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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 September 30, 2020

OR

 

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

For the transition period from                     to                     

Commission file number 814-01069

 

 

TCW DIRECT LENDING LLC

(Exact Name of Registrant as Specified in Its Charter)

 

 

 

Delaware   46-5327366

(State or Other Jurisdiction of

Incorporation or Organization)

 

(I.R.S. Employer

Identification No.)

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

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

Not applicable

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

 

 

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

 

Title of each class

 

Trading Symbol(s)

 

Name of each exchange on which registered

None   Not applicable   Not applicable

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

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

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

 

Large accelerated filer

 

  

Accelerated filer

 

Non-Accelerated filer

 

  

Smaller reporting company

 

    

Emerging growth company

 

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

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

The number of the Registrant’s common units outstanding at November 9, 2020 was 20,134,698.

 

 

 


Table of Contents

TCW DIRECT LENDING LLC

FORM 10-Q FOR THE QUARTER ENDED SEPTEMBER 30, 2020

Table of Contents

 

    

INDEX

   PAGE
NO.
 
PART I.   

FINANCIAL INFORMATION

  
Item 1.   

Financial Statements

  
  

Consolidated Schedules of Investments as of September  30, 2020 (unaudited) and December 31, 2019

     2  
  

Consolidated Statements of Assets and Liabilities as of September  30, 2020 (unaudited) and December 31, 2019

     12  
  

Consolidated Statements of Operations for the three and nine months ended September 30, 2020 and 2019 (unaudited)

     13  
  

Consolidated Statements of Changes in Members’ Capital for the three and nine months ended September 30, 2020 and 2019 (unaudited)

     14  
  

Consolidated Statements of Cash Flows for the nine months ended September 30, 2020 and 2019 (unaudited)

     16  
  

Notes to Consolidated Financial Statements (unaudited)

     17  
Item 2.   

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

     32  
Item 3.   

Quantitative and Qualitative Disclosures About Market Risk

     44  
Item 4.   

Controls and Procedures

     44  
PART II.   

OTHER INFORMATION

  
Item 1.   

Legal Proceedings

     45  
Item 1A.   

Risk Factors

     45  
Item 2.   

Unregistered Sales of Equity Securities and Use of Proceeds

     46  
Item 3.   

Defaults Upon Senior Securities

     46  
Item 4.   

Mine Safety Disclosures

     46  
Item 5.   

Other Information

     46  
Item 6.   

Exhibits

     47  
  

SIGNATURES

     48  


Table of Contents

TCW DIRECT LENDING LLC

Consolidated Schedule of Investments (Unaudited)

As of September 30, 2020

 

Industry

  

Issuer

   Acquisition
Date
    

Investment

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

Non-Controlled/Non-Affiliated Investments

Debt(1)

 

 

          
Auto Components                                                   
   Challenge Manufacturing Company LLC      04/20/17      Term Loan—9.50%
(LIBOR + 8.50%, 1.00% Floor)
     8.4   $ 45,615,986        04/20/22      $ 45,300,998      $ 45,068,595  
           

 

 

   

 

 

       

 

 

    

 

 

 
              8.4     45,615,986           45,300,998        45,068,595  
           

 

 

   

 

 

       

 

 

    

 

 

 
Construction & Engineering                       
   Intren, LLC      07/18/17      Term Loan—8.00%
(LIBOR + 6.75%, 1.25% Floor)
     1.7     9,439,122        07/18/23        9,351,277        9,269,218  
           

 

 

   

 

 

       

 

 

    

 

 

 
              1.7     9,439,122           9,351,277        9,269,218  
           

 

 

   

 

 

       

 

 

    

 

 

 
Distributors                       
   ASC Acquisition Holdings, LLC(2)      08/14/20      Term Loan—7.00% inc. PIK
(7.00% Fixed Coupon, all PIK)
     1.7     24,603,993        08/03/25        23,166,797        9,324,913  
   ASC Acquisition Holdings, LLC      08/14/20      Term Loan—9.50% inc. PIK
(LIBOR + 8.50%, 1.00% Floor, 9.5% PIK)
     3.7     19,911,042        08/03/25        19,911,042        19,911,042  
           

 

 

   

 

 

       

 

 

    

 

 

 
              5.4     44,515,035           43,077,839        29,235,955  
           

 

 

   

 

 

       

 

 

    

 

 

 
Diversified Consumer Services                       
   School Specialty, Inc.      09/15/20      Term Loan—9.25%
(LIBOR + 8.00%, 1.25% Floor, 4.00% PIK)
     6.3     34,154,841        09/15/25        33,921,505        34,154,841  
           

 

 

   

 

 

       

 

 

    

 

 

 
              6.3     34,154,841           33,921,505        34,154,841  
           

 

 

   

 

 

       

 

 

    

 

 

 
Diversified Financial Services                       
   Carrier & Technology Holdings, LLC(2)      07/02/18      Term Loan—11.75% inc. PIK
(11.75%, Fixed Coupon, all PIK)
     0.0     42,679,251        07/02/23        42,546,059         
   Guardia LLC (fka Carrier & Technology Solutions, LLC)      07/02/18      Revolver – 8.75% inc. PIK
(LIBOR + 7.25%, 1.50% Floor, all PIK)
     1.7     9,496,739        07/02/23        9,496,739        9,316,301  
   Guardia LLC (fka Carrier & Technology Solutions, LLC)(2)      07/02/18      Term Loan – 8.75% inc. PIK
(LIBOR + 7.25%, 1.50% Floor, all PIK)
     0.0     12,503,051        07/02/23        12,473,526         
           

 

 

   

 

 

       

 

 

    

 

 

 
              1.7     21,999,790           21,970,265        9,316,301  
           

 

 

   

 

 

       

 

 

    

 

 

 
              1.7     64,679,041           64,516,324        9,316,301  
           

 

 

   

 

 

       

 

 

    

 

 

 
Food Products                       
   Tonos 1 Operating Corp. (fka Connors Bros. Clover Leaf Seafoods Company) (Canada)(3)      01/30/20      Exit Term Loan B2—8.75%
(LIBOR + 7.25%, 1.50% Floor)
     1.1     6,008,085        01/31/24        6,127,033        6,008,085  
   Tonos US LLC (fka Bumble Bee Holdings, Inc.)      01/30/20      Exit Term Loan B1—8.75%
(LIBOR + 7.25%, 1.50% Floor)
     2.7     14,211,695        01/31/24        14,493,058        14,211,696  
           

 

 

   

 

 

       

 

 

    

 

 

 
              3.8     20,219,780           20,620,091        20,219,781  
           

 

 

   

 

 

       

 

 

    

 

 

 
Hotels, Restaurants & Leisure                       
   OTG Management, LLC      06/30/16      Delayed Draw Term Loan—10.00%
(LIBOR + 9.00%, 1.00% Floor)
     2.8     18,500,440        08/26/21        18,469,372        15,318,364  
   OTG Management, LLC      06/30/16      Term Loan—10.00%
(LIBOR + 9.00%, 1.00% Floor)
     9.0     58,355,987        08/26/21        58,145,701        48,318,757  
           

 

 

   

 

 

       

 

 

    

 

 

 
              11.8     76,856,427           76,615,073        63,637,121  
           

 

 

   

 

 

       

 

 

    

 

 

 

 

2


Table of Contents

TCW DIRECT LENDING LLC

Consolidated Schedule of Investments (Unaudited) (Continued)

As of September 30, 2020

 

Industry

 

Issuer

   Acquisition
Date
   

Investment

   % of Net
Assets
    Par
Amount
     Maturity
Date
     Amortized
Cost
     Fair Value  
Hotels, Restaurants & Leisure (con’t)                     
  Ruby Tuesday, Inc.      12/21/17     Revolver—11.00%
(LIBOR + 10.00%, 1.00% Floor)
     0.1   $ 732,000        12/21/22      $ 732,000      $ 732,000  
  Ruby Tuesday, Inc.      12/21/17     Term Loan—11.00% inc. PIK
(LIBOR + 10.0%, 1.00% Floor, 2.00% PIK)
     1.7     9,627,513        12/21/22        9,424,684        8,915,077  
         

 

 

   

 

 

       

 

 

    

 

 

 
            1.8     10,359,513           10,156,684        9,647,077  
         

 

 

   

 

 

       

 

 

    

 

 

 
            13.6     87,215,940           86,771,757        73,284,198  
         

 

 

   

 

 

       

 

 

    

 

 

 
Household Durables                     
  Cedar Electronics Holdings, Corp.      01/30/19     Incremental Term Loan—15.00% inc. PIK
(15.00%, Fixed Coupon, all PIK)
     0.6     3,061,055        06/26/20        3,061,055        3,061,055  
  Cedar Electronics Holdings, Corp.      05/19/15     Term Loan—9.50%
(LIBOR + 8.00%, 1.50% Floor, all PIK)
     3.8     20,795,847        06/26/20        20,792,648        20,795,847  
         

 

 

   

 

 

       

 

 

    

 

 

 
            4.4     23,856,902           23,853,703        23,856,902  
         

 

 

   

 

 

       

 

 

    

 

 

 
Industrial Conglomerates                     
  H-D Advanced Manufacturing Company      06/30/15     First Lien Last Out Term Loan—8.50% inc. PIK
(LIBOR + 7.00%, 1.50% Floor, All PIK)
     14.8     115,429,792        01/01/23        115,169,368        79,531,127  
         

 

 

   

 

 

       

 

 

    

 

 

 
            14.8     115,429,792           115,169,368        79,531,127  
         

 

 

   

 

 

       

 

 

    

 

 

 
Information Technology Services                     
  ENA Holding Corporation      05/06/16     First Lien Term Loan—10.00%
(LIBOR + 9.25%, 0.75% Floor, 4.75% PIK)
     7.8     42,240,746        05/06/21        42,117,580        41,902,820  
  ENA Holding Corporation      05/06/16     Revolver—10.00%
(LIBOR + 9.25%, 0.75% Floor, 4.75% PIK)
     1.5     8,263,254        05/06/21        8,263,254        8,197,148  
         

 

 

   

 

 

       

 

 

    

 

 

 
            9.3     50,504,000           50,380,834        50,099,968  
         

 

 

   

 

 

       

 

 

    

 

 

 
Internet & Direct Marketing Retail                     
  Lulu’s Fashion Lounge, LLC      08/28/17     First Lien Term Loan—10.50% inc. PIK
(LIBOR + 9.50%, 1.00% Floor, 2.50% PIK)
     2.3     12,392,119        08/28/22        12,250,948        12,292,982  
         

 

 

   

 

 

       

 

 

    

 

 

 
            2.3     12,392,119           12,250,948        12,292,982  
         

 

 

   

 

 

       

 

 

    

 

 

 
Metals & Mining                     
  Pace Industries, Inc.(2)      06/01/20     HoldCo Term Loan—13.50% inc. PIK
(LIBOR + 12.00%, 1.50% Floor, all PIK)
     10.6     78,302,071        06/01/25        78,148,757        57,238,814  
  Pace Industries, Inc.      06/01/20     Opco Term Loan—9.75% inc. PIK
(LIBOR + 8.25%, 1.50% Floor, 2.25% PIK)
     9.8     52,451,185        06/01/25        52,410,341        52,451,185  
         

 

 

   

 

 

       

 

 

    

 

 

 
            20.4     130,753,256           130,559,098        109,689,999  
         

 

 

   

 

 

       

 

 

    

 

 

 
Pharmaceuticals                     
  Noramco, LLC      07/01/16     Senior Term Loan—9.38% inc. PIK
(LIBOR + 8.38%, 1.00% Floor, 0.38% PIK)
     8.3     50,290,116        12/31/23        50,092,909        44,758,203  
         

 

 

   

 

 

       

 

 

    

 

 

 
            8.3     50,290,116           50,092,909        44,758,203  
         

 

 

   

 

 

       

 

 

    

 

 

 
Software                     
  Quicken Parent Corp.      04/01/16     First Lien Term Loan—9.50%
(LIBOR + 8.50%, 1.00% Floor)
     3.4     18,279,449        04/01/21        18,265,166        18,279,449  
         

 

 

   

 

 

       

 

 

    

 

 

 
            3.4     18,279,449           18,265,166        18,279,449  
         

 

 

   

 

 

       

 

 

    

 

 

 
  Total Debt Investments      103.8           704,131,817        559,057,519  
         

 

 

         

 

 

    

 

 

 

 

3


Table of Contents

TCW DIRECT LENDING LLC

Consolidated Schedule of Investments (Unaudited) (Continued)

As of September 30, 2020

 

Industry

  

Issuer

 

Investment

   % of Net
Assets
    Shares      Amortized
Cost
     Fair Value  
   Equity             
Distributors                
   Animal Supply Holdings, LLC(2)(4)   Class A Common      0.0     224,156      $ 1,572,727      $  
       

 

 

   

 

 

    

 

 

    

 

 

 
          0.0     224,156        1,572,727         
       

 

 

   

 

 

    

 

 

    

 

 

 
Diversified Consumer Services                
   School Specialty, Inc. (2)   Class A Preferred Stock      0.8     806,264        8,062,637        4,136,133  
   School Specialty, Inc. (2)   Class B Preferred Stock      0.0     359,474        356,635         
   School Specialty, Inc. (2)   Common Stock      0.0     80,700        53,889         
       

 

 

   

 

 

    

 

 

    

 

 

 
          0.8     1,246,438        8,473,161        4,136,133  
Diversified Financial Services                
   Carrier & Technology Holdings, LLC(2)(5)   Common Stock      0.0     2,143                
       

 

 

   

 

 

    

 

 

    

 

 

 
          0.0     2,143                
       

 

 

   

 

 

    

 

 

    

 

 

 
Hotels, Restaurants & Leisure                
   RTI Holding Company, LLC (an affiliate of Ruby Tuesday, Inc.)(2)   Warrant, expires 12/21/27      0.0     1,470,632        1,379,747         
       

 

 

   

 

 

    

 

 

    

 

 

 
          0.0     1,470,632        1,379,747         
       

 

 

   

 

 

    

 

 

    

 

 

 
Household Durables                
   Cedar Ultimate Parent LLC(2)   Class E Common Units      0.0     300,000                
   Cedar Ultimate Parent LLC(2)   Class A Preferred Units      0.3     9,297,990        9,187,900        1,646,023  
   Cedar Ultimate Parent LLC(2)   Class D Preferred Units      0.0     2,900,000                
       

 

 

   

 

 

    

 

 

    

 

 

 
          0.3     12,497,990        9,187,900        1,646,023  
       

 

 

   

 

 

    

 

 

    

 

 

 
Technologies Hardware, Storage and Peripherals                
   Quantum Corporation(2)   Common Stock      2.3     2,670,416        9,799,470        12,283,914  
       

 

 

   

 

 

    

 

 

    

 

 

 
          2.3     2,670,416        9,799,470        12,283,914  
       

 

 

   

 

 

    

 

 

    

 

 

 
Metals & Mining                
   Pace Industries, Inc.(2)   Common Stock      0.0     917,418        2,110,522         
       

 

 

   

 

 

    

 

 

    

 

 

 
          0.0     917,418        2,110,522         
       

 

 

   

 

 

    

 

 

    

 

 

 
   Total Equity Investments      3.4        32,523,527        18,066,070  
       

 

 

   

 

 

    

 

 

    

 

 

 
   Total Non-Controlled/Non-Affiliated Investments(6)      107.2      $ 736,655,344      $ 577,123,589  
       

 

 

   

 

 

    

 

 

    

 

 

 
                   
Shares
    
Cost
        
   Controlled/Affiliated Investments

 

Investment Funds & Vehicles                
   TCW Direct Lending Strategic Ventures LLC(3)(7)   Preferred membership interests      26.8     168,800      $ 168,800,000      $ 144,292,073  
   TCW Direct Lending Strategic Ventures LLC(2)(3)(7)   Common membership interests      0.0     800                
       

 

 

   

 

 

    

 

 

    

 

 

 
   Total Controlled/Affiliated Investments      26.8      $ 168,800,000      $ 144,292,073  
       

 

 

   

 

 

    

 

 

    

 

 

 

 

4


Table of Contents

TCW DIRECT LENDING LLC

Consolidated Schedule of Investments (Unaudited) (Continued)

As of September 30, 2020

 

Industry

  

Issuer

   Acquisition
Date
    

Investment

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

 

   Blackrock Liquidity Funds, Yield 1.00%            12.2     65,810,505         $ 65,810,505      $ 65,810,505  
   U.S. Treasury Bill, Yield 0.01%            74.3     400,000,000           399,874,388        399,874,388  
           

 

 

   

 

 

       

 

 

    

 

 

 
              86.5     465,810,505           465,684,893        465,684,893  
           

 

 

   

 

 

       

 

 

    

 

 

 
   Total Cash Equivalents      86.5         $ 465,684,893      $ 465,684,893  
           

 

 

         

 

 

    

 

 

 
   Total Investments 220.5%

 

   $ 1,371,140,237      $ 1,187,100,555  
                   

 

 

    

 

 

 
   Net unrealized depreciation on unfunded commitments (0.0%)

 

         $ (32,828
                      

 

 

 
   Liabilities in Excess of Other Assets (120.5%)

 

         $ (648,583,483
                      

 

 

 
   Net Assets 100.0%

 

         $ 538,484,244  
                      

 

 

 

 

5


Table of Contents

TCW DIRECT LENDING LLC

Consolidated Schedule of Investments (Unaudited) (Continued)

As of September 30, 2020

 

(1)

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

(2)

Non-income producing.

