flows for the six months ended June  30, 2021 and 2020 (unaudited)

   17 
 

Notes to Consolidated Financial Statements (unaudited)

   18 

Item 2.

 

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

   37 

Item 3.

 

Quantitative and Qualitative Disclosures About Market Risk

   52 

Item 4.

 

Controls and Procedures

   52 

PART II.

 

OTHER INFORMATION

  

Item 1.

 

Legal Proceedings

   53 

Item 1A.

 

Risk Factors

   53 

Item 2.

 

Unregistered Sales of Equity Securities and Use of Proceeds

   53 

Item 3.

 

Defaults Upon Senior Securities

   53 

Item 4.

 

Mine Safety Disclosures

   53 

Item 5.

 

Other Information

   53 

Item 6.

 

Exhibits

   54 

SIGNATURES

   55 


Table of Contents

TCW Direct Lending VII LLC

Consolidated Schedule of Investments (Unaudited)

As of June 30, 2021

 

Industry                             

 

Issuer

   Acquisition  
Date
  

Investment

   % of Net  
Assets
  Par
  Amount  
    Maturity  
Date
    Amortized  
Cost
   Fair Value  
 DEBT (1)       

Aerospace & Defense

        
 Cassavant Holdings, LLC  01/02/20  Revolver 9.50% (LIBOR + 8.00%, 1.50% Floor)  0.1%  $    1,567,896   01/02/25  $    1,567,896  $    1,583,575 
 Cassavant Holdings, LLC  01/02/20  Term Loan 9.50% (LIBOR + 8.00%, 1.50% Floor)  1.3%   14,032,341   01/02/25   13,866,397   14,172,665 
 Columbia Helicopters Inc.  08/20/19  Last Out Term Loan 9.00% (LIBOR + 7.50%, 1.50% Floor)  2.8%   31,696,398   08/20/24   31,290,995   30,650,417 
 Heligear Acquisition Co.  07/30/19  Term Loan 8.00% (LIBOR + 6.50%, 1.50% Floor)  5.0%   55,510,905   07/30/24   54,812,752   56,066,014 
 Karman Holdings LLC  12/21/20  Revolver 7.50% (LIBOR + 6.50%, 1.00% Floor)  0.4%   4,916,148   12/21/25   4,916,148   4,916,148 
 Karman Holdings LLC  12/21/20  Term Loan 7.50% (LIBOR + 6.50%, 1.00% Floor)  5.9%   64,729,278   12/21/25   63,444,415   65,441,300 
 Navistar Defense, LLC  12/31/18  Term Loan 7.75% (LIBOR + 6.25%, 1.50% Floor)  1.4%   17,150,195   12/31/23   16,907,755   15,778,179 
    

 

 

    

 

 

 

 

 

 

 

     16.9%     186,806,358   188,608,298 
    

 

 

    

 

 

 

 

 

 

 

Air Freight & Logistics

        
 Need It Now Delivers, LLC  12/23/19  Last Out Delayed Draw Term Loan 10.25% (LIBOR + 8.50%, 1.75% Floor)  0.1%   1,441,137   12/23/24   1,441,137   1,455,548 
 Need It Now Delivers, LLC  12/23/19  Last Out Term Loan 10.25% (LIBOR + 8.50%, 1.75% Floor)  1.2%   13,698,107   12/23/24   13,463,845   13,835,088 
    

 

 

    

 

 

 

 

 

 

 

     1.3%     14,904,982   15,290,636 
    

 

 

    

 

 

 

 

 

 

 

Auto Components

        
 Shipston Group U.S. Inc.  05/18/20  Last Out Term Loan 9.00% inc PIK (LIBOR + 7.75%, 1.25% Floor, 2.00% PIK)  0.2%   1,764,107   09/28/23   1,764,107   1,744,702 
 Shipston Group U.S. Inc.  09/28/18  Last Out Term Loan 9.00% inc PIK (LIBOR + 7.75%, 1.25% Floor, 2.00% PIK)  2.3%   26,321,137   09/28/23   26,135,437   26,031,604 
    

 

 

    

 

 

 

 

 

 

 

     2.5%     27,899,544   27,776,306 
    

 

 

    

 

 

 

 

 

 

 

Beverages

        
 Westrock Coffee Company, LLC  02/28/20  Term Loan 10.50% inc PIK (LIBOR + 9.00%, 1.50% Floor, 0.75% PIK)  5.9%   65,229,074   02/28/25   64,399,368   65,555,219 
    

 

 

    

 

 

 

 

 

 

 

     5.9%     64,399,368   65,555,219 
    

 

 

    

 

 

 

 

 

 

 

Capital Goods

        
 Carolina Atlantic Roofing Suppy LLC  05/28/21  Term Loan 8.25% (LIBOR + 7.25%, 1.00% Floor)  4.0%   46,160,000   05/28/26   45,254,228   45,190,640 
    

 

 

    

 

 

 

 

 

 

 

     4.0%     45,254,228   45,190,640 
    

 

 

    

 

 

 

 

 

 

 

Chemicals

        
 AGY Holdings Corp. (2)  09/21/20  Delayed Draw Term Loan 11.50% inc PIK (LIBOR + 10.00%, 1.50% Floor, 6.00% PIK)  1.3%   14,542,742   09/21/25   14,542,742   14,542,742 
 AGY Holdings Corp. (2)  09/21/20  Term Loan 11.50% inc PIK (LIBOR + 10.00%, 1.50% Floor, 6.00% PIK)  2.2%   24,373,596   09/21/25   24,373,596   24,373,596 
 GEON Performance Solutions, LLC  10/25/19  Term Loan 7.88% (LIBOR + 6.25%, 1.63% Floor)  1.7%   18,734,104   10/25/24   18,680,387   19,108,786 
    

 

 

    

 

 

 

 

 

 

 

     5.2%     57,596,725   58,025,124 
    

 

 

    

 

 

 

 

 

 

 

Commercial & Professional Services

        
 Rapid Displays, Inc.  04/16/21  Term Loan 7.63% (LIBOR + 6.63%, 1.00% Floor)  1.3%   14,160,000   04/13/26   13,988,259   13,975,920 
    

 

 

    

 

 

 

 

 

 

 

     1.3%     13,988,259   13,975,920 
    

 

 

    

 

 

 

 

 

 

 

Commercial Services & Supplies

        
 Clover Imaging Group, LLC  12/16/19  Term Loan 9.00% (LIBOR + 7.50%, 1.50% Floor)  0.8%   9,058,382   12/16/24   8,932,491   9,148,966 
 Retail Services WIS Corporation  05/20/21  Term Loan 8.75% (LIBOR + 7.75%, 1.00% Floor)  4.7%   53,898,923   05/20/25   52,584,760   52,874,844 
    

 

 

    

 

 

 

 

 

 

 

     5.5%     61,517,251   62,023,810 
    

 

 

    

 

 

 

 

 

 

 

 

2


Table of Contents

TCW Direct Lending VII LLC

Consolidated Schedule of Investments (Unaudited) (Continued)

As of June 30, 2021

 

Industry                             

 

Issuer

   Acquisition  
Date
 

Investment

   % of Net  
Assets
  Par
  Amount  
    Maturity  
Date
    Amortized  
Cost
   Fair Value  
 Debt (continued)       

Construction & Engineering

        
 UniTek Acquisition, Inc. 09/16/20 Delayed Draw Term Loan A 7.50% inc PIK (LIBOR + 6.50%, 1.00% Floor, 2.00% PIK)  0.1%  $    1,580,077   08/20/23  $    956,404  $    1,399,948 
 UniTek Acquisition, Inc. 08/20/18 Delayed Draw Term Loan B 8.50% inc PIK (LIBOR + 7.50%, 1.00% Floor, 2.00% PIK)  0.3%   3,403,678   08/20/24   3,403,678   2,835,264 
 UniTek Acquisition, Inc. 11/10/20 Revolver 7.75% (Prime + 4.50%, 1.00% Floor)  0.1%   1,072,946   08/20/23   1,072,946   950,630 
 UniTek Acquisition, Inc. 09/16/20 Term Loan A 7.50% inc PIK (LIBOR + 6.50%, 1.00% Floor, 2.00% PIK)  0.6%   7,900,385   08/20/23   4,777,326   6,999,741 
 UniTek Acquisition, Inc. 08/20/18 Term Loan B 8.50% inc PIK (LIBOR + 7.50%, 1.00% Floor, 2.00% PIK)  1.3%   17,019,352   08/20/24   16,806,143   14,177,120 
    

 

 

    

 

 

 

 

 

 

 

     2.4%     27,016,497   26,362,703 
    

 

 

    

 

 

 

 

 

 

 

Construction Materials

        
 United Poly Systems Holding, Inc. 12/28/20 Mezzanine Loan 13.00% inc PIK (13.00% Fixed Coupon, all PIK)  0.6%   7,541,281   12/31/25   7,541,281   6,772,070 
    

 

 

    

 

 

 

 

 

 

 

     0.6%     7,541,281   6,772,070 
    

 

 

    

 

 

 

 

 

 

 

Consumer Durables & Apparel

       
 Rocky Brands, Inc. (3) 03/15/21 Term Loan 8.00% (LIBOR + 7.00%, 1.00% Floor)  4.4%   49,511,201   03/15/26   48,579,545   49,461,690 
 Twin Star International, Inc. 06/18/21 Term Loan 8.25% (LIBOR + 7.25%, 1.00% Floor)  3.7%   41,880,000   06/18/26   41,360,262   41,377,440 
    

 

 

    

 

 

 

 

 

 

 

     8.1%     89,939,807   90,839,130 
    

 

 

    

 

 

 

 

 

 

 

Consumer Services

        
 Grand Circle Corporation 02/26/21 Term Loan 11.75% (LIBOR + 10.50%, 1.25% Floor)  3.6%   40,363,826   02/26/26   39,611,812   40,363,826 
    

 

 

    

 

 

 

 

 

 

 

     3.6%     39,611,812   40,363,826 
    

 

 

    

 

 

 

 

 

 

 

Energy Equipment & Services

       
 Profrac Services, LLC 09/07/18 Term Loan 9.75% (LIBOR + 8.50%, 1.25% Floor)  4.8%   54,960,025   09/07/23   53,570,271   53,256,264 
 WDE TorcSill Holdings LLC 10/22/19 Revolver 12.00% inc PIK (LIBOR + 10.50%, 1.50% Floor, 3.75% PIK)  0.3%   3,907,716   10/22/24   3,907,716   3,743,592 
 WDE TorcSill Holdings LLC 10/22/19 Term Loan 12.00% inc PIK (LIBOR + 10.50%, 1.50% Floor, 3.75% PIK)  2.2%   25,984,118   10/22/24   25,551,548   24,892,785 
    

 

 

    

 

 

 

 

 

 

 

     7.3%     83,029,535   81,892,641 
    

 

 

    

 

 

 

 

 

 

 

Food Products

        
 Hometown Food Company 08/31/18 Term Loan 6.25% (LIBOR + 5.00%, 1.25% Floor)  2.5%   27,727,787   08/31/23   27,455,113   27,727,787 
    

 

 

    

 

 

 

 

 

 

 

     2.5%     27,455,113   27,727,787 
    

 

 

    

 

 

 

 

 

 

 

Health Care Technology

        
 American Academy Holdings, LLC 08/14/19 Term Loan 10.00% inc PIK (LIBOR + 9.00%, 1.00% Floor, 3.75% PIK)  2.8%   30,875,636   06/15/23   30,510,522   31,184,392 
 PatientPoint Health Technologies, LLC 03/30/21 Term Loan 8.00% (LIBOR + 7.00%, 1.00% Floor)  1.5%   16,758,000   03/07/25   16,326,959   16,724,484 
    

 

 

    

 

 

 

 

 

 

 

     4.3%     46,837,481   47,908,876 
    

 

 

    

 

 

 

 

 

 

 

Hotels, Restaurants & Leisure

        
 FM Restaurants Holdco, LLC 11/25/19 Term Loan 9.75% (LIBOR + 8.00%, 1.75% Floor)  1.9%   21,396,886   11/22/23   21,077,213   21,546,665 
 KBP Brands, LLC 05/26/21 Term Loan 5.75% (LIBOR + 5.00%, 0.75% Floor)  0.9%   10,000,000   05/26/27   9,680,340   9,930,000 
 Red Lobster Management, LLC 01/22/21 Term Loan 9.00% (LIBOR + 8.00%, 1.00% Floor)  5.3%   58,534,945   01/22/26   57,466,827   59,178,830 
    

 

 

    

 

 

 

 

 

 

 

     8.1%     88,224,380   90,655,495 
    

 

 

    

 

 

 

 

 

 

 

 

3


Table of Contents

TCW Direct Lending VII LLC

Consolidated Schedule of Investments (Unaudited) (Continued)

As of June 30, 2021

 

Industry                             

 

Issuer

   Acquisition  
Date
  

Investment

   % of Net  
Assets
  Par
  Amount  
    Maturity  
Date
    Amortized  
Cost
   Fair Value  
 Debt (continued)       

Household & Personal Products

        
 Obagi Cosmeceuticals LLC  03/16/21  Revolver 8.50% (LIBOR + 7.50%, 1.00% Floor)  0.6%  $6,784,800   03/16/26  $6,784,800  $6,784,800 
 Obagi Cosmeceuticals LLC  03/16/21  Term Loan 8.50% (LIBOR + 7.50%, 1.00% Floor)  4.6%   49,630,812   03/16/26   48,270,120   51,070,106 
    

 

 

    

 

 

 

 

 

 

 

     5.2%     55,054,920   57,854,906 
    

 

 

    

 

 

 

 

 

 

 

Household Durables

       
 Slogic Holding Corp. (4)  06/29/18  Last Out Term Loan 7.28% (LIBOR + 6.28%, 1.00% Floor)  2.4%   26,967,293   06/22/23   26,860,469   26,967,293 
    

 

 

    

 

 

 

 

 

 

 

     2.4%     26,860,469   26,967,293 
    

 

 

    

 

 

 

 

 

 

 

Household Products

       
 Greenfield World Trade, Inc.  03/04/19  Last Out Term Loan 14.83% inc PIK (LIBOR + 13.33%, 1.50% Floor, 6.00% PIK)  4.5%   49,946,882   03/04/24   46,696,606   49,946,882 
    

 

 

    

 

 

 

 

 

 

 

     4.5%     46,696,606   49,946,882 
    

 

 

    

 

 

 

 

 

 

 

Information Technology Services

       
 Corcentric, Inc.  11/15/18  Delayed Draw Term Loan 8.50% (LIBOR + 7.00%, 1.50% Floor)  1.1%   12,532,400   11/15/23   12,532,400   12,657,724 
 Corcentric, Inc.  11/15/18  Term Loan 8.50% (LIBOR + 7.00%, 1.50% Floor)  2.9%   31,858,680   11/15/23   31,474,919   32,177,267 
    

 

 

    

 

 

 

 

 

 

 

     4.0%     44,007,319   44,834,991 
    

 

 

    

 

 

 

 

 

 

 

Internet & Direct Marketing Retail

       
 Altern Marketing LLC  09/30/20  First Out Term Loan 8.00% (LIBOR + 6.00%, 2.00% Floor)  1.1%   12,018,616   10/07/24   11,807,224   12,138,802 
    

 

 

    

 

 

 

 

 

 

 

     1.1%     11,807,224   12,138,802 
    

 

 

    

 

 

 

 

 

 

 

Media

        
 Encompass Digital Media, Inc.  10/01/18  Revolver 8.75% (LIBOR + 7.50%, 1.25% Floor)  0.0%   288,864   09/28/23   288,864   288,864 
 Encompass Digital Media, Inc.  10/01/18  Term Loan 8.75% inc PIK (LIBOR + 7.50%, 1.25% Floor, 1.13% PIK)  2.7%   29,906,683   09/28/23   29,730,027   29,906,683 
 Winsight, LLC  11/15/18  Revolver 12.00% inc PIK (LIBOR + 11.00%, 1.00% Floor, 4.00% PIK)  0.2%   1,535,162   03/31/24   1,535,162   1,420,025 
 Winsight, LLC  11/15/18  Term Loan 12.00% inc PIK (LIBOR + 11.00%, 1.00% Floor, 4.00% PIK)  2.0%   24,414,696   03/31/24   24,091,881   22,583,594 
    

 

 

    

 

 

 

 

 

 

 

     4.9%     55,645,934   54,199,166 
    

 

 

    

 

 

 

 

 

 

 

Packaging

       
 Hoover Group, Inc.  10/01/20  Term Loan 9.75% (LIBOR + 8.50%, 1.25% Floor)  2.6%   30,352,878   10/01/24   29,859,253   29,017,350 
    

 

 

    

 

 

 

 

 

 

 

     2.6%     29,859,253   29,017,350 
    

 

 

    

 

 

 

 

 

 

 

Personal Products

       
 Voyant Beauty Holdings, Inc.  08/20/20  Term Loan 10.00% (LIBOR + 8.50%, 1.50% Floor)  5.3%   58,110,239   08/20/25   56,895,952   59,272,444 
    

 

 

    

 

 

 

 

 

 

 

     5.3%     56,895,952   59,272,444 
    

 

 

    

 

 

 

 

 

 

 

Publishing

       
 Bendon Inc.  12/11/20  Term Loan 7.00% (LIBOR + 6.00%, 1.00% Floor)  4.6%   52,597,442   12/11/25   51,534,503   51,703,285 
    

 

 

    

 

 

 

 

 

 

 

     4.6%     51,534,503   51,703,285 
    

 

 

    

 

 

 

 

 

 

 

 

4


Table of Contents

TCW Direct Lending VII LLC

Consolidated Schedule of Investments (Unaudited) (Continued)

As of June 30, 2021

 

Industry                             

 

Issuer

   Acquisition  
Date
 

Investment

   % of Net  
Assets
  Par
  Amount  
    Maturity  
Date
    Amortized  
Cost
   Fair Value  
 Debt (continued)       

Software

        
 Mondee Holdings LLC 12/20/19 Term Loan 12.25% inc PIK (LIBOR + 10.50%, 1.75% Floor, 5.00% PIK)  6.9%  $    88,132,347   12/23/24    $    86,159,347    $    76,498,878 
 Quicken Parent Corp. 12/21/20 Term Loan 9.25% (LIBOR + 8.25%, 1.00% Floor)  1.3%   14,199,138   04/01/23   14,056,218   14,199,138 
    

 

 

    

 

 

 

 

 

 

 

     8.2%     100,215,565   90,698,016 
    

 

 

    

 

 

 

 

 

 

 

Textiles, Apparel & Luxury Goods

       
 Centric Brands Inc. (3) 10/09/20 Revolver 6.50% (LIBOR + 5.50%, 1.00% Floor)  0.2%   2,014,495   10/09/24   2,014,495   2,014,495 
 Centric Brands Inc. (3) 10/09/20 Term Loan 10.00% inc PIK (LIBOR + 9.00%, 1.00% Floor, all PIK)  3.1%   36,927,286   10/09/25   33,596,578   34,046,957 
 Keeco Holdings, LLC 09/19/18 Term Loan 10.25% inc PIK (LIBOR + 8.50%, 1.75% Floor, 0.75% PIK)  5.1%   56,971,229   03/15/24   56,384,536   56,971,228 
    

 

 

    

 

 

 

 

 

 

 

     8.4%     91,995,609   93,032,680 
    

 

 

    

 

 

 

 

 

 

 

 Total Debt Investments    130.7%     1,452,595,975   1,458,634,296 
    

 

 

    

 

 

 

 

 

 

 

EQUITY          Shares     Amortized
Cost
 Fair Value

Chemicals

        
 AGY Equity LLC (2) (5) (6)  Class A Preferred Units  0.0%   7,752,414    -         -       
 AGY Equity LLC (2) (5) (6)  Class B Preferred Units  0.0%   10,078,138    -         -       
 AGY Equity LLC (2) (5) (6)  Class C Common Units  0.0%   11,241,000    -         -       
    

 

 

    

 

 

 

 

 

 

 

     0.0%     -         -       
    

 

 

    

 

 

 

 

 

 

 

Construction Materials

        
 United Poly Systems Holding, Inc. (5) (6)  Common Stock  0.0%   7,550    755,000   -       
    

 

 

    

 

 

 

 

 

 

 

     0.0%     755,000   -       
    

 

 

    

 

 

 

 

 

 

 

Household Durables

        
 Shelterlogic Group Holdings,
Inc (4) (5) (6)
  Common Stock  1.5%   1,240,731    -          $16,935,978 
    

 

 

    

 

 

 

 

 

 

 

     1.5%     -         16,935,978 
    

 

 

    

 

 

 

 

 

 

 

Household Products

        
 Greenfield World Trade, Inc. (5) (6)  Warrant, expires 03/25/27  0.6%   6,525    3,059,378   6,894,772 
    

 

 

    

 

 

 

 

 

 

 

     0.6%     3,059,378   6,894,772 
    

 

 

    

 

 

 

 

 

 

 

Software

        
 Mondee Holdings LLC (5) (6)  Class G Preferred Stock  0.1%   1,226,708    1,226,708   1,128,571 
    

 

 

    

 

 

 

 

 

 

 

     0.1%     1,226,708   1,128,571 
    

 

 

    

 

 

 

 

 

 

 

Textiles, Apparel & Luxury Goods

       
 Centric Brands GP LLC (3) (5) (6)  Membership Interests  0.0%   159,658    -         -       
 Centric Brands L.P. (3) (5) (6)  Class A LP Interests  0.0%   159,658    -         -       
    

 

 

    

 

 

 

 

 

 

 

     0.0%     -         -       
    

 

 

    

 

 

 

 

 

 

 

 Total Equity Investments   2.2%     5,041,086   24,959,321 
    

 

 

    

 

 

 

 

 

 

 

 Total Debt & Equity Investments (7)  132.9%     1,457,637,061   1,483,593,617 
    

 

 

    

 

 

 

 

 

 

 

 Cash Equivalents       
 Fixed Income Clearing Corporation Repo, Yield 0.00%    5.8%     65,259,279   65,259,279 
    

 

 

    

 

 

 

 

 

 

 

 Total Cash Equivalents    5.8%     65,259,279   65,259,279 
    

 

 

    

 

 

 

 

 

 

 

 Total Investments (138.8%)          $1,522,896,340    $1,548,852,896 
       

 

 

 

 

 

 

 

 Net unrealized depreciation on unfunded commitments (-0.1%)        (1,287,064
        

 

 

 

 Liabilities in Excess of Other Assets (-38.7%)        (431,392,387
        

 

 

 

 Net Assets (100.0%)         $1,116,173,445 
        

 

 

 

 

5


Table of Contents

TCW Direct Lending VII LLC

Consolidated Schedule of Investments (Unaudited) (Continued)

As of June 30, 2021

 

(1) 

Certain debt investments are subject to contractual restrictions on resale, such as approval of the agent or borrower.

