Nuveen Churchill Direct Lending Corp

NYSE:NCDL

Earnings Call Transcript 2024-Q1

[Operator]

Hello, and welcome to the Nuveen Churchill Direct Lending Corp. First Quarter 2024 Earnings Call. [Operator Instructions] As a reminder, this conference is being recorded.

It's now my pleasure to turn the conference over to Alona Gornick, Senior Investment Strategies. Please go ahead, Alona.

[Unknown Executive]

Good morning, and welcome to Nuveen Churchill Direct Lending Corp. First Quarter 2024 Earnings Call. Today, I'm joined by NCDL's Chairman, President and CEO, Ken Kencel; and Chief Financial Officer and Treasurer, Shaul Vichness. Following our prepared remarks, we will be available to take your questions.

Today's call may include forward-looking statements. Such statements involve known and unknown risks, uncertainties and other factors and undue reliance should not be placed thereon. These forward-looking statements are not historical facts, but rather are based on current expectations, estimates and projections about the company, our current and prospective portfolio investments, our industry, our beliefs and opinions and our assumptions. 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 difficult to predict. Actual results may differ materially from those expressed or forecasted forward-looking statements. We ask that you refer to the company's most recent filings with the SEC for important risk factors.

Any forward-looking statements made today do not guarantee future performance, and undue reliance should not be placed on them. The company assumes no obligation to update any forward-looking statements at any time. Our earnings release, 10-Q and supplemental earnings presentation are available on the Investor Relations section of our website at ncdl.com.

Now I'd like to turn the call over to Ken.

[Kenneth Kencel, executive]

Thank you, Alona, and thank you, everyone, for joining us on the call today. In the first quarter, we completed our IPO to list NCDL on the New York Stock Exchange. As such, we understand that some of you may be new to our platform. Welcome to both existing and future investors. We are thrilled that you're here with us today.

Today, I'm going to provide a brief snapshot of our performance in the quarter. I think it's worthwhile to briefly cover who we are at NCDL, what our strategy is and the broader investment environment that we are operating in. Then I'll turn it over to Shaul for a more detailed discussion of our performance.

I'm pleased to share that we've delivered a strong start to the year that carries on the momentum since our last call. NCDL reported solid first quarter results, supported by strong net investment income performance, growth in net asset value, robust investment activity and an attractive first quarter dividend, representing an annualized dividend yield of 9.9%. Shaul will briefly cover our corporate structure, which demonstrates Churchill's long-standing focus on financing and investing in leading U.S. middle-market companies, our differentiated investment approach and unique sourcing model that seeks to partner with best-in-class private equity sponsors in the middle market.

Churchill Asset Management is the exclusive U.S. middle market private capital manager for TIAA and Nuveen. In TIAA, our parent company and largest investor is among the highest rated insurance companies in the U.S. and one of the largest private credit investors in the world with a 50-year history of investing in the private markets. Nuveen is TIAA's asset manager and Churchill sits within Nuveen's $1.2 trillion asset management business. Churchill is a strategically integrated middle-market private capital platform. And collectively, we manage approximately $50 billion of committed capital. Key to our strategy is our significant commitment to U.S. middle market private equity funds, for many of which we sit on their fund advisory boards. This focus underpins all of our direct investment activity in senior lending, junior capital and equity co-investments.

Today, Churchill has commitments to over 300 leading U.S. middle market private equity funds, and sits in over 240 advisory boards. Over 70% of our private equity fund commitments are to top quartile sponsors. These LP relationships provide a number of distinct advantages, including a deal sourcing advantage and an information advantage, which ultimately contribute to high-quality deal flow for our investors.

Nuveen Churchill Direct Lending Corp. is our flagship private credit BDC, which began investing over 4 years ago and successfully completed its IPO on the New York Stock Exchange on January 25. Our $1.8 billion investment portfolio is highly diversified with 195 portfolio companies and our top 10 portfolio positions accounted for only 12.6% of the entire portfolio at quarter end. With an average annual EBITDA of our portfolio companies of $77 million, our focus is on traditional U.S. middle-market companies that are large market-leading businesses with a solid history of financial performance.

We are focused exclusively on private equity-backed businesses, which benefit from the capital support and capabilities provided by leading private equity firms. First lien loans make up 89% of the portfolio, along with a small mix of junior debt and equity co-investments. In fact, 85% of our investments across strategies have at least one financial maintenance covenant in place. Looking at key credit metrics, NCDL's core middle market portfolio has net total leverage of only 4.8x and a very strong interest coverage ratio of 2.2x for first lien loans, reflecting our selective and conservative investment approach.