(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 September 30, 2020, $150,300,158 or 12.5% of the Company’s total assets were represented by “non-qualifying assets.”

(4)

Holding of Animal Supply Holdings, LLC Class A units are held through TCW DL ASH LLC, a special purpose vehicle.

(5)

Holdings of Carrier & Technology Holdings, LLC common stock are held through TCW DL CTH LLC, a special purpose vehicle.

(6)

The fair value of the Quantum Corporation Common Stock held by the Company is based on the quoted market price of the issuer’s stock as of September 30, 2020. Such common stock is considered to be a Level 1 security within the Fair Value Hierarchy. The fair value of each non-controlled/non-affiliated 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.”

(7)

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.

 

  LIBOR

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

Aggregate acquisitions and aggregate dispositions of investments, other than government securities, totaled $136,864,348 and $302,105,733, respectively, for the period ended September 30, 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

     99.5

Canada

     0.5

See Notes to Consolidated Financial Statements.

 

6


Table of Contents

TCW DIRECT LENDING LLC

Consolidated Schedule of Investments

As of December 31, 2019

 

Industry

  

Issuer

   Acquisition
Date
    

Investment

   % of Net
Assets
     Par Amount      Maturity
Date
     Amortized
Cost
     Fair Value  
   Non-Controlled/Non-Affiliated Investments Debt(1)               
Auto Components                                                    
  

Challenge Manufacturing Company LLC

     04/20/17     

Term Loan - 8.80%

(LIBOR + 7.00%, 1.00% Floor)

     5.3%      $ 47,217,268        04/20/22      $ 46,728,546      $ 46,414,574  
           

 

 

    

 

 

       

 

 

    

 

 

 
                      5.3%      47,217,268             46,728,546      46,414,574  
           

 

 

    

 

 

       

 

 

    

 

 

 

Commercial Services &

Supplies

                                                   
  

School Specialty, Inc.

     04/07/17     

Delayed Draw Term Loan - 16.75% inc. PIK (PRIME + 9.00%, 1.00% Floor, 3.00% PIK)

     0.4%        3,996,117        11/22/20        3,996,117        3,768,338  
  

School Specialty, Inc.

     04/07/17     

Term Loan A - 16.75% inc. PIK

(PRIME + 9.00%, 1.00% Floor, 3.00% PIK)

     3.3%        30,004,431        11/22/20        29,703,130        28,294,179  
           

 

 

    

 

 

       

 

 

    

 

 

 
                      3.7%      34,000,548             33,699,247      32,062,517  
           

 

 

    

 

 

       

 

 

    

 

 

 
Construction &
Engineering
                                                   
  

Intren, LLC

     07/18/17     

Term Loan - 8.45%

(LIBOR + 6.75%, 1.25% Floor)

     1.0%        10,537,755        07/18/23        10,413,341        8,851,715  
           

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
                      1.0%      10,537,755             10,413,341      8,851,715  
           

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
Distributors                                                    
  

ASC Acquisition Holdings, LLC

     02/25/19     

Term Loan - 11.80% inc. PIK

(LIBOR + 7.50%, 1.00% Floor, 2.50% PIK)

     1.9%        23,187,573        02/22/22        22,679,993        16,973,303  
           

 

 

    

 

 

       

 

 

    

 

 

 
                      1.9%      23,187,573             22,679,993      16,973,303  
           

 

 

    

 

 

       

 

 

    

 

 

 
Diversified Financial
Services
                                                   
  

Carrier & Technology Holdings, LLC

     07/02/18     

Term Loan - 11.75%

(11.75%, Fixed Coupon, all PIK)

     0.0%        42,679,251        07/02/23        42,546,059        —    
  

Guardia LLC (fka Carrier & Technology Solutions, LLC)

     07/02/18     

Revolver - 9.02%

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

     1.0%        8,494,311        07/02/23        8,494,311        8,494,311  
  

Guardia LLC (fka Carrier & Technology Solutions, LLC)

     07/02/18     

Term Loan - 8.96%

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

     0.9%        11,692,763        07/02/23        11,655,180        7,740,609  
           

 

 

    

 

 

       

 

 

    

 

 

 
                      1.9%      20,187,074             20,149,491      16,234,920  
           

 

 

    

 

 

       

 

 

    

 

 

 
  

Verus Analytics, LLC

     04/11/16     

First Lien Term Loan - 9.20%

(LIBOR + 7.25%, 0.75% Floor)

     1.8%        15,859,375        04/12/21        15,778,386        15,859,375  
           

 

 

    

 

 

       

 

 

    

 

 

 
                      3.7%      78,725,700             78,473,936      32,094,295  
           

 

 

    

 

 

       

 

 

    

 

 

 
Food Products                                                    
  

Bumble Bee Foods, LLC

     11/01/19     

DIP Term Loan - 12.29%

(LIBOR + 10.50%, 1.00% Floor)

     0.3%        2,632,205        05/26/20        2,510,487        2,632,205  
  

Bumble Bee Foods, LLC

     11/01/19     

Delayed Draw Term Loan - 12.29%

(LIBOR + 10.50%, 1.00% Floor)

     0.3%        2,632,205        05/26/20        2,632,205        2,632,205  
  

Bumble Bee Holdings, Inc.

     08/15/17     

Term Loan B1 - 13.75% inc. PIK

(PRIME + 7.50%, 2.00% Floor, 1.50% PIK)

     3.9%        33,416,751        08/15/23        33,020,954        33,851,168  
  

Connors Bros. Clover Leaf Seafoods Company (Canada) (an affiliate of Bumble Bee Holdings, Inc.)(2)

     08/15/17     

Term Loan B2 - 13.75% inc. PIK

(PRIME + 7.50%, 2.00% Floor, 1.50% PIK)

     1.1%        9,467,529        08/15/23        9,355,394        9,590,608  
  

Harvest Hill Beverage Company

     01/20/16     

Term Loan A1 - 8.30%

(LIBOR + 6.50%, 1.00% Floor)

     7.0%        61,188,810        01/19/21        60,995,793        61,188,810  
           

 

 

    

 

 

       

 

 

    

 

 

 
                      12.6%      109,337,500             108,514,833      109,894,996  
           

 

 

    

 

 

       

 

 

    

 

 

 

 

7


Table of Contents

TCW DIRECT LENDING LLC

Consolidated Schedule of Investments (Continued)

As of December 31, 2019

 

Industry

 

Issuer

   Acquisition
Date
 

Investment

   % of Net
Assets
     Par Amount      Maturity
Date
   Amortized
Cost
     Fair Value  
Health Care
Providers & Services
                                             
 

Help at Home, LLC

   08/03/15  

Revolver - 8.43%

(LIBOR + 6.63%, 1.25% Floor)

     0.5%      $ 4,324,324      08/03/20    $ 4,324,324      $ 4,324,324  
  Help at Home, LLC    08/03/15  

Term Loan B - 8.45%

(LIBOR + 6.75%, 1.25% Floor)

     5.1%        44,900,288      08/03/20      44,799,753        44,900,288  
         

 

 

    

 

 

       

 

 

    

 

 

 
            5.6%        49,224,612           49,124,077        49,224,612  
         

 

 

    

 

 

       

 

 

    

 

 

 

Hotels,

Restaurants &

Leisure

                                             
 

KBP Investments, LLC (fka FQSR, LLC)

   05/14/18  

Delayed Draw Term Loan - 7.42%

(LIBOR + 5.50%, 1.00% Floor)

     1.2%        10,797,116      05/14/23      10,797,116        10,797,116  
 

KBP Investments, LLC (fka FQSR, LLC)

   05/14/18  

Term Loan - 7.41%

(LIBOR + 5.50%, 1.00% Floor)

     2.8%        24,200,810      05/14/23      23,664,447        24,200,810  
         

 

 

    

 

 

       

 

 

    

 

 

 
                  4.0%      34,997,926           34,461,563      34,997,926  
         

 

 

    

 

 

       

 

 

    

 

 

 
 

OTG Management, LLC

   06/30/16  

Delayed Draw Term Loan - 8.90%

(LIBOR + 7.00%, 1.00% Floor)

     2.1%        18,546,807      08/26/21      18,489,721        18,639,541  
 

OTG Management, LLC

   06/30/16  

Term Loan - 9.00%

(LIBOR + 7.00%, 1.00% Floor)

     6.7%        58,502,243      08/26/21      58,115,859        58,794,754  
         

 

 

    

 

 

       

 

 

    

 

 

 
                  8.8%      77,049,050           76,605,580      77,434,295  
         

 

 

    

 

 

       

 

 

    

 

 

 
 

Ruby Tuesday, Inc.

   12/21/17  

Term Loan - 11.94% inc. PIK

(LIBOR + 8.00%, 1.00% Floor, 2.00% PIK)

     1.9%        17,034,239      12/21/22      16,510,648        16,540,246  
         

 

 

    

 

 

       

 

 

    

 

 

 
                  14.7%      129,081,215           127,577,791      128,972,467  
         

 

 

    

 

 

       

 

 

    

 

 

 
Household Durables                                              
 

Cedar Electronics Holdings, Corp.

   01/30/19  

Incremental Term Loan - 15.00% inc. PIK

(15.00% , Fixed Coupon, all PIK)

     0.3%        2,738,388      06/26/20      2,738,388        2,738,388  
 

Cedar Electronics Holdings, Corp.

   05/19/15  

Term Loan - 9.70%

(LIBOR + 8.00%, 1.50% Floor)

     2.3%        19,817,479      06/26/20      19,773,204        19,817,479  
         

 

 

    

 

 

       

 

 

    

 

 

 
                  2.6%      22,555,867           22,511,592      22,555,867  
         

 

 

    

 

 

       

 

 

    

 

 

 
Industrial
Conglomerates
                                             
 

H-D Advanced Manufacturing Company

   06/30/15  

First Lien Last Out Term Loan - 10.44% inc. PIK

(LIBOR + 7.00%, 1.00% Floor, 1.50% PIK)

     11.5%        105,574,504      12/31/21      105,205,810        100,190,204  
         

 

 

    

 

 

       

 

 

    

 

 

 
                  11.5%      105,574,504           105,205,810      100,190,204  
         

 

 

    

 

 

       

 

 

    

 

 

 
Information
Technology Services
                                             
 

ENA Holding Corporation

   05/06/16  

First Lien Term Loan - 9.16% inc. PIK

(LIBOR + 7.25%, 1.00% Floor, 2.50% PIK)

     4.8%        43,605,802      05/06/21      43,317,091        41,730,752  
 

ENA Holding Corporation

   05/06/16  

Revolver - 9.17%

(LIBOR + 7.25%, 1.00% Floor, 2.50% PIK)

     0.9%        8,092,133      05/06/21      8,092,133        7,744,172  
         

 

 

    

 

 

       

 

 

    

 

 

 
                  5.7%      51,697,935           51,409,224      49,474,924  
         

 

 

    

 

 

       

 

 

    

 

 

 
Internet & Direct
Marketing Retail
                                             
 

Lulu’s Fashion Lounge, LLC

   08/28/17  

First Lien Term Loan - 10.80%

(LIBOR + 9.00%, 1.00% Floor)

     1.4%        12,292,109      08/28/22      12,095,363        12,316,693  
         

 

 

    

 

 

       

 

 

    

 

 

 
                  1.4%      12,292,109           12,095,363      12,316,693  
         

 

 

    

 

 

       

 

 

    

 

 

 

 

8


Table of Contents

TCW DIRECT LENDING LLC

Consolidated Schedule of Investments (Continued)

As of December 31, 2019

 

Industry

  

Issuer

   Acquisition
Date
    

Investment

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

Pace Industries, Inc.

     06/30/15     

First Lien Term Loan - 12.70% inc. PIK (LIBOR + 8.25%, 1.00% Floor, 2.50% PIK)

     10.0%      $ 93,224,671        06/30/20      $ 91,874,763      $ 87,910,865  
           

 

 

    

 

 

       

 

 

    

 

 

 
              10.0%        93,224,671           91,874,763        87,910,865  
           

 

 

    

 

 

       

 

 

    

 

 

 
Pharmaceuticals                                                    
  

Noramco, LLC

     07/01/16     

Senior Term Loan - 10.48% inc. PIK (LIBOR + 8.00%, 1.00% Floor, 0.38% PIK)

     4.1%        50,914,830        07/01/21        50,713,260        35,589,466  
           

 

 

    

 

 

       

 

 

    

 

 

 
              4.1%        50,914,830           50,713,260        35,589,466  
           

 

 

    

 

 

       

 

 

    

 

 

 
Software                                                    
  

Quicken Parent Corp.

     04/01/16     

First Lien Term Loan - 10.71% inc. PIK (LIBOR + 8.50%, 1.00% Floor, 0.50% PIK)

     2.2%        20,324,881        04/01/21        20,284,943        19,715,135  
           

 

 

    

 

 

       

 

 

    

 

 

 
              2.2%        20,324,881           20,284,943        19,715,135  
           

 

 

    

 

 

       

 

 

    

 

 

 
  

Total Debt Investments

           86.0%              831,306,719        752,241,633  
           

 

 

          

 

 

    

 

 

 
     Equity                      
Shares
                      
Distributors                                                    
  

Animal Supply Holdings, LLC(3),(4),(6)

     

Class A

     0.0%        9,807           708,537        —    
           

 

 

    

 

 

       

 

 

    

 

 

 
              0.0%        9,807           708,537        —    
           

 

 

    

 

 

       

 

 

    

 

 

 
Diversified Financial
Services
                                                   
  

Carrier & Technology Holdings, LLC(3),(4),(5)

     

Common Stock

     0.0%        2,143           —          —    
  

Verus Financial, LLC(4),(7)

     

Common Stock

     0.9%        8,750           7,640,647        8,049,137  
           

 

 

    

 

 

       

 

 

    

 

 

 
              0.9%        10,893           7,640,647        8,049,137  
           

 

 

    

 

 

       

 

 

    

 

 

 
Hotels, Restaurants &
Leisure
                                                   
  

RTI Holding Company, LLC (an affiliate of Ruby Tuesday, Inc.)(3),(4)

     

Warrant, expires 12/21/27

     0.1%        1,470,632           1,379,747        1,007,408  
           

 

 

    

 

 

       

 

 

    

 

 

 
              0.1%        1,470,632           1,379,747        1,007,408  
           

 

 

    

 

 

       

 

 

    

 

 

 
Household Durables                                                    
  

Cedar Ultimate Parent LLC(3),(4)

     

Common Stock

     0.0%        300,000           —          —    
  

Cedar Ultimate Parent LLC(3),(4)

     

Preferred Stock

     0.2%        9,297,990           9,187,900        1,640,937  
  

Cedar Ultimate Parent LLC(3),(4)

     

Preferred Stock

     0.0%        2,900,000           —          —    
           

 

 

    

 

 

       

 

 

    

 

 

 
              0.2%        12,497,990           9,187,900        1,640,937  
           

 

 

    

 

 

       

 

 

    

 

 

 
Technologies
Hardware, Storage and
Peripherals
                                                   
  