 

(2) 

As defined in the Investment Company Act of 1940, the investment is deemed to be a “controlled affiliated person” of the Company because the Company owns, either directly or indirectly, 25% or more of the portfolio company’s outstanding voting securities or has the power to exercise control over management or policies of such portfolio company. Fair value as of December 31, 2020 and June 30, 2021 along with transactions during the period ended June 30, 2021 in these controlled investments are as follows:

 

  

Name of Investment

 Fair Value at
12/31/2020
  Gross Addition (a)  Gross Reduction (b)  Realized Gains
(Losses)
  Net Change in
Unrealized
Appreciation/
Depreciation
  Fair Value
at June 30,
2021
  Interest/Dividend/
Other income
      

    

 

AGY Holdings Corp. Opco Term Loan - 11.50% inc. PIK

   $3,391,067    $11,151,675    $ -      $ -      $ -      $14,542,742    $881,860  
 

AGY Holdings Corp. PIK Holdco Term Loan - 11.50% inc. PIK

  23,651,102   722,494   -     -     -     24,373,596   1,495,263  
 

AGY Holdings Corp. Class A Preferred units

  -     -     -     -     -     -     -    
 

AGY Holdings Corp. Class B Preferred units

  -     -     -     -     -     -     -    
 

AGY Holdings Corp. Class C Common units

  -     -     -     -     -     -     -    
  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  
 

Total Controlled Affiliated investments

   $    27,042,169    $      11,874,169    $-      $-      $-      $38,916,338    $2,377,123  
  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 (a)

Gross additions include new purchases, PIK income and amortization of original issue and market discounts.

 

 (b)

Gross reductions include decreases in the cost basis from sales, paydown and the amortization of premium.

 

(3) 

The investment is not a qualifying asset as defined in Section 55(a) under the Investment Company Act of 1940, as amended. A business development company may not acquire an asset other than qualifying assets, unless, at the time the acquisition is made, qualifying assets represent at least 70% of the company’s total assets. As of June 30, 2021, $85,523,142 or 5.4% of the Company’s total assets were represented by “non-qualifying assets.”

 

(4) 

As defined in the Investment Company Act of 1940, the investment is deemed to be an “affiliated person” of the Company because the Company owns, either directly or indirectly, between 5% and 25% of the portfolio company’s outstanding voting securities or has the power to exercise control over management or policies of such portfolio company. Fair value as of December 31, 2020 and June 30, 2021 along with transactions during the period ended June 30, 2021 in these affiliated investments are as follows:

 

        

Name of Investment

 Fair Value at
12/31/2020
 Gross Addition (a) Gross Reduction (b) Realized Gains
(Losses)
 Net Change in
Unrealized
Appreciation/
Depreciation
 Fair Value at
June 30, 2021
 Interest/
Dividend/Other
income
     
 

Shelterlogic Group Holdings, Inc. Common Stock

 $9,578,443  $-    $-      $-    $7,357,535  $16,935,978  $-    
 

Slogic Holding Corp. Last Out Term Loan—6.87%

  27,252,661   28,231   (285,367  -     (28,232  26,967,293   1,017,909  
  

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 
 

Total Non-Controlled Affiliated Investments

 $36,831,104  $28,231  $(285,367 $ -    $7,329,303  $43,903,271  $1,017,909  
  

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 (a)

Gross additions include new purchases, PIK income and amortization of original issue and market discounts.

 

 (b)

Gross reductions include decreases in the cost basis from sales, paydown and the amortization of premium.

 

(5) 

Non-income producing.

 

(6) 

All or a portion of such security was acquired in a transaction exempt from registration under the Securities Act of 1933, and may be deemed “restricted securities” under the Securities Act. As of June 30, 2021, the aggregate fair value of these securities was $24,959,321, or 1.6% of the Company’s total assets.

 

(7) 

The fair value of each debt and equity was determined using significant unobservable inputs and such investments are considered to be Level 3 within the Fair Value Hierarchy. See Note 3 “Investment Valuations and Fair Value Measurements.”

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

Aggregate acquisitions and aggregate dispositions of investments, other than government securities, totaled $529,968,362 and $481,344,642, respectively, for the period ended June 30, 2021. Aggregate acquisitions includes investment assets received as payment in kind. Aggregate dispositions includes principal paydowns on and maturities of debt investments.

 

Geographic Breakdown of Portfolio

    

United States

   100

 

See Notes to Consolidated Financial Statements

 

6


Table of Contents

TCW DIRECT LENDING VII LLC

Consolidated Schedule of Investments

As of December 31, 2020

 

Industry                         

 

Issuer

   Acquisition  
Date
  

Investment

   % of Net
Assets
  Par
  Amount  
    Maturity  
Date
    Amortized  
Cost
  Fair Value 
 Debt(1)       

Aerospace & Defense

        
 Cassavant Holdings, LLC  01/02/20  

Revolver - 9.50%

(LIBOR + 8.00%, 1.50% Floor)

  0.2%  $1,567,896   01/02/25  $1,567,896  $1,484,797 
 Cassavant Holdings, LLC  01/02/20  

Term Loan - 9.50%

(LIBOR + 8.00%, 1.50% Floor)

  1.6%   14,150,260   01/02/25   13,959,277   13,400,297 
    

 

 

  

 

 

   

 

 

  

 

 

 
     1.8%   15,718,156    15,527,173   14,885,094 
    

 

 

  

 

 

   

 

 

  

 

 

 
 Columbia Helicopters, Inc.  08/20/19  

Term Loan - 9.00%

(LIBOR + 7.50%, 1.50% Floor)

  4.2%   34,711,398   08/20/24   34,197,313   35,058,512 
 Heligear Acquisition Co.  07/30/19  

Term Loan - 8.50%

(LIBOR + 7.00%, 1.50% Floor)

  7.0%   57,878,827   07/30/24   57,033,777   58,168,221 
 Navistar Defense, LLC  12/31/18  

Term Loan B - 7.75%

(LIBOR + 6.25%, 1.50% Floor)

  2.1%   17,152,164   12/31/23   16,860,065   17,152,164 
 Spaceco Holdings LLC  12/21/20  

Revolver - 7.50%

(LIBOR + 6.50%, 1.00% Floor)

  0.4%   3,121,364   12/21/25   3,121,364   3,080,786 
 Spaceco Holdings LLC  12/21/20  

Term Loan - 7.50%

(LIBOR + 6.50%, 1.00% Floor)

  14.8%   124,854,545   12/21/25   122,107,745   123,231,436 
    

 

 

  

 

 

   

 

 

  

 

 

 
     15.2%   127,975,909    125,229,109   126,312,222 
    

 

 

  

 

 

   

 

 

  

 

 

 
 Sparton Corporation  03/04/19  

First Lien Term Loan - 8.75%

(LIBOR + 7.25%, 1.50% Floor)

  1.6%   13,227,692   03/04/24   13,027,145   13,439,335 
    

 

 

  

 

 

   

 

 

  

 

 

 
     31.9%   266,664,146    261,874,582   265,015,548 
    

 

 

  

 

 

   

 

 

  

 

 

 

Air Freight & Logistics

        
 Need It Now Delivers, LLC  12/23/19  

Delayed Draw Term Loan - 10.25%

(LIBOR + 8.50%, 1.75% Floor)

  0.2%   1,479,333   12/23/24   1,479,332   1,429,036 
 Need It Now Delivers, LLC  12/23/19  

Last Out Term Loan - 10.25%

(LIBOR + 8.50% , 1.75% Floor)

  1.6%   14,063,389   12/23/24   13,788,631   13,585,234 
    

 

 

  

 

 

   

 

 

  

 

 

 
     1.8%   15,542,722    15,267,963   15,014,270 
    

 

 

  

 

 

   

 

 

  

 

 

 

Auto Components

        
 Shipston Group U.S. Inc.  05/18/20  

Term Loan C - 9.00% inc. PIK

(LIBOR + 7.75%, 1.25% Floor, 2.00% PIK)

  0.2%   1,746,375   09/28/23   1,746,375   1,706,208 
 Shipston Group U.S. Inc.  09/28/18  

Term Loan - 9.00% inc. PIK

(LIBOR + 7.75%, 1.25% Floor, 2.00% PIK)

  3.1%   26,302,661   09/28/23   26,073,224   25,697,700 
    

 

 

  

 

 

   

 

 

  

 

 

 
     3.3%   28,049,036    27,819,599   27,403,908 
    

 

 

  

 

 

   

 

 

  

 

 

 

Beverages

        
 Caiman Merger Sub LLC  11/01/19  

Term Loan - 6.75%

(LIBOR + 5.75%, 1.00% Floor)

  1.7%   14,037,026   11/01/25   13,914,606   14,177,396 
 Westrock Coffee Company, LLC  02/28/20  

Term Loan - 8.75% inc. PIK

(LIBOR + 7.25%, 1.50% Floor, 1.00% PIK)

  7.9%   65,531,880   02/28/25   64,581,557   65,204,221 
    

 

 

  

 

 

   

 

 

  

 

 

 
     9.6%   79,568,906    78,496,163   79,381,617 
    

 

 

  

 

 

   

 

 

  

 

 

 

Chemicals

        
 AGY Holdings Corp.(2)  09/21/20  

Opco Term Loan - 11.50% inc. PIK

(LIBOR + 10.00%, 1.50% Floor, 6.00% PIK)

  0.4%   3,391,067   09/21/25   3,391,067   3,391,067 
 AGY Holdings Corp.(2)  09/21/20  

PIK Holdco Term Loan - 11.50% inc. PIK

(LIBOR + 10.00%, 1.50% Floor, 6.00% PIK)

  2.8%   23,651,102   09/21/25   23,651,102   23,651,102 
    

 

 

  

 

 

   

 

 

  

 

 

 
     3.2%   27,042,169    27,042,169   27,042,169 
    

 

 

  

 

 

   

 

 

  

 

 

 
 GEON Performance Solutions, LLC  10/25/19  

Term Loan - 7.88%

(LIBOR + 6.25%, 1.63% Floor)

  2.5%   20,163,740   10/25/24   20,097,289   20,365,377 
 Verdesian Life Sciences, LLC  07/22/19  

2019 Term Loan - 9.50%

(LIBOR + 7.75%, 1.75% Floor)

  6.2%   50,708,730   06/27/24   49,985,774   51,672,196 
    

 

 

  

 

 

   

 

 

  

 

 

 
     11.9%   97,914,639    97,125,232   99,079,742 
    

 

 

  

 

 

   

 

 

  

 

 

 

 

7


Table of Contents

TCW DIRECT LENDING VII LLC

Consolidated Schedule of Investments (Continued)

As of December 31, 2020

 

Industry                

 

Issuer

   Acquisition  
Date
  

Investment

   % of Net  
Assets
  Par
  Amount  
    Maturity
Date
    Amortized  
Cost
   Fair Value  

Commercial Services & Supplies

        
 Clover Imaging Group, LLC  12/16/19  

Term Loan - 9.00%

(LIBOR + 7.50%, 1.50% Floor)

  1.3   $  10,774,250   12/16/24    $  10,603,070    $  10,688,056 
 Production Resource Group, LLC  08/21/18  2020 Last Out Term Loan A - 9.75% inc. PIK (LIBOR + 9.50%, 0.25% Floor, 9.75% PIK)  1.1  9,394,554   08/21/24   9,394,554   9,394,554 
 Production Resource Group, LLC  08/01/20  Bridge Delayed Draw Term Loan - 8.50% inc. PIK (LIBOR + 7.50%, 1.00% Floor, 2.50% PIK)  0.3  2,305,426   08/21/24   2,305,426   2,305,426 
    

 

 

  

 

 

   

 

 

 

 

 

 

 

     1.4  11,699,980    11,699,980   11,699,980 
    

 

 

  

 

 

   

 

 

 

 

 

 

 

     2.7  22,474,230    22,303,050   22,388,036 
    

 

 

  

 

 

   

 

 

 

 

 

 

 

Construction & Engineering

        
 UniTek Acquisition, Inc.  09/16/20  

Delayed Draw Term Loan - 7.50%

(LIBOR + 6.50%, 1.00% Floor, 2.00% PIK)

  0.2  1,564,318   08/20/23   940,645   1,321,849 
 UniTek Acquisition, Inc.  09/16/20  

Term Loan A - 7.50%

(LIBOR + 6.50%, 1.00% Floor, 2.00% PIK)

  0.8  7,821,592   08/20/23   4,697,446   6,609,245 
    

 

 

  

 

 

   

 

 

 

 

 

 

 

     1.0  9,385,910    5,638,091   7,931,094 
    

 

 

  

 

 

   

 

 

 

 

 

 

 

 UniTek Acquisition, Inc.  11/10/20  

Revolver - 6.50%

(LIBOR + 5.50%, 1.00% Floor)

  0.0  16,070   08/20/23   16,070   13,579 
 UniTek Acquisition, Inc.  08/20/18  Delayed Draw Term Loan B - 8.50% inc. PIK (LIBOR + 7.50%, 1.00% Floor, 2.00% PIK)  0.3  3,369,896   08/20/24   3,369,896   2,719,506 
 UniTek Acquisition, Inc.  08/20/18  

Term Loan B - 8.50% inc. PIK

(LIBOR + 7.50%, 1.00% Floor, 2.00% PIK)

  1.6  16,850,431   08/20/24   16,603,547   13,598,298 
    

 

 

  

 

 

   

 

 

 

 

 

 

 

     1.9  20,220,327    19,973,443   16,317,804 
    

 

 

  

 

 

   

 

 

 

 

 

 

 

     2.9  29,622,307    25,627,604   24,262,477 
    

 

 

  

 

 

   

 

 

 

 

 

 

 

Construction Materials

        
 United Poly Systems Holding, Inc.  12/28/20  

Mezzanine Loan - 13.00% inc. PIK

(13.00%, 13.00% PIK)

  0.8  7,296,000   12/31/25   7,296,000   6,661,248 
    

 

 

  

 

 

   

 

 

 

 

 

 

 

     0.8  7,296,000    7,296,000   6,661,248 
    

 

 

  

 

 

   

 

 

 

 

 

 

 

Electronic Equipment, Instruments & Components

        
 SMTC Corporation(4)  11/08/18  

Term Loan A - 10.50%

(LIBOR + 8.75%, 1.75% Floor)

  2.7  22,524,256   11/08/23   21,861,279   22,749,499 
    

 

 

  

 

 

   

 

 

 

 

 

 

 

     2.7  22,524,256    21,861,279   22,749,499 
    

 

 

  

 

 

   

 

 

 

 

 

 

 

Energy Equipment & Services

        
 Profrac Services, LLC  09/07/18  

Term Loan B - 8.75%

(LIBOR + 7.50%, 1.25% Floor)

  4.4  39,213,639   09/07/23   37,592,108   36,821,607 
 PSS Industrial Group Corp.  04/12/19  

Term Loan - 9.50%

(LIBOR + 8.00%, 1.50% Floor)

  1.7  17,608,820   04/10/25   17,295,238   13,910,968 
 WDE TorcSill Holdings LLC  10/22/19  

Revolver - 9.00% inc. PIK

(LIBOR + 7.50%, 1.50% Floor, 0.75% PIK)

  0.4  3,048,419   10/22/24   3,048,419   2,953,918 
 WDE TorcSill Holdings LLC  10/22/19  

Term Loan - 9.00% inc. PIK

(LIBOR + 7.50%, 1.50% Floor, 0.75% PIK)

  3.3  28,160,536   10/22/24   27,611,823   27,287,559 
    

 

 

  

 

 

   

 

 

 

 

 

 

 

     3.7  31,208,955    30,660,242   30,241,477 
    

 

 

  

 

 

   

 

 

 

 

 

 

 

     9.8  88,031,414    85,547,588   80,974,052 
    

 

 

  

 

 

   

 

 

 

 

 

 

 

 

8


Table of Contents

TCW DIRECT LENDING VII LLC

Consolidated Schedule of Investments (Continued)

As of December 31, 2020

 

Industry                

 

Issuer

   Acquisition  
Date
  

Investment

   % of Net  
Assets
  Par
  Amount  
    Maturity  
Date
    Amortized  
Cost
    Fair Value   

Food Products

        
 Hometown Food Company  08/31/18  

Revolver - 6.25%

(LIBOR + 5.00%, 1.25% Floor)

  0.1   $  784,157   08/31/23    $  784,157    $  784,157 
 Hometown Food Company  08/31/18  

Term Loan - 6.25%

(LIBOR + 5.00%, 1.25% Floor)

  3.6  29,699,654   08/31/23   29,340,758   29,699,654 
    

 

 

  

 

 

   

 

 

  

 

 

 
     3.7  30,483,811    30,124,915   30,483,811 
    

 

 

  

 

 

   

 

 

  

 

 

 

Health Care Technology

        
 American Academy Holdings, LLC  08/14/19  

Term Loan - 10.00% inc. PIK

(LIBOR + 9.00%, 1.00% Floor, 3.75% PIK)

  3.8  31,171,832   06/15/23   30,700,084   31,327,691 
    

 

 

  

 

 

   

 

 

  

 

 

 
     3.8  31,171,832    30,700,084   31,327,691 
    

 

 

  

 

 

   

 

 

  

 

 

 

Hotels, Restaurants & Leisure

        
 FM Restaurants Holdco, LLC  11/25/19  

Revolver - 9.75%

(LIBOR + 8.00%, 1.75% Floor)

  0.3  2,413,636   11/22/24   2,413,636   2,343,641 
 FM Restaurants Holdco, LLC  11/25/19  

Term Loan - 9.75%

(LIBOR + 8.00%, 1.75% Floor)

  2.5  21,505,500   11/22/24   21,089,573   20,881,840 
 KBP Investments, LLC(5)  Delayed Draw Term Loan  0.0     05/14/23   (176,718  (176,718
    

 

 

  

 

 

   

 

 

  

 

 

 
     2.8  23,919,136    23,326,491   23,048,763 
    

 

 

  

 

 

   

 

 

  

 

 

 

Household Durables

        
 Hunter Fan Company  11/05/19  

Additional Term Loan - 7.63%

(LIBOR + 6.63%, 1.00% Floor)

  4.1  34,346,515   12/20/23   34,151,512   34,346,515 
 SLogic Holding Corp.(6)  06/29/18  

2018 Term Loan B - 6.87%

(LIBOR + 5.87%, 1.00% Floor)

  3.3  27,252,661   06/22/23   27,117,606   27,252,661 
    

 

 

  

 

 

   

 

 

  

 

 

 
     7.4  61,599,176    61,269,118   61,599,176 
    

 

 

  

 

 

   

 

 

  

 

 

 

Household Products

        
 Greenfield World Trade, Inc.  03/04/19  Last Out Term Loan - 14.83% inc. PIK (LIBOR + 13.33%, 1.50% Floor, 6.00% PIK)  4.9  44,286,796   03/04/24   42,854,852   41,053,860 
    

 

 

  

 

 

   

 

 

  

 

 

 
     4.9  44,286,796    42,854,852   41,053,860 
    

 

 

  

 

 

   

 

 

  

 

 

 

Information Technology Services

        
 Corcentric, Inc.  11/15/18  

Delayed Draw Term Loan - 9.00%

(LIBOR + 7.50%, 1.50% Floor)

  1.5  12,664,320   11/15/23   12,664,320   12,638,992 
 Corcentric, Inc.  11/15/18  

Term Loan - 9.00%

(LIBOR + 7.50%, 1.50% Floor)

  3.9  32,188,480   11/15/23   31,719,873   32,124,103 
    

 

 

  

 

 

   

 

 

  

 

 

 
     5.4  44,852,800    44,384,193   44,763,095 
    

 

 

  

 

 

   

 

 

  

 

 

 
 Global Holdings, LLC  09/17/19  

Term Loan - 7.00%

(LIBOR + 6.00%, 1.00% Floor)

  3.4  28,159,064   09/17/23   27,873,511   28,299,859 
    

 

 

  

 

 

   

 

 

  

 

 

 
     8.8  73,011,864    72,257,704   73,062,954 
    

 

 

  

 

 

   

 

 

  

 

 

 

Internet & Direct Marketing Retail

        
 Altern Marketing LLC  09/30/20  

Revolver - 8.25%

(PRIME + 5.00%, 3.25% Floor)

  0.4  2,744,187   10/07/24   2,744,187   2,744,187 
 Altern Marketing LLC  09/30/20  

Term Loan A - 8.00%

(LIBOR + 6.00%, 2.00% Floor)

  1.9  15,893,813   10/07/24   15,593,510   15,957,388 
    

 

 

  

 

 

   

 

 

  

 

 

 
     2.3  18,638,000    18,337,697   18,701,575 
    

 

 

  

 

 

   

 

 

  

 

 

 

 

9


Table of Contents

TCW DIRECT LENDING VII LLC

Consolidated Schedule of Investments (Continued)

As of December 31, 2020

 

Industry

  

Issuer

  Acquisition
Date
   

Investment

  % of Net
Assets
 Par
Amount
   Maturity
Date
  Amortized
Cost
   Fair Value 

 

Media

               
  Encompass Digital Media, Inc.   10/01/18   First Lien Term Loan - 8.75% inc. PIK (LIBOR + 7.50%, 1.25% Floor, 1.13% PIK)   3.5 $29,917,841   09/28/23  $29,700,804   $29,409,237 
  Encompass Digital Media, Inc.   10/01/18   Revolver - 8.75% (LIBOR + 7.50%, 1.25% Floor)   0.1  866,591   09/28/23   866,591    851,859 
        

 

 

 

 

 

 

     

 

 

   

 

 

 
         3.6  30,784,432      30,567,395    30,261,096 
        

 

 

 

 

 

 

     

 

 

   

 

 

 
  Winsight, LLC   11/15/18   Revolver - 8.00% (LIBOR + 7.00%, 1.00% Floor)   0.2  1,529,553   11/15/23   1,529,553    1,341,419 
  Winsight, LLC   11/15/18   Term Loan - 8.00% (LIBOR + 7.00%, 1.00% Floor)   2.8  26,330,387   11/15/23   25,932,621    23,091,749 
        

 

 

 

 

 

 

     

 

 

   

 

 

 
         3.0  27,859,940      27,462,174    24,433,168 
        

 

 

 

 

 

 

     

 

 

   

 

 

 
         6.6  58,644,372      58,029,569    54,694,264 
        

 

 

 

 

 

 

     

 

 

   

 

 

 

Metals & Mining

               
  DBM Global, Inc.   11/30/18   Term Loan - 7.60% (LIBOR + 5.85%, 1.75% Floor)   5.4  45,392,958   11/30/23   44,864,750    44,802,850 
        

 

 

 

 

 

 

     

 

 

   

 

 

 
         5.4  45,392,958      44,864,750    44,802,850 
        

 

 

 

 

 

 

     

 

 

   

 

 

 

Multiline Retail

               
  Torrid LLC   06/14/19   Term Loan - 7.75% (LIBOR + 6.75%, 1.00% Floor)   3.6  29,261,777   12/16/24   28,788,928    29,554,395 
        

 

 

 

 

 

 

     

 

 

   

 

 

 
         3.6  29,261,777      28,788,928    29,554,395 
        

 

 

 

 

 

 

     

 

 

   

 

 

 

Packaging

               
  Hoover Group, Inc.   10/01/20   Term Loan - 9.75% (LIBOR + 8.50%, 1.25% Floor)   4.0  33,153,118   10/01/24   32,531,809    33,517,802 
        

 

 

 

 

 

 

     

 

 

   

 

 

 
         4.0  33,153,118      32,531,809    33,517,802 
        

 

 

 

 

 

 

     

 

 

   

 

 

 

Personal Products

               
  Voyant Beauty Holdings, Inc.   08/20/20   Term Loan - 9.50% (LIBOR + 8.00%, 1.50% Floor)   7.2  58,403,726   08/03/25   57,044,994    59,630,204 
        

 

 

 

 

 

 

     

 

 

   

 

 

 
         7.2  58,403,726      57,044,994    59,630,204 
        

 

 

 

 

 

 

     

 

 

   

 

 

 

Publishing

               
  Bendon Inc.   12/11/20   Term Loan - 7.50% (LIBOR + 6.50%, 1.00% Floor)   7.2  60,526,400   12/11/25   59,166,965    59,557,977 
        

 

 

 

 

 

 

     

 

 

   

 

 

 
         7.2  60,526,400      59,166,965    59,557,977 
        

 

 

 

 

 

 

     

 

 

   

 

 

 

Software

               
  Mondee Holdings LLC   12/20/19   Term Loan - 12.25% inc. PIK (LIBOR + 10.50%, 1.75% Floor, 12.25% PIK)   8.5  83,619,514   12/23/24   81,365,545    71,160,207 
  Quicken Parent Corp.   12/21/20   First Lien Term Loan - 9.25% (LIBOR + 8.25%, 1.00% Floor)   2.4  19,854,972   04/01/23   19,598,514    19,715,987 
        

 

 

 

 

 

 

     

 

 

   

 

 

 
         10.9  103,474,486      100,964,059    90,876,194 
        

 

 

 

 

 

 

     

 

 

   

 

 

 

Textiles, Apparel & Luxury Goods

 

  Centric Brands Inc.(4)   10/09/20   Exit Term Loan - 10.00% (LIBOR + 9.00%, 1.00% Floor)   3.9  35,100,350   10/09/25   31,383,442    32,678,426 
  Centric Brands Inc.(4)   10/09/20   Exit First Out Revolver - 6.50% (LIBOR + 5.50%, 1.00% Floor)   0.2  1,775,345   10/09/24   1,775,345    1,775,345 
  Keeco Holdings, LLC   09/19/18   Term Loan - 10.00% inc. PIK (LIBOR + 8.25%, 1.75% Floor, 0.50% PIK)   6.8  58,243,075   03/15/24   57,531,083    56,379,296 
        

 

 

 

 

 

 

     

 

 

   

 

 

 
         10.9  95,118,770      90,689,870    90,833,067 
        

 

 

 

 

 

 

     

 

 

   

 

 

 
  Total Debt Investments       166.9%               1,394,170,865    1,385,674,980 
        

 

 

 

     

 

 

   

 

 

 

 

10


Table of Contents

TCW DIRECT LENDING VII LLC

Consolidated Schedule of Investments (Continued)

As of December 31, 2020

 

Industry

  

Issuer

  

Investment

  % of Net
Assets
 Shares   Amortized
Cost
   Fair Value 
  Equity         

Commercial Services & Supplies

           
  Production Resource Group, LLC(3),(7)  Class A units   0.2  33,738   $   $1,831,299 
      

 

 

 

 

 

 

   

 

 

   

 

 

 
       0.2  33,738        1,831,299 
      

 

 

 

 

 

 

   

 

 

   

 

 

 

 

Chemicals

           
  AGY Equity LLC(2),(3),(7)  Class A Preferred units   0.0  7,752,414         
  AGY Equity LLC(2),(3),(7)  Class B Preferred units   0.0  10,078,138         
  AGY Equity LLC(2),(3),(7)  Class C Common units   0.0  11,241,000         
      

 

 

 

 

 

 

   

 

 

   

 

 

 
       0.0  29,071,552         
      

 

 

 

 

 

 

   

 

 

   

 

 

 

 

Construction Materials

           
  United Poly System Holding, Inc.(3),(7)  Common Stock   0.0  7,550    755,000     
      

 

 

 

 

 

 

   

 

 

   

 

 

 
       0.0  7,550    755,000     
      

 

 

 

 

 

 

   

 

 

   

 

 

 

 

Electronic Equipment, Instruments & Components

 

  SMTC Corporation(3),(4)  Common Stock   0.0  48,036    150,833    238,258 
  SMTC Corporation(3),(4)  Warrant, expires 11/08/25   0.3  484,326    1,938,457    2,402,257 
      

 

 

 

 

 

 

   

 

 

   

 

 

 
       0.3  532,362    2,089,290    2,640,515 
      

 

 

 

 

 

 

   

 

 

   

 

 

 

 

Household Durables

           
  Shelterlogic Group Holdings, Inc(3),(6),(7)  Common Stock   1.2  1,240,731        9,578,443 
      

 

 

 

 

 

 

   

 

 

   

 

 

 
       1.2  1,240,731        9,578,443 
      

 

 

 

 

 

 

   

 

 

   

 

 

 

 

Household Products

           
  Greenfield World Trade, Inc.(3),(7)  Warrant, expires 03/25/27   0.4  7,403    1,463,118    3,306,924 
      

 

 

 

 

 

 

   

 

 

   

 

 

 
       0.4  7,403    1,463,118    3,306,924 
      

 

 

 

 

 

 

   

 

 

   

 

 

 

 

Textiles, Apparel & Luxury Goods

           
  Centric Brands Inc.(3),(4),(7)  Membership Interests   0.0  159,658         
      

 

 

 

 

 

 

   

 

 

   

 

 

 
       0.0  159,658         
      

 

 

 

 

 

 

   

 

 

   

 

 

 

 

Software

           
  Mondee Holdings LLC(3),(7)  Preferred Stock   0.1  1,226,708    1,226,708    1,165,373 
      

 

 

 

 

 

 

   

 

 

   

 

 

 
       0.1  1,226,708    1,226,708    1,165,373 
      

 

 

 

 

 

 

   

 

 

   

 

 

 
  Total Equity Investments     2.2    5,534,116    18,522,554 
      

 

 

 

   

 

 

   

 

 

 
  Total Debt and Equity Investments(8)     169.1%            $1,399,704,981   $1,404,197,534 
      

 

 

 

   

 

 

   

 

 

 

 

11


Table of Contents

TCW DIRECT LENDING VII LLC

Consolidated Schedule of Investments (Continued)

As of December 31, 2020

 

Industry

  

Issuer

  

Investment

  % of Net
Assets
 Shares   Amortized
Cost
   Fair Value 
  

Cash Equivalents

         
  Blackrock Liquidity Funds, Yield 0.01%     14.9%           123,627,374   $123,627,374   $123,627,374 
      

 

 

 

   

 

 

   

 

 

 
  Total Investments 184.0%       $1,523,332,355   $1,527,824,908
         

 

 

   

 

 

 
  Net unrealized depreciation on unfunded commitments (0.1%)         $(944,826
           

 

 

 
  Liabilities in Excess of Other Assets (83.9%)         $(696,483,208
           

 

 

 
  Net Assets 100.0%         $830,396,874 
           

 

 

 

 

 (1)

Certain debt investments are subject to contractual restrictions on resale, such as approval of the agent or borrower.

 (2)

As defined in the Investment Company Act of 1940, the investment is deemed to be a “controlled affiliated person” of the Company because the Company owns, either directly or indirectly, 25% or more of the portfolio company’s outstanding voting securities or has the power to exercise control over management or policies of such portfolio company. Fair value as of December 31, 2019 and December 31, 2020 along with transactions during the year ended December 31, 2020 in these controlled investments are as follows:

 

Name of Investment

  Fair Value at
December 31,
2019
   Gross
Additions(a)
   Gross
Reductions(b)
   Realized
Gains
(Losses)
   Net
Change in
Unrealized
Appreciation/
Depreciation
   Fair Value at
December 31,
2020
   Interest/
Dividend/
Other
Income
 

AGY Holdings Corp. Opco Term Loan - 11.50% inc. PIK

  $   $3,391,067   $   $   $   $3,391,067   $116,419 

AGY Holdings Corp. PIK Holdco Term Loan - 11.50% inc. PIK

       23,651,102                23,651,102    1,156,314 

AGY Equity LLC Class A Preferred units

                            

AGY Equity LLC Class B Preferred units

                            

AGY Equity LLC Class C Common units

                            
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total Controlled Affiliated Investments

  $   $    14,121,479   $    12,920,690   $   $   $    27,042,169   $    1,272,733 
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

 (a)

Gross additions include new purchases, PIK income and amortization of original issue and market discounts.

 (b)

Gross reductions include decreases in the cost basis from sales, paydown and the amortization of premium.

 

 (3)

Non-income producing.

 (4)

The investment is not a qualifying asset as defined in Section 55(a) under the Investment Company Act of 1940, as amended. A business development company may not acquire an asset other than qualifying assets, unless, at the time the acquisition is made, qualifying assets represent at least 70% of the company’s total assets. As of December 31, 2020, $59,843,785 or 3.8% of the Company’s total assets were represented by “non—qualifying assets.”

 (5)

Negative balance relates to an unfunded commitment that was acquired at a discount.

 

12


Table of Contents

TCW DIRECT LENDING VII LLC

Consolidated Schedule of Investments (Continued)

As of December 31, 2020

 

 (6)

As defined in the Investment Company Act of 1940, the investment is deemed to be an “affiliated person” of the Company because the Company owns, either directly or indirectly, between 5% and 25% of the portfolio company’s outstanding voting securities or has the power to exercise control over management or policies of such portfolio company. Fair value as of December 31, 2019 and December 31, 2020 along with transactions during the year ended December 31, 2020 in these affiliated investments are as follows:

 

Name of Investment

  Fair Value at
December 31,
2019
   Gross
Additions(a)
   Gross
Reductions(b)
  Realized
Gains
(Losses)
   Net
Change in
Unrealized
Appreciation/
Depreciation
   Fair Value at
December 31,
2020
   Interest/
Dividend/
Other
Income
 

Shelterlogic Group Holdings, Inc Common Stock

  $   $   $  $   $9,578,443   $9,578,443   $ 

SLogic Holding Corp. 2018 Term Loan B - 7.50%

   25,931,407    58,776    (570,736      1,833,214    27,252,661    2,603,353 
  

 

 

   

 

 

   

 

 

  

 

 

   

 

 

   

 

 

   

 

 

 

Total Non-Controlled Affiliated Investments

  $25,931,407   $58,776   $(570,736 $   $    11,411,657   $    36,831,104   $    2,603,353 
  

 

 

   

 

 

   

 

 

  

 

 

   

 

 

   

 

 

   

 

 

 

 

 (a)

Gross additions include new purchases, PIK income and amortization of original issue and market discounts.

 (b)

Gross reductions include decreases in the cost basis from sales, paydown and the amortization of premium.

 

 (7)

All or a portion of such security was acquired in a transaction exempt from registration under the Securities Act of 1933 and may be deemed “restricted securities” under the Securities Act. As of December 31, 2020, the aggregate fair value of these securities was $15,882,039, or 1.0% of the Company’s total assets.

 (8)

The fair value of the SMTC Corporation common stock is based on the quoted market price of the issuer’s common stock as of December 31, 2020. Such common stock is considered to be a Level 1 security within the Fair Value Hierarchy. The fair value of the SMTC Corporation warrant is based on the quoted market price of the issuer’s stock as of December 31, 2020. Such warrants are considered to be Level 2 securities within the Fair Value Hierarchy. Otherwise, the fair value of each debt and equity investment was determined using significant unobservable inputs and such investments are considered to be Level 3 within the Fair Value Hierarchy. See Note 3 “Investment Valuations and Fair Value Measurements.”

 

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

PRIME - Prime Rate

Aggregate acquisitions and aggregate dispositions of investments, other than government securities, totaled $691,614,825 and $639,529,403, respectively, for the year ended December 31, 2020. Aggregate acquisitions includes investment assets received as payment in kind. Aggregate dispositions includes principal paydowns on and maturities of debt investments.

 

Country Breakdown Portfolio

    

United States

   100.0

See Notes to Consolidated Financial Statements

 

13


Table of Contents

TCW DIRECT LENDING VII LLC

Consolidated Statements of Assets and Liabilities

(Dollar amounts in thousands, except unit data)

 

  As of June 30,
2021

(unaudited)
 As of December 31,
2020

Assets

  

Investments, at fair value

  

Non-controlled/non-affiliated investments (amortized cost of $1,391,860 and $1,345,545, respectively)

   $1,400,775    $1,340,325 

Non-controlled affiliated investments (amortized cost of $26,861 and $27,118, respectively)

  43,903   36,831 

Controlled affiliated investments (amortized cost of $38,916 and $27,042, respectively)

  38,916   27,042 

Cash and cash equivalents

  84,500   148,204 

Interest receivable

  9,368   5,292 

Deferred financing costs

  3,761   4,314 

Due from Adviser

  -       1,023 

Prepaid and other assets

  9   80 
 

 

 

 

 

 

 

 

Total Assets

   $      1,581,232    $      1,563,111 
 

 

 

 

 

 

 

 

Liabilities

  

Term loan (net of $1,382 and $1,648 of deferred financing costs, respectively)

   $246,118    $245,852 

Revolving credit facilities payable

  165,500   337,500 

Payable for open trades

  -       125,229 

Incentive fee payable

  43,793   15,278 

Management fees payable

  5,401   4,955 

Interest and credit facilities expense payable

  2,221   2,448 

Unrealized depreciation on unfunded commitments

  1,287   945 

Directors’ fees payable

  158   -     

Other accrued expenses and other liabilities

  581   507 
 

 

 

 

 

 

 

 

Total Liabilities

   $465,059    $732,714 
 

 

 

 

 

 

 

 

Commitments and Contingencies (Note 5)

  

Members’ Capital

  

Common Unitholders’ commitment (13,734,010 units issued and outstanding)

   $1,373,401    $1,373,401 

Common Unitholders’ undrawn commitment (13,734,010 units issued and outstanding)

  (165,401  (458,401

Common Unitholders’ return of capital

  (53,683  (53,683

Common Unitholders’ offering costs

  (633  (633

Accumulated Common Unitholders’ tax reclassification

  (1,865  (1,865
 

 

 

 

 

 

 

 

Common Unitholders’ capital

  1,151,819   858,819 

Accumulated loss

  (35,646  (28,422
 

 

 

 

 

 

 

 

Total Members’ Capital

   $1,116,173    $830,397 
 

 

 

 

 

 

 

 

Total Liabilities and Members’ Capital

   $1,581,232    $1,563,111 
 

 

 

 

 

 

 

 

Net Asset Value Per Unit (Note 10)

   $93.31    $93.84 
 

 

 

 

 

 

 

 

See Notes to Consolidated Financial Statements.

 

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TCW DIRECT LENDING VII LLC

Consolidated Statements of Operations (Unaudited)

(Dollar amounts in thousands, except unit data)

 

   For the Three Months Ended
June 30,
 For the Six Months Ended
June 30,
   2021  2020 2021  2020

Investment Income

       

Non-controlled/non-affiliated investments:

       

Interest income

  $33,754   $26,819  $65,990   $60,113 

Interest income paid-in-kind

   5,728    6,885   11,371    9,537 

Other fee income

   74    124   142    230 

Non-controlled affiliated investments:

       

Interest income

   511    -       1,018    -     

Controlled affiliated investments:

       

Interest income

   864    -       1,356    -     

Interest income paid-in-kind

   585    -       1,021    -     
  

 

 

 

  

 

 

 

 

 

 

 

  

 

 

 

Total investment income

   41,516    33,828   80,898          69,880 

Expenses

       

Incentive fees

   7,417    -       28,515    (12,148

Management fees

   5,401    4,955   10,725    9,910 

Interest and credit facilities expenses

   4,445    5,969   8,949    13,209 

Professional fees

   486    594   759    789 

Administrative fees

   368    348   735    711 

Directors’ fees

   105    98   203    196 

Other expenses

   328    39   1,284    96 
  

 

 

 

  

 

 

 

 

 

 

 

  

 

 

 

Total expenses

   18,550    12,003   51,170    12,763 
  

 

 

 

  

 

 

 

 

 

 

 

  

 

 

 

Net investment income

  $22,966   $21,825  $29,728   $57,117 
  

 

 

 

  

 

 

 

 

 

 

 

  

 

 

 

Net realized and unrealized gain (loss) on investments

       

Net realized gain:

       

Non-controlled/non-affiliated investments

  $705   $-      $1,926   $1,943 

Net change in unrealized appreciation/depreciation:

       

Non-controlled/non-affiliated investments

   2,924    (9,606  13,793    (75,836

Non-controlled affiliated investments

   3,075    -       7,329    -     
  

 

 

 

  

 

 

 

 

 

 

 

  

 

 

 

Net realized and unrealized gain (loss) on investments

  $6,704   $(9,606 $23,048   $(73,893
  

 

 

 

  

 

 

 

 

 

 

 

  

 

 

 

Net increase (decrease) in Members’ Capital from operations

  $      29,670   $      12,219  $      52,776   $(16,776
  

 

 

 

  

 

 

 

 

 

 

 

  

 

 

 

Basic and diluted:

       

Income (Loss) per unit

  $2.16   $0.89  $3.84   $(1.22

See Notes to Consolidated Financial Statements

 

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TCW DIRECT LENDING VII LLC

Consolidated Statements of Changes in Members’ Capital (Unaudited)

(Dollar amounts in thousands, except unit data)

 

   Common
Unitholders’
Capital
  Accumulated
Earnings
(Loss)
 Total

Members’ Capital at December 31, 2019

  $817,863   $(1,633 $816,230 

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

     

Net investment income

   -        35,292   35,292 

Net realized gain on investments

   -        1,943   1,943 

Net change in unrealized appreciation/depreciation on investments

   -        (66,230  (66,230
  

 

 

 

  

 

 

 

 

 

 

 

Total Decrease in Members’ Capital for the three months ended March 31, 2020

   -        (28,995  (28,995
  

 

 

 

  

 

 

 

 

 

 

 

Members’ Capital at March 31, 2020

  $817,863   $(30,628 $787,235 
  

 

 

 

  

 

 

 

 

 

 

 

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

     

Net investment income

   -            21,825   21,825 

Net realized gain on investments

   -        -       -     

Net change in unrealized appreciation/depreciation on investments

   -        (9,606  (9,606

Distributions to Members from:

     

Distributable earnings

   -        (38,635  (38,635
  

 

 

 

  

 

 

 

 

 

 

 

Total Decrease in Members’ Capital for the three months ended June 30, 2020

   -        (26,416  (26,416
  

 

 

 

  

 

 

 

 

 

 

 

Members’ Capital at June 30, 2020

  $817,863   $(57,044 $760,819 
  

 

 

 

  

 

 

 

 

 

 

 

Members’ Capital at December 31, 2020

  $858,819   $(28,422 $830,397 

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

     

Net investment income

   -        6,762   6,762 

Net realized gain on investments

   -        1,221   1,221 

Net change in unrealized appreciation/depreciation on investments

   -        15,123   15,123 

Distributions to Members from:

     

Distributable earnings

   -        (24,000  (24,000

Increase in Members’ Capital Resulting from Capital Activity:

     

Contributions

   127,000    -       127,000 
  

 

 

 

  

 

 

 

 

 

 

 

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

   127,000    (894  126,106 
  

 

 

 

  

 

 

 

 

 

 

 

Members’ Capital at March 31, 2021

  $985,819   $(29,316 $956,503 
  

 

 

 

  

 

 

 

 

 

 

 

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

     

Net investment income

   -        22,966   22,966 

Net realized gain on investments

   -        705   705 

Net change in unrealized appreciation/depreciation on investments

   -        5,999   5,999 

Distributions to Members from:

     

Distributable earnings

   -        (36,000  (36,000

Increase in Members’ Capital Resulting from Capital Activity:

     

Contributions

   166,000    -       166,000 
  

 

 

 

  

 

 

 

 

 

 

 

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

   166,000    (6,330  159,670 
  

 

 

 

  

 

 

 

 

 

 

 

Members’ Capital at June 30, 2021

  $    1,151,819   $(35,646 $    1,116,173 
  

 

 

 

  

 

 

 

 

 

 

 

See Notes to Consolidated Financial Statements.

 

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TCW DIRECT LENDING VII LLC

Consolidated Statements of Cash Flows (Unaudited)

(Dollar amounts in thousands, except unit data)

 

       For the Six Months Ended June 30,    
   2021 2020

Cash Flows from Operating Activities

   

Net increase (decrease) in net assets resulting from operations

    $52,776    $(16,776

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

   

Purchases of investments

   (517,576  (260,578

Interest income paid-in-kind

   (12,392  (9,537

Proceeds from sales and paydowns of investments

   481,345   305,673 

Net realized gain on investments

   (1,926  (1,943

Net change in unrealized appreciation/depreciation on investments

   (21,122  75,836 

Amortization of premium and accretion of discount, net

   (7,382  (4,588

Amortization of deferred financing costs

   1,447   1,534 

Increase (decrease) in operating assets and liabilities:

   

(Increase) decrease in interest receivable

   (4,076  (886

(Increase) decrease in due from Adviser

   1,023   -     

(Increase) decrease in prepaid and other assets

   71   (105

Increase (decrease) in payable for open trades

   (125,229  -     

Increase (decrease) in incentive fees payable

   28,515   (12,148

Increase (decrease) in management fees payable

   446   (3,733

Increase (decrease) in interest and credit facilities expense payable

   (227  (374

Increase (decrease) in directors’ fees payable

   158   158 

Increase (decrease) in other accrued expenses and liabilities

   74   341 
  

 

 

 

 

 

 

 

Net cash (used in) provided by operating activities

    $      (124,075   $      72,874 
  

 

 

 

 

 

 

 

Cash Flows from Financing Activities

   

Contributions

    $293,000    $-     

Distributions

   (60,000  (38,635

Deferred financing costs paid

   (629  (1,845

Proceeds from credit facilities

   128,000   48,000 

Repayments of credit facilities

   (300,000  (220,000
  

 

 

 

 

 

 

 

Net cash provided by (used in) financing activities

    $60,371    $(212,480
  

 

 

 

 

 

 

 

Net decrease in cash and cash equivalents

    $(63,704   $(139,606
  

 

 

 

 

 

 

 

Cash and cash equivalents, beginning of period

    $148,204    $220,074 
  

 

 

 

 

 

 

 

Cash and cash equivalents, end of period

    $84,500    $80,468 
  

 

 

 

 

 

 

 

Supplemental and non-cash financing activities

   

Interest expense paid

    $8,009    $11,313 

See Notes to Consolidated Financial Statements.