Quantum Corporation(3)

     

Common Stock

     2.3%        2,670,415           9,799,470        19,814,479  
           

 

 

    

 

 

       

 

 

    

 

 

 
              2.3%        2,670,415           9,799,470        19,814,479  
           

 

 

    

 

 

       

 

 

    

 

 

 
Commercial Services &
Supplies
                                                   
  

School Specialty, Inc.(3),(4)

     

Warrant, expires 12/27/22

     0.0%        487,004           124,655        124,508  
           

 

 

    

 

 

       

 

 

    

 

 

 
              0.0%        487,004           124,655        124,508  
           

 

 

    

 

 

       

 

 

    

 

 

 

 

9


Table of Contents

TCW DIRECT LENDING LLC

Consolidated Schedule of Investments (Continued)

As of December 31, 2019

 

Industry

  

Issuer

  

Investment

   % of
Net
Assets
    
Shares
     Amortized
Cost
     Fair Value  
Metals & Mining                                      
  

KPI Holding LLC(3),(4)

  

Warrant, expires 06/30/2020

     0.0%        4,466      $ 1,692,000      $ —  
        

 

 

    

 

 

    

 

 

    

 

 

 
           0.0%        4,466        1,692,000        —    
        

 

 

    

 

 

    

 

 

    

 

 

 
  

Total Equity Investments

        3.5%           30,532,956        30,636,469  
        

 

 

       

 

 

    

 

 

 
  

Total Non-Controlled/Non-Affiliated Investments(8)

     89.5%         $ 861,839,675      $ 782,878,102  
     

 

 

       

 

 

    

 

 

 
                            
Cost
        
  

Controlled/Affiliated Investments

              
Investment Funds
& Vehicles
                                     
  

TCW Direct Lending Strategic Ventures LLC(2),(9)

  

Preferred membership interests

     22.4%        211,200        211,200,000        195,726,195  
  

TCW Direct Lending Strategic Ventures LLC(2),(3)(9)

  

Common membership interests

     0.0%        800        —          —    
        

 

 

       

 

 

    

 

 

 
  

Total Controlled/Affiliated Investments

        22.4%         $ 211,200,000      $ 195,726,195  
        

 

 

       

 

 

    

 

 

 
  

Cash Equivalents

              
  

Blackrock Liquidity Funds, Yield 1.52%

        8.0%        69,842,068        69,842,068        69,842,068  
        

 

 

       

 

 

    

 

 

 
  

Total Investments 119.9%

            $ 1,142,881,743      $ 1,048,446,365  
              

 

 

    

 

 

 
  

Net unrealized depreciation on unfunded commitments (0.0%)

               $ (25,875
                 

 

 

 
  

Liabilities in Excess of Other Assets (19.9%)

               $ (174,192,368
                 

 

 

 
  

Net Assets 100.0%

               $ 874,228,122  
                 

 

 

 

 

10


Table of Contents

TCW DIRECT LENDING LLC

Consolidated Schedule of Investments (Continued)

As of December 31, 2019

 

(1)

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

(2)

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, 2019, $205,316,803 or 16.5% of the Company’s total assets were represented by “non-qualifying assets.”

(3)

Non-income producing.

(4)

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, 2019, the aggregate fair value of these securities was $10,821,990, or 0.9% of the Company’s total assets.

(5)

Holdings of Carrier & Technology Holdings, LLC common stock are held through TCW DL CTH LLC, a special purpose vehicle.

(6)

Holdings of Animal Supply Holdings, LLC Class A units are held through TCW DL ASH LLC, a special purpose vehicle.

(7)

Holdings of Verus Financial, LLC common stock are held through TCW DL VF Holdings, Inc., a special purpose vehicle.

(8)

The fair value of the Quantum Corporation Common Stock held by the Company is based on the quoted market price of the issuer’s stock as of December 31, 2019. Such common stock is considered to be a Level 1 security within the Fair Value Hierarchy. The fair value of each non-controlled/non-affiliated 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.”

(9)

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.

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 $71,865,047 and $162,495,879, respectively, for the year ended December 31, 2019. 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

     99.1

Canada

     0.9

See Notes to Consolidated Financial Statements.

 

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TCW DIRECT LENDING LLC

Consolidated Statements of Assets and Liabilities

(Dollar amounts in thousands, except unit data)

 

     As of
September 30,
2020
(unaudited)
    As of
December 31,
2019
 

Assets

    

Investments, at fair value

    

Non-controlled/non-affiliated investments (amortized cost of $736,655 and $861,840, respectively)

   $ 577,124     $ 782,878  

Controlled affiliated investments (cost of $168,800 and $211,200, respectively)

     144,292       195,726  

Cash and cash equivalents

     72,454       254,474  

Short-term investments

     399,874       —    

Interest receivable

     6,712       7,427  

Deferred financing costs

     1,467       710  

Prepaid and other assets

     130       81  
  

 

 

   

 

 

 

Total Assets

   $ 1,202,053     $ 1,241,296  
  

 

 

   

 

 

 

Liabilities

    

Payable for short-tern investments purchased

   $ 399,874     $ —    

Credit facility payable

     260,250       364,065  

Management fees payable

     1,867       2,094  

Interest and credit facility expense payable

     854       111  

Directors’ fees payable

     203       —    

Unrealized depreciation on unfunded commitments

     33       26  

Other accrued expenses and other liabilities

     488       772  
  

 

 

   

 

 

 

Total Liabilities

   $ 663,569     $ 367,068  
  

 

 

   

 

 

 

Commitments and Contingencies (Note 5)

    

Members’ Capital

    

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

   $ 2,013,470     $ 2,013,470  

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

     (409,125     (409,125

Common Unitholders’ return of capital

     (855,250     (618,250

Common Unitholders’ offering costs

     (853     (853

Accumulated Common Unitholders’ tax reclassification

     (13,595     (13,595
  

 

 

   

 

 

 

Common Unitholders’ capital

     734,647       971,647  

Accumulated loss

     (196,163     (97,419
  

 

 

   

 

 

 

Total Members’ Capital

   $ 538,484     $ 874,228  
  

 

 

   

 

 

 

Total Liabilities and Members’ Capital

   $ 1,202,053     $ 1,241,296  
  

 

 

   

 

 

 

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

   $ 47.06     $ 63.74  
  

 

 

   

 

 

 

See Notes to Consolidated Financial Statements.

 

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TCW DIRECT LENDING LLC

Consolidated Statements of Operations (Unaudited)

(Dollar amounts in thousands, except unit data)

 

     For the three months ended
September 30,
    For the nine months ended
September 30,
 
     2020     2019     2020     2019  

Investment Income

        

Interest income from non-controlled/non-affiliated investments

   $ 4,369     $ 22,659     $ 38,519     $ 69,526  

Interest income from non-controlled/non-affiliated investments paid-in-kind

     15,186       4,432       26,265       10,992  

Dividend income from non-controlled/non-affiliated investments

     1       (2     217       53  

Dividend income from controlled affiliated investments

     16,000       —         16,000       39,360  

Other fee income from non-controlled/non-affiliated investments

     —         51       112       640  
  

 

 

   

 

 

   

 

 

   

 

 

 

Total investment income

     35,556       27,140       81,113       120,571  

Expenses

        

Interest and credit facility expenses

     2,807       4,264       9,123       13,902  

Management fees

     1,867       2,152       5,814       6,512  

Professional fees

     157       156       725       592  

Administrative fees

     233       262       723       788  

Directors’ fees

     78       78       242       243  

Other expenses

     167       (7     284       88  
  

 

 

   

 

 

   

 

 

   

 

 

 

Total expenses

     5,309       6,905       16,911       22,125  
  

 

 

   

 

 

   

 

 

   

 

 

 

Net investment income

   $ 30,247     $ 20,235     $ 64,202     $ 98,446  

Net realized and unrealized gain (loss) on investments

        

Net realized (loss) gain on non-controlled/non-affiliated investments

   $ (5,887   $ 86     $ (3,686   $ (341

Net change in unrealized appreciation/depreciation on non-controlled/non-affiliated investments

     (5,946     12,140       (80,576     (18,439

Net change in unrealized appreciation/depreciation on controlled affiliated investments

     (14,669     11,566       (9,034     (12,753
  

 

 

   

 

 

   

 

 

   

 

 

 

Net realized and unrealized (loss) gain on investments

   $ (26,502   $ 23,792     $ (93,296   $ (31,533
  

 

 

   

 

 

   

 

 

   

 

 

 

Net increase (decrease) in Members’ Capital from operations

   $ 3,745     $ 44,027     $ (29,094   $ 66,913  
  

 

 

   

 

 

   

 

 

   

 

 

 

Basic and diluted:

        

Income (Loss) per unit

   $ 0.19     $ 2.19     $ (1.44   $ 3.32  

See Notes to Consolidated Financial Statements.

 

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TCW DIRECT LENDING 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

   $ 971,647     $ (97,419   $ 874,228  

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

      

Net investment income

     —         17,880       17,880  

Net realized gain on investments

     —         2,158       2,158  

Net change in unrealized appreciation/depreciation on investments

     —         (45,276     (45,276

Distributions to Members from:

      

Distributable earnings

     —         (69,650     (69,650

Return of capital

     (62,000     —         (62,000
  

 

 

   

 

 

   

 

 

 

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

     (62,000     (94,888     (156,888
  

 

 

   

 

 

   

 

 

 

Members’ Capital at March 31, 2020

   $ 909,647     $ (192,307   $ 717,340  

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

      

Net investment income

     —         16,075       16,075  

Net realized gain on investments

     —         43       43  

Net change in unrealized appreciation/depreciation on investments

     —         (23,719     (23,719
  

 

 

   

 

 

   

 

 

 

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

     —         (7,601     (7,601
  

 

 

   

 

 

   

 

 

 

Members’ Capital at June 30, 2020

   $ 909,647     $ (199,908   $ 709,739  

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

      

Net investment income

     —         30,247       30,247  

Net realized loss on investments

     —         (5,887     (5,887

Net change in unrealized appreciation/depreciation on investments

     —         (20,615     (20,615

Distributions to Members from:

      

Return of capital

     (175,000     —         (175,000
  

 

 

   

 

 

   

 

 

 

Total (Decrease) Increase in Members’ Capital for the three months ended September 30, 2020

     (175,000     3,745       (171,255
  

 

 

   

 

 

   

 

 

 

Members’ Capital at September 30, 2020

   $ 734,647     $ (196,163   $ 538,484  
  

 

 

   

 

 

   

 

 

 

See Notes to Consolidated Financial Statements.

 

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TCW DIRECT LENDING LLC

Consolidated Statements of Changes in Members’ Capital (Unaudited) (Continued)

(Dollar amounts in thousands, except unit data)

 

     Common
Unitholders’
Capital
    Accumulated
Earnings (Loss)
    Total  

Members’ Capital at December 31, 2018

   $ 979,882     $ (66,339   $ 913,543  

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

      

Net investment income

     —         41,243       41,243  

Net realized loss on investments

     —         (580     (580

Net change in unrealized appreciation/depreciation on investments

     —         (19,221     (19,221

Distributions to Members from:

      

Distributable earnings

       (15,000     (15,000

Return of capital

     (82,000     —         (82,000
  

 

 

   

 

 

   

 

 

 

Total (Decrease) Increase in Members’ Capital for the three months ended March 31, 2019

     (82,000     6,442       (75,558
  

 

 

   

 

 

   

 

 

 

Members’ Capital at March 31, 2019

   $ 897,882     $ (59,897   $ 837,985  

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

      

Net investment income

     —         36,968       36,968  

Net realized gain on investments

     —         153       153  

Net change in unrealized appreciation/depreciation on investments

     —         (35,677     (35,677

Distributions to Members from:

      

Distributable earnings

     —         (12,000     (12,000
  

 

 

   

 

 

   

 

 

 

Total Decrease in Members’ Capital for the three months ended June 30, 2019

     —         (10,556     (10,556
  

 

 

   

 

 

   

 

 

 

Members’ Capital at June 30, 2019

   $ 897,882     $ (70,453   $ 827,429  

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

      

Net investment income

     —         20,235       20,235  

Net realized gain on investments

     —         86       86  

Net change in unrealized appreciation/depreciation on investments

     —         23,706       23,706  
  

 

 

   

 

 

   

 

 

 

Total Increase in Members’ Capital for the three months ended September 30, 2019

     —         44,027       44,027  
  

 

 

   

 

 

   

 

 

 

Members’ Capital at September 30, 2019

   $ 897,882     $ (26,426   $ 871,456  
  

 

 

   

 

 

   

 

 

 

See Notes to Consolidated Financial Statements.

 

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TCW DIRECT LENDING LLC

Consolidated Statements of Cash Flows (Unaudited)

(Dollar amounts in thousands, except unit data)

 

     For the nine
months ended
September 30,
 
     2020     2019  

Cash Flows from Operating Activities

    

Net (decrease) increase in net assets resulting from operations

   $ (29,094   $ 66,913  

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

    

Purchases of investments

     (110,599     (35,789

Purchases of short-term investments

     (399,874     —    

Interest income paid in-kind

     (26,265     (10,992

Proceeds from sales and paydowns of investments

     302,106       104,947  

Net realized loss on investments

     3,686       341  

Change in net unrealized/appreciation depreciation on investments

     89,610       31,192  

Amortization of premium and accretion of discount, net

     (1,343     (4,351

Amortization of deferred financing costs

     1,222       1,907  

Increase (decrease) in operating assets and liabilities:

    

(Increase) decrease in interest receivable

     715       1,193  

(Increase) decrease in receivable for investment sold

     —         (80

(Increase) decrease in receivable from Adviser

     —         (1

(Increase) decrease in prepaid and other assets

     (49     85  

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

     399,874       —    

Increase (decrease) in interest and credit facility expense payable

     743       15  

Increase (decrease) in management fees payable

     (227     (352

Increase (decrease) in directors’ fees payable

     203       203  

Increase (decrease) in other accrued expenses and liabilities

     (284     (20
  

 

 

   

 

 

 

Net cash provided by operating activities

   $ 230,424     $ 155,211  
  

 

 

   

 

 

 

Cash Flows from Financing Activities

    

Return of capital

   $     (237,000   $ (82,000

Distributions to Members

     (69,650     (27,000

Deferred financing costs paid

     (1,979     —    

Proceeds from credit facility

     353,000       115,000  

Repayments of credit facility

     (456,815     (116,000
  

 

 

   

 

 

 

Net cash used in financing activities

   $ (412,444   $     (110,000
  

 

 

   

 

 

 

Net increase in cash and cash equivalents

   $ (182,020   $ 45,211  

Cash and cash equivalents, beginning of period

   $ 254,474     $ 145,912  
  

 

 

   

 

 

 

Cash and cash equivalents, end of period

   $ 72,454     $ 191,123  
  

 

 

   

 

 

 

Supplemental and non-cash financing activities

    

Interest expense paid

   $ 6,111     $ 11,583  

See Notes to Consolidated Financial Statements.

 

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Table of Contents

TCW DIRECT LENDING LLC

Notes to Consolidated Financial Statements (Unaudited)

(Dollar amounts in thousands, except unit data)

September 30, 2020

1. Organization and Basis of Presentation

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

The Company has elected to be regulated as a business development company (“BDC”) under the Investment Company Act of 1940, as amended (the “1940 Act”). The Company has also elected to be treated for U.S. federal income tax purposes as a Regulated Investment Company (a “RIC”) under Subchapter M of the U.S Internal Revenue Code of 1986, as amended (the “Code”) for the taxable year ending December 31, 2015 and subsequent years. The Company is required to meet the minimum distribution and other requirements for RIC qualification and as a BDC and a RIC, the Company is required to comply with certain regulatory requirements.

In 2019, the Company established two wholly-owned subsidiaries, TCW DL CTH LLC and TCW DL ASH LLC, each a Delaware limited liability company and each designed to hold an equity investment of the Company.

In 2020, the Company established TCW DL SSP LLC, also a Delaware limited liability company, also designed to hold an equity investment of the Company.

These consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. All significant intercompany transactions and balances have been eliminated in consolidation.

Term: The initial term of the Company continued until the sixth anniversary of the Initial Closing Date (as defined below), September 14, 2020 unless extended or sooner dissolved as provided in the limited liability 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 Common Units and holders of preferred units, if any, (collectively the “Unitholders” or “Members”) at least 90 days prior to the expiration of the term or the end of the first one-year period. Thereafter, the term may be extended for successive one-year periods, with the vote or consent of a supermajority in interest of the holders of the Common Units. On June 10, 2020, the Company’s Board of Directors (the “Board”) approved a one-year extension of the Company’s term to September 2021.

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

Capital Commitments: On September 19, 2014 (“the Initial Closing Date”), the Company began accepting subscription agreements from investors for the private sale of its Common Units. On March 19, 2015, the Company completed its final private placement of its Common Units. Subscription agreements with commitments (“Commitments”) from investors (each a “Common Unitholder”) totaling $2,013,470 for the purchase of Common Units were accepted. Each Common Unitholder is obligated to contribute capital equal to their Commitment and each Unit’s Commitment obligation is $100.00 per unit. The amount of capital that remains to be drawn down and contributed is referred to as an “Undrawn Commitment”.

 

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TCW DIRECT LENDING LLC

Notes to Consolidated Financial Statements (Unaudited) (Continued)

(Dollar amounts in thousands, except unit data)

September 30, 2020

 

1. Organization and Basis of Presentation (Continued)

The commitment amount funded does not include amounts contributed in anticipation of a potential investment that the Company did not consummate and therefore returned to the Members’ as unused capital. As of September 30, 2020, aggregate Commitments, Undrawn Commitments, the percentage of Commitments funded and the number of subscribed for Units of the Company were as follows:

 

     Commitments      Undrawn
Commitments
     % of
Commitments
Funded
    Units  

Common Unitholder

   $ 2,013,470      $ 409,125        79.7     20,134,698  

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

The Recallable Amount as of September 30, 2020 was $100,875.

2. Significant Accounting Policies

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

Use of Estimates: The preparation of the consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect (i) the reported amounts of assets and liabilities at the date of the financial statements, (ii) the reported amounts of income and expenses during the years presented and (iii) disclosure of contingent assets and liabilities at the date of the consolidated financial statements. Actual results could differ from those estimates, and such differences could be material.

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

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

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

 

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TCW DIRECT LENDING LLC

Notes to Consolidated Financial Statements (Unaudited) (Continued)

(Dollar amounts in thousands, except unit data)

September 30, 2020

 

2. Significant Accounting Policies (Continued)

Certain investments have an unfunded loan commitment for a delayed draw term loan or revolving credit. The Company earns an unused commitment fee on the unfunded commitment during the commitment period. The expiration date of the commitment period may be earlier than the maturity date of the investment stated above. See Note 5—Commitments and Contingencies.

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

Deferred Financing Costs: Deferred financing costs incurred by the Company in connection with the revolving credit facility, including arrangement fees, upfront fees and legal fees, are amortized on a straight-line basis over the term of the revolving credit facility.

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

Cash and Cash Equivalents: The Company considers all investments with a maturity of three months or less at the time of acquisition to be cash equivalents. As of September 30, 2020, cash and cash equivalents is comprised of demand deposits and highly liquid investments with maturities of three months or less. Cash equivalents are carried at amortized costs which approximates fair value, and are classified as Level 1 in the GAAP valuation hierarchy.

Income Taxes: So long as the Company maintains its status as a RIC, it generally will not pay corporate-level U.S. Federal income taxes on any ordinary income or capital gains that it distributes at least annually to its Members as dividends. Rather, any tax liability related to income earned and distributed by the Company represents obligations of the Company’s Members and will not be reflected in the consolidated financial statements of the Company.

Recent Accounting Pronouncements: On August 28, 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework – Changes to the Disclosure Requirements for Fair Value Measurement. The updated guidance modifies the disclosure requirements on fair value measurements by (1) removing certain disclosure requirements including policies related to valuation processes and the timing of transfers between levels of the fair value hierarchy, (2) amending disclosure requirements related to measurement uncertainty from the use of significant unobservable inputs, and (3) adding certain new disclosure requirements including changes in unrealized gains and losses for the period included in other comprehensive income (loss) for recurring Level 3 fair value measurements held at the end of the reporting period and the range and weighted average used to develop significant unobservable inputs for Level 3 fair value measurements. This ASU is effective for fiscal years beginning after December 15, 2019, including interim periods therein, with early adoption permitted. As permitted by the ASU, the Company early adopted the following applicable provisions of the ASU:

 

   

removed the Company’s disclosure of policy for timing of transfers between levels;

 

   

removed the disclosure describing the Company’s valuation process for Level 3 fair value measurements;

 

   

for investments measured using net asset values, disclosed (1) the timing of liquidation of an investee’s assets and (2) the date when redemption restrictions will lapse, to the extent that such information has been publicly announced by the investee; and

 

   

disclosed information about the uncertainty of Level 3 fair value measurements as of the reporting date, rather than at a point in the future.

During the fourth quarter of 2019, the Company adopted the remaining provisions of the ASU which included disclosing the range and weighted average used to develop significant unobservable inputs for Level 3 fair value measurements. The adoption of the ASU did not have a material impact on the Company’s consolidated financial statements.

 

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TCW DIRECT LENDING LLC

Notes to Consolidated Financial Statements (Unaudited) (Continued)

(Dollar amounts in thousands, except unit data)

September 30, 2020

 

3. Investment Valuations and Fair Value Measurements

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

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

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

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

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

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

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

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

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

Level 3 Assets (Investments): The following valuation techniques and significant inputs are used to determine the fair value of investments in private debt and equity for which reliable market quotations are not available. Some of the inputs are independently observable however, a significant portion of the inputs and the internal assumptions applied are unobservable.

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

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

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

Net Asset Value (“NAV”) (Investment Funds and Vehicles): Equity investments in affiliated investment fund (Strategic Ventures) are valued based on the NAV reported by the investment fund. Investments held by the affiliated fund include debt investments in privately originated senior secured debt. Such investments held by the affiliated fund are valued using the same methods, approach and standards applied above to debt investments held by the Company. The Company’s ability to withdraw from the fund is subject to restrictions. The term of the fund will continue until June 5, 2021 unless dissolved earlier or extended for two additional one-year

 

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Table of Contents

TCW DIRECT LENDING LLC

Notes to Consolidated Financial Statements (Unaudited) (Continued)

(Dollar amounts in thousands, except unit data)

September 30, 2020

 

3. Investment Valuations and Fair Value Measurements (Continued)

periods by the Company, in its full discretion. The Company can further extend the term of the fund for additional one-year periods, upon notice to and consent from the fund’s management committee. The Company is entitled to income and principal distributed by the fund.

The following is a summary by major security type of the fair valuations according to inputs used in valuing investments listed in the Consolidated Schedule of Investments as of September 30, 2020:

 

Investments

   Level 1      Level 2      Level 3      NAV      Total  

Debt

   $ —      $ —      $ 559,058      $ —      $ 559,058  

Equity

     12,284        —          5,782        —          18,066  

Investment Funds & Vehicles (1)

     —          —          —          144,292        144,292  

Short- term investments

     399,874        —          —          —          399,874  

Cash equivalents

     65,811        —          —          —          65,811  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total Assets

   $ 477,969      $ —      $ 564,840      $ 144,292      $ 1,187,101  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

(1) 

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

The following is a summary by major security type of the fair valuations according to inputs used in valuing investments listed in the Consolidated Schedule of Investments as of December 31, 2019:

 

Investments

   Level 1      Level 2      Level 3      NAV      Total  

Debt

   $ —      $ —      $ 752,242      $ —      $ 752,242  

Equity

     19,814        —          10,822        —          30,636  

Investment Funds & Vehicles (1)

     —          —          —          195,726        195,726  

Cash equivalents

     69,842        —          —          —          69,842  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total Assets

   $ 89,656      $ —      $ 763,064      $ 195,726      $ 1,048,446  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

(1) 

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

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

 

     Debt     Equity     Total  

Balance, July 1, 2020

   $ 653,381     $ 5,727     $ 659,108  

Purchases*

     49,598       10,051       59,649  

Sales and paydowns of investments

     (135,645     (5,546     (141,191

Amortization of premium and accretion of discount, net

     1,274       —         1,274  

Net realized losses

     (2,954     (2,933     (5,887

Net change in unrealized appreciation/depreciation

     (6,596     (1,517     (8,113
  

 

 

   

 

 

   

 

 

 

Balance, September 30, 2020

   $ 559,058     $ 5,782     $ 564,840  
  

 

 

   

 

 

   

 

 

 

Change in net unrealized appreciation/depreciation in investments held as of September 30, 2020

   $ (4,571   $ 1,050     $ (3,521

 

*

Includes payments received in-kind

 

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Table of Contents

TCW DIRECT LENDING LLC

Notes to Consolidated Financial Statements (Unaudited) (Continued)

(Dollar amounts in thousands, except unit data)

September 30, 2020

 

3. Investment Valuations and Fair Value Measurements (Continued)

 

     Debt     Equity     Total  

Balance, January 1, 2020

   $ 752,242     $ 10,822     $ 763,064  

Purchases*

     126,394       10,470       136,864  

Sales and paydowns of investments

     (254,160     (5,546     (259,706

Amortization of premium and accretion of discount, net

     1,343       —         1,343  

Net realized losses

     (753     (2,933     (3,686

Net change in unrealized appreciation/depreciation

     (66,008     (7,031     (73,039
  

 

 

   

 

 

   

 

 

 

Balance, September 30, 2020

   $ 559,058     $ 5,782     $ 564,840  
  

 

 

   

 

 

   

 

 

 

Change in net unrealized appreciation/depreciation in investments held as of September 30, 2020

   $ (66,659   $ (3,921   $ (70,580

 

*

Includes payments received in-kind

The following tables provide a reconciliation of the beginning and ending balances for total investments that use Level 3 inputs for the three and nine months ended September 30, 2019:

 

     Debt     Equity      Total  

Balance, July 1, 2019

   $ 798,719     $ 12,598      $ 811,317  

Purchases*

     20,844       1,693        22,537  

Sales and paydowns of investments

     (55,819     —          (55,819

Amortization of premium and accretion of discount, net

     1,945       —          1,945  

Net realized gains

     86       —          86  

Net change in unrealized appreciation/depreciation

     2,743       8,182        10,925  
  

 

 

   

 

 

    

 

 

 

Balance, September 30, 2019

   $ 768,518     $ 22,473      $ 790,991  
  

 

 

   

 

 

    

 

 

 

Change in net unrealized appreciation/depreciation in investments held as of September 30, 2019

   $ 4,817     $ 8,183      $ 13,000  

 

*

Includes payments received in-kind

 

     Debt     Equity     Total  

Balance, January 1, 2019

   $ 854,564     $ 10,608     $ 865,172  

Purchases*

     45,077       2,407       47,484  

Sales and paydowns of investments

     (105,650     —         (105,650

Amortization of premium and accretion of discount, net

     4,351       —         4,351  

Net realized gains (losses)

     255       (596     (341

Net change in unrealized appreciation/depreciation

     (30,079     10,054       (20,025
  

 

 

   

 

 

   

 

 

 

Balance, September 30, 2019

   $ 768,518     $ 22,473     $ 790,991  
  

 

 

   

 

 

   

 

 

 

Change in net unrealized appreciation/depreciation in investments held as of September 30, 2019

   $ (22,273   $ 10,086     $ (12,187

 

*

Includes payments received in-kind

During the three and nine months ended September 30, 2020 and 2019, the Company did not have any transfers between levels.

 

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Table of Contents

TCW DIRECT LENDING LLC

Notes to Consolidated Financial Statements (Unaudited) (Continued)

(Dollar amounts in thousands, except unit data)

September 30, 2020

 

3. Investment Valuations and Fair Value Measurements (Continued)

Level 3 Valuation and Quantitative Information: The following table summarizes the valuation techniques and quantitative information utilized in determining the fair value of the Level 3 investments as of September 30, 2020.

 

Investment Type

   Fair Value      Valuation
Technique
   Unobservable Input    Range   Weighted
Average*
    Impact to
Valuation if
Input Increases

Debt

   $     234,143      Income Method    Discount Rate    5.3% to 23.0%     13.8   Decrease

Debt

   $ 133,548      Market Method    EBITDA Multiple    5.8x to 7.0x     6.3x     Increase

Debt

   $ 9,316      Market Method    Revenue Multiple    1.4x to 1.6x     1.5x     Increase

Debt

   $ 9,647      Market Method    Indicative Bid    82.0% to 100.0%     100   Increase

Debt

   $ 172,404      Market Method    EBITDA Multiple    6.0x to 17.4x     N/A     Increase
         Revenue Multiple    0.2x to 1.6x     N/A     Increase

Equity

   $ 4,136      Income Method    Discount Rate    21.0% to 23.0%     22.0   Decrease

Equity

   $ —      Market Method    Revenue Multiple    1.4x to 1.6x     N/A     Increase

Equity

   $ —      Market Method    Indicative Bid    $0.0 to $0.3     N/A     Increase

Equity

   $ 1,646      Market Method    EBITDA Multiple    5.8x to 7.0x     N/A     Increase

Equity

   $ —      Market Method    EBITDA Multiple    6.0x to 7.0x     N/A     Increase
         Revenue Multiple    0.2x to 0.2x     N/A     Increase

 

*

Weighted based on fair value

The following table summarizes the valuation techniques and quantitative information utilized in determining the fair value of the Level 3 investments as of December 31, 2019.

 

Investment Type

   Fair Value      Valuation
Technique
   Unobservable Input    Range   Weighted
Average*
    Impact to
Valuation if
Input Increases

Debt

   $     483,357      Income Method    Discount Rate    5.8% to 17.4%     10.1   Decrease

Debt

   $ 210,997      Market Method    EBITDA Multiple    5.5x to 8.5x     N/A     Increase
         Revenue Multiple    2.2x to 2.4x     N/A     Increase

Debt

   $ 32,062      Income Method    Take-Out Indication    100.0% to 100.0%     100.0   Increase
         Discount Rate    18.6% to 23.2%     20.4   Decrease

Debt

   $ 16,973      Income Method    Take-Out Indication    100.0% to 100.0%     100.0   Increase
      Market Method    EBITDA Multiple    7.5x to 8.5x     N/A     Increase
         Revenue Multiple    0.2x to 0.2x     N/A     Increase

Debt

   $ 8,853      Income Method    Discount Rate    14.2% to 17.9%     16.8   Decrease
      Market Method    EBITDA Multiple    3.8x to 4.8x     N/A     Increase

Equity

   $ 10,822      Market Method    EBITDA Multiple    4.8x to 12x     N/A     Increase
         Revenue Multiple    0.2x to 2.4x     N/A     Increase

 

*

Weighted based on fair value

Unless noted, the Company generally utilizes the midpoint of a valuation range provided by an external, independent valuation firm.

4. Agreements and Related Party Transactions

Advisory Agreement: On September 15, 2014, the Company entered into an Investment Advisory and Management Agreement (the “Advisory Agreement”) with the Adviser, its registered investment adviser under the Investment Advisers Act of 1940, as amended. The Advisory Agreement was approved by the Board at an in-person meeting. Unless earlier terminated, the Advisory Agreement will remain in effect for a period of two years and will remain in effect from year to year thereafter if approved annually by (i) the vote of the Board, or by the vote of a majority of our outstanding voting securities, and (ii) the vote of a majority of the independent directors of the Board. On August 12, 2019, the Company’s Board reapproved the Advisory Agreement.