 

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Table of Contents

TCW DIRECT LENDING VII LLC

Notes to Consolidated Financial Statements (Unaudited)

(Dollar amounts in thousands, except for unit data)

June 30, 2021

1. Organization and Basis of Presentation

Organization: TCW Direct Lending VII LLC (the “Company”) was formed as a Delaware limited liability company on May 23, 2017. The Company engaged in a private offering of its common limited liability company units (the “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 (“Preferred Units”), though it currently has no intention to do so. On August 18, 2017, the Company sold and issued 10 Units at an aggregate purchase price of $1 to TCW Asset Management Company LLC (the “Adviser”), an affiliate of the TCW Group, Inc. The Company commenced operations during the second quarter of fiscal year 2018.

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”), beginning fiscal year 2018. The Company is required to meet the minimum distribution and other requirements for RIC qualification. As a BDC and a RIC, the Company is required to comply with certain regulatory requirements.

During 2018, the Company formed two Delaware limited liability companies which each have a single member interest owned by the Company. On February 12, 2020, the Company formed its third wholly-owned subsidiary, TCW DLG Funding VII 2020-1 LLC, a single member Delaware limited liability 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 term of the Company will continue until the sixth anniversary of the Initial Closing Date (as defined below), April 13, 2024, unless extended or sooner dissolved as provided in the Company’s amended and restated limited liability agreement (the “LLC Agreement”) or by operation of law. The Company may extend the term for two additional one-year periods upon written notice to the holders of the Units (the “Unitholders) and holders of preferred units, if any, (together with the Unitholders, the “Members”) at least 90 days prior to the expiration of the term or the end of the first one-year period. Thereafter, the term may be extended for successive one-year periods, with the vote or consent of a supermajority in interest of the holders of the Units.

Commitment Period: The Commitment Period commenced on April 13, 2018 (the “Initial Closing Date”), the day on which the Company completed the first closing of the sale of its Units to persons not affiliated with the Adviser and ended on May 16, 2021, which is the later of (a) April 13, 2021, three years from the Initial Closing Date and (b) May 16, 2021, three years from the date in which the Company first completed an investment.

The Commitment Period is subject to termination upon the occurrence of a Key Person Event defined as follows: A “Key Person Event” will occur if, during the Commitment Period, (i) Richard T. Miller and one or more of Suzanne Grosso, Mark Gertzof or James S. Bold (each of such four persons, a “Key Person”) fail to devote substantially all of their business time to the investment activities of the Company, the prior funds, any successor funds and any fund(s) managed by the Adviser or an affiliate of the Adviser that co-invest or potentially co-invest with the Company, on a combined basis (together, the “Related Entities”); or (ii) Ms. Grosso, Mr. Gertzof and Mr. Bold all fail to devote substantially all of their business time to the investment activities of the Company and the Related Entities, in each case other than as a result of a temporary disability; provided, that, if a replacement has been approved as described in the paragraphs below, such replacement shall be specifically designated to take the place of one of the above-named individuals and the definition of “Key Person Event” will be amended to take into account such successor. Upon the occurrence of a Key Person Event, and in the event that the Adviser fails to replace the above-referenced individuals in the manner contemplated in this paragraph, the Commitment Period shall be automatically terminated upon such Key Person Event. The Commitment Period will be re-instated upon the vote or written consent of 66 2/3% in interest of the Unitholders. The Adviser is permitted at any time to replace any person designated above with a senior professional (including a Key Person) selected by the Adviser, provided that such replacement has been approved by a majority of the Unitholders (in which case, the approved substitute will be a Key Person in lieu of the person replaced). If such replacement(s) end the occurrence of a Key Person Event, the Commitment Period will automatically be reinstated.

If, during the Commitment Period, any Key Person shall fail to devote substantially all of his or her business time to the investment activities of the Company and the Related Entities other than as a result of a temporary disability (the occurrence of such event, a “Key Person Departure”), the Company shall provide written notice to Unitholders of such Key Person Departure within 30 days of the date of such Key Person Departure.

 

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TCW DIRECT LENDING VII LLC

Notes to Consolidated Financial Statements (Unaudited) (Continued)

(Dollar amounts in thousands, except for unit data)

June 30, 2021

 

1. Organization and Basis of Presentation (Continued)

 

If a Key Person Departure occurs during the Commitment Period and the Adviser determines to replace such Key Person, the Company shall obtain the approval of such replacement by a majority in interest of the Unitholders no later than the date of the Company’s next annual meeting; provided that the Company may, in its discretion, determine to obtain the approval of such replacement no later than 90 days after the date that the Adviser informs the Company of its proposed replacement of the Key Person.

If the Company fails to obtain approval of a replacement of a Key Person following a Key Person Departure as provided in the paragraph above, then the Key Person Departure shall be permanent and the Adviser shall not be permitted to replace such Key Person.

In accordance with the Company’s LLC Agreement, the Company may complete investment transactions that were significantly in process as of the end of the Commitment Period and which the Company reasonably expects to be consummated prior to 90 days subsequent to the expiration date of the Commitment Period. The Company may also effect follow-on investments up to an aggregate maximum of 10% of Capital Commitments (as defined below).

Capital Commitments: On the Initial Closing Date, the Company began accepting subscription agreements from investors for the private sale of its Units. On January 14, 2019, the Company completed its fourth and final closing sale of Units. The Company sold 13,734,010 Units for an aggregate offering price of $1,373,401. Each Unitholder is obligated to contribute capital equal to its respective capital commitment to the Company (the “Commitment”) and each Unit’s Commitment obligation is $100.00 per unit. The sale of the Units was made pursuant to subscription agreements entered into by the Company and each investor. Under the terms of the subscription agreements, the Company may draw down all or any portion of the undrawn commitment with respect to each Unit generally upon at least ten business days’ prior written notice to the unitholders. The amount of capital that remains to be drawn down and contributed is referred to as an “Undrawn Commitment”.

The commitment amount funded does not include amounts contributed in anticipation of a potential investment that the Company did not consummate and therefore returned to the Members as unused capital. As of June 30, 2021, aggregate Commitments, Undrawn Commitments, percentage of Commitments funded and the number of subscribed for Units of the Company were as follows:

 

   Commitments   Undrawn
Commitments
   % of
Commitments
Funded
  Units 

Unitholder

  $1,373,401   $165,401    88.0  13,734,010 

Recallable Amount: A Unitholder may be required to re-contribute amounts distributed equal to (a) such Unitholder’s share of all portfolio investments that are repaid to the Company, or otherwise recouped by the Company, and distributed to the Unitholder, in whole or in part, during or after the Commitment period, reduced by (b) all re-contributions made by such Unitholder. This amount, (the “Recallable Amount”) is excluded from the calculation of the accrual based net asset value.

The Recallable Amount as of June 30, 2021 was $53,683.

2. Significant Accounting Policies

Basis of Presentation: The Company’s consolidated financial statements were prepared in accordance with accounting principles generally accepted in the United States (“GAAP”). The Company is an investment company following accounting and reporting guidance in Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 946, Financial Services—Investment Companies, (“ASC 946”). The Company has also consolidated the results of its wholly-owned subsidiaries in its consolidated financial statements in accordance with ASC 946.

Use of Estimates: The preparation of the consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect (i) the reported amounts of assets and liabilities at the date of the consolidated 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.

 

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Table of Contents

TCW DIRECT LENDING VII LLC

Notes to Consolidated Financial Statements (Unaudited) (Continued)

(Dollar amounts in thousands, except for unit data)

June 30, 2021

 

2. Significant Accounting Policies (Continued)

 

Investments: The Company measures the fair value of its investments in accordance with ASC Topic 820, Fair Value Measurements and Disclosure (“ASC 820”). Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Market participants are defined as buyers and sellers in the principal or most advantageous market (which may be a hypothetical market) that are independent, knowledgeable, and willing and able to transact. In accordance with ASC 820, the Company considers the principal market of its investments to be the market in which the investment trades with the greatest volume and level of activity.

Transactions: The Company records investment transactions on the trade date. The Company considers the trade date for investments not traded on a recognizable exchange, or traded in the over-the-counter markets, to be the date on which the Company receives legal or contractual title to the asset and bears the risk of loss.

Income Recognition: Interest income is recorded on an accrual basis unless doubtful of collection or the related investment is in default. Realized gains and losses on investments are recorded on a specific identification basis. The Company typically receives a fee in the form of a discount to the purchase price at the time it funds an investment in a loan. The discount is accreted to interest income over the life of the respective loan, using the effective-interest method assuming there are no questions as to collectability, and reflected in the amortized cost basis of the investment. Ongoing facility, commitment or other additional fees including prepayment fees, consent fees and forbearance fees are recognized immediately when earned as income.

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 principal or interest payments are past due 30 days or more or when there is reasonable doubt that principal or interest will be collected in full. Accrued and unpaid interest is generally reversed when a loan is placed on non-accrual status. Interest payments received on non-accrual loans may be recognized as income or applied to principal depending upon management’s judgment regarding collectability. Non-accrual loans are restored to accrual status when past due principal and interest is paid and, in management’s judgment, are likely to remain current. The Company may make exceptions to this policy if the loan has sufficient collateral value and is in the process of collection.

Deferred Financing Costs: Deferred financing costs incurred by the Company in connection with the Credit Facilities (as defined in Note 7 to the Consolidated Financial Statements), including arrangement fees, upfront fees and legal fees, are amortized on a straight-line basis over the term of the respective credit facility.

Organization and Offering Costs: The Company expensed organization costs totaling $740 (net of $380 in Adviser reimbursement) since its inception through December 31, 2018. Offering costs totaling $633 (net of $324 in Adviser reimbursement) were charged directly to Members’ Capital on December 31, 2018. No additional organization and offering costs were incurred subsequent to December 31, 2018. The Company did not bear more than an amount equal to 10 basis points of the aggregate capital commitments 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. As of June 30, 2021, cash and cash equivalents are 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.

 

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Table of Contents

TCW DIRECT LENDING VII LLC

Notes to Consolidated Financial Statements (Unaudited) (Continued)

(Dollar amounts in thousands, except for unit data)

June 30, 2021

 

2. Significant Accounting Policies (Continued)

 

Income Taxes: The Company has elected to be regulated as a BDC under the 1940 Act. The Company also elected to be treated as a RIC under the Code beginning with the taxable year ending December 31, 2018. 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 Unitholders as dividends. Rather, any tax liability related to income earned and distributed by the Company represents obligations of the Company’s investors and will not be reflected in the consolidated financial statements of the Company.

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

3. Investment Valuations and Fair Value Measurements

Investments at Fair Value: Investments held by the Company are valued at fair value. Fair value is generally determined on the basis of last reported sales prices or official closing prices on the primary exchange in which each security trades, or if no sales are reported, generally based on the midpoint of the valuation range obtained for debt investments from a quotation reporting system, established market makers or pricing service.

Investments for which market quotes are not readily available or are not considered reliable are valued at fair value and approved by the Board of Directors (the “Board”) based on similar instruments, internal assumptions and the weighting of the best available pricing inputs.

Fair Value Hierarchy: Assets and liabilities are classified by the Company into three levels based on valuation inputs used to determine fair value:

Level 1 values are based on unadjusted quoted market prices in active markets for identical assets.

Level 2 values are based on significant observable market inputs, such as quoted prices for similar assets and quoted prices in inactive markets or other market observable inputs.

Level 3 values are based on significant unobservable inputs that reflect the Company’s determination of assumptions that market participants might reasonably use in valuing the assets.

Categorization within the hierarchy is based upon the lowest level of input that is significant to the fair value measurement. The valuation levels are not necessarily an indication of the risk associated with investing in those securities.

Level 1 Assets (Investments): The valuation techniques and significant inputs used to determine fair value are as follows:

Equity, (Level 1), includes common stock valued at the closing price on the primary exchange in which the security trades.

Level 2 Assets (Investments): The valuation techniques and significant inputs used to determine fair value are as follows:

Equity, (Level 2), includes warrants valued using quotes for comparable investments.

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.

 

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Table of Contents

TCW DIRECT LENDING VII LLC

Notes to Consolidated Financial Statements (Unaudited) (Continued)

(Dollar amounts in thousands, except for unit data)

June 30, 2021

 

3. Investment Valuations and Fair Value Measurements (Continued)

 

Debt, (Level 3), includes investments in privately originated senior secured debt. Such securities are valued based on specific pricing models, internal assumptions and the weighting of the best available pricing inputs. A discounted cash flow approach incorporating a weighted average cost of capital is generally used to determine fair value or, in some cases, an enterprise value waterfall method. Valuation may also include a shadow rating method. Standard pricing inputs include but are not limited to the financial health of the issuer, place in the capital structure, value of other issuer debt, credit, industry, and market risk and events.

Equity, (Level 3), includes common stock, preferred stock and warrants. Such securities are valued based on specific pricing models, internal assumptions and the weighting of the best available pricing inputs. A market approach is generally used to determine fair value. Pricing inputs include, but are not limited to, financial health and relevant business developments of the issuer; EBITDA; market multiples of comparable companies; comparable market transactions and recent trades or transactions; issuer, industry and market events; and contractual or legal restrictions on the sale of the security. When a Black-Scholes pricing model is used it follows the income approach. The pricing model takes into account the contract terms as well as multiple inputs, including: time value, implied volatility, equity prices and interest rates. A liquidity discount based on current market expectations, future events, minority ownership position and the period management reasonably expects to hold the investment may be applied.

Pricing inputs and weightings applied to determine value require subjective determination. Accordingly, valuations do not necessarily represent the amounts that may eventually be realized from sales or other dispositions of investments.

The following is a summary by major security type of the fair valuations according to inputs used in valuing investments listed in the Consolidated Schedule of Investments as of June 30, 2021:

 

Investments                                                                                                  

  Level 1   Level 2   Level 3   Total 

Debt

  $   $   $1,458,634   $1,458,634 

Equity

           24,959    24,959 

Cash equivalents

   65,259            65,259 
  

 

 

   

 

 

   

 

 

   

 

 

 

Total

  $      65,259   $      —   $      1,483,593   $      1,548,852 
  

 

 

   

 

 

   

 

 

   

 

 

 

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, 2020:

 

Investments                                                                                              

  Level 1   Level 2   Level 3   Total 

Debt

  $   $   $1,385,675   $1,385,675 

Equity

   238    2,402    15,883    18,523 

Cash equivalents

   123,627            123,627 
  

 

 

   

 

 

   

 

 

   

 

 

 

Total

  $      123,865   $      2,402   $      1,401,558   $      1,527,825 
  

 

 

   

 

 

   

 

 

   

 

 

 

 

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Table of Contents

TCW DIRECT LENDING VII LLC

Notes to Consolidated Financial Statements (Unaudited) (Continued)

(Dollar amounts in thousands, except for unit data)

June 30, 2021

 

3. Investment Valuations and Fair Value Measurements (Continued)

 

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

 

   Debt  Equity  Total

Balance, April 1, 2021

  $1,435,946  $20,324  $1,456,270

Purchases, including payments received-in-kind

   209,817    2,101    211,918 

Sales and paydowns of investments

   (196,019       (196,019

Amortization of premium and accretion of discount, net

   4,031        4,031 

Net realized gains (losses)

   87    (505   (418

Net change in unrealized appreciation/depreciation

   4,772    3,039    7,811 
  

 

 

 

  

 

 

 

  

 

 

 

Balance, June 30, 2021

  $            1,458,634  $            24,959  $            1,483,593
  

 

 

 

  

 

 

 

  

 

 

 

Net change in unrealized appreciation/depreciation in investments held as of June 30, 2021

  $6,681   $3,039   $9,720 

 

   Debt  Equity  Total

Balance, January 1, 2021

  $1,385,675   $15,883   $1,401,558 

Purchases, including payments received-in-kind

   527,867    2,101    529,968 

Sales and paydowns of investments

   (475,015   (3,117   (478,132

Amortization of premium and accretion of discount, net

   7,382        7,382 

Net realized (losses) gains

   (1,809   2,612    803 

Net change in unrealized appreciation/depreciation

   14,534    7,480    22,014 
  

 

 

 

  

 

 

 

  

 

 

 

Balance, June 30, 2021

  $            1,458,634  $            24,959  $            1,483,593 
  

 

 

 

  

 

 

 

  

 

 

 

Net change in unrealized appreciation/depreciation in investments held as June 30, 2021

  $15,724   $9,312   $25,036 

The following tables provide a reconciliation of the beginning and ending balances for total investments that use Level 3 inputs for the three and six months ended June 30, 2020:

 

   Debt Equity Total

Balance, April 1, 2020

  $1,251,376  $2,934  $1,254,310 

Purchases, including payments received-in-kind

   57,283   1,227   58,510 

Sales and paydowns of investments

   (44,828     (44,828

Amortization of premium and accretion of discount, net

   2,102      2,102 

Net change in unrealized appreciation/depreciation

   (9,665  (1,108  (10,773
  

 

 

 

 

 

 

 

 

 

 

 

Balance, June 30, 2020

  $    1,256,268  $    3,053  $    1,259,321 
  

 

 

 

 

 

 

 

 

 

 

 

Net change in unrealized appreciation/depreciation in investments held as of June 30, 2020

  $(9,749 $(1,108 $(10,857

 

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Table of Contents

TCW DIRECT LENDING VII LLC

Notes to Consolidated Financial Statements (Unaudited) (Continued)

(Dollar amounts in thousands, except for unit data)

June 30, 2021

 

3. Investment Valuations and Fair Value Measurements (Continued)

 

   Debt Equity Total

Balance, January 1, 2020

  $1,360,505  $608  $1,361,113 

Purchases, including payments received-in-kind

   267,638   2,477   270,115 

Sales and paydowns of investments

   (305,673     (305,673

Amortization of premium and accretion of discount, net

   4,588      4,588 

Net realized gains

   1,943      1,943 

Net change in unrealized appreciation/depreciation

   (72,733  (32  (72,765
  

 

 

 

 

 

 

 

 

 

 

 

Balance, June 30, 2020

  $    1,256,268  $    3,053  $    1,259,321 
  

 

 

 

 

 

 

 

 

 

 

 

Net change in unrealized appreciation/depreciation in investments held as of June 30, 2020

  $(71,559 $(32 $(71,591

The Company did not have any transfers between levels during the three and six months ended June 30, 2021 and 2020.

Level 3 Valuation and Quantitative Information: The following table summarizes the valuation techniques and quantitative information utilized in determining the fair value of the Level 3 investments as of June 30, 2021:

 

Investment Type                 

  Fair Value   Valuation
Technique
  Unobservable
Input
 Range Weighted
Average*
 Impact to
Valuation from an
Increase in Input

Debt

  $      1,376,995   Income Method  Discount Rate 5.1% to 18.7% 10.3% Decrease

Debt

  $26,967   Market Method  EBITDA Multiple 5.3x to 6.3x N/A Increase

Debt

  $38,916   Market Method  Revenue Multiple 0.6x to 0.8x N/A Increase

Debt

  $15,756   Income Method  Take Out Indication 101.0% to 101.0% N/A Increase

Equity

  $16,935   Market Method  EBITDA Multiple 5.3x to 7.0x N/A Increase

Equity

  $  Market Method  Revenue Multiple 0.6x to 0.8x N/A Increase

Equity

  $  Market Method  EBITDA Multiple 5.5x to 6.5x N/A Increase
      Revenue Multiple 0.5x to 0.7x N/A Increase

Equity

  $6,895   Market Method  EBITDA Multiple 8.8x to 9.8x N/A Increase
    Income Method  Implied Volatility 30.0% to 40.0% N/A Increase
      Expected Term

(in years)

 1.0 to 6.0 N/A Increase

Equity

  $1,129   Market Method  Revenue Multiple 1.8x to 2.8x N/A Increase
    Income Method  Implied Volatility 35.0% to 45.0% N/A Increase
      Expected Term

(in years)

 0.8 to 1.3 N/A Increase

 

*

Weighted based on fair value

 

24


Table of Contents

TCW DIRECT LENDING VII LLC

Notes to Consolidated Financial Statements (Unaudited) (Continued)

(Dollar amounts in thousands, except for unit data)

June 30, 2021

 

3. Investment Valuations and 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, 2020:

 

Investment Type        

      Fair Value       Valuation
Technique
  

Unobservable

Input

  Range Weighted
  Average*  
 Impact to
  Valuation from an  
Increase in Input  

Debt

  $1,240,657   Income Method  Discount Rate  5.0% to 20.8% 10.1% Decrease

Debt

  $13,911   Market Method  EBITDA Multiple  8.9x to 9.9x N/A Increase

Debt

  $27,253   Market Method  EBITDA Multiple  7.3x to 8.3x N/A Increase
      Revenue Multiple  0.8x to 1.0x N/A Increase

Debt

  $38,742   Market Method  Revenue Multiple  0.6x to 2.3x N/A Increase

Debt

  $65,112   Income Method  Discount Rate  6.9% to 10.1% 9.0% Decrease
    Market Method  Indicative Bid  101.6% to 102.0% N/A Increase

Equity

  $—    Market Method  EBITDA Multiple  7.5x to 8.5x N/A Increase

Equity

  $1,831   Market Method  Revenue Multiple  0.6x to 2.3x N/A Increase

Equity

  $9,578   Market Method  EBITDA Multiple  5.0x to 8.3x N/A Increase
      Revenue Multiple  0.5x to 1.0x N/A Increase

Equity

  $3,308   Market Method  EBITDA Multiple  10.3x to 11.3x N/A Increase
    Income Method  Implied Volatility  25.0% to 35.0% N/A Increase
      

Expected Term

(in years)

  1.3 to 6.3 N/A Increase

Equity

  $1,166   Market Method  EBITDA Multiple  3.5x to 5.5x N/A Increase
    Market Method  Revenue Multiple  1.5x to 2.5x N/A Increase
    Income Method  Implied Volatility  32.5% to 42.5% N/A Increase
      

Expected Term

(in years)

  1.0 to 1.5 N/A Increase

 

*

Weighted based on fair value

The Company generally utilizes the midpoint of a valuation range provided by an external, independent valuation firm in determining fair value.