 

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Table of Contents

TCW DIRECT LENDING LLC

Notes to Consolidated Financial Statements (Unaudited) (Continued)

(Dollar amounts in thousands, except unit data)

September 30, 2020

 

4. Agreements and Related Party Transactions (Continued)

Management Fee: Pursuant to the Advisory Agreement, and subject to the overall supervision of the Board, the Adviser will manage the Company’s day-to-day operations and provide investment advisory services to the Company. The Company will pay to the Adviser, quarterly in advance, a management fee (the “Management Fee”) calculated as follows: (i) for the period starting on the initial closing date and ending on the earlier of (A) the last day of the calendar quarter during which the Commitment Period (as defined below) ends or (B) the last day of the calendar quarter during which the Adviser or an affiliate thereof begins to accrue a management fee with respect to a successor fund, 0.375% (i.e., 1.50% per annum) of the aggregate commitments determined as of the end of the Closing Period, and (ii) for each calendar quarter thereafter during the term of the Company (but not beyond the tenth anniversary of the initial closing date), 0.1875% (i.e., 0.75% per annum) of the aggregate cost basis (whether acquired by the Company with contributions from members, other Company funds or borrowings) of all portfolio investments that have not been sold, distributed to the members, or written off for tax purposes (but reduced by any portion of such cost basis that has been written down to reflect a permanent impairment of value of any portfolio investment), determined in each case as of the first day of such calendar quarter. The Management Fee in respect of the Closing Period will be calculated as if all capital commitments of the Company were made on the initial closing date, regardless of when Common Units were actually funded. The actual payment of the Management Fee with respect to the Closing Period will not be made prior to the first day of the first full calendar quarter following the end of the Closing Period. The “Commitment Period” of the Company will begin on the initial closing date and end on the earlier of (a) three years from the initial closing date and (b) the date on which the undrawn Commitment of each Common Unit has been reduced to zero. While the Management Fee will accrue from the initial closing date, the Adviser intends to defer payment of such fees to the extent that such fees cannot be paid from interest and fee income generated by the Company’s investments.

For the three and nine months ended September 30, 2020, Management Fees incurred amounted to $1,867 and $5,814, respectively, of which $1,867 remained payable at September 30, 2020. For the three and nine months ended September 30, 2019, Management Fees incurred amounted to $2,152 and $6,512, respectively, of which $2,152 remained payable at September 30, 2019.

Transaction and Other Fees: Any (i) transaction, advisory, consulting, management, monitoring, directors’ or similar fees, (ii) closing, investment banking, finders’, transaction or similar fees, (iii) commitment, breakup or topping fees or litigation proceeds and (iv) other fee or payment of services performed or to be performed with respect to an investment or proposed investment received from or with respect to Portfolio Companies or prospective Portfolio Companies in connection with the Company’s activities will be will be the property of the Company.

Since inception, the Company received $2,615 in such fees, of which $51 and $1,788, were paid during the three and nine months ended September 30, 2019, respectively. No such fees were paid during the three and nine months ended September 30, 2020.

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

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

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

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

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

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

 

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Table of Contents

TCW DIRECT LENDING LLC

Notes to Consolidated Financial Statements (Unaudited) (Continued)

(Dollar amounts in thousands, except unit data)

September 30, 2020

 

4. Agreements and Related Party Transactions (Continued)

If the Advisory Agreement terminates early for any reason other than (i) the Adviser voluntarily terminating the agreement or (ii) our terminating the agreement for cause (as set out in the Advisory Agreement), we will be required to pay the Adviser a final incentive fee payment (the “Final Incentive Fee Payment”). The Final Incentive Fee Payment will be calculated as of the date the Advisory Agreement is so terminated and will equal the amount of Incentive Fee that would be payable to the Adviser if (A) all our investments were liquidated for their current value (but without taking into account any unrealized appreciation of any portfolio investment), and any unamortized deferred portfolio investment-related fees would be deemed accelerated, (B) the proceeds from such liquidation were used to pay all our outstanding liabilities, and (C) the remainder were distributed to Unitholders and paid as Incentive Fee in accordance with the “waterfall” (i.e., clauses (a) through (d)) described above for determining the amount of the Incentive Fee. We will make the Final Incentive Fee Payment in cash on or immediately following the date the Advisory Agreement is so terminated. The Adviser Return Obligation (defined below) will not apply in connection with a Final Incentive Fee Payment.

For the three and nine months ended September 30, 2020 and 2019, no Incentive Fees were incurred.

Administration Agreement: On September 15, 2014, the Company entered into the Administration Agreement with the Adviser under which the Adviser (or one or more delegated service providers) will oversee the maintenance of our financial records and otherwise assist on the Company’s compliance with regulations applicable to a BDC under the 1940 Act, and a RIC under the Code, to prepare reports to our Members, monitor the payment of our expenses and the performance of other administrative or professional service providers, and generally provide us with administrative and back office support. The Company will reimburse the Administrator for expenses incurred by it on behalf of the Company in performing its obligations under the Administration Agreement. Amounts paid pursuant to the Administration Agreement are subject to the annual cap on Company Expenses (as defined below), as described more fully below.

The Company, and indirectly the Unitholders, will bear (including by reimbursing the Adviser or Administrator) all other costs and expenses of its operations, administration and transactions, including, without limitation, organizational and offering expenses, management fees, costs of reporting required under applicable securities laws, legal fees of the Company’s counsel and accounting fees. However, the Company will not bear (a) more than an amount equal to 10 basis points of the aggregate capital commitments of the Company for organization and offering expenses in connection with the offering of Common Units through the Closing Period and (b) more than an amount equal to 12.5 basis points of the aggregate Commitments of the Company per annum (pro-rated for partial years) for its costs and expenses other than ordinary operating expenses (“Company Expenses”), including amounts paid to the Administrator under the Administration Agreement and reimbursement of expenses to the Adviser. All expenses that the Company will not bear will be borne by the Adviser or its affiliates. Notwithstanding the foregoing, the cap on Company Expenses does not apply to payments of the Management Fee, Incentive Fee, organizational and offering expenses (which are subject to the separate cap), amounts payable in connection with the Company’s borrowings (including interest, bank fees, legal fees and other transactional expenses related to any borrowing or borrowing facility and similar costs), costs and expenses relating to the liquidation of the Company, taxes, or extraordinary expenses (such as litigation expenses and indemnification payments).

TCW Direct Lending Strategic Ventures LLC: On June 5, 2015, the Company, together with an affiliate of Security Benefit Corporation and accounts managed by Oak Hill Advisors, L.P., entered into an Amended and Restated Limited Liability Company Agreement (the “Agreement”) to become members of TCW Direct Lending Strategic Ventures LLC (“Strategic Ventures”). Strategic Ventures focuses primarily on making senior secured floating rate loans to middle-market borrowers. The Agreement was effective June 5, 2015. The Company’s investment in Strategic Ventures is restricted from redemption until the termination of Strategic Ventures.

The Company’s capital commitment is $481,600, representing approximately 80% of the preferred and common equity ownership of Strategic Ventures, with the third-party investors representing the remaining capital commitments and preferred and common equity ownership. A portion of the Company’s capital commitment was satisfied by the contribution of two loans to Strategic Ventures. Strategic Ventures also entered into a revolving credit facility to finance a portion of certain eligible investments on June 5, 2015.

 

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Table of Contents

TCW DIRECT LENDING LLC

Notes to Consolidated Financial Statements (Unaudited) (Continued)

(Dollar amounts in thousands, except unit data)

September 30, 2020

 

4. Agreements and Related Party Transactions (Continued)

The Company’s investments in controlled affiliated investments as of and transactions during the nine months ended September 30, 2020 were as follows:

 

     Fair Value as of
January 1,
2020
     Purchases      Sales     Change in
Unrealized
Appreciation/
Depreciation
    Fair Value as of
September 30,
2020
     Dividend
Income
     Realized
Gain
Distribution
 

Controlled Affiliates

                  

TCW Direct Lending Strategic Ventures LLC

   $ 195,726      $ —        $ (42,400   $ (9,034   $ 144,292      $ 16,000      $ —    
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

    

 

 

    

 

 

 

Total Controlled Affiliates

   $ 195,726      $ —        $ (42,400   $ (9,034   $ 144,292      $ 16,000      $ —    
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

    

 

 

    

 

 

 

The Company’s investments in controlled affiliated investments as of and transactions during the year ended December 31, 2019 were as follows:

 

     Fair Value as of
January 1,
2019
     Purchases      Sales     Change in
Unrealized
Appreciation/
Depreciation
    Fair Value as of
December 31,
2019
     Dividend
Income
     Realized
Gain
Distribution
 

Controlled Affiliates

                  

TCW Direct Lending Strategic Ventures LLC

   $ 260,252      $ —        $ (24,000   $ (40,526   $ 195,726      $ 68,127      $ 4,833  
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

    

 

 

    

 

 

 

Total Controlled Affiliates

   $ 260,252      $ —        $ (24,000   $ (40,526   $ 195,726      $ 68,127      $ 4,833  
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

    

 

 

    

 

 

 

For the nine months ended September 30, 2020 and year ended December 31, 2019, the Company did not recognize any realized gains (losses) on controlled affiliated investments.

 

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Table of Contents

TCW DIRECT LENDING LLC

Notes to Consolidated Financial Statements (Unaudited) (Continued)

(Dollar amounts in thousands, except unit data)

September 30, 2020

 

5. Commitments and Contingencies

The Company had the following unfunded commitments and unrealized depreciation by investment as of September 30, 2020 and December 31, 2019:

 

     Maturity/
Expiration
     September 30, 2020      December 31, 2019  

Unfunded Commitments

   Amount      Unrealized
Depreciation
     Amount      Unrealized
Depreciation
 

Guardia LLC (fka Carrier & Technology Solutions, LLC)

     July 2023      $ 1,727      $ 33      $ 2,124      $ —    

KBP Investments, LLC (fka FQSR, LLC)

     September 2021        —          —          5,798        —    

Help At Home, LLC

     August 2020        —          —          10,541        —    

Quicken Parent Corp

     April 2021        863        —          863        26  

Ruby Tuesday, Inc.

     December 2022        3,843        —          4,575        —    
     

 

 

    

 

 

    

 

 

    

 

 

 

Total

      $ 6,433      $ 33      $ 23,901      $ 26  
     

 

 

    

 

 

    

 

 

    

 

 

 

The Company’s total capital commitment to its underlying investment in Strategic Ventures is $481,600. As of September 30, 2020, the Company’s unfunded commitment to Strategic Ventures is $219,646.

From time to time, the Company may become a party to certain legal proceedings incidental to the normal course of its business. As of September 30, 2020, management is not aware of any pending or threatened litigation.

In the normal course of business, the Company enters into contracts which provide a variety of representations and warranties, and that provide general indemnifications. Such contracts include those with certain service providers, brokers and trading counterparties. Any exposure to the Company under these arrangements is unknown as it would involve future claims that may be made against the Company; however, based on the Company’s experience, the risk of loss is remote and no such claims are expected to occur. As such, the Company has not accrued any liability in connection with such indemnifications.

6. Members’ Capital

During the three and nine months ended September 30, 2020 and 2019, the Company did not sell or issue any Common Units. The activity for the three and nine months ended September 30, 2020 and 2019 was as follows:

 

     Three Months Ended
September 30,
     Nine months Ended
September 30,
 
     2020      2019      2020      2019  

Units at beginning of period

     20,134,698        20,134,698        20,134,698        20,134,698  
  

 

 

    

 

 

    

 

 

    

 

 

 

Units issued and committed at end of period

     20,134,698        20,134,698        20,134,698        20,134,698  
  

 

 

    

 

 

    

 

 

    

 

 

 

The Company did not process any deemed distributions and re-contributions during the three and nine months ended September 30, 2020 and 2019.

7. Credit Facility

The Company has a secured revolving credit agreement (the “Credit Agreement”) with Natixis, New York Branch (“Natixis”) as administrative agent and committed lender. The Credit Agreement provides for a revolving credit line of up to $750,000 (the “Maximum Commitment”) (the “Credit Facility”), subject to the lesser of the “Borrowing Base” assets or the Maximum Commitment (the “Available Commitment”). The Borrowing Base assets generally equal the sum of (a) a percentage of certain eligible investments in a controlled account, (b) a percentage of unfunded commitments from certain eligible investors in the Company and (c) cash in a controlled account. The Credit Agreement is generally secured by the Borrowing Base assets.

 

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TCW DIRECT LENDING LLC

Notes to Consolidated Financial Statements (Unaudited) (Continued)

(Dollar amounts in thousands, except unit data)

September 30, 2020

 

7. Credit Facility (Continued)

On April 10, 2017, the Company and Natixis entered into a Third Amended and Restated Revolving Credit Agreement. Under the Third Amended and Restated Revolving Credit Agreement borrowings bear interest at a rate equal to either the (a) adjusted eurodollar rate calculated in a customary manner plus 2.35%, (b) commercial paper rate plus 2.35%, or (c) a base rate calculated in a customary manner (using the higher of the Federal Funds Rate plus 0.50%, the Prime Rate and the Floating LIBOR Rate plus 1.00%) plus 1.35%. Moreover, the Credit Agreement’s stated maturity date was extended from November 10, 2017 to April 10, 2020. The Credit Facility may be terminated, and any outstanding amounts thereunder may become due and payable, should the Company fail to satisfy certain covenants. As of September 30, 2020, the Company was in compliance with such covenants.

On April 6, 2020, the Company entered into a First Amendment to the Third Amended and Restated Revolving Credit Agreement (the “Amended Credit Agreement”), by and among the Company, as borrower, and Natixis, New York Branch, as administrative agent and the lenders party thereto. The Amended Credit Agreement provides for a revolving credit line of up to $375,000 (with an option for the Company to increase this amount to $450,000 subject to consent of the lenders and satisfaction of certain other conditions), subject to the available borrowing base, which is generally the sum of (a) a percentage of certain eligible investments, (b) a percentage of remaining unfunded commitments from certain eligible investors in the Company and (c) cash in a controlled account. The Amended Credit Agreement is generally secured by the unfunded commitments (together with the recallable amounts) of the Company’s investors, portfolio investments and substantially all other assets of the Company. The stated maturity date of the Amended Credit Agreement is April 9, 2021, which date (subject to the satisfaction of certain conditions) may be extended by the Company for up to an additional 364 days. Borrowings under the Amended Credit Agreement bear interest at a rate equal to either (a) adjusted eurodollar rate calculated in a customary manner plus 2.50%, (b) commercial paper rate plus 2.50%, or (c) a base rate calculated in a customary manner (which will never be less than the adjusted eurodollar rate plus 1.00%) plus 1.50%, provided however in each case the commercial paper rate and the eurocurrency rate shall have a floor of 1.00%.

On May 27, 2020, the Company entered into a Lender Group Joinder Agreement pursuant to which Zions Bancorporation, N.A. d/b/a California Bank & Trust was added as a committed lender (with a commitment of $25,000) under the Amended Credit Agreement. Concurrently therewith, the Company elected to increase the size of its revolving credit line under the Credit Agreement to $400,000.

As of September 30, 2020 and December 31, 2019, the Available Commitment under the Amended Credit Agreement and the Third Amended and Restated Revolving Credit Agreement was $400,000 and $387,065, respectively.

As of September 30, 2020 and December 31, 2019, the amounts outstanding under the Credit Facility were $260,250 and $364,065, respectively. The carrying amount of the Credit Facility, which is categorized as Level 2 within the fair value hierarchy as of September 30, 2020 and December 31, 2019, approximates its fair value. Valuation techniques and significant inputs used to determine fair value include Company details; credit, market and liquidity risk and events; financial health of the Company; place in the capital structure; interest rate; and terms and conditions of the Credit Facility. The Company incurred financing costs of $10,123 in connection with the April 10, 2017 Third Amended and Restated Revolving Credit Agreement. The Company also incurred additional financing costs of $1,848 in connection with the Amended Credit Agreement on April 6, 2020 and May 27, 2020. The Company recorded these costs as deferred financing costs on its Consolidated Statements of Asset and Liabilities and the costs are being amortized over the life of the Credit Facility. As of September 30, 2020 and December 31, 2019, $1,467 and $710, respectively, of such prepaid deferred financing costs had yet to be amortized.

The summary information regarding the Credit Facility for the three and nine months ended September 30, 2020 and 2019 was as follows:

 

     Three Months Ended September 30,     Nine months Ended September 30,  
     2020     2019     2020     2019  

Credit facility interest expense

   $ 2,417     $ 3,483     $ 6,798     $ 11,578  

Undrawn commitment fees

     124       122       1,054       368  

Administrative fees

     16       17       49       49  

Amortization of deferred financing costs

     250       642       1,222       1,907  
  

 

 

   

 

 

   

 

 

   

 

 

 

Total

   $ 2,807     $ 4,264     $ 9,123     $ 13,902  
  

 

 

   

 

 

   

 

 

   

 

 

 

Weighted average interest rate

     3.45     4.56     3.61     4.76

Average outstanding balance

   $ 278,478     $ 299,098     $ 251,658     $ 320,850  

 

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TCW DIRECT LENDING LLC

Notes to Consolidated Financial Statements (Unaudited) (Continued)

(Dollar amounts in thousands, except unit data)

September 30, 2020

 

7. Credit Facility (Continued)

On December 31, 2019, the Company’s ratio of aggregate fair value of all eligible portfolio assets (as defined in the Credit Agreement) to the principal amount outstanding (“Ratio of Eligible Portfolio Assets”) fell below 150%, which triggered a mandatory prepayment provision in the Credit Agreement requiring the Company to utilize all cash receipts attributable to the eligible portfolio assets as a prepayment to the outstanding principal obligation, within five days of collecting such cash receipts, until such a time when the Ratio of Eligible Portfolio Assets exceeds 150%. The Company’s Ratio of Eligible Portfolio Assets exceeded 150% on January 10, 2020 through March 26, 2020. On March 27, 2020, the Company’s Ratio of Eligible Portfolio Assets fell below 150%. However, in connection with the Amended Credit Agreement executed on April 6, 2020, the mandatory repayment was waived by Natixis. The Company’s Ratio of Eligible Portfolio Assets has exceeded 150% since April 6, 2020.

8. Income Taxes

The Company has elected to be treated as a BDC under the 1940 Act and has elected to be treated as a RIC under the Code. So long as the Company maintains its status as a RIC, it will generally not pay corporate-level U.S. Federal income or excise taxes on any ordinary income or capital gains that it distributes at least annually to its common unitholders as dividends. The Company elected to be taxed as a RIC in 2015. The Company evaluates tax positions taken or expected to be taken in the course of preparing its financial statements to determine whether the tax positions are “more-likely-than-not” to be sustained by the applicable tax authority. Tax positions not deemed to meet the “more-likely-than-not” threshold are reversed and recorded as a tax benefit or expense in the current year. All penalties and interest associated with income taxes are included in income tax expense. Conclusions regarding tax positions are subject to review and may be adjusted at a later date based on factors including, but not limited to, on-going analyses of tax laws, regulations and interpretations thereof.

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

As of September 30, 2020 and December 31, 2019, the Company’s aggregate investment unrealized appreciation and depreciation on investments, for federal income tax purposes, was as follows:

 

     September 30, 2020      December 31, 2019  

Cost of investments for federal income tax purposes

   $         1,371,140      $         1,136,131  

Unrealized appreciation

   $ 2,818      $ 78  

Unrealized depreciation

   $ (186,891    $ 87,789  

Net unrealized depreciation on investments

   $ (184,073    $ 87,711  

The Company did not have any unrecognized tax benefits at December 31, 2019, nor were there any increases or decreases in unrecognized tax benefits for the period then ended; and therefore no interest or penalties were accrued. The Company is subject to examination by U.S. federal and state tax authorities regarding returns filed for the prior three and four years, respectively.

 

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TCW DIRECT LENDING LLC

Notes to Consolidated Financial Statements (Unaudited) (Continued)

(Dollar amounts in thousands, except unit data)

September 30, 2020

 

9. Financial Highlights

Selected data for a unit outstanding throughout the nine months ended September 30, 2020 and 2019 is presented below. The accrual base Net Asset Value is calculated by subtracting the per unit loss from investment operations from the beginning Net Asset Value per unit and reflects all units issued and outstanding.

 

     For the Nine months Ended September 30,  
     2020     2019  

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

   $ 63.74     $ 65.69  

Income from Investment Operations:

 

Net investment income(1)

     3.19       4.89  

Net realized and unrealized loss

     (4.64     (1.57
  

 

 

   

 

 

 

Total from investment operations

     (1.45     3.32  

Less Distributions:

 

From net investment income

     (3.46     (1.34

Return of capital

     (11.77     (4.07
  

 

 

   

 

 

 

Total distributions(2)

     (15.23     (5.41
  

 

 

   

 

 

 

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

   $ 47.06     $ 63.60  
  

 

 

   

 

 

 

Common Unitholder Total Return(3)(4)

     (3.73 )%      8.10
  

 

 

   

 

 

 

Common Unitholder IRR(5)

     6.78     8.10
  

 

 

   

 

 

 

Ratios and Supplemental Data

 

Members’ Capital, end of period

   $             538,484     $             871,456  

Units outstanding, end of period

     20,134,698       20,134,698  

Ratios based on average net assets of Members’ Capital:

 

Ratio of total expenses to average net assets(6)

     3.00     3.47

Ratio of financing cost to average net assets(4)

     1.21     1.63

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

     11.40     15.46

Credit facility payable

     260,250       364,000  

Asset coverage ratio

     3.07       3.40  

Portfolio turnover rate(4)

     12.77     3.00

 

(1) 

Per unit data was calculated using the number of Common Units issued and outstanding as of September 30, 2020 and 2019.

(2) 

Includes distributions which have an offsetting capital re-contribution (“deemed distributions”). Excludes return of unused capital.

(3) 

The Total Return for the nine months ended September 30, 2020 and 2019 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.

(4) 

Not annualized.

(5) 

The Internal Rate of Return (IRR) since inception for the Common Unitholders, after management fees, financing costs and operating expenses is 6.78% through September 30, 2020. The IRR is computed based on cash flow due dates contained in notices to Members (contributions from and distributions to the Common Unitholders) and the net assets (residual value) of the Members’ Capital account at period end. The IRR is calculated based on the fair value of investments using principles and methods in accordance with GAAP and does not necessarily represent the amounts that may be realized from sales or other dispositions. Accordingly, the actual return may vary significantly upon realization.

(6) 

Annualized.

 

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TCW DIRECT LENDING LLC

Notes to Consolidated Financial Statements (Unaudited) (Continued)

(Dollar amount in thousands, except for unit data)

September 30, 2020

 

10. Subsequent Events

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

In accordance with the Company’s Second Amended and Restated Limited Liability Company Agreement, the Company may make follow-on investments up to an aggregate maximum of 10% of Capital Commitments (as defined in Note 1 and in the Company’s Second Amended and Restated Limited Liability Company Agreement ), provided that any such follow-on investment to be made after the third anniversary of the expiration of the Commitment Period shall require the prior consent of a majority in interest of the Common Unitholders.

In October 2020, the Company’s Members approved a proposal to allow the Company to make pre-identified follow-on investments in specific portfolio companies as well as their holding companies, subsidiaries, successors or other affiliates, up to an aggregate maximum of 10% of Capital Commitments.

 

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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 consolidated financial statements and notes thereto appearing elsewhere in this report on Form 10-Q. Some of the statements in this report (including in the following discussion) constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, which relate to future events or future performance or financial condition of TCW Direct Lending LLC. For simplicity, this report uses the terms “Company,” “we,” “us,” and “our” to include TCW Direct Lending LLC and where appropriate in the context, its wholly-owned subsidiaries.

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

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

 

   

our business prospects and the prospects of our portfolio companies, including our and their ability to achieve our 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;

 

   

competition with other entities and our affiliates 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 Brexit, as well as the impact of COVID-19 on ongoing negotiations 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 direct lending 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 Exchange Commission (“SEC”);

 

   

the loss of key personnel;

 

   

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

 

   

the ability of the Adviser to 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 and the related tax implications particularly as the number of our investments decrease during the later stages of the Company’s life;

 

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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 the Form 10-K that we filed with the SEC on March 16, 2020 and elsewhere in this report.

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 1934 Act, which preclude civil liability for certain forward-looking statements, do not apply to the forward-looking statements in this report because we are an investment company.

Overview

We were formed on April 1, 2014 as a limited liability company under the laws of the State of Delaware. We have filed an election to be regulated as a BDC under the 1940 Act. We have also elected to be treated for U.S. federal income tax purposes as a RIC under the Code for the taxable year ending December 31, 2015 and subsequent years. We are required to continue to meet the minimum distribution and other requirements for RIC qualification. As such, we are required to comply with various regulatory requirements, such as the requirement to invest at least 70% of our assets in “qualifying assets,” source of income limitations, asset diversification requirements, and the requirement to distribute annually at least 90% of our taxable income and tax-exempt interest.

Each investor was required to enter into a subscription agreement in connection with its Commitment (a “Subscription Agreement”). Under the terms of the subscription agreements, the Company may generally draw down all or any portion of the undrawn commitment with respect to each Common Unit upon at least ten business days’ prior written notice to the Common Unitholders. Investors have entered into subscription agreements for 20,134,698 Common Units of the Company issued and outstanding representing a total of $2.013 billion of committed capital.

In 2019, we established two wholly-owned subsidiaries, TCW DL CTH LLC and TCW DL ASH LLC, each a Delaware limited liability company and each designed to hold an equity investment of ours.

In 2020, we established TCW DL SSP LLC, also a Delaware limited liability company and also designed to hold an equity investment of ours.

Revenues

We generate revenues in the form of interest income and capital appreciation by providing private capital to middle market companies operating in a broad range of industries primarily in the United States. As our investment period has ended, we will not originate new loans, but may increase credit facilities to existing borrowers or affiliates. The historical investment philosophy, strategy and approach of the direct lending team of the Adviser (the “Direct Lending Team”) has generally not involved the use of payment-in-kind (“PIK”) interest, which represents contractual interest accrued and added to the loan balance that generally becomes due at maturity, or similar arrangements. Although the Direct Lending Team generally did not originate a significant amount of investments for us with PIK interest features, from time to time we made, and currently have, investments that contain such features. We 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, equity securities, and equity-linked securities such as options and warrants. However, historically, our investment bias has been towards adjustable-rate, senior secured loans. We do not anticipate a secondary market developing for our private investments.

We are primarily focused on investing in senior secured debt obligations, although there may be occasions where the investment may be unsecured. We also consider an equity investment as the primary security, in combination with a debt obligation, or as a part of total return strategy. Our investments are in corporations, partnerships or other business entities. Additionally, in certain circumstances, we may co-invest with other investors and/or strategic partners through indirect investments in portfolio companies through a joint venture vehicle, partnership or other special purpose vehicle (each, an “Investment Vehicle”). While we invest primarily in U.S. companies, there are certain instances where we invested in companies domiciled elsewhere.

 

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Expenses

We do not currently have any employees and do not expect to have any employees. Services necessary for our business are provided through the Administration Agreement and the Advisory Agreement.

We will bear (including by reimbursing the Adviser or Administrator) all costs and expenses of our operations, administration and transactions, including, without limitation, organizational and offering expenses, management fees, costs of reporting required under applicable securities laws, legal fees of our counsel and accounting fees. However, we will not bear (a) more than an amount equal to 10 basis points of the aggregate Commitments for organization and offering expenses in connection with the offering of Common Units through the Closing Period and (b) more than an amount equal to 12.5 basis points of the aggregate Commitments per annum (pro-rated for partial years) for our Operating Expenses, including amounts paid to the Administrator under the Administration Agreement and reimbursement of expenses to the Adviser and its affiliates. Notwithstanding the foregoing, the cap on Operating Expenses does not apply to payments of the Management Fee, Incentive Fee, organizational and offering expenses (which are subject to the separate cap described above), amounts payable in connection with our borrowings (including interest, bank fees, legal fees and other transactional expenses related to any borrowing or borrowing facility and similar costs), costs and expenses relating to our liquidation of the Company, taxes, or extraordinary expenses (such as litigation expenses and indemnification payments to either the Adviser or the Administrator). All expenses that we will not bear will be borne by the Adviser or its affiliates.

Critical Accounting Policies and Estimates

Our discussion and analysis of our financial condition and results of operations are based upon our financial statements which have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”). The preparation of these financial statements requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses. Changes in the economic environment, financial markets and any other parameters used in determining such estimates could cause actual results to differ.

In addition to the discussion below, our critical accounting policies are further described in Note 2 to the consolidated financial statements. We consider these accounting policies to be critical because they involve management judgments and assumptions, require estimates about matters that are inherently uncertain and are important for understanding and evaluating our reported financial results. These judgments will affect the reported amounts of assets and liabilities and our disclosure of contingent assets and liabilities at the dates of the financial statements and the reported amounts of revenue and expenses during the reporting periods. With different estimates or assumptions, materially different amounts could be reported in our financial statements. The critical accounting policies should be read in connection with our risk factors as disclosed in “Item 1A. Risk Factors.” Investments at Fair Value

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

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

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

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

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

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

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

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

Level 3 Assets (Investments): The following valuation techniques and significant inputs are used to determine the fair value of investments in private debt for which reliable market quotations are not available. Some of the inputs are independently observable; however, a significant portion of the inputs and the internal assumptions applied are unobservable.

 

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

Equity, (Level 3), includes common stock, preferred stock and warrants. Such securities are valued based on specific pricing models, internal assumptions and the weighting of the best available pricing inputs. A market approach is generally used to determine fair value. Pricing inputs include, but are not limited to, financial health and relevant business developments of the issuer; EBITDA; market multiples of comparable companies; comparable market transactions and recent trades or transactions; issuer, industry and market events; and contractual or legal restrictions on the sale of the security. A liquidity discount based on current market expectations, future events, minority ownership position and the period management reasonably expects to hold the investment may be applied.

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

Net Asset Value (“NAV”) (Investment Funds and Vehicles): Equity investments in affiliated investment fund (TCW Strategic Ventures) are valued based on the net asset value reported by the investment fund. Investments held by the affiliated fund include debt investments in privately originated senior secured debt. Such investments held by the affiliated fund are valued using the same methods, approach and standards applied above to debt investments held by the Company. The Company’s ability to withdraw from the fund is subject to restrictions. The term of the fund will continue until June 5, 2021 unless dissolved earlier or extended for two additional one-year periods by the Company, in its full discretion. The Company can further extend the term of the fund for additional one-year periods, upon notice to and consent from the funds management committee. The Company is entitled to income and principal distributed by the fund.

Investment Activity

As of September 30, 2020, our non-controlled/non-affiliated portfolio consisted of 15 debt investments and seven equity investments. Based on fair values as of September 30, 2020, our non-controlled/non-affiliated portfolio was 96.9% invested in debt investments, which were primarily senior secured, first lien term loans and 3.1%, were equity investments, which were comprised of common stock, preferred stock and warrants. Debt investments in three portfolio companies were on non-accrual status as of September 30, 2020, representing 11.5% and 21.2% of our non-controlled/non-affiliated portfolio’s fair value and cost, respectively.

Based on fair values as of December 31, 2019, our non-controlled/non-affiliated portfolio consisted of 19 debt investments and eight equity investments. Of these investments, 96.1% were debt investments, which were primarily senior secured, first lien term loans and 3.9% were equity investments, which were comprised of common stock, preferred stock and warrants.

The table below describes our non-controlled/non-affiliated investments by industry classification and enumerates the percentage, by fair value, of the total portfolio assets in industries as of September 30, 2020:

 

Industry

  Percent of Total Investments  

Metals & Mining

                                         19

Industrial Conglomerates

    14

Hotels, Restaurants & Leisure

    13

Information Technology Services

    9

Auto Components

    8

Pharmaceuticals

    8

Diversified Consumer Services

    6

Distributors

    5

Household Durables

    4

Food Products

    3

Software

    3

Internet & Direct Marketing Retail

    2

Technologies Hardware, Storage and Peripherals

    2

Diversified Financial Services

    2

Construction & Engineering

    2
 

 

 

 

Total

    100
 

 

 

 

 

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Interest income from non-controlled/non-affiliated investments, including interest income paid-in-kind, was $19.6 million and $27.1 million for the three months ended September 30, 2020 and 2019, respectively. Interest income from non-controlled/non-affiliated investments, including interest income paid-in-kind, was $64.8 million and $80.5 million for the nine months ended September 30, 2020 and 2019, respectively.