4. Agreements and Related Party Transactions

Advisory Agreement: On December 29, 2017, the Company entered into the 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 became effective upon its execution. 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 the Company’s outstanding voting securities and (ii) the vote of a majority of the Board who are not “interested persons” (as defined in Section 2(a)(19) of the 1940 Act) of the Company, the Adviser or any of their respective affiliates (the “Independent Directors”). The Advisory Agreement will automatically terminate in the event of an assignment by the Adviser.

The Advisory Agreement may be terminated by either party, by vote of the Company’s Board, or by a vote of the majority of the Company’s outstanding voting units, without penalty upon not less than 60 days’ prior written notice to the applicable party. If the Advisory Agreement is terminated according to this paragraph, the Company will pay the Adviser a pro-rated portion of the Management Fee and Incentive Fee (each as defined below). The Advisory Agreement was reapproved by the Company’s Board on August 10, 2020.

 

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Table of Contents

TCW DIRECT LENDING VII LLC

Notes to Consolidated Financial Statements (Unaudited) (Continued)

(Dollar amounts in thousands, except for unit data)

June 30, 2021

 

4. Agreements and Related Party Transactions (Continued)

 

Pursuant to the Advisory Agreement, the Adviser will:

 

  

determine the composition of the Company’s portfolio, the nature and timing of the changes to the Company’s portfolio and the manner of implementing such changes;

 

  

identify, evaluate and negotiate the structure of the investments the Company makes (including performing due diligence on the Company’s prospective portfolio companies);

 

  

determine the assets the Company will originate, purchase, retain or sell;

 

  

close, monitor and administer the investments the Company makes, including the exercise of any rights in the Company’s capacity as a lender; and

 

  

provide the Company such other investment advice, research and related services as the Company may, from time to time, require.

The Company pays to the Adviser, quarterly in arrears, a management fee in cash (the “Management Fee”) calculated as follows: 0.375% (i.e., 1.50% per annum) of the average gross assets of the Company on a consolidated basis, with the average determined based on the gross assets of the Company as of the end of the three most recently completed calendar months. “Gross assets” means the amortized cost of portfolio investments of the Company (including portfolio investments purchased with borrowed funds and other forms of leverage, such as Preferred Units, public and private debt issuances, derivative instruments, repurchase agreements and other similar instruments or arrangements) 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), and excluding cash and cash equivalents. The Management Fee payable for any partial month or quarter will be appropriately pro-rated. The Adviser may defer its right to receive current payment of such fee until the Company is notified otherwise.

In addition, the Adviser will receive an incentive fee (the “Incentive Fee”) as follows:

 

 (a)

First, no Incentive Fee will be owed until the Unitholders have collectively received cumulative distributions pursuant to this clause equal to their aggregate contributions to the Company in respect of all Units;

 

 (b)

Second, no Incentive Fee will be owed until the Unitholders have collectively received cumulative distributions equal to a 9% internal rate of return on their aggregate contributions to the Company in respect of all Units (the “Hurdle”);

 

 (c)

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

 

 (d)

Thereafter, the Adviser will be entitled to an Incentive Fee equal to 20% of additional amounts otherwise distributable to Unitholders in respect of all Units, with the remaining 80% distributed to the Unitholders.

The Incentive Fee is calculated on a cumulative basis and the amount of the Incentive Fee payable in connection with any distribution (or deemed distribution) will be determined in accordance with the foregoing formula each time amounts are to be distributed to the Unitholders.

For purposes of calculating the Incentive Fee, aggregate contributions shall not include Earnings Balancing Contributions or Late-Closer Contributions, and the distributions to Unitholders shall not include distributions attributable to Late-Closer Contributions. Earnings Balancing Contributions received by the Company will not be treated as amounts distributed to Unitholders for purposes of calculating the Incentive Fee. In addition, if distributions to which a Defaulting Member otherwise would have been entitled have been withheld pursuant to 6.2.4 of the TCW Direct Lending VII LLC Agreement (the “LLC Agreement”), the amounts so withheld shall be treated for such purposes as having been distributed to such Defaulting Member. The amount of any distribution of securities made in kind shall be equal to the fair market value of those securities at the time of distribution determined pursuant to 13.4 of the LLC Agreement.

 

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Table of Contents

TCW DIRECT LENDING VII LLC

Notes to Consolidated Financial Statements (Unaudited) (Continued)

(Dollar amounts in thousands, except for unit data)

June 30, 2021

 

4. Agreements and Related Party Transactions (Continued)

 

If the Advisory Agreement terminates early for any reason other than (i) the Adviser voluntarily terminating the agreement or (ii) the Company terminating the agreement for cause (as set out in the Advisory Agreement), the Company 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 of the Company’s 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 were deemed accelerated, (B) the proceeds from such liquidation were used to pay all of the Company’s 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. The Company will make the Final Incentive Fee Payment in cash on or immediately following the date the Advisory Agreement is so terminated.

Adviser Return Obligation: After the Company has made its final distribution of assets in connection with its dissolution, if the Adviser has received aggregate payments of Incentive Fees in excess of the amount the Adviser was entitled to receive pursuant to “Incentive Fee” above, then the Adviser will return to the Company, on or before 90 days after such final distribution of assets, an amount equal to such excess (the “Adviser Return Obligation”). Notwithstanding the preceding sentence, in no event will the Adviser be required to return to the Company an amount greater than the aggregate Incentive Fees paid to the Adviser, reduced by the excess of (a) the aggregate federal, state and local income tax liability the Adviser incurred in connection with the payment of such Incentive Fees, over (b) an amount equal to the U.S. federal and state tax benefits available to the Adviser by virtue of the payment made by the Adviser pursuant to its Adviser Return Obligation.

Administration Agreement: On September 25, 2018, the Company entered into an Amended and Restated Administration Agreement (the “Administration Agreement”) with TCW Asset Management Company LLC (the “Administrator”), which amended and restated the Administration Agreement between the Company and the Administrator entered into on April 16, 2018. Under the Administration Agreement, the Administrator (or one or more delegated service providers) will oversee the maintenance of the Company’s financial records and otherwise assist with the Company’s compliance with regulations applicable to a business development company under the Investment Company Act of 1940, as amended, and a regulated investment company under Subchapter M of the U.S. Internal Revenue Code of 1986, as amended; monitor the payment of the Company’s expenses; oversee the performance of administrative and professional services rendered to the Company by others; be responsible for the financial and other records that the Company is required to maintain; prepare and disseminate reports to Unitholders and reports and other materials to be filed with the SEC or other regulators; assist the Company in determining and publishing (as necessary or appropriate) its net asset value; oversee the preparation and filing of tax returns; generally oversee the payment of expenses; and provide such other services as the Administrator, subject to review of the Company’s board of directors, shall from time to time determine to be necessary or useful to perform its obligations under the Administration Agreement. Payments under the Administration Agreement will be equal to an amount that reimburses the Administrator for the costs and expenses incurred by the Administrator in performing its obligations and providing personnel and facilities under the Administration Agreement. The Administrator shall seek such reimbursement from the Company no more than once during any calendar year and shall only seek such reimbursement when all Company Expenses (as defined below) for such calendar year have been paid or accrued. Amounts paid pursuant to the Administration Agreement are subject to the annual cap on Company Expenses (as defined below), as described more fully below.

The Company, and indirectly the Unitholders, will bear all costs, expenses and liabilities, other than Adviser Operating Expenses (as defined below) (which shall be borne by the Adviser), in connection with the organization, operations, administration and transactions of the Company (“Company Expenses”). Company Expenses shall include, without limitation: (a) organizational expenses and expenses associated with the issuance of the Units; (b) expenses of calculating the Company’s net asset value (including the cost and expenses of any independent valuation firm); (c) fees payable to third parties, including agents, consultants, attorneys or other advisors, relating to, or associated with, evaluating and making investments; (d) expenses incurred by the Adviser or the Administrator payable to third parties, including agents, consultants, attorneys or other advisors, relating to or associated with monitoring the financial and legal affairs for the Company, providing administrative services, monitoring or administering the Company’s investments and performing due diligence reviews of prospective investments and the corresponding portfolio companies; (e) costs associated with the Company’s reporting and compliance obligations under the Investment Company Act of 1940, the Securities Exchange Act of 1934, as amended, and other applicable federal or state securities laws; (f) fees and expenses incurred in connection with debt incurred to finance the Company’s investments or operations, and payment of interest and repayment of principal on such debt; (g) expenses related to sales and purchases of Units and other securities; (h) Management Fees and Incentive Fees; (i) administrator fees, if any, payable under the Administration Agreement; (j) transfer agent, sub-administrator and custodial fees;

 

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Table of Contents

TCW DIRECT LENDING VII LLC

Notes to Consolidated Financial Statements (Unaudited) (Continued)

(Dollar amounts in thousands, except for unit data)

June 30, 2021

 

4. Agreements and Related Party Transactions (Continued)

 

(k) expenses relating to the issue, repurchase and transfer of Units to the extent not borne by the relevant transferring Unitholders and/or assignees; (l) federal and state registration fees; (m) federal, state and local taxes and other governmental charges assessed

against the Company; (n) independent directors’ fees and expenses and the costs associated with convening a meeting of the Company’s board of directors or any committee thereof; (o) fees and expenses and the costs associated with convening a meeting of the Unitholders or holders of any Preferred Units of the Company, as well as the compensation of an investor relations professional responsible for the coordination and administration of the foregoing; (p) costs of any reports, proxy statements or other notices to Unitholders, including printing and mailing costs; (q) costs and expenses related to the preparation of the Company’s consolidated financial statements and tax returns; (r) the Company’s allocable portion of the fidelity bond, directors and officers/errors and omissions liability insurance, and any other insurance premiums; (s) direct costs and expenses of administration, including printing, mailing, long distance telephone, and copying; (t) independent auditors and outside legal costs, including legal costs associated with any requests for exemptive relief, “no-action” positions or other guidance sought from a regulator, pertaining to the Company; (u) compensation of other third party professionals to the extent they are devoted to preparing the Company’s consolidated financial statements or tax returns or providing similar “back office” financial services to the Company; (v) Adviser costs and expenses (excluding travel) in connection with identifying and investigating investment opportunities for the Company, monitoring the investments of the Company and disposing of any such investments; (w) portfolio risk management costs; (x) commissions or brokerage fees or similar charges incurred in connection with the purchase or sale of securities (including merger fees); (y) costs and expenses attributable to normal and extraordinary investment banking, commercial banking, accounting, auditing, appraisal, valuation, administrative agent activities, custodial and registration services provided to the Company, including in each case services with respect to the proposed purchase or sale of securities by the Company that are not reimbursed by the issuer of such securities or others (whether or not such purchase or sale is consummated); (z) costs of amending, restating or modifying the LLC Agreement or Advisory Agreement or related documents of the Company or related entities; (aa) fees, costs, and expenses incurred in connection with the termination, liquidation or dissolution of the Company or related entities and (bb) all other properly and reasonably chargeable expenses incurred by the Company or the Administrator in connection with administering the Company’s business. Notwithstanding the foregoing, in the event of a Reorganization (as defined in the LLC Agreement) that results in a Public Company (as defined in the LLC Agreement) or an Extension Fund (as defined in the LLC Agreement), including a Reorganization (as defined in the LLC Agreement) pursuant to which the Company becomes the Public Company (as defined in the LLC Agreement) or the Extension Fund (as defined in the LLC Agreement), the fees, costs and expenses associated with any such restructuring, initial public offering, listing of equity securities or reorganization will be borne appropriately by the Public Company (as defined in the LLC Agreement) and the Extension Fund (as defined in the LLC Agreement) (and indirectly only by Unitholders that elect to become investors in the Public Company (as defined in the LLC Agreement) or the Extension Fund (as defined in the LLC Agreement)), as the case may be, and no others will directly or indirectly bear such fees, costs or expenses.

However, the Company will not bear (a) more than an amount equal to 10 basis points of investors’ aggregate Commitments for organizational expenses and offering expenses in connection with the offering of Units through the date that is six months after the Initial Closing Date, as it may be extended by the Adviser, and (b) more than an amount equal to 12.5 basis points of aggregate Commitments computed annually for Company Expenses (the “Expense Cap”); provided, that, any amount by which actual annual expenses in (b) exceed the 12.5 basis point limit shall be carried over to the next year, without limitation, as additional expense until the earlier of the Reorganization (as defined in the LLC Agreement) or the dissolution of the Company, with any partial year assessed on a pro rata basis; and provided, further, that in determining the Company Expenses subject to the 12.5 basis point limit in (b), the following expenses shall be excluded and shall be borne by the Company as incurred without regard to the 12.5 basis point limit in (b): the Management Fee, the Incentive Fee, organizational and offering expenses (which are subject to the separate cap), amounts incurred in connection with the Company’s borrowings (including interest, bank fees, legal fees and other transactional expenses arising out of or related to any borrowing or borrowing facility and similar costs), transfer agent fees, federal, state and local taxes and other governmental charges assessed against the Company, out-of-pocket expenses of calculating the Company’s net asset value (including the cost and expenses of any independent valuation firm engaged for that purpose and the costs and expenses of the valuation of the Company’s portfolio investments performed by the Company’s independent auditors in order to comply with applicable Public Company Accounting Oversight Board standards), out-of-pocket costs and expenses incurred in connection with arranging or structuring investments and their ongoing operations (including expenses and liabilities related to the formation and ongoing operations of any special purpose entity or entities in connection with an investment), out-of-pocket legal costs associated with any requests for exemptive relief, “no-action” positions or other guidance sought from a regulator pertaining to the Company, out-of-pocket costs and expenses relating to any Reorganization (as defined in the LLC Agreement) or liquidation of the Company, and any extraordinary expenses (such as litigation expenses and indemnification payments). Notwithstanding the foregoing, in no event will

 

28


Table of Contents

TCW DIRECT LENDING VII LLC

Notes to Consolidated Financial Statements (Unaudited) (Continued)

(Dollar amounts in thousands, except for unit data)

June 30, 2021

 

4. Agreements and Related Party Transactions (Continued)

 

the Company carryforward to future periods the amount by which actual annual Company Expenses for a year exceed the 12.5 basis point limit for more than three years from the date on which such expenses were reimbursed.

“Adviser Operating Expenses” means overhead and operating and administrative expenses incurred by or on behalf of the Adviser or any of its affiliates, including the Company, in connection with maintaining and operating the Adviser’s office, including salaries and other compensation (including compensation due to its officers), rent, routine office equipment expense and liability and insurance premiums (other than those incurred in maintaining fidelity bonds and indemnitee insurance policies), in furtherance of providing supervisory investment management services for the Company. Adviser Operating Expenses also include any expenses incurred by the Adviser or its Affiliates in connection with the Adviser’s registration as an investment adviser under the Investment Advisers Act of 1940, as amended, or with its compliance as a registered investment adviser thereunder.

All Adviser Operating Expenses and all expenses of the Company that the Company will not bear will, as set forth above, will be borne by the Adviser or its affiliates.

5. Commitments and Contingencies

The Company had the following unfunded commitments and unrealized depreciation by investment as of June 30, 2021 and December 31, 2020:

 

      June 30, 2021  December 31, 2020

Unfunded Commitments

  Maturity/
  Expiration  
      Amount      Unrealized
  Depreciation  
      Amount      Unrealized
  Depreciation  

AGY Holdings Corp.

  September 2022    $-         $-         $10,854      $-     

Altern Marketing LLC

  October 2024   5,217     -        2,473     -     

Bendon Inc.

  December 2025   7,263     124     8,254     149 

Caiman Merger Sub LLC

  November 2024   -        -        1,031     -     

Centric Brands Inc.

  October 2024   2,683     -        2,922     -     

Encompass Digital Media, Inc.

  September 2023   2,239     -        1,661     28 

FM Restaurants Holdco, LLC

  November 2023   2,414     -            

GEON Performance Solutions, LLC

  October 2024   2,350     -        2,350     -     

Hometown Food Company

  August 2023   5,881     -        5,097     -     

Karman Holdings LLC (fka Spaceco Holdings LLC)

  December 2025   1,639     -        9,364     122 

KBP Investments LLC

  May 2023   16,000     112     15,000     -     

Mondee Holdings LLC

  December 2024   8,613     -        8,613     -     

Obagi Cosmeceuticals LLC

  March 2026   11,308     -        -        -     

Production Resource Group LLC

  October 2021   -        -        1,443     -     

Quicken Parent Corp.

  April 2023   948     -        948     7 

Rapid Displays, Inc.

  April 2026   1,770     27     -        -     

Retail Services WIS Corporation

  May 2025   16,089     306         

UniTek Acquisition, Inc.

  August 2023   2,143     244     3,214     498 

WDE TorSill Holdings LLC

  October 2024   3,751     157     4,564     141 

Winsight, LLC

  March 2024   4,234     317      
    

 

 

 

  

 

 

 

  

 

 

 

  

 

 

 

Total

      $    94,542      $    1,287      $    77,788      $    945 
    

 

 

 

  

 

 

 

  

 

 

 

  

 

 

 

From time to time, the Company may become a party to certain legal proceedings incidental to the normal course of its business. As of June 30, 2021, the Company 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.

 

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TCW DIRECT LENDING VII LLC

Notes to Consolidated Financial Statements (Unaudited) (Continued)

(Dollar amounts in thousands, except for unit data)

June 30, 2021

 

5. Commitments and Contingencies (Continued)

 

The Company’s Unit activity for the three and six months ended June 30, 2021 and 2020, was as follows:

 

           Three Months Ended June 30,                   Six Months Ended June 30,         
   2021   2020   2021   2020 

Units at beginning of period

           13,734,010             13,734,010             13,734,010             13,734,010  
  

 

 

   

 

 

   

 

 

   

 

 

 

Units issued and committed at end of period

   13,734,010     13,734,010     13,734,010     13,734,010  
  

 

 

   

 

 

   

 

 

   

 

 

 

No deemed distributions and contributions were processed during the three and six months ended June 30, 2021 and 2020.

7. Credit Facilities

On May 10, 2018, the Company entered into a Revolving Credit Agreement (the “Natixis Credit Agreement”) among the Company, as borrower, and Natixis, New York Branch (“Natixis”), as administrative agent and the committed lenders, conduit lenders and funding agents. The Natixis Credit Agreement provided for a revolving credit line (the “Natixis Revolving Credit Facility”) of up to $150,000 (the “Natixis Maximum Commitment”), subject to the lesser of the “Natixis Borrowing Base” assets or the Natixis Maximum Commitment. The Natixis Borrowing Base assets equal the sum of a percentage of unfunded commitments from certain classes of eligible investors in the Company (the “Natixis Available Commitment”).

The Natixis Maximum Commitment may be periodically increased in amounts designated by the Company, up to an aggregate amount of $1 billion. The maturity date of the Natixis Credit Agreement was May 10, 2021. On May 10, 2021, the Company exercised its option to extend the maturity date of the Natixis Credit Agreement to May 9, 2022. The Company has one more available option to extend the Natixis Credit Agreement maturity date for a term of up to 364 days after the maturity date per such extension. Borrowings under the Natixis Credit Agreement bear interest at a rate equal to either (a) a base rate calculated in a customary manner plus 0.75% or (b) an adjusted eurodollar rate calculated in a customary manner plus 1.75%. As of December 31, 2020, the Natixis Maximum Commitment was $280,000. On March 10, 2021, the Natixis Maximum Commitment was reduced to $250,000.

The Natixis Revolving Credit Facility is secured by a first priority security interest, subject to customary exceptions, in (i) all of the capital commitments of the investors in the Company, (ii) the Company’s right to make capital calls, receive payment of capital contributions from the investors and enforce payment of the capital commitments and capital contributions under the Company’s operating agreement and (iii) a cash collateral account into which the capital contributions from the investors are made. The Natixis Revolving Credit Facility may be terminated, and any outstanding amounts thereunder may become due and payable, should the Company fail to satisfy certain covenants. As of June 30, 2021, the Company was in compliance with such covenants.

As of June 30, 2021 and December 31, 2020, the Natixis Borrowing Base assets were less than the Natixis Maximum Commitment. A summary of amounts outstanding and available under the Natixis Revolving Credit Facility as of June 30, 2021 and December 31, 2020 was as follows:

 

Natixis Revolving Credit Facility

  Maximum
        Commitment        
   Borrowings
        Outstanding        
   Available
        Amount(1)         
 

As of June 30, 2021

    $        250,000                  $—                  $        105,467                

As of December 31, 2020

    $280,000                  $        172,000                 ��$85,230                

 

(1)

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

On January 29, 2019, TCW DL VII Financing LLC (the “Borrower” or “TCW DL VII Financing”), a newly-formed, wholly-owned, special purpose financing subsidiary of the Company, entered into a senior secured credit facility (the “PNC Credit Facility” and together with the Natixis Revolving Credit Facility, the “Credit Facilities”) pursuant to a credit and security agreement (the “PNC Credit Agreement”) with PNC Bank, National Association (“PNC”), as facility agent, the lenders from time to time party thereto, and State Street Bank and Trust Company, as collateral agent.

 

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TCW DIRECT LENDING VII LLC

Notes to Consolidated Financial Statements (Unaudited) (Continued)

(Dollar amounts in thousands, except for unit data)

June 30, 2021

 

7. Credit Facilities (Continued)

 

Under the PNC Credit Facility, the lenders have agreed to extend credit to the Borrower in an aggregate principal amount of up to $400,000 of revolving and term loans (the “PNC Maximum Commitment”), subject to compliance with a borrowing base (the “PNC Borrowing Base”). The PNC Maximum Commitment may be periodically increased in amounts designated by the Borrower up to an aggregate principal amount of $900,000, subject to lender consent and obtaining commitments for the increase. The Borrower may make borrowings of (i) a revolving loan (the “PNC Revolving Credit Facility” and together with the Natixis Revolving Credit Facility, the “Revolving Credit Facilities”) under the PNC Credit Facility during the period commencing January 29, 2019 and ending on January 29, 2022 and (ii) a term loan (the “PNC Term Loan”) under the PNC Credit Facility during the period which commenced on January 29, 2019 and ended on January 29, 2020, unless, there is an earlier termination of the PNC Credit Facility or event of default thereunder. The PNC Credit Facility will mature on January 29, 2024. Loans under the PNC Credit Facility bear interest at a fluctuating rate of interest per annum equal to, at the Borrower’s option, either (i) three-month LIBOR plus the facility margin of 2.30% per annum or (ii) the Base Rate plus the facility margin of 2.30% per annum.