Results of Operations

Our operating results for the three and nine months ended September 30, 2020 and 2019 were as follows (dollar amounts in thousands):

 

     For the three months ended      For the nine months ended  
     2020      2019      2020      2019  

Total investment income

   $ 35,556      $ 27,140      $ 81,113      $ 120,571  

Total expenses

     5,309        6,905        16,911        22,125  
  

 

 

    

 

 

    

 

 

    

 

 

 

Net investment income

     30,247        20,235        64,202        98,446  

Net realized (loss) gain on non-controlled/non-affiliated investments

     (5,887      86        (3,686      (341

Net change in unrealized appreciation/depreciation on non-controlled/non-affiliated investments

     (5,946      12,140        (80,576      (18,439

Net change in unrealized appreciation/depreciation on controlled affiliated investments

     (14,669      11,566        (9,034      (12,753
  

 

 

    

 

 

    

 

 

    

 

 

 

Net increase (decrease) in Members’ Capital from operations

   $ 3,745      $ 44,027      $ (29,094    $ 66,913  
  

 

 

    

 

 

    

 

 

    

 

 

 

Total investment income

Total investment income for the three months ended September 30, 2020 and 2019 was $35.6 million and $27.1 million, respectively, and included interest income (including interest income paid-in-kind) from non-controlled/non-affiliated investments of $19.6 million and $27.1 million, respectively, as well as dividend income of $16.0 million and $0, respectively, from TCW Strategic Ventures, a controlled affiliated investment which commenced operations in 2015. Total investment income for the three months ended September 30, 2020 and 2019 also included dividend income from non-controlled/non-affiliated investments of $1 thousand and ($2) thousand, respectively; as well as other fee income of $0 and $0.1 million, respectively.

The increase in total investment income during the three months ended September 30, 2020 compared to the three months ended September 30, 2019, was primarily due to the increase in dividend income from TCW Strategic Ventures, partially offset by the decrease in interest income (including interest income paid-in-kind) from our non-controlled/non-affiliated investments. The increase in dividend income from TCW Strategic Ventures was primarily attributable to TCW Strategic Ventures’ improved liquidity stemming from among other things, principal repayments received during the quarter, while the decrease in interest income (including interest income paid-in-kind) was due to the decrease in our investment portfolio’s size.

Total investment income for the nine months ended September 30, 2020 and 2019 was $81.1 million and $120.6 million, respectively, and included interest income (including interest income paid-in-kind) from non-controlled/non-affiliated investments of $64.8 million and $80.5 million, respectively, as well as dividend income from TCW Strategic Ventures of $16.0 million and $39.4 million, respectively. During the nine months ended September 30, 2020 and 2019, total investment income also included dividend income from non-controlled/non-affiliated investments of $0.2 million and $0.1 million, respectively, as well as other fee income of $0.1 million and $0.6 million, respectively.

The decrease in total investment income during the nine months ended September 30, 2020 compared to the nine months ended September 30, 2019, was primarily due to the decrease in dividend income from TCW Strategic Ventures coupled with the decrease in interest income (including interest income paid-in-kind) from non-controlled/non-affiliated investments, resulting primarily from the decrease in our investment portfolio’s size as of September 30, 2020 versus September 30, 2019.

 

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Net investment income

Net investment income for the three months ended September 30, 2020 and 2019 was $30.2 million and $20.2 million, respectively. The increase in net investment income during the three months ended September 30, 2020 compared to the three months ended September 30, 2019 was primarily attributable to higher total investment income as previously described, coupled with lower expenses, particularly as it relates to our interest and credit facility expenses; and management fees.

Net investment income for the nine months ended September 30, 2020 and 2019 was $64.2 million and $98.4 million, respectively. The decrease in net investment income during the nine months ended September 30, 2020 compared to the nine months ended September 30, 2019 was primarily attributable to lower total investment income, partially offset by lower expenses, particularly as it relates to our interest and credit facility expenses; and management fees.

Operating expenses for the three and nine months ended September 30, 2020 and 2019 were as follows (dollar amounts in thousands):

 

     For the three months ended      For the nine months ended  
     2020      2019      2020      2019  

Expenses

           

Interest and credit facility expenses

   $ 2,807      $ 4,264      $ 9,123      $ 13,902  

Management fees

     1,867        2,152        5,814        6,512  

Professional fees

     157        156        725        592  

Administrative fees

     233        262        723        788  

Directors’ fees

     78        78        242        243  

Other expenses

     167        (7      283        88  
  

 

 

    

 

 

    

 

 

    

 

 

 

Total expenses

   $ 5,309      $ 6,905      $ 16,910      $ 22,125  
  

 

 

    

 

 

    

 

 

    

 

 

 

Our total expenses for the three months ended September 30, 2020 and 2019 were $5.3 million and $6.9 million, respectively. Our operating expenses include management fees attributed to the Adviser of $1.9 million and $2.2 million for the three months ended September 30, 2020 and 2019, respectively. The decrease in operating expenses during the three months ended September 30, 2020 compared to the three months ended September 30, 2019 was primarily due to lower interest and credit facility expenses driven by our lower average outstanding debt balance during the current quarter, in addition to lower management fees, resulting from the overall decrease in our investment portfolio’s size.

Our total operating expenses for the nine months ended September 30, 2020 and 2019 were $16.9 million and $22.1 million, respectively. Our operating expenses included management fees attributed to the Adviser of $5.8 million and $6.5 million for the nine months ended September 30, 2020 and 2019, respectively. Similar to the three months ended September 30, 2020, the decrease in total operating expenses during the nine months ended September 30, 2020 compared to the nine months ended September 30, 2019 was primarily due to lower interest and credit facility expenses driven by our lower average outstanding debt balance during the current period, in addition to lower management fees, resulting from the overall decrease in our investment portfolio’s size.

Net realized gain (loss) on non-controlled/non-affiliated investments

Our net realized (loss) gain on non-controlled/non-affiliated investments for the three months ended September 30, 2020 and 2019 was ($5.9) million and $0.1 million, respectively. Our net realized loss on non-controlled/non-affiliated investments during the quarter was primarily attributable to the dispositions of our term loan to School Specialty Inc.; our common stock in Verus Financial, LLC; and our Class A equity interest in Animal Supply Holdings, LLC, which resulted in an aggregate realized loss of $5.7 million. Our net realized gain during the three months ended September 30, 2019 was attributable to our disposition of our term loan to Ascensus Specialties LLC (formerly known as Vertellus Performance Chemicals LLC).

Our net realized loss on non-controlled/non-affiliated investments for the nine months ended September 30, 2020 and 2019 was $3.7 million and $0.3 million, respectively. Our net realized loss on non-controlled/non-affiliated investments during the nine months ended September 30, 2020 was primarily due to the dispositions of our term loan to School Specialty Inc.; our common stock in Verus Financial, LLC; and our Class A equity interest in Animal Supply Holdings, LLC. These resulted in an aggregate realized loss of $5.7 million and were partially offset by our $2.1 million of realized gains from the disposition of our term loan to Bumble Bee Holdings, Inc. Our net realized loss on non-controlled/non-affiliated investments during the nine months ended September 30, 2019 was primarily due to $0.6 million of realized losses on our warrants for Quantum Corporation, which the portfolio company repurchased during the first quarter of calendar year 2019. These losses were partially offset by net realized gains from our term loans to Ruby Tuesday, Inc. and Ascensus Specialties LLC, which collectively realized gains of $0.3 million during the period.

 

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Net change in unrealized appreciation/depreciation on non-controlled/non-affiliated investments

Our net change in unrealized appreciation/depreciation on non-controlled/non-affiliated investments for the three months ended September 30, 2020 and 2019 was ($5.9) million and $12.1 million, respectively. Our net change in unrealized appreciation/depreciation for the three months ended September 30, 2020 was primarily attributable to the following investments (dollar amounts in thousands):

 

Issuer

   Investment      Change in
Unrealized
Appreciation/
Depreciation
 

H-D Advanced Manufacturing Company

     Term Loan      $ (8,717

ASC Acquisition Holdings, LLC

     Term Loans        (3,247

Guardia LLC (fka Carrier & Technology Solutions, LLC)

     Term Loan        (2,834

OTG Management, LLC

     Term Loan        (2,373

Challenge Manufacturing Company LLC

     Term Loan        1,230  

Cedar Ultimate Parent LLC

     Preferred Units        1,577  

Pace Industries, Inc.,

     Term Loan        1,712  

Quantum Corporation

     Common Stock        1,976  

Verus Financial, LLC

     Common Stock        2,094  

All others

     Various        2,636  
     

 

 

 

Net change in unrealized appreciation/depreciation

      $ (5,946
     

 

 

 

Our net change in unrealized appreciation/depreciation during the three months ended September 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.

Our net change in unrealized appreciation/depreciation during the three months ended September 30, 2019 was primarily due to our term loans to Noramco, LLC, our warrants for Quantum Corporation, and our term loan to Pace Industries, Inc., which recorded unrealized appreciation of $9.0 million, $9.7 million, and $1.3 million, respectively, during the period. These were partially offset by our term loans to Frontier Spinning Mills Inc.; H-D Advanced Manufacturing Company; Carrier & Technology Holdings, LLC; and Guardia LLC, which collectively recorded $6.0 million in unrealized depreciation during the period, as well as our common stock of Verus Financial, LLC, which recorded unrealized depreciation of $1.7 million.

 

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Our net change in unrealized appreciation/depreciation on non-controlled/non-affiliated investments for the nine months ended September 30, 2020 and 2019 was ($80.6) million and ($18.4) million, respectively. Our net change in unrealized appreciation/depreciation for the nine months ended September 30, 2020 was primarily attributable to the following investments (dollar amounts in thousands):

 

Issuer

   Investment      Change in
Unrealized
Appreciation/
Depreciation
 

H-D Advanced Manufacturing Company

     Term Loan      $ (30,623

Pace Industries, Inc.

     Term Loan        (19,016

OTG Management, LLC

     Term Loan        (13,807

Guardia LLC (fka Carrier & Technology Solutions, LLC)

     Term Loan        (8,559

ASC Acquisition Holdings, LLC

     Term Loans        (8,135

Quantum Corporation

     Common Stock        (7,531

School Specialty. Inc.

     Preferred Stock        (4,283

RTI Holding Company, LLC

     Warrant        (1,007

ENA Holding Corporation

     Term Loan        1,372  

Intren, LLC

     Term Loan        1,480  

KPI Holding LLC

     Warrant        1,692  

Noramco, LLC

     Term Loan        9,789  

All others

     Various        (1,948
     

 

 

 

Net change in unrealized appreciation/depreciation

      $ (80,576
     

 

 

 

Similar to the three months ended September 30, 2020, our net change in unrealized appreciation/depreciation during the nine months ended September 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.

Our net change in unrealized appreciation/depreciation for the nine months ended September 30, 2019 was primarily due to our term loans to Carrier & Technology Holdings, LLC; Guardia LLC; Frontier Spinning Mills, Inc.; Noramco, LLC; and H-D Advanced Manufacturing Company, which collectively recognized $31.5 million in unrealized depreciation during the period. These were partially offset by unrealized gains from our Quantum Corporation warrants, which recognized an aggregate $12.3 million in unrealized appreciation during the period.

Net change in unrealized appreciation/depreciation on controlled/affiliated investments

Our net change in unrealized appreciation/depreciation on controlled/affiliated investments for the three months ended September 30, 2020 and 2019 was ($14.7) million and $11.6 million, respectively. The net change in unrealized appreciation/depreciation on controlled/affiliated investments during the three months ended September 30, 2020 was attributable to TCW Strategic Ventures, which, during the current quarter, generated more net investment income than its unrealized losses, but also made income distributions, leading to an overall decrease in its ending net asset value. The net change in unrealized appreciation/depreciation on controlled/affiliated investments during the three months ended September 30, 2019 was primarily attributable to a loan originated in 2016, as well as undistributed profits from TCW Strategic Ventures.

Our net change in unrealized appreciation/depreciation on controlled/affiliated investments for the nine months ended September 30, 2020 and 2019 was ($9.0) million and ($12.8) million, respectively. Similar to the three months ended September 30, 2020, the net change in unrealized appreciation/depreciation on controlled/affiliated investments during the nine months ended September 30, 2020 was attributable to TCW Strategic Ventures, which, during the nine months ended September 30, 2020, generated more net investment income than its unrealized losses, but also made income distributions made during the period, leading to an overall decrease in its ending net asset value. The net change in unrealized appreciation/depreciation on controlled/affiliated investments during the nine months ended September 30, 2019 was primarily attributable to a loan originated in 2016, partially offset by undistributed profits from TCW Strategic Ventures.

 

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Net increase (decrease) in members’ capital from operations

Our net increase in members’ capital from operations during the three months ended September 30, 2020 and 2019 was $3.7 million and $44.0 million, respectively. The relative decrease during the three months ended September 30, 2020 compared to the three months ended September 30, 2019 was primarily due to net realized and unrealized losses on our investments during the quarter, compared to net realized and unrealized gains during the three months ended September 30, 2019, partially offset by higher net investment income during the current quarter versus the three months ended September 30, 2019.

Our net (decrease) increase in members’ capital from operations during the nine months ended September 30, 2020 and 2019 was ($29.1) million and $66.9 million, respectively. The relative decrease increase during the nine months ended September 30, 2020 compared to the nine months ended September 30 2019 was primarily due to lower net investment income coupled with higher net realized and unrealized losses on our investments during the nine months ended September 30, 2020, compared to the nine months ended September 30, 2019.

Direct Lending Strategic Ventures LLC

On June 5, 2015, the Company, together with an affiliate of Security Benefit Corporation and accounts managed by Oak Hill Advisors, L.P., entered into an Amended and Restated Limited Liability Company Agreement (the “Agreement”) to become members of TCW Strategic Ventures. TCW Strategic Ventures focuses primarily on making senior secured floating rate loans to middle-market borrowers. The Agreement was effective June 5, 2015. The Company’s capital commitment is $481.6 million, representing approximately 80% of the preferred and common equity ownership of TCW Strategic Ventures, with the third-party investors representing the remaining capital commitments and preferred and common equity ownership. A portion of the Company’s capital commitment was satisfied by the contribution of two loans to TCW Strategic Ventures. TCW Strategic Ventures also entered into a revolving credit facility to finance a portion of certain eligible investments on June 5, 2015. The revolving credit facility is for up to $600 million. TCW Strategic Ventures is managed by a management committee comprised of two members, one appointed by the Company and one appointed by Oak Hill Advisors, L.P. All decisions of the management committee require unanimous approval of its members. Neither the Company, nor the Adviser will receive management fees from this entity. Although the Company owns more than 25% of the voting securities of TCW Strategic Ventures, the Company does not believe that it has control over TCW Strategic Ventures (other than for purposes of the 1940 Act). The Company’s ability to withdraw from the fund is subject to restrictions.

The Company’s investments in controlled affiliated investments as of and transactions during the nine months ended September 30, 2020 were as follows (dollar amounts in thousands):

 

     Fair Value as of
January 1,
2020
     Purchases      Sales     Change in
Unrealized
Appreciation/
Depreciation
    Fair Value as of
September 30,
2020
     Dividend
Income
     Realized
Gain
Distribution
 

Controlled Affiliates

                  

TCW Direct Lending Strategic Ventures LLC

   $ 195,726      $ —        $ (42,400   $ (9,034   $ 144,292      $ 16,000      $ —    
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

    

 

 

    

 

 

 

Total Controlled Affiliates

   $ 195,726      $ —        $ (42,400   $ (9,034   $ 144,292      $ 16,000      $ —    
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

    

 

 

    

 

 

 

The Company’s investments in controlled affiliated investments for the years ended December 31, 2019 were as follows (dollar amounts in thousands):

 

     Fair Value as of
January 1,
2019
     Purchases      Sales     Change in
Unrealized
Appreciation/
Depreciation
    Fair Value as of
December 31,
2019
     Dividend
Income
     Realized
Gain
Distribution
 

Controlled Affiliates

                  

TCW Direct Lending Strategic Ventures LLC

   $ 260,252      $ —        $ (24,000   $ (40,526   $ 195,726      $ 68,127      $ 4,833  
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

    

 

 

    

 

 

 

Total Controlled Affiliates

   $ 260,252      $ —        $ (24,000   $ (40,526   $ 195,726      $ 68,127      $ 4,833  
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

    

 

 

    

 

 

 

 

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For the nine months ended September 30, 2020 and year ended December 31, 2019, we did not recognize any realized gains (losses) on controlled affiliated investments.

Financial Condition, Liquidity and Capital Resources

On March 19, 2015 we completed the final private placement of Common Units. We generate cash from (1) drawing down capital in respect of Common Units, (2) cash flows from investments and operations and (3) borrowings from banks or other lenders.

Our primary use of cash is for (1) investments in portfolio companies and other investments to comply with certain portfolio diversification requirements, (2) the cost of operations (including expenses, management fees, incentive fees, and any indemnification obligations), (3) debt service of any borrowings and (4) cash distributions to the Common Unitholders.