On April 11, 2019, the Borrower amended and restated the PNC Credit Agreement (as amended, the “Amended PNC Credit Agreement”) for the PNC Credit Facility. The Amended PNC Credit Agreement, among other things, (a) increased the total commitments under the PNC Credit Facility from $400,000 to $600,000 (the “Amended PNC Maximum Commitment”) and (b) made certain modifications to the calculation of the borrowing base under the prior facility, including the eligibility requirements of collateral obligations pledged under the PNC Credit Facility and loan portfolio concentration limits.

On March 17, 2020, the Borrower amended and restated the Amended PNC Credit Agreement (as further amended the “Second Amended PNC Credit Agreement”). The Second Amended PNC Credit Agreement, among other things, increased the total commitments under the PNC Credit Facility from $600,000 to $795,000 (the “Second Amended PNC Maximum Commitment”). The Second Amended PNC Maximum Commitment may be periodically increased in amounts designated by the Borrower up to an aggregate principal amount of $900,000, subject to lender consent and obtaining commitments for the increase. The Borrower may make borrowings of (i) revolving loans under the PNC Credit Facility during the period commencing January 29, 2019 and ending on January 29, 2022 and (ii) term loans under the PNC Credit Facility during the period commencing January 29, 2019 and ending on March 17, 2020, unless, in the case of (i) and (ii), there is an earlier termination of the PNC Credit Facility or event of default thereunder. The PNC Credit Facility will mature on January 29, 2024. Loans under the PNC Credit Facility will bear interest at a fluctuating rate of interest per annum equal to, at the Borrower’s option, either (i) three-month LIBOR plus the facility margin of 2.30% per annum or (ii) the Base Rate plus the facility margin of 2.30% per annum. On June 19, 2020, the Second Amended PNC Maximum Commitment was increased from $795,000 to $825,000.

The Borrower’s obligations under the PNC Credit Facility are secured by a first priority security interest in all of the assets of the Borrower, including its portfolio of loans that has been contributed by the Company to the Borrower in exchange for 100% of the membership interests of the Borrower and any payments received in respect of such loans. The Company may contribute or sell to the Borrower additional loans from time to time after the closing date, which shall be pledged in favor of the lenders under the PNC Credit Facility.

Under the PNC Credit Facility, the Borrower has made customary representations and warranties and is required to comply with various affirmative and negative covenants, reporting requirements and other customary requirements for similar credit facilities. The PNC Credit Facility also includes events of default that are customary for similar credit facilities. As of June 30, 2021, the Borrower was in compliance with such covenants.

Borrowings of the Borrower are non-recourse to the Company but are consolidated in the Company’s consolidated financial statements and considered borrowings of the Company for purposes of complying with the asset coverage requirements under the Investment Company Act of 1940, as amended.

 

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TCW DIRECT LENDING VII LLC

Notes to Consolidated Financial Statements (Unaudited) (Continued)

(Dollar amounts in thousands, except for unit data)

June 30, 2021

 

7. Credit Facilities (Continued)

 

As of June 30, 2021 and December 31, 2020, the PNC Borrowing Base assets were less than the Second Amended and Amended PNC Maximum Commitment. A summary of amounts outstanding and available under the PNC Credit Facility as of June 30, 2021 and December 31, 2020 is as follows:

 

PNC Credit Facility

  Maximum
     Commitment     
   Borrowings
     Outstanding     
   Available
     Amount(1)     
 

As of June 30, 2021

  $    825,000   $    413,000   $    405,732 

As of December 31, 2020

  $825,000   $413,000   $334,734 

 

(1)

The amount available considers any limitations related to the facility borrowing.

Borrowings under the PNC Credit Facility as of June 30, 2021 and December 31, 2020 consisted of $165,500 from the PNC Revolving Credit Facility (i.e., revolving line of credit) and $247,500 of PNC Term Loan.

The Company incurred financing costs of $3,463 and $4,433, in connection with the Natixis Credit Agreement and the PNC Credit Agreement, respectively. In addition, the Company incurred an additional $2,070 and $1,531 in financing costs in connection with the Amended and Second Amended PNC Credit Agreement, respectively. Lastly, the Company incurred $255 in financing costs associated with the June 19, 2020 upsize of the PNC Credit Facility.

The Company incurred $629 in fees associated with the May 10, 2021 extension of the Natixis Credit Agreement. Costs associated with the Revolving Credit Facilities were primarily recorded by the Company as deferred financing costs on its Consolidated Statements of Assets and Liabilities and the costs are being amortized over the respective lives of the Natixis Revolving Credit Facility and PNC Revolving Credit Facility. As of June 30, 2021 and December 31, 2020, $3,761 and $4,314, respectively, of such deferred financing costs had yet to be amortized. Costs associated with the PNC Term Loan are deferred and amortized over the term of the PNC Term Loan. Such deferred financing costs are netted against the carrying value of the PNC Term Loan on the Company’s Consolidated Statements of Assets and Liabilities. As of June 30, 2021 and December 31, 2020, $1,382 and $1,648 million, respectively, of such deferred financing costs have yet to be amortized.

A reconciliation of amounts presented on the Company’s Consolidated Statements of Assets and Liabilities versus amounts outstanding on the PNC Term Loan is as follows:

 

   As of
          June 30, 2021          
 As of
        December 31, 2020        

Principal amount outstanding on PNC Term Loan

    $247,500       $            247,500    

Deferred financing costs

   (1,382  (1,648
  

 

 

 

 

 

 

 

PNC Term Loan (as presented on the Consolidated Statements of Assets and Liabilities)

    $246,118    $245,852 

The carrying amounts of the Credit Facilities, which are categorized as Level 2 within the fair value hierarchy as of June 30, 2021 and 2020, approximates their respective fair values. 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 the Credit Facilities’ terms and conditions.

 

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TCW DIRECT LENDING VII LLC

Notes to Consolidated Financial Statements (Unaudited) (Continued)

(Dollar amounts in thousands, except for unit data)

June 30, 2021

 

7. Credit Facilities (Continued)

 

The summary information regarding the Credit Facilities for the three and six months ended June 30, 2021 and 2020 was as follows:

 

   Three Months Ended June 30, Six Months Ended June 30,
   2021 2020 2021 2020

Credit Facilities interest expense

   $3,233   $4,605   $6,540   $10,875 

Unused commitment fees

   437   447   862   700 

Administrative fees

   100   100   100   100 

Amortization of deferred financing costs

   675   817   1,447   1,534 
  

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total

   $4,445       $5,969       $8,949       $13,209     
  

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average interest rate

   2.34  3.03  2.31  3.39

Average outstanding balance

   $      545,604   $      602,044   $      563,569   $      634,467 

8. Repurchase Obligation

In order to finance certain investment transactions, the Company may, from time to time, enter into repurchase agreements with Macquarie US Trading LLC (“Macquarie”), whereby the Company sells to Macquarie an investment that it holds and concurrently enters into an agreement to repurchase the same investment at an agreed-upon price at a future date, not to exceed 90-days from the date it was sold (the “Macquarie Transaction”).

In accordance with ASC 860, Transfers and Servicing, these Macquarie Transactions meet the criteria for secured borrowings. Accordingly, the investment financed by the Macquarie Transaction remains 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 Macquarie (the “Repurchase Obligation”). The Repurchase Obligation is secured by the respective investment that is the subject of the repurchase agreement. Interest expense associated with the Repurchase Obligation is reported on the Company’s Consolidated Statements of Operations within Other expenses.

No repurchase agreements were entered into or settled during the three months ended June 30, 2021 and 2020. During the six months ended June 30, 2021, the Company entered into and settled a repurchase agreement for which the Company incurred interest expense of $892. No repurchase agreements were entered into or settled during the six months ended June 30, 2020.

The Company had no outstanding Repurchase Obligations as of June 30, 2021 and December 31, 2020.

9. Income Taxes

The Company has elected to be regulated 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 Unitholders as dividends. The Company elected to be taxed as a RIC in 2018. The Company evaluates tax positions taken or expected to be taken in the course of preparing its consolidated financial statements to determine whether the tax positions are “more-likely-than-not” to be sustained by the applicable tax authority. Tax positions not deemed to meet the “more-likely-than-not” threshold are reversed and recorded as a tax benefit or expense in the current year. All penalties and interest associated with income taxes are included in income tax expense. Conclusions regarding tax positions are subject to review and may be adjusted at a later date based on factors including, but not limited to, on-going analyses of tax laws, regulations and interpretations thereof.

Federal Income Taxes: It is the policy of the Company to comply with the requirements of the Internal Revenue Code applicable to regulated investment companies and distribute all of its net taxable income and any net realized gains on investments to its shareholders. Therefore, no federal income tax provision is required.

 

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TCW DIRECT LENDING VII LLC

Notes to Consolidated Financial Statements (Unaudited) (Continued)

(Dollar amounts in thousands, except for unit data)

June 30, 2021

 

9. Income Taxes (Continued)

 

As of June 30, 2021 and December 31, 2020, the Company’s aggregate investment unrealized appreciation and depreciation for federal income tax purposes were as follows:

 

   As of
                  June 30, 2021               
 As of
                December 31, 2020             

Cost of investments for federal income tax purposes

    $                  1,522,896    $                  1,532,332 

Unrealized appreciation

    $46,131    $32,386 

Unrealized depreciation

    $(20,174   $(27,893

Net unrealized appreciation on investments

    $25,957            $4,493         

The Company did not have any unrecognized tax benefits as of December 31, 2020, nor were there any increases or decreases in unrecognized tax benefits for the period then ended; therefore, no interest or penalties were accrued. The Company is subject to examination by the U.S federal and state tax authorities for returns filed for the prior two years.

 

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TCW DIRECT LENDING VII LLC

Notes to Consolidated Financial Statements (Unaudited) (Continued)

(Dollar amounts in thousands, except for unit data)

June 30, 2021

 

10. Financial Highlights

 

Selected data for a unit outstanding throughout the six months ended June 30, 2021 and 2020 is presented below.

 

   For the Six Months Ended June 30,
   2021(1) 2020(1)

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

   $93.84   $99.36 
  

 

 

 

 

 

 

 

Income from Investment Operations:

 

Net investment income

   2.16   4.16 

Net realized and unrealized gain (loss)

   1.68   (5.38
  

 

 

 

 

 

 

 

Total from investment operations

   3.84   (1.22

Less Distributions:

 

From distributable earnings

   (4.37  (2.81
  

 

 

 

 

 

 

 

Total distributions

   (4.37  (2.81
  

 

 

 

 

 

 

 

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

   $93.31   $95.33 
  

 

 

 

 

 

 

 

Unitholder Total Return(2)(3)

   5.67  (2.03)% 
  

 

 

 

 

 

 

 

Unitholder IRR before incentive fees(4)

   12.03  3.70
  

 

 

 

 

 

 

 

Unitholder IRR after all fees and expenses(4)

   9.77%    3.70
  

 

 

 

 

 

 

 

Ratios and Supplemental Data

 

Members’ Capital, end of period

   $1,116,173   $760,819 

Units outstanding, end of period

   13,734,010   13,734,010 

Ratios based on average net assets of Members’ Capital:

 

Ratio of total expenses to average net assets(5)(6)

   11.19  3.20

Ratio of net expenses to average net assets(5)(6)

   11.19  3.20

Ratio of financing cost to average net assets(3)

   0.97  1.65

Ratio of net investment income before expense recapture to average net assets(5)(6)

   6.50  14.33

Ratio of incentive fees to average net assets(5)(6)

   6.23  (3.05)% 

Credit facilities payable

   411,618   583,094 

Asset coverage ratio

   3.70   2.30 

Portfolio turnover rate(3)

   33.47  20.05

 

(1)

Per unit data was calculated using the number of Common Units issued and outstanding as of June 30, 2021 and 2020, respectively.

(2)

The Total Return for the six months ended June 30, 2021 and 2020 was calculated by taking the net investment income of the Company for the period divided by the weighted average capital contributions from the Members during the period. The return is net of management fees and expenses.

(3)

Not annualized.

(4)

The IRR since inception for the Common Unitholders, after management fees, financing costs and operating expenses, but before incentive fees is 12.03%. The IRR since inception for the Common Unitholders, after management fees, financing costs, operating expenses and Advisor incentive fees is 9.77%. The IRR is computed based on cash flow due dates contained in notices to Members (contributions from and distributions to the Unitholders) and the net assets (residual value) of the Members’ Capital account at period end. The IRR is calculated based on the fair value of investments using principles and methods in accordance with GAAP and does not necessarily represent the amounts that may be realized from sales or other dispositions. Accordingly, the actual return may vary significantly upon realization.

(5)

Annualized.

(6)

Expenses for the six months ended June 30, 2020 include the $12.1 million reversal of incentive fees.

 

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TCW DIRECT LENDING VII LLC

Notes to Consolidated Financial Statements (Unaudited) (Continued)

(Dollar amounts in thousands, except for unit data)

June 30, 2021

 

11. Subsequent Events

 

The Company has evaluated subsequent events through the date of issuance of the consolidated financial statements. There have been no subsequent events that require recognition or disclosure in these consolidated financial statements other than those described below.

On August 9, 2021, the Company’s Board reapproved the Advisory Agreement.

 

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 ITEM 2.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The information contained in this section should be read in conjunction with the financial statements and notes thereto appearing elsewhere in this report on Form 10-Q. Some of the statements in this report (including in the following discussion) constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, which relate to future events or future performance or financial condition of TCW Direct Lending VII LLC. For simplicity, this report uses the terms “Company,” “we,” “us,” and “our” to refer to TCW Direct Lending VII LLC.

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

This report contains forward-looking statements that involve substantial risks and uncertainties. These forward-looking statements are not historical facts, but rather are based on current expectations, estimates and projections about us, our prospective portfolio investments, our industry, our beliefs, and our assumptions. Words such as “anticipates,” “expects,” “intends,” “plans,” “believes,” “seeks,” “estimates,” “would,” “should,” “targets,” “projects,” and variations of these words and similar expressions are intended to identify forward-looking statements. These statements are not guarantees of future performance and are subject to risks, uncertainties, and other factors, some of which are beyond our control and are difficult to predict, that could cause actual results to differ materially from those expressed or forecasted in the forward-looking statements including, without limitation:

 

  

our business prospects and the prospects of our portfolio companies, including our and their ability to achieve our and their respective objectives as a result of the current COVID-19 pandemic;

 

  

an economic downturn, including as a result of the current COVID-19 pandemic, could impair our portfolio companies’ ability to continue to operate, which could lead to the loss of some or all of our investments in such portfolio companies;

 

  

a contraction of available credit, including as a result of the current COVID-19 pandemic, could impair our lending and investment activities;

 

  

interest rate volatility could affect our results, particularly in light of our use of leverage as part of our investment strategy;

 

  

our future operating results;

 

  

our contractual arrangements and relationships with third parties;

 

  

the ability of our portfolio companies to achieve their financial and other business objectives and the impact of the COVID-19 pandemic thereon;

 

  

competition with other entities and our affiliates for investment opportunities;

 

  

the impact of changing market conditions and lending standards on our ability to compete with other industry participants, including other business development companies, private and public funds, individual and institutional investors, and financial institutions for investment opportunities;

 

  

uncertainty surrounding the impact of the current COVID-19 pandemic on the financial stability of the United States and global economies;

 

  

the social, geopolitical, financial, trade and legal implications of the trade and cooperation agreement arising from Brexit, as well as future agreements between the United Kingdom and various countries in the European Union;

 

  

pandemics or other serious public health events, such as the ongoing global outbreak of COVID-19;

 

  

an inability to replicate the historical success of any previously launched fund managed by the private credit team of our investment adviser, TCW Asset Management Company LLC (the “Adviser”);

 

  

the speculative and illiquid nature of our investments;

 

  

the use of borrowed money to finance a portion of our investments;

 

  

the adequacy of our financing sources and working capital;

 

  

the costs associated with being an entity registered with the Securities and Exchange Commission (“SEC”);

 

  

the loss of key personnel;

 

  

the timing of cash flows, if any, from the operations of our portfolio companies;

 

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the ability of the Adviser to locate suitable investments for us and to monitor and administer our investments;

 

  

the ability of the TCW Group, Inc. and its subsidiaries to attract and retain highly talented professionals that can provide services to the Adviser in its capacity as our investment adviser and administrator;

 

  

our ability to qualify and maintain our qualification as a regulated investment company, or “RIC,” under Subchapter M of the U.S. Internal Revenue Code of 1986, as amended, or the “Code,” and as a business development company (“BDC”) under the Investment Company Act of 1940 (the “1940 Act”) and the related tax implications;

 

  

the effect of legal, tax and regulatory changes; and

 

  

the other risks, uncertainties and other factors we identify under “Part I—Item 1A. Risk Factors” in our Form 10-K filed with the SEC on March 22, 2021.

Although we believe that the assumptions on which these forward-looking statements are based are reasonable, some of those assumptions are based on the work of third parties and any of those assumptions could prove to be inaccurate; as a result, the forward-looking statements based on those assumptions also could prove to be inaccurate. In light of these and other uncertainties, the inclusion of a projection or forward-looking statement in this report should not be regarded as a representation by us that our plans and objectives will be achieved. You should not place undue reliance on these forward-looking statements, which apply only as of the date of this report. We do not undertake any obligation to update or revise any forward-looking statements or any other information contained herein, except as required by applicable law. The safe harbor provisions of Section 21E of the Securities Exchange Act of 1934 (as amended, the “1934 Act”), which preclude civil liability for certain forward-looking statements, do not apply to the forward-looking statements in this report because we are an investment company.

Overview

We were formed on May 23, 2017 as a limited liability company under the laws of the State of Delaware. We conducted a private offering of our common limited liability company units (the “Units”) to investors in reliance on exemptions from the registration requirements of the U.S. Securities Act of 1933, as amended (the “Securities Act”).

On August 18, 2017 (“Inception Date”), we sold and issued 10 Units at an aggregate purchase price of $1,000 to TCW Asset Management Company LLC (“TAMCO”), an affiliate of the TCW Group, Inc.

On December 29, 2017, we filed an election to be regulated as a BDC under the 1940 Act. We elected, and intend to qualify annually, to be treated for U.S. federal income tax purposes as a RIC under Subchapter M of the Code. As a BDC and a RIC, we are required to comply with certain regulatory requirements.

On April 13, 2018 (the “Initial Closing Date”), we began accepting subscription agreements from investors for the private sale of our Units and on January 14, 2019, we completed our fourth and final closing sale of our Units. We have sold 13,734,010 Units for an aggregate offering price of approximately $1.4 billion. Each Unitholder is obligated to contribute capital equal to their Commitment and each Unit’s Commitment obligation is $100.00 per Unit. The sale of the Units was made pursuant to subscription agreements entered into by us and each investor. Under the terms of the subscription agreements, we may draw down all or any portion of the undrawn commitment with respect to each Unit generally upon at least ten business days’ prior written notice to the unitholders. The amount of capital that remains to be drawn down and contributed is referred to as an “Undrawn Commitment.”

We commenced operations during the second quarter of fiscal year 2018.

On February 12, 2020, we formed our third wholly-owned subsidiary, TCW DLG Funding VII 2020-1 LLC, a single member Delaware limited liability company.

Our commitment period commenced the Initial Closing Date and ended on May 16, 2021, which is the later of (a) April 13, 2021, three years from the Initial Closing Date and (b) May 16, 2021, three years from the date in which we first completed an investment. We may complete investment transactions that were significantly in process as of the end of the commitment period and which the we reasonably expect to be consummated prior to 90 days subsequent to the expiration date of the commitment period. We may also effect follow-on investments up to an aggregate maximum of 10% of Commitments.

 

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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. The historical 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 we do not currently expect the Private Credit Team to originate a significant amount of investments for us with PIK interest features, from time to time we may make, and currently have, investments that contain such features. We may have investments with PIK interest features in 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, notes and other non-convertible debt securities, equity securities, and equity-linked securities such as options and warrants. However, our investment bias will be 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 may 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 will mostly be in corporations, partnerships or other business entities. Additionally, in certain circumstances, we may co-invest with other investors and/or strategic partners indirectly in a company through a joint venture partnership or other special purpose vehicle. While we intend to invest primarily in U.S. companies, there may be certain instances where we will invest in companies domiciled elsewhere.

Expenses

We do not currently have any employees and do not expect to have any employees. Services necessary for our business are provided through the Amended and Restated Administration Agreement, dated as of September 25, 2018 (the “Administration Agreement”) and the Investment Advisory Agreement, dated as of December 29, 2017, (the “Advisory Agreement”).

We, and indirectly our Unitholders, will bear all costs, expenses and liabilities, other than Adviser Operating Expenses (which shall be borne by the Adviser), in connection with our organization, operations, administration and transactions (“Company Expenses”). Company Expenses shall include, without limitation: (a) organizational expenses and expenses associated with the issuance of the Units; (b) expenses of calculating our net asset value (including the cost and expenses of any independent valuation firm); (c) fees payable to third parties, including agents, consultants, attorneys or other advisors, relating to, or associated with, evaluating and making investments; (d) expenses incurred by the Adviser or the Administrator payable to third parties, including agents, consultants, attorneys or other advisors, relating to or associated with monitoring our financial and legal affairs, providing administrative services, monitoring or administering our investments and performing due diligence reviews of prospective investments and the corresponding portfolio companies; (e) costs associated with our reporting and compliance obligations under the 1940 Act, the 1934 Act and other applicable federal or state securities laws; (f) fees and expenses incurred in connection with debt incurred to finance our investments or operations, and payment of interest and repayment of principal on such debt; (g) expenses related to sales and purchases of Units and other securities; (h) Management Fees and Incentive Fees; (i) administrator fees, if any, payable under the Administration Agreement; (j) transfer agent, sub-administrator and custodial fees; (k) expenses relating to the issue, repurchase and transfer of Units to the extent not borne by the relevant transferring Unitholders and/or assignees; (l) federal and state registration fees; (m) federal, state and local taxes and other governmental charges assessed against us; (n) independent directors’ fees and expenses and the costs associated with convening a meeting of our board of directors or any committee thereof; (o) fees and expenses and the costs associated with convening a meeting of the Unitholders or holders of any Preferred Units, as well as the compensation of an investor relations professional responsible for the coordination and administration of the foregoing; (p) costs of any reports, proxy statements or other notices to Unitholders, including printing and mailing costs; (q) costs and expenses related to the preparation of our consolidated financial statements and tax returns; (r) our allocable portion of the fidelity bond, directors and officers/errors and omissions liability insurance, and any other insurance premiums; (s) direct costs and expenses of administration, including printing, mailing, long distance telephone, and copying; (t) independent auditors and outside legal costs, including legal costs associated with any requests for exemptive relief, “no-action” positions or other guidance sought from a regulator, pertaining to us; (u) compensation of other personnel (including employees and secretarial and other staff of the Administrator) to the extent they are devoted to preparing our consolidated financial statements or tax returns or providing similar “back office” financial services to us; (v) Adviser costs and expenses (excluding travel) in connection with identifying and investigating investment opportunities for us, monitoring our investments and disposing of any such investments; (w) portfolio risk management costs; (x) commissions or brokerage fees or similar charges incurred in connection with the purchase or sale of securities (including merger fees); (y) costs and expenses attributable to normal and extraordinary investment banking, commercial banking, accounting, auditing, appraisal, valuation, administrative agent activities, custodial and registration services provided to us, including in each case services with respect to the proposed purchase or sale of securities by us that are not reimbursed by the issuer of such securities or others (whether or not such purchase or sale is consummated); (z) costs of amending, restating or modifying the LLC Agreement or Advisory Agreement or related documents of us or related entities; (aa) fees, costs, and expenses incurred in connection with the termination, liquidation or dissolution of the

 

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Company or related entities; and (bb) all other properly and reasonably chargeable expenses incurred by the Company or the Administrator in connection with administering our business. However, in the event of a Reorganization (as defined in the LLC Agreement) that results in a Public Fund (as defined in the LLC Agreement) or an Extension Fund (as defined in the LLC Agreement), including a Reorganization (as defined in the LLC Agreement) pursuant to which the Company becomes the Public Fund (as defined in the LLC Agreement) or the Extension Fund (as defined in the LLC Agreement), the fees, costs and expenses associated with any such restructuring, initial public offering, listing of equity securities or reorganization will be borne appropriately by the Public Fund (as defined in the LLC Agreement) and the Extension Fund (as defined in the LLC Agreement) (and indirectly only by Unitholders that elect to become investors in the Public Fund (as defined in the LLC Agreement) or the Extension Fund (as defined in the LLC Agreement)), as the case may be, and no others will directly or indirectly bear such fees, costs or expenses.

However, we will not bear (a) more than an amount equal to 10 basis points of our aggregate Commitments for organizational expenses and offering expenses in connection with the offering of Units through January 14, 2019 and (b) more than an amount equal to 12.5 basis points of our aggregate Commitments computed annually for Company Expenses (the “Expense Cap”); provided, that, any amount by which actual annual expenses in (b) exceed the 12.5 basis point limit shall be carried over to the next year, without limitation, as additional expense until the earlier of the Reorganization (as defined in the LLC Agreement) or the dissolution of the Company, with any partial year assessed on a pro rata basis; and provided, further, that in determining the Company Expenses subject to the 12.5 basis point limit in (b), the following expenses shall be excluded and shall be borne by us as incurred without regard to the 12.5 basis point limit in (b): the Management Fee, the Incentive Fee, organizational and offering expenses (which are subject to the separate cap), amounts incurred in connection with our borrowings (including interest, bank fees, legal fees and other transactional expenses arising out of or related to any borrowing or borrowing facility and similar costs), transfer agent fees, federal, state and local taxes and other governmental charges assessed against us, expenses of calculating our net asset value (including the cost and expenses of any independent valuation firm engaged for that purpose and the costs and expenses of the valuation of our portfolio investments performed by our independent auditors in order to comply with applicable Public Company Accounting Oversight Board standards), costs and expenses incurred in connection with arranging or structuring investments and their ongoing operations (including expenses and liabilities related to the formation and ongoing operations of any special purpose entity or entities in connection with an investment), legal costs associated with any requests for exemptive relief, “no-action” positions or other guidance sought from a regulator pertaining to us, costs and expenses relating to any Reorganization (as defined in the LLC Agreement) or liquidation of the Company and any extraordinary expenses (such as litigation expenses and indemnification payments). Notwithstanding the foregoing, in no event will the Company carryforward to future periods the amount by which actual annual Company Expenses for a year exceed the 12.5 basis point limit for more than three years from the date on which such expenses were reimbursed.

“Adviser Operating Expenses” means overhead and operating and administrative expenses incurred by or on behalf of the Adviser or any of its affiliates, including us, in connection with maintaining and operating the Adviser’s office, including salaries and other compensation (including compensation due to its officers), rent, routine office equipment expense and liability and insurance premiums (other than those incurred in maintaining fidelity bonds and Indemnitee insurance policies), in furtherance of providing supervisory investment management services for us. Adviser Operating Expenses include any expenses incurred by the Adviser or its affiliates in connection with the Adviser’s registration as an investment adviser under the Investment Advisers Act of 1940, as amended, or with its compliance as a registered investment adviser thereunder.

All Adviser Operating Expenses and all our expenses that we will not bear, as set forth above, will be borne by the Adviser or its affiliates.

In connection with borrowings, our lenders require us to pledge assets, Commitments and/or the right to draw down on Commitments. In this regard, the subscription agreement entered into with each of our investors contractually obligates each investor to fund its respective Commitments in order to pay amounts that may become due under any borrowings or other financings or similar obligations.

We expensed organization costs totaling $0.7 million (net of $0.4 million in Adviser reimbursement) since our inception through December 31, 2018. Offering costs totaling $0.6 million (net of $0.3 million in Adviser reimbursement) was charged directly to Members’ Capital on December 31, 2018. No additional organization and offering costs were incurred subsequent to December 31, 2018. We did not bear more than an amount equal to 10 basis points of the aggregate capital commitments for organization and offering expenses.

Critical Accounting Policies and Estimates

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

 

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Fair Value Hierarchy: Assets and liabilities are classified by us into three levels based on valuation inputs used to determine fair value:

Level 1 values are based on unadjusted quoted market prices in active markets for identical assets.

Level 2 values are based on significant observable market inputs, such as quoted prices for similar assets and quoted prices in inactive markets or other market observable inputs.

Level 3 values are based on significant unobservable inputs that reflect our determination of assumptions that market participants might reasonably use in valuing the assets.

Categorization within the hierarchy is based upon the lowest level of input that is significant to the fair value measurement. The valuation levels are not necessarily an indication of the risk associated with investing in those securities.

Level 1 Assets (Investments): The valuation techniques and significant inputs used to determine fair value are as follows:

Equity, (Level 1), includes common stock valued at the closing price on the primary exchange in which the security trades.

Level 2 Assets (Investments): The valuation techniques and significant inputs used to determine fair value are as follows:

Equity, (Level 2), includes warrants valued using quotes for comparable investments.

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), includes investments in privately originated senior secured debt. Such securities are valued based on specific pricing models, internal assumptions and the weighting of the best available pricing inputs. A discounted cash flow approach incorporating a weighted average cost of capital is generally used to determine fair value or, in some cases, an enterprise value waterfall method. Valuation may also include a shadow rating method. Standard pricing inputs include but are not limited to the financial health of the issuer, place in the capital structure, value of other issuer debt, credit, industry, and market risk and events.

Equity, (Level 3), includes common stock, preferred stock and warrants. Such securities are valued based on specific pricing models, internal assumptions and the weighting of the best available pricing inputs. A market approach is generally used to determine fair value. Pricing inputs include, but are not limited to, financial health and relevant business developments of the issuer; EBITDA; market multiples of comparable companies; comparable market transactions and recent trades or transactions; issuer, industry and market events; and contractual or legal restrictions on the sale of the security. When a Black-Scholes pricing model is used it follows the income approach. The pricing model takes into account the contract terms as well as multiple inputs, including: time value, implied volatility, equity prices and interest rates. A liquidity discount based on current market expectations, future events, minority ownership position and the period management reasonably expects to hold the investment may be applied.

Pricing inputs and weightings applied to determine value require subjective determination. Accordingly, valuations do not necessarily represent the amounts that may eventually be realized from sales or other dispositions of investments.

Investment Activity

As of June 30, 2021, our portfolio consisted of 56 debt investments and 9 equity investments. Based on fair values as of June 30, 2021, our portfolio was 98.3% invested in debt investments which were mostly senior secured term loans. The remaining 1.7% represented our equity investments, which were comprised of common stock, preferred stock and warrants.

As of December 31, 2020, our portfolio consisted of 60 debt investments and 11 equity investments. Based on fair values as of December 31, 2020, our portfolio was 98.7% invested in debt investments which were mostly senior secured term loans. The remaining 1.3% represented our equity investments, which were comprised of common stock, preferred stock and warrants.

We had no debt investments on non-accrual status as of June 30, 2021 and December 31, 2020.

 

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The table below describes our debt and equity investments by industry classification and enumerates the percentage, by fair value, of the total portfolio assets by industry as of June 30, 2021:

 

Industry

      Percent of Total Investments    

Aerospace & Defense

   13% 

Textiles, Apparel & Luxury Goods

   6% 

Software

   6% 

Consumer Durables & Apparel

   6% 

Hotels, Restaurants & Leisure

   6% 

Energy Equipment and Services

   6% 

Beverages

   4% 

Commercial Services and Supplies

   4% 

Personal Products

   4% 

Chemicals

   4% 

Household & Personal Products

   4% 

Household Products

   4% 

Media

   3% 

Publishing

   3% 

Health Care Technology

   3% 

Capital Goods

   3% 

Information Technology Services

   3% 

Household Durables

   3% 

Consumer Services

   3% 

Packaging

   2% 

Auto Components

   2% 

Food Products

   2% 

Construction and Engineering

   2% 

Air Freight & Logistics

   1% 

Commercial & Professional Services

   1% 

Internet & Direct Marketing Retail

   1% 

Construction Materials

   1% 
  

 

 

 

Total

   100% 
  

 

 

 

Interest income, including interest income paid-in-kind, was $41.4 million and $33.7 million for the three months ended June 30, 2021 and 2020, respectively. We also earned $0.1 million in other fee income during the three months ended June 30, 2021 and 2020.

Interest income, including interest income paid-in-kind, was $80.8 million and $69.7 million for the six months ended June 30, 2021 and 2020, respectively. We also earned $0.1 million and $0.2 million in other fee income during the six months ended June 30, 2021 and 2020, respectively.

 

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Results of Operations

Our operating results for the three and six months ended June 30, 2021 and 2020 were as follows (dollar amounts in thousands):

 

   For the Three Months Ended
June 30,
 For the Six Months Ended
June 30,
             2021                    2020                   2021                      2020          

Total investment income

    $41,516     $33,828    $80,898     $69,880 

Net expenses

   18,550    12,003   51,170    12,763 
  

 

 

 

  

 

 

 

 

 

 

 

  

 

 

 

Net investment income

   22,966    21,825   29,728    57,117 

Net realized gain on investments

   705    -      1,926    1,943 

Net change in unrealized appreciation/depreciation on investments

   5,999    (9,606  21,122    (75,836
  

 

 

 

  

 

 

 

 

 

 

 

  

 

 

 

Net increase (decrease) in Members’ Capital from operations

    $29,670     $12,219    $52,776     $(16,776
  

 

 

 

  

 

 

 

 

 

 

 

  

 

 

 

Total investment income

Total investment income for the three months ended June 30, 2021 and 2020 was $41.5 million and $33.8 million, respectively. The increase in total investment income during the three months ended June 30, 2021 compared to the three months ended June 30, 2020 was primarily due to the increase in our portfolio of debt investments, which included 56 debt investments as of June 30, 2021, compared to 51 as of June 30, 2020.

Total investment income for the six months ended June 30, 2021 and 2020 was $80.9 million and $69.9 million, respectively. The increase in total investment income during the six months ended June 30, 2021 compared to the six months ended June 30, 2020 was primarily due to the increase in our portfolio of debt investments, which included 56 debt investments as of June 30, 2021, compared to 51 as of June 30, 2020.

Net investment income

Net investment income for the three months ended June 30, 2021 and 2020 was $23.0 million and $21.8 million, respectively. The increase in our net investment income during the three months ended June 30, 2021 compared the three months ended June 30, 2020 was primarily due to the increase in total investment income during the three months ended June 30, 2021, partially offset by the increase in total expenses. The increase is total expenses was primarily attributable to the increase in incentive fees during the three months ended June 30, 2021 compared to the three months ended June 30, 2020, as a result of our internal rate return (“IRR”) exceeding the hurdle rate stipulated in our Advisory Agreement (the “hurdle rate”) during the current quarter. We recorded no incentive fees during the three months ended June 30, 2020 as our IRR was below the hurdle rate.

Net investment income for the six months ended June 30, 2021 and 2020 was $29.7 million and $57.1 million, respectively. The decrease in our net investment income during the six months ended June 30, 2021 compared to our net investment income during the six months ended June 30, 2020 was primarily due to $28.5 million of incentive fees accrued during the six months ended June 30, 2021, compared to the $12.1 million reversal of previously accrued incentive fees during the six months ended June 30, 2020. The incentive fee accrual during the current year-to-date period is a result of our IRR exceeding the hurdle rate. The reversal of previously accrued incentive fees during the six months ended June 30, 2020 was a result of our IRR falling below the hurdle rate during the six months ended June 30, 2020.

 

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Expenses for the three and six months ended June 30, 2021 and 2020 were as follows (dollar amounts in thousands):

 

       For the Three Months Ended    
June 30,
      For the Six Months Ended    
June 30,
             2021                    2020                      2021                      2020          

Expenses

        

Incentive fees

    $7,417     $-         $28,515     $(12,148

Management fees

   5,401    4,955    10,725    9,910 

Interest and credit facilities expenses

   4,445    5,969    8,949    13,209 

Professional fees

   486    594    759    789 

Administrative fees

   368    348    735    711 

Directors’ fees

   105    98    203    196 

Other expenses

   328    39    1,284    96 
  

 

 

 

  

 

 

 

  

 

 

 

  

 

 

 

Total expenses

    $18,550     $12,003     $51,170     $12,763 
  

 

 

 

  

 

 

 

  

 

 

 

  

 

 

 

Expenses (reimbursed) recaptured by the Adviser

   -        -        -        -     
  

 

 

 

  

 

 

 

  

 

 

 

  

 

 

 

Net expenses

    $18,550     $12,003     $51,170     $12,763 
  

 

 

 

  

 

 

 

  

 

 

 

  

 

 

 

Our total expenses were $18.6 million and $12.0 million for the three months ended June 30, 2021 and 2020, respectively. Our total expenses included management fees attributed to the Adviser of $5.4 million and $5.0 million; and incentive fees of $7.4 million and $0, for the three months ended June 30, 2021 and 2020, respectively.

The increase in total expenses during the three months ended June 30, 2021 compared to the three months ended June 30, 2020 was primarily due incentive fees that were accrued during the current quarter as a result of our IRR exceeding the hurdle rate. Total expenses during the three months ended June 30, 2020 did not include an accrual for incentive fees as our IRR was below the hurdle rate. The increase in incentive fees during the three months ended June 30, 2021 was partially offset by lower interest and credit facilities expenses during the current quarter compared to the three months ended June 30, 2020, due to lower outstanding balances and interest rates on our credit facilities.

Our total expenses were $51.2 million and $12.8 million for the six months ended June 30, 2021 and 2020, respectively. Our total expenses included management fees attributed to the Adviser of $10.7 million and $9.9 million; and incentive fees of $28.5 million and ($12.1), for the six months ended June 30, 2021 and 2020, respectively.

Similar to the three months ended June 30, 2021, the increase in total expenses during the six months ended June 30, 2021 compared to the six months ended June 30, 2020 was primarily due incentive fees that were accrued during the current year-to-date period as a result of our IRR exceeding the hurdle rate. In contrast, total expenses during the six months ended June 30, 2020 included a $12.1 million reversal of previously accrued incentive fees, in conjunction with our IRR failing below the hurdle rate during the six months ended June 30, 2020. This increase was partially offset by lower interest and credit facilities expenses during the current year-to-date period compared to the six months ended June 30, 2020, due to lower interest rates on our credit facilities.

Net realized gain on investments

Our net realized gain on investments for the three months ended June 30, 2021 and 2020 was $0.7 million and $0, respectively. Our net realized gain during the three months ended June 30, 2021 was primarily attributable to our partial or full dispositions of the following investments (dollar amounts in thousands):

 

Issuer

        Investment                Realized Gain        
(Loss)

SMTC Corporation

  Warrants    $984

SMTC Corporation

  Common Stock   139   

Greenfield World Trade, Inc.

  Warrants   (505

All others

  Various   87
    

 

 

 

Net realized gain

      $    705
    

 

 

 

 

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Our net realized gain on investments for the six months ended June 30, 2021 and 2020 was $1.9 million. Our net realized gain during the six months ended June 30, 2021 was primarily attributable to our partial or full dispositions of the following investments (dollar amounts in thousands):

 

Issuer

      Investment              Realized Gain        
(Loss)
 

Production Resources Group, LLC

  Class A Units   $    3,117 

SMTC Corporation

  Warrants   984 

Greenfield World Trade, Inc.

  Warrants   (505)  

PSS Industrial Group Corp.

  Term Loan   (2,428)  

All others

  Various   758 
    

 

 

 

Net realized gain

     $    1,926 
    

 

 

 

Our net realized gain during the six months ended June 30, 2020 was primarily attributable to our partial or full dispositions of the following investments (dollar amounts in thousands):

 

Issuer

      Investment               Realized Gain        

Powerhouse Intermediate, LLC

   Term Loan    $346 

AVI-SPL, Inc.

   Term Loan    331 

Westrock Coffee Company, LLC

   Term Loan    306 

Gold Star Foods Inc.

   Term Loan    270 

AMCP Staffing Intermediate Holdings III, LLC

   Term Loan    344 

Dura-Supreme Holdings, Inc.

   Term Loan    170 

Hunter Fan Company

   Term Loan    78 

Geon Performance Solutions, LLC

   Term Loan    53 

Mondee Holdings, LLC

   Term Loan    45 
    

 

 

 

Total realized gain

     $        1,943 
    

 

 

 

 

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Net change in unrealized appreciation/depreciation on investments

Our net change in unrealized appreciation/depreciation investments for the three months ended June 30, 2021 and 2020 was $6.0 million and ($9.6) million, respectively. Our net change in unrealized appreciation/depreciation for the three months ended June 30, 2021 was primarily due to the following investments (dollar amounts in thousands):

 

Issuer

      Investment       Change in Unrealized
    Appreciation/Depreciation    
 

Greenfield World Trade, Inc.

   Term Loan    $3,368 

Shelterlogic Group Holdings, Inc.

   Common Stock    3,089 

Obagi Cosmeceuticals LLC

   Term Loan    2,189 

Red Lobster Management, LLC

   Term Loan    1,522 

Navistar Defense, LLC

   Term Loan    (1,397

Hoover Group, Inc.

   Term Loan    (1,527

WDE TorcSill Holdings LLC

   Term Loan    (1,262

SMTC Corporation

   Term Loan    (1,038)* 

SMTC Corporation

   Warrants    (967)* 

All others

   Various    2,022 
    

 

 

 

Net change in unrealized appreciation/depreciation

     $            5,999 
    

 

 

 

 

 *

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

Our net change in unrealized appreciation/depreciation for the three months ended June 30, 2020 was primarily due to the following investments (dollar amounts in thousands):

 

Issuer

      Investment           Change in Unrealized    
Appreciation/
Depreciation

Production Resource Group, LLC

   Term Loan    $(4,266

Mondee Holdings, LLC

   Term Loan    (4,137

Greenfield World Trade, Inc.

   Term Loan    (1,582

Greenfield World Trade, Inc.

   Warrants    (1,032

Torrid LLC

   Term Loan    (1,463

Need It Now Delivers, LLC

   Term Loans    (1,199

PSS Industrial Group Corp.

   Term Loan    (1,158

Sparton Corporation

   Term Loan                1,509 

Keeco Holdings, LLC

   Term Loan    1,632 

All others

   Various    2,090   
  

 

 

   

 

 

 

Net change in unrealized appreciation/depreciation

     $(9,606
    

 

 

 

Our net change in unrealized appreciation/depreciation during the three months ended June 30, 2020 was affected by significant business disruptions and various other consequences experienced by our portfolio companies due to the uncertainty and economic volatility caused by COVID-19, in addition to other business conditions unique to our respective issuers.

 

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Our net change in unrealized appreciation/depreciation investments for the six months ended June 30, 2021 and 2020 was $21.1 million and ($75.8) million, respectively. Our net change in unrealized appreciation/depreciation for the six months ended June 30, 2021 was primarily due to the following investments (dollar amounts in thousands):

 

Issuer

  Investment   Change in Unrealized
  Appreciation/Depreciation  

Shelterlogic Group Holdings, Inc.

   Common Stock    $7,358 

Greenfield World Trade, Inc.

   Term Loan    5,051 

Greenfield World Trade, Inc.

   Warrants    1,992 

PSS Industrial Group Corp.

   Term Loan    3,384 * 

Obagi Cosmeceuticals LLC

   Term Loan    2,800 

Keeco Holdings, LLC

   Term Loan    1,738 

Red Lobster Management, LLC

   Term Loan    1,712 

Winsight, LLC

   Term Loan                1,333 

Navistar Defense, LLC

   Term Loan    (1,421

Columbia Helicopters Inc.

   Term Loan    (1,501

Verdesian Life Sciences, LLC

   Term Loan    (1,686)* 

Hoover Group, Inc.

   Term Loan    (1,828

Production Resource Group, LLC

   Class A Units    (1,831)* 

All others

   Various    4,021 
    

 

 

 

Net change in unrealized appreciation/depreciation

     $21,122 
    

 

 

 

 

 *

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

Our net change in unrealized appreciation/depreciation for the six months ended June 30, 2020 was due to the following investments (dollar amounts in thousands):

 

Issuer

  Investment       Change in Unrealized    
Appreciation/
Depreciation
 

Production Resource Group, LLC

   Term Loan    $(13,890

Mondee Holdings, LLC

   Term Loan    (11,540

Slogic Holdings Corp.

   Term Loan    (5,187

Centric Brands Inc.

   Term Loan    (4,817

Innerworkings, Inc.,

   Warrants    (2,222

Innerworkings, Inc.,

   Term Loan    (1,892

Greenfield World Trade, Inc.

   Term Loan    (4,401

UniTek Acquisition, Inc.

   TermLoans    (2,928

PSS Industrial Group Corp.

   Term Loan    (2,512

Torrid LLC

   Term Loan    (2,101

Need It Now Delivers, LLC

   TermLoans    (2,087

Winsight, LLC

   TermLoans    (1,965

Akumin, Inc.

   Term Loan    (1,879

United Poly Systems Holding, Inc.

   Term Loan    (1,875

FM Restaurants Holdco, LLC

   Term Loan    (1,656

Keeco Holdings, LLC

   Term Loan    (1,478

Heligear Acquisition Co.