As of September 30, 2020 and December 31, 2019, aggregate Commitments, Undrawn Commitments and subscribed for Units of the Company are as follows (dollar amounts in thousands):

 

     September 30, 2020     December 31, 2019  

Commitments

   $ 2,013,470     $ 2,013,470  

Undrawn commitments

   $ 409,125     $ 409,125  

Percentage of commitments funded

     79.7     79.7

Units

     20,134,698       20,134,698  

Natixis Credit Agreement

We have a secured revolving credit agreement (the “Credit Agreement”) with Natixis, New York Branch (“Natixis”) as administrative agent and committed lender. The Credit Agreement provides for a revolving credit line of up to $750 million (the “Maximum Commitment”) (the “Credit Facility”), subject to the lesser of the “Borrowing Base” assets or the Maximum Commitment (the “Available Commitment”). The Borrowing Base assets generally equal the sum of (a) a percentage of certain eligible investments in a controlled account, (b) a percentage of unfunded commitments from certain eligible investors in the Company and (c) cash in a controlled account. The Credit Agreement is generally secured by the Borrowing Base assets.

On April 10, 2017, we entered into a Third Amended and Restated Revolving Credit Agreement. Under the April 10, 2017 Credit Agreement borrowings bear interest at a rate equal to either the (a) adjusted eurodollar rate calculated in a customary manner plus 2.35%, (b) commercial paper rate plus 2.35%, or (c) a base rate calculated in a customary manner (using the higher of the Federal Funds Rate plus 0.50%, the Prime Rate and the Floating LIBOR Rate plus 1.00%) plus 1.35%. Moreover, the Credit Agreement’s stated maturity date was extended from November 10, 2017 to April 10, 2020. The Credit Facility may be terminated, and any outstanding amounts thereunder may become due and payable, should the Company fail to satisfy certain covenants. As of September 30, 2020, we were in compliance with such covenants.

On April 6, 2020, we entered into a First Amendment to the Third Amended and Restated Revolving Credit Agreement (the “Amended Credit Agreement”), with Natixis, New York Branch, as administrative agent and the lenders party thereto. The Amended Credit Agreement provides for a revolving credit line of up to $375.0 million (with an option for us to increase this amount to $450.0 million subject to consent of the lenders and satisfaction of certain other conditions), subject to the available borrowing base, which is generally the sum of (a) a percentage of certain eligible investments, (b) a percentage of remaining unfunded commitments from certain eligible investors in the Company and (c) cash in a controlled account. The Amended Credit Agreement is generally secured by the unfunded commitments (together with the recallable amounts) of our investors, portfolio investments and substantially all other assets of the Company. The stated maturity date of the Amended Credit Agreement is April 9, 2021, which date (subject to the satisfaction of certain conditions) may be extended by the Company for up to an additional 364 days. Borrowings under the Amended Credit Agreement bear interest at a rate equal to either (a) adjusted eurodollar rate calculated in a customary manner plus 2.50%, (b) commercial paper rate plus 2.50%, or (c) a base rate calculated in a customary manner (which will never be less than the adjusted eurodollar rate plus 1.00%) plus 1.50%, provided however in each case the commercial paper rate and the eurocurrency rate shall have a floor of 1.00%.

On May 27, 2020, we entered into a Lender Group Joinder Agreement pursuant to which Zions Bancorporation, N.A. d/b/a California Bank & Trust was added as a committed lender (with a commitment of $25.0 million) under the Amended Credit Agreement. Concurrently therewith, we elected to increase the size of our revolving credit line under the Credit Agreement to $400.0 million.

 

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As of September 30, 2020 and December 31, 2019, the Available Commitment under the Credit Facility is $400.0 million and $387.1 million, respectively.

As of September 30, 2020 and December 31, 2019, the amounts outstanding under the Credit Facility were $260.3 million and $364.1 million, respectively. The carrying amount of the Credit Facility, which is categorized as Level 2 within the fair value hierarchy as of September 30, 2020 and December 31, 2019, approximates its fair value. Valuation techniques and significant inputs used to determine fair value include Company details, credit, market and liquidity risk and events, financial health of the Company, place in the capital structure, interest rate and terms and conditions of the Credit Facility. We incurred financing costs of $10.1 million in connection with the April 10, 2017 Third Amended and Restated Revolving Credit Agreement. We also incurred additional financing costs totaling $1.8 million in connection with the Amended Credit Agreement on April 6, 2020 and May 27, 2020. We recorded these costs as deferred financing costs on its Consolidated Statements of Asset and Liabilities and the costs are being amortized over the life of the Credit Facility. As of September 30, 2020 and December 31, 2019, $1.5 million and $0.7 million, respectively, of such prepaid deferred financing costs had yet to be amortized.

The summary information regarding the Credit Facility for the three months ended September 30, 2020 and 2019 were as follows (dollar amounts in thousands):

 

     Three Months Ended September 30,     Nine months Ended September 30,  
     2020     2019     2020     2019  

Credit facility interest expense

   $ 2,417     $ 3,483     $ 6,798     $ 11,578  

Undrawn commitment fees

     124       122       1,054       368  

Administrative fees

     16       17       49       49  

Amortization of deferred financing costs

     250       642       1,222       1,907  
  

 

 

   

 

 

   

 

 

   

 

 

 

Total

   $ 2,807     $ 4,264     $ 9,123     $ 13,902  
  

 

 

   

 

 

   

 

 

   

 

 

 

Weighted average interest rate

     3.45     4.56     3.61     4.76

Average outstanding balance

   $ 278,478     $ 299,098     $ 251,658     $ 320,850  

A summary of our contractual payment obligations as of September 30, 2020 and December 31, 2019 is as follows (dollar amounts in thousands):

 

Revolving Credit Agreement

   Total Facility
Commitment
     Borrowings
Outstanding
     Available
Amount(1)
 

Total Debt Obligations – September 30, 2020

   $         400,000      $         260,250      $         139,750  

Total Debt Obligations – December 31, 2019

   $ 750,000      $ 364,065      $ 23,000  

 

(1)

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

On December 31, 2019, our ratio of aggregate fair value of all eligible portfolio assets (as defined in the Credit Agreement) to the principal amount outstanding (“Ratio of Eligible Portfolio Assets”) fell below 150%, which triggered a mandatory prepayment provision in the Credit Agreement requiring us to utilize all cash receipts attributable to the eligible portfolio assets as a prepayment to the outstanding principal obligation, within five days of collecting such cash receipts, until such a time when the Ratio of Eligible Portfolio Assets exceeds 150%. Our Ratio of Eligible Portfolio Assets exceeded 150% on January 10, 2020 through March 26, 2020. On March 27, 2020, our Ratio of Eligible Portfolio Assets fell below 150%. However, in connection with the First Amendment to the Third Amended and Restated Revolving Credit Agreement executed on April 6, 2020, the mandatory repayment was waived by Natixis. Our Ratio of Eligible Portfolio Assets has exceeded 150% since April 6, 2020.

 

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We had the following unfunded commitments and unrealized losses by investment as of September 30, 2020 and December 31, 2019 (dollar amounts in thousands):

 

     Maturity/
Expiration
   September 30, 2020      December 31, 2019  

Unfunded Commitments

   Amount      Unrealized
Depreciation
     Amount      Unrealized
Depreciation
 

Guardia LLC (fka Carrier & Technology Solutions, LLC)

   July 2023    $ 1,727      $ 33      $ 2,124      $ —    

KBP Investments, LLC (fka FQSR, LLC)

   September 2021      —          —          5,798        —    

Help At Home, LLC

   August 2020      —          —          10,541        —    

Quicken Parent Corp

   April 2021      863        —          863        26  

Ruby Tuesday, Inc.

   December 2022      3,843        —          4,575        —    
     

 

 

    

 

 

    

 

 

    

 

 

 

Total

      $ 6,433      $ 33      $ 23,901      $ 26  
     

 

 

    

 

 

    

 

 

    

 

 

 

The Company’s total capital commitment to its underlying investment in Strategic Ventures is $481,600. As of September 30, 2020 and December 31, 2019, the Company’s unfunded commitment to Strategic Ventures was $219,646.

In accordance with our Second Amended and Restated Limited Liability Company Agreement, we may make follow-on investments up to an aggregate maximum of 10% of Capital Commitments (as defined in our Second Amended and Restated Limited Liability Company Agreement), provided that any such follow-on investment to be made after September 19, 2020, the third anniversary of the expiration of our commitment period, shall require the prior consent of a majority in interest of our Common Unitholders.

In October 2020, our Members approved a proposal to allow us to make pre-identified follow-on investments in specific portfolio companies as well as their holding companies, subsidiaries, successors or other affiliates, up to an aggregate maximum of 10% of Capital Commitments.

 

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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. At September 30, 2020, 97.8% 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 nine months. At September 30, 2020, the percentage of our floating rate debt investments that bore interest based on an interest rate floor was 97.8%. Floating rate investments subject to a floor generally reset by reference to the current market index after one to nine 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 September 30, 2020 consolidated balance sheet, the following table shows the annual impact on net investment income (excluding the related incentive compensation impact) of base rate changes in interest rates (considering interest rate floors for variable rate instruments) assuming no changes in our investment and borrowing structure (dollar amounts in thousands):

 

     Interest Income      Interest Expense      Net Investment Income (Loss)  

Up 300 basis points

     16,004        5,668        10,336  

Up 200 basis points

     8,381        3,030        5,351  

Up 100 basis points

     1,558        391        1,167  

Down 100 basis points

     (30      —          (30

Down 200 basis points

     (30      —          (30

Down 300 basis points

     (30      —          (30

 

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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PART II. OTHER INFORMATION

 

Item 1.

Legal Proceedings

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

 

Item 1A.

Risk Factors

In addition to the other information set forth within the Form 10-Q, consideration should be given to the risk factors previously disclosed in our Annual Report on Form 10-K that we filed with the SEC on March 16, 2020, as amended by Form 10-K/A filed April 29, 2020, and the following risk factor regarding the impact of the COVID-19 pandemic.

The COVID-19 pandemic has materially and adversely affected certain of our portfolio companies, and could materially and adversely affect our business, financial condition, results of operations and cash flows.

In late 2019 and early 2020, a novel coronavirus (SARS-CoV-2) and related respiratory disease (“COVID-19”) was first reported in China and spread rapidly to across the world, including to the United States. This outbreak has led, and for an unknown period of time, will continue to lead to disruptions in local, regional, national and global markets and economies affected thereby. With respect to the United States credit markets (in particular for middle market loans), this outbreak has resulted in, and until fully resolved, is likely to continue to result in, the following (among other things): (i) government imposition of various forms of “stay at home” orders and the closing or reduced operating capacity of “non-essential” businesses, resulting in significant disruption to the businesses of many middle-market loan borrowers including supply chains, demand and practical aspects of their operations, as well as in lay-offs of employees, and, while these effects are hoped to be temporary, some effects could be persistent or even permanent; (ii) increased draws by borrowers on revolving lines of credit; (iii) increased requests by borrowers for amendments and waivers of their credit agreements to avoid default, increased defaults by such borrowers and/or increased difficulty in obtaining refinancing at the maturity dates of their loans; (iv) volatility and disruption of these markets including greater volatility in pricing and spreads and difficulty in valuing loans during periods of increased volatility, and liquidity issues; and (v) rapidly evolving proposals and/or actions by state and federal governments to address problems being experienced by the markets and by businesses and the economy in general which may not adequately address the problems facing the loan market and middle market businesses. This outbreak is having, and any future outbreaks could have, an adverse impact on our portfolio companies and on the markets and the economy in general, and that impact could be material. For example, if the temporary closure or reduced operating capacity of many corporate offices, retail stores, and manufacturing facilities and factories in the jurisdictions, including the United States, affected by the COVID-19 pandemic were to continue for an extended period of time it could result in further reduced cash flows to us from our existing portfolio companies, which could further reduce cash available for distribution to our Unitholders.

Further, from an operational perspective, many of our Adviser’s investment professionals are currently working remotely. An extended period of remote work arrangements could increase operational risks, including but not limited to cybersecurity risks and risks related to business continuity capacity, which may impair our ability to manage our business. In addition, we are highly dependent on third party services providers for certain communication and information systems. As a result, we rely upon the successful implementation and execution of the business continuity planning of such providers in the current environment. If one or more of these third parties to whom we outsource certain critical business activities experience operational failures as a result of the impacts from the spread of COVID-19, or claim that they cannot perform due to a force majeure, it may have a material adverse effect on our business, and its financial condition, results of operations, liquidity and cash flows.

In addition, the United States capital markets have experienced extreme volatility and disruption following the spread of COVID-19 in the United States. Some economists and major investment banks have expressed concern that the continued spread of the virus globally could lead to a world-wide economic downturn. Disruptions in the capital markets have increased the spread between the yields realized on risk-free and higher risk securities, resulting in illiquidity in parts of the capital markets. These and future market disruptions and/or illiquidity may have an adverse effect on our business, financial condition, results of operations and cash flows. Unfavorable economic conditions may also increase our funding costs, limit our access to the capital markets or result in a decision by lenders not to extend credit to us. These events have limited and could continue to limit our investment originations, and limit our ability to grow and could have a material negative impact on our operating results and the fair values of our debt and equity investments.

 

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Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

Sales of unregistered securities

On September 19, 2014, the Company began accepting subscription agreements from investors for the private sale of its Common Units. The Company continued to enter into subscription agreements through the final closing date of March 19, 2015. Under the terms of the subscription agreements, the Company may generally draw down all or any portion of the undrawn commitment with respect to each Common Unit upon at least ten business days’ prior written notice to the Unitholders. The issuance of the Common Units pursuant to these subscription agreements and any draw by the Company under the related Commitments is expected to be exempt from the registration requirements of the Securities Act of 1933, as amended, pursuant to Section 4(a)(2) thereof, and Rule 506(c) of Regulation D thereunder.

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

 

Exhibits     
  3.1    Certificate of Formation (incorporated by reference to Exhibit 3.1 to a registration on Form 10 filed on April 18, 2014)
  3.4    Second Amended and Restated Limited Liability Company Agreement, dated September  19, 2014 (incorporated by reference to Exhibit 3.4 to a filing on Form 10-Q filed on November 7, 2014)
10.1    Investment Advisory and Management Agreement (incorporated by reference to Exhibit 10.1 to the registrant’s Current Report on Form 8-K filed on September 25, 2014).
10.2    Administration Agreement dated September  15, 2014, by and between TCW Direct Lending LLC and TCW Asset Management Company (incorporated by reference to Exhibit 10.2 to the registrant’s Quarterly Report on Form 10-Q filed on November  7, 2014).
10.6    Final form of the TCW Direct Lending Strategic Ventures LLC Amended and Restated Limited Liability Company Agreement, dated June  5, 2015 (incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K filed on June 10, 2015).
10.8    Third Amended and Restated Revolving Credit Agreement, dated April  10, 2017, by and among TCW Direct Lending LLC, as borrower, Natixis, New York Branch, as administrative agent, sole lead arranger and sole book manager, and the lenders party thereto (incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K filed on April 14, 2017).
10.10    First Amendment to the Third Amended and Restated Revolving Credit Agreement, dated April  6, 2020, by and among TCW Direct Lending LLC, as borrower, Natixis, New York Branch, as administrative agent, and the lenders party thereto (incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K filed on April 13, 2020).
10.11    Lender Group Joinder Agreement, dated May 27, 2020 by and among Zions Bancorporation, N.A. d/b/a California Bank  & Trust, Natixis, New York Branch (as Administrative Agent) and TCW Direct Lending LLC (incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K filed on June 2, 2020).
31.1*    Certification of President Pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934
31.2*    Certification of Chief Financial Officer Pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934
32.1*    Certification of President Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. 1350)
32.2*    Certification of Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. 1350)
99.1*    Financial Statements of TCW Direct Lending Strategic Ventures LLC for the three and nine months ended September 30, 2020

 

*

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.

 

 

TCW DIRECT LENDING LLC

Date: November 9, 2020   By:  

/s/ Richard T. Miller

   

Richard T. Miller

   

President

Date: November 9, 2020   By:  

/s/ James G. Krause

   

James G. Krause

   

Chief Financial Officer

 

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