   Term Loan    (1,433

Shipston Group U.S. Inc.

   TermLoans    (1,405

Verdesian Life Sciences, LLC

   Term Loan    (1,333

Westrock Coffee Company, LLC

   Term Loan    (1,292

All others

   Various    (7,943
  

 

 

   

 

 

 

Net change in unrealized appreciation/depreciation

     $(75,836
    

 

 

 

 

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Our net change in unrealized appreciation/depreciation during the six months ended June 30, 2020 was affected by significant business disruptions and various other consequences experienced by our portfolio companies due to the uncertainty and economic volatility caused by COVID-19, in addition to other business conditions unique to our respective issuers.

Net increase (decrease) in Members’ Capital from operations

Our net increase in members’ capital from operations during the three months ended June 30, 2021 and 2020 was $29.7 million and $12.2 million, respectively. The relative increase in members’ capital from operations during the during the three months ended June 30, 2021 compared to the increase during three months ended June 30, 2020 was primarily due to our net change in unrealized appreciation/depreciation during the current quarter which, as previously described, was a net appreciation of $6.0 million, compared to a net depreciation of ($9.6) million during the three months ended June 30, 2020. This was partially offset by the increase in our total expenses during the current quarter compared to the three months ended June 30, 2020.

Our net increase (decrease) in members’ capital from operations during the six months ended June 30, 2021 and 2020 was $52.8 million and ($16.8) million, respectively. The increase in members’ capital during the during the six months ended June 30, 2021 compared to the decrease during six months ended June 30, 2020 was primarily due to our net change in unrealized appreciation/depreciation during the six months ended June 30, 2021 which, as previously described, was a net appreciation of $21.1 million, compared to a net depreciation of ($75.8) million during the six months ended June 30, 2020. This was partially offset by the increase in our total expenses during the six months ended June 30, 2021 compared to the six months ended June 30, 2020.

Financial Condition, Liquidity and Capital Resources

On April 13, 2018, we completed the first closing of the sale of our Units to persons not affiliated with the Adviser. We also commenced operations during the second quarter of fiscal year 2018. On January 14, 2019, we completed our fourth and final closing sale of our Units. We generate cash from (1) drawing down capital in respect of 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, the Management Fee, the Incentive Fee, and any indemnification obligations), (3) debt service of any borrowings and (4) cash distributions to the Unitholders.

As of June 30 2021, aggregate Commitments, Undrawn Commitments, percentage of Commitments funded and the number of subscribed for Units of the Company were as follows (dollar amounts in thousands):

 

               June 30, 2021             

Commitments

   $    1,373,401

Undrawn commitments

   $165,401 

Percentage of commitments funded

   88.0% 

Units

   13,734,010      

On May 10, 2018, we entered into a Revolving Credit Agreement (the “Natixis Credit Agreement”) among the Company, as borrower, and Natixis, New York Branch (“Natixis”), as administrative agent and the committed lenders, conduit lenders and funding agents. The Natixis Credit Agreement provided for a revolving credit line (the “Natixis Revolving Credit Facility”) of up to $150.0 million (the “Natixis Maximum Commitment”), subject to the lesser of the “Natixis Borrowing Base” assets or the Natixis Maximum Commitment. The Natixis Borrowing Base assets equal the sum of a percentage of unfunded commitments from certain classes of eligible investors in the Company (the “Natixis Available Commitment”). The Natixis Revolving Credit Facility is generally secured by the Natixis Borrowing Base assets.

The Natixis Maximum Commitment may be periodically increased in amounts designated by the Company, up to an aggregate amount of $1 billion. The maturity date of the Natixis Credit Agreement was May 10, 2021. On May 10, 2021, the Company exercised its option to extend the maturity date of the Natixis Credit Agreement to May 9, 2022. The Company has one more available option to extend the Natixis Credit Agreement maturity date for a term of up to 364 days after the maturity date per such extension.. Borrowings under the Natixis Credit Agreement bear interest at a rate equal to either (a) a base rate calculated in a customary manner plus 0.75% or (b) an adjusted eurodollar rate calculated in a customary manner plus 1.75%. As of December 31, 2020, the Natixis Maximum Commitment was $280.0 million. On March 10, 2021, we further reduced the Natixis Maximum Commitment to $250.0 million.

The Natixis Revolving Credit Facility is secured by a first priority security interest, subject to customary exceptions, in (i) all of the capital commitments of the investors in the Company, (ii) our right to make capital calls, receive payment of capital contributions

 

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from the investors and enforce payment of the capital commitments and capital contributions under our operating agreement and (iii) a cash collateral account into which the capital contributions from the investors are made. The Natixis Revolving Credit Facility may be terminated, and any outstanding amounts thereunder may become due and payable, should we fail to satisfy certain covenants. As of June 30, 2021, we were in compliance with such covenants.

As of June 30, 2021 and December 31, 2020, the Natixis Borrowing Base assets were less than the Natixis Maximum Commitment. A summary of amounts outstanding and available under the Natixis Revolving Credit Facility as of June 30, 2021 and December 321, 2020 was as follows (dollar amounts in thousands):

 

Natixis Revolving Credit Facility

  Maximum
        Commitment        
 Borrowings
        Outstanding        
 Available
        Amount(1)         

As of June 30, 2021

    $250,000   $   $105,467

As of December 31, 2020

    $        280,000             $        172,000             $        85,230          

 

 (1)

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

On January 29, 2019, TCW DL VII Financing LLC (the “Borrower” or “TCW DL VII Financing”), a newly-formed, wholly-owned, special purpose financing subsidiary of ours, entered into a senior secured credit facility (the “PNC Credit Facility” and together with the Natixis Revolving Credit Facility, the “Credit Facilities”) pursuant to a credit and security agreement (the “PNC Credit Agreement”) with PNC Bank, National Association (“PNC”), as facility agent, the lenders from time to time party thereto, and State Street Bank and Trust Company, as collateral agent.

Under the PNC Credit Facility, the lenders have agreed to extend credit to the Borrower in an aggregate principal amount of up to $400.0 million of revolving and term loans (the “PNC Maximum Commitment”), subject to compliance with a borrowing base (the “PNC Borrowing Base”). The PNC Maximum Commitment may be periodically increased in amounts designated by the Borrower up to an aggregate principal amount of $900.0 million, subject to lender consent and obtaining commitments for the increase. The Borrower may make borrowings of (i) a revolving loan (the “PNC Revolving Credit Facility” and together with the Natixis Revolving Credit Facility, the “Revolving Credit Facilities”) under the PNC Credit Facility during the period commencing January 29, 2019 and ending on January 29, 2022 and (ii) a term loan (the “PNC Term Loan”) under the PNC Credit Facility during the period which commenced on January 29, 2019 and ended on January 29, 2020, unless, in the case of (i) and (ii), there is an earlier termination of the PNC Credit Facility or event of default thereunder. The PNC Credit Facility will mature on January 29, 2024. Loans under the PNC Credit Facility bear interest at a fluctuating rate of interest per annum equal to, at the Borrower’s option, either (i) three-month LIBOR plus the facility margin of 2.30% per annum or (ii) the Base Rate plus the facility margin of 2.30% per annum.

On April 11, 2019, the Borrower amended and restated the PNC Credit Agreement (as amended, the “Amended PNC Credit Agreement”) for the PNC Credit Facility. The Amended PNC Credit Agreement, among other things, (a) increased the total commitments under the PNC Credit Facility from $400.0 million to $600.0 million (the “Amended PNC Maximum Commitment”) and (b) made certain modifications to the calculation of the borrowing base under the prior facility, including the eligibility requirements of collateral obligations pledged under the PNC Credit Facility and loan portfolio concentration limits.

On March 17, 2020, the Borrower further amended and restated the Amended PNC Credit Agreement (as further amended the “Second Amended PNC Credit Agreement”). The Second Amended PNC Credit Agreement, among other things, increased the total commitments under the PNC Credit Facility from $600.0 million to $795.0 million (the “Second Amended PNC Maximum Commitment”). The Second Amended PNC Maximum Commitment may be periodically increased in amounts designated by the Borrower up to an aggregate principal amount of $900.0 million, subject to lender consent and obtaining commitments for the increase. The Borrower may make borrowings of (i) revolving loans under the PNC Credit Facility during the period commencing January 29, 2019 and ending on January 29, 2022 and (ii) term loans under the PNC Credit Facility during the period commencing January 29, 2019 and ended on March 17, 2020, unless, there is an earlier termination of the PNC Credit Facility or event of default thereunder. The PNC Credit Facility will mature on January 29, 2024. Loans under the PNC Credit Facility will bear interest at a fluctuating rate of interest per annum equal to, at the Borrower’s option, either (i) three-month LIBOR plus the facility margin of 2.30% per annum or (ii) the Base Rate plus the facility margin of 2.30% per annum. On June 19, 2020, the Second Amended PNC Maximum Commitment was increased from $795.0 million to $825.0 million.

The Borrower’s obligations under the PNC Credit Facility are secured by a first priority security interest in all of the assets of the Borrower, including its portfolio of loans that has been contributed by the Company to the Borrower in exchange for 100% of the membership interests of the Borrower and any payments received in respect of such loans. The Company may contribute or sell to the Borrower additional loans from time to time after the closing date, which shall be pledged in favor of the lenders under the PNC Credit Facility.

 

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Under the PNC Credit Facility, the Borrower has made customary representations and warranties and is required to comply with various affirmative and negative covenants, reporting requirements and other customary requirements for similar credit facilities. The PNC Credit Facility also includes events of default that are customary for similar credit facilities. As of June 30, 2021, the Borrower was in compliance with such covenants.

Borrowings of the Borrower are non-recourse to us but are consolidated in our consolidated financial statements and considered our borrowings for purposes of complying with the asset coverage requirements under the Investment Company Act of 1940, as amended.

As of June 30, 2021 and December 31 2020, the PNC Borrowing Base assets were less than the Second Amended and Amended PNC Maximum Commitment. A summary of amounts outstanding and available under the PNC Credit Facility as of June 30, 2021 and December 31, 2020 is as follows (dollar amounts in thousands):

 

PNC Credit Facility

  Maximum
        Commitment        
   Borrowings
        Outstanding        
   Available
        Amount(1)         
 

As of June 30, 2021

   $825,000     $413,000     $405,732       

As of December 31, 2020

   $    825,000     $    413,000     $    334,734       

 

(1)

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

Borrowings under the PNC Credit Facility as of June 30, 2021 and December 31, 2020 consisted of $165.5 million from the PNC Revolving Credit Facility (i.e., revolving line of credit) and $247.5 million of PNC Term Loan.

We incurred financing costs of $3.4 million and $4.4 million, in connection with the Natixis Credit Agreement and the PNC Credit Agreement, respectively. In addition, we incurred an additional $2.1 million and $1.5 million in financing costs in connection with the Amended and Second Amended PNC Credit Agreement, respectively. Lastly, we incurred $0.3 million in financing costs associated with the June 19, 2020 upsize of the PNC Credit Facility.

We incurred $0.6 million in fees associated with the May 10, 2021 extension of the Natixis Credit Agreement. We recorded most of the costs associated with the Revolving Credit Facilities as deferred financing costs on our Consolidated Statements of Assets and Liabilities and the costs are being amortized over the respective lives of the Natixis Revolving Credit Facility and PNC Revolving Credit Facility. As of June 30, 2021 and December 31, 2020, $3.8 million and $4.3 million, respectively, of such deferred financing costs had yet to be amortized. Costs associated with the PNC Term Loan are deferred and amortized over the term of the PNC Term Loan. Such deferred financing costs are netted against the carrying value of the PNC Term Loan on our Consolidated Statements of Assets and Liabilities. As of June 30, 2021 and December 31, 2020, $1.4 million and $1.6 million, respectively, of such deferred financing costs have yet to be amortized.

The summary information regarding the Credit Facilities for the three and six months ended June 30, 2021 and 2020 was as follows (dollar amounts in thousands):

 

       Three Months Ended June 30,         Six Months Ended June 30,    
         2021             2020             2021             2020      

Credit Facilities interest expense

   $3,233   $4,605   $6,540   $10,875 

Unused commitment fees

   437   447   862   700 

Administrative fees

   100   100   100   100 

Amortization of deferred financing costs

   675   817   1,447   1,534 
  

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total

   $4,445   $5,969   $8,949   $13,209 
  

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average interest rate

   2.34  3.03  2.31  3.39

Average outstanding balance

   $545,604   $602,044   $563,569   $634,467  

 

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In order to finance certain investment transactions, we may, from time to time, enter into repurchase agreements with Macquarie US Trading LLC (“Macquarie”), whereby we sell to Macquarie an investment that we hold and concurrently enter into an agreement to repurchase the same investment at an agreed-upon price at a future date, not to exceed 90-days from the date it was sold (the “Macquarie Transaction”). These Macquarie Transactions are accounted for as secured borrowings. Accordingly, the investment financed by the Macquarie Transaction remains on our Consolidated Statements of Assets and Liabilities as an asset, and we record a liability to reflect our repurchase obligation to Macquarie (the “Repurchase Obligation”). The Repurchase obligation is secured by the respective investment that is the subject of the repurchase agreement.

No repurchase agreements were entered into or settled during the three months ended June 30, 2021 and 2020. During the six months ended June 30, 2021, we entered into and settled a repurchase agreement for which we incurred interest expense of $0.9 million. No repurchase agreements were entered into or settled during the six months ended June 30, 2020.

We had no outstanding Repurchase Obligations as June 30, 2021 and December 31, 2020.

We had the following unfunded commitments and unrealized depreciation by investment as of June 30, 2021 and December 31, 2020 (dollar amounts in thousands):

 

      June 30, 2021   December 31, 2020 

Unfunded Commitments

  Maturity/
Expiration
  Amount   Unrealized
Depreciation
   Amount   Unrealized
Depreciation
 

AGY Holdings Corp.

  September 2022  $-     $-     $10,854   $-   

Altern Marketing LLC

  October 2024   5,217    -      2,473    -   

Bendon Inc.

  December 2025   7,263    124    8,254    149 

Caiman Merger Sub LLC

  November 2024   -      -      1,031    -   

Centric Brands Inc.

  October 2024   2,683    -      2,922    -   

Encompass Digital Media, Inc.

  September 2023   2,239    -      1,661    28 

FM Restaurants Holdco, LLC

  November 2023   2,414    -       

GEON Performance Solutions, LLC

  October 2024   2,350    -      2,350    -   

Hometown Food Company

  August 2023   5,881    -      5,097    -   

Karman Holdings LLC (fka Spaceco Holdings LLC)

  December 2025   1,639    -      9,364    122 

KBP Investments LLC

  May 2023   16,000    112    15,000    -   

Mondee Holdings LLC

  December 2024   8,613    -      8,613    -   

Obagi Cosmeceuticals LLC

  March 2026   11,308    -      -      -   

Production Resource Group LLC

  October 2021   -      -      1,443    -   

Quicken Parent Corp.

  April 2023   948    -      948    7 

Rapid Displays, Inc.

  April 2026   1,770    27    -      -   

Retail Services WIS Corporation

  May 2025   16,089    306     

UniTek Acquisition, Inc.

  August 2023   2,143    244    3,214    498 

WDE TorSill Holdings LLC

  October 2024   3,751    157    4,564    141 

Winsight, LLC

  March 2024   4,234    317     
    

 

 

   

 

 

   

 

 

   

 

 

 

Total

        $        94,542       $        1,287       $        77,788       $        945 
    

 

 

   

 

 

   

 

 

   

 

 

 

 

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 ITEM 3.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

We are subject to financial market risks, including changes in interest rates. As of June 30, 2021, 99.5% of our debt investments bore interest based on floating rates, such as LIBOR, EURIBOR, the Federal Funds Rate or the Prime Rate. The interest rates on such investments generally reset by reference to the current market index after one to six months. As of June 30, 2021, the percentage of our floating rate debt investments that bore interest based on an interest rate floor was 99.4%. Floating rate investments subject to a floor generally reset by reference to the current market index after one to six months only if the index exceeds the floor.

Interest rate sensitivity refers to the change in earnings that may result from changes in the level of interest rates. Because we fund a portion of our investments with borrowings, our net investment income is affected by the difference between the rate at which we invest and the rate at which we borrow. As a result, there can be no assurance that a significant change in market interest rates will not have a material adverse effect on our net investment income. We assess our portfolio companies periodically to determine whether such companies will be able to continue making interest payments in the event that interest rates increase. There can be no assurances that the portfolio companies will be able to meet their contractual obligations at any or all levels of increases in interest rates.

Based on our June 30, 2021 consolidated statement of assets and liabilities, the following table shows the annual impact on net investment income (excluding the related incentive compensation impact) of base rate changes in interest rates (considering interest rate floors for variable rate instruments) assuming no changes in our investment and borrowing structure (dollar amounts in thousands):

 

       Interest Income           Interest Expense       Net Investment
    Income (Loss)    
 

Up 300 basis points

   $    29,855   $12,562   $17,293

Up 200 basis points

   14,266    8,375    5,581 

Up 100 basis points

   1,629    4,187    (2,558

Down 100 basis points

   (11   (610   599 

Down 200 basis points

   (22   (610   588 

Down 300 basis points

   -       (610   610 

 

 ITEM 4.

CONTROLS AND PROCEDURES

As of the end of the period covered by this report, we carried out an evaluation, under the supervision and with the participation of our management, including our President and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rule 13a-15 under the Securities Exchange Act of 1934). Based on that evaluation, our President and Chief Financial Officer have concluded that our current disclosure controls and procedures are effective in timely alerting them to material information relating to us that is required to be disclosed by us in the reports we file or submit under the Securities Exchange Act of 1934.

There have been no changes in our internal control over financial reporting that occurred during our most recently completed fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

 

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Table of Contents

PART II. OTHER INFORMATION

 

 Item 1.

Legal Proceedings

We are not currently subject to any material legal proceedings, nor, to our knowledge, is any material legal proceeding threatened against us. From time to time, we may be a party to certain legal proceedings in the ordinary course of business, including proceedings relating to the enforcement of our rights under loans to or other contracts with our portfolio companies. 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.

 

 Item 1A.

Risk Factors

There have been no material changes from the risk factors previously disclosed in our Annual Report on Form 10-K.

 

 Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

Sales of unregistered securities

None.

Issuer purchases of equity securities

None.

 

 Item 3.

Defaults Upon Senior Securities

None.

 

 Item 4.

Mine Safety Disclosures

None.

 

 Item 5.

Other Information

None.

 

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Item 6.    Exhibits.

(a) Exhibits

 

3.1  Certificate of Formation (incorporated by reference to Exhibit 3.1 to a registration on Form 10 filed on September 1, 2017)
3.2  Limited Liability Company Agreement, dated June  29, 2017 (incorporated by reference to Exhibit 3.2 to a registration on Form 10 filed on September 1, 2017)
3.3  Amended and Restated Limited Liability Company Agreement, dated October 2, 2017 (incorporated by reference to Exhibit  3.3 to a registration on Form 10 filed on October 16, 2017)
3.4  Third Amended and Restated Limited Liability Company Agreement, dated as of September  10, 2018 (incorporated by reference to Exhibit 3.6 to the registrant’s Quarterly Report on Form 10-Q filed November 6, 2018).
3.5  Fourth Amended and Restated Limited Liability Company Agreement, dated as of January  14, 2019 (incorporated by reference to Exhibit 3.1 to the registrant’s Current Report on Form 8-K filed on January 18, 2019).
10.1  Investment Advisory and Management Agreement dated December  29, 2017 (incorporated by reference to Exhibit 10.1 to the registrant’s Current Report on Form 8-K filed on January 3, 2018).
10.2  Administration Agreement dated December  29, 2017, by and between TCW Direct Lending VII LLC and TCW Asset Management Company LLC (incorporated by reference to Exhibit 10.2 to the registrant’s Current Report on Form 8-K filed on January  3, 2018).
10.3  Amended and Restated Administration Agreement, dated as of September  25, 2018, between TCW Direct Lending VII LLC and TCW Asset Management Company LLC (incorporated by reference to Exhibit 3.7 to the registrant’s Quarterly Report on Form 10-Q filed November 6, 2018).
10.4  Revolving Credit Agreement, dated as of May  10, 2018, among TCW Direct Lending VII LLC, as borrower, and Natixis, New York Branch, as Administrative Agent and Committed Lender (incorporated by reference to Exhibit 10.3 to the registrant’s Current Report on Form 8-K filed on May 14, 2018).
10.5  Credit and Security Agreement, dated as of January  29, 2019, among TCW DL VII Financing LLC, as borrower, PNC Bank, National Association, as facility agent, and State Street Bank and Trust Company, as collateral agent (incorporated by reference to Exhibit 10.1 to the registrant’s Current Report on Form 8-K filed on February 4, 2019).
10.6  First Amended and Restated Credit and Security Agreement, dated as of April  11, 2019, among TCW DL VII Financing LLC, as borrower, PNC Bank, National Association, as facility agent, the lenders from time to time party thereto, and State Street Bank and Trust Company, as collateral agent (incorporated by reference to Exhibit 10.1 to the registrant’s Current Report on Form 8-K filed on April 16, 2019).
10.7  Second Amended and Restated Credit and Security Agreement, dated as of March  17, 2020, among TCW DL VII Financing LLC, as borrower, PNC Bank, National Association, as facility agent, the lenders from time to time party thereto, and State Street Bank and Trust Company, as collateral agent (incorporated by reference to Exhibit 10.1 to the registrant’s Current Report on Form 8-K filed on March 20, 2020).
10.8  Fourth Amendment to Revolving Credit Agreement, dated as of May  10, 2021, among TCW Direct Lending VII LLC, as borrower, and Natixis, New York Branch, as Administrative Agent and Committed Lender (incorporated by reference to Exhibit 10.1 to the registrant’s Current Report on Form 8-K filed on May 10, 2021).
10.9  Fifth Amendment to Revolving Credit Agreement, dated as of May  13, 2021, among TCW Direct Lending VII LLC, as borrower, and Natixis, New York Branch, as Administrative Agent and Committed Lender (incorporated by reference to Exhibit 10.2 to the registrant’s Current Report on Form 8-K filed on May 10, 2021)
31.1*  Certification of President Pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934
31.2*  Certification of Chief Financial Officer Pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934
32.1*  Certification of President Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. 1350)
32.2*  Certification of Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. 1350)

 

* 

Filed herewith

 

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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.

 

Date: August 9, 2021  TCW DIRECT LENDING VII LLC
  By:  /s/ Richard T. Miller
   Richard T. Miller
   President

 

Date: August 9, 2021  
  By:  /s/ James G. Krause
   James G. Krause
   Chief Financial Officer

 

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