There are several important factors that differentiate us and position us for continued future growth. First, NCDL's corporate structure that I've just described is a real strength. By investing alongside a premier institutional private credit manager and with the backing of a large-scale global asset management franchise, we believe NCDL offers an attractive and unique investment opportunity.

Second, we believe we are one of the largest BDCs focused on the core middle market. Our consistent dedication to this space helps to insulate investors from the volatility and competitive dynamics currently at play in the broadly syndicated loan market.

Third, we are among the most diversified BDCs in the marketplace. We have constructed a balanced portfolio by sponsor, position size and industry. This has been our disciplined approach for the last 18 years, and it has proven to be critical to our successful long-term track record.

Fourth, our origination and sourcing model is highly differentiated. Our strong private equity LP relationships are grounded in the fact that our investment team has worked and invested with many of these firms for nearly 20 years. In turn, these partnerships drive strong deal flow and have allowed us to maintain a high level of investment selectivity.

And lastly, we have a rigorous investment process focused on overall credit quality. As we underwrite, we look for companies with leading market positions and high barriers to entry, which are very important for establishing pricing power and higher margins. Moreover, we are mindful of the higher interest burden facing both our existing portfolio companies as well as new borrowers, something that influences our conservative and disciplined approach to structuring new transactions with overall lower leverage, more equity in the capital structure and tighter covenant packages.

And should rates come down sooner than expected, the new deals we're underwriting in this environment will look even more attractive. Once we've made an investment, we remain proactive in how our teams manage portfolios. Communication and a culture of no surprises are 2 of the biggest qualities we value in our approach.

Before I pass the call over to Shaul, I want to talk a little bit about what we are seeing in the current market environment. In the first quarter, the broadly syndicated loan market returned in full force. As a result, larger companies gained greater access to a broader range of financing options than they had available to them in the prior 18 months. This led to renewed competition between the public debt markets and the banks that underwrite those deals and the direct lenders that focus primarily on the upper middle market. This competition drove a material tightening in spreads in the upper middle market.

We at NCDL, however, have remained somewhat insulated from this dynamic, given our primary focus on the core middle market, where the limited number of larger scale direct lenders and the relationship-based nature of the market have made the impact more muted. With all-in yields in the core middle market still in the 11% range, we believe the risk-adjusted returns in our target market remained very attractive and are still wide relative to historical averages in the asset class.

When deciding between options, sponsors will be faced with an execution trade-offs, cheaper pricing and looser terms of the BSL market versus the faster commitments and closings as well as the longer-term partnerships that come with private credit. That's in part why we still believe strongly in the fundamentals and attractiveness of private credit, particularly in the traditional middle market. Leading private credit managers with scale and differentiated sourcing can still offer private equity sponsors speed, certainty of execution and confidentiality while maintaining the historical 100 to 200 basis point premium in pricing. And overall, M&A activity remained solid in the first quarter as price discovery began to unlock deal activity, with private equity firms eager to put dry powder to work, make distributions and drive exits for their LPs.

While deal flow increased in the first quarter, quality was more mixed as companies that were sidelined are now being sold and refinanced in the liquid credit markets. As a result, selectivity and credit discipline are absolutely key. We expect the balance of 2024 to be more of the same against the backdrop of higher for longer interest rates. As we navigate the evolving credit landscape, we believe NCDL is well positioned for success. Our focus, as a leading private credit provider to the core middle market, enables us to be more insulated from the pricing and structural pressures and overall market volatility faced by direct lenders that are more focused on the upper middle market or BSL market.

Our scale in over 300 private equity LP relationships have combined to position us as a lender of choice to the private equity community and drive significant deal flow enabling us to remain very disciplined and selective in our approach with total leverage, sponsor equity contributions and underlying structural protections in our investments remaining very stable.

And finally, our large and growing portfolio of over 450 U.S. middle-market companies continues to drive significant refinancing and growth financing opportunities with companies that have a proven track record of financial performance and market-leading business models. We have a high degree of conviction in our ability to deliver strong risk-adjusted returns for our investors in today's current investment environment. We are strategically well positioned to source attractive investments across the core middle market at overall yields and structures that remain at compelling levels. And we are committed to maintaining a high level of discipline and selectivity as we evaluate our strong ongoing pipeline of investment opportunities.

And now I'll hand it over to Shaul.

[Shaul Vichness, executive]

Thank you, Ken, and thank you all for joining us to review our first quarter results. For the quarter, we earned $0.56 of net investment income per share. And in April, we paid a regular dividend of $0.45 per share, which equates to an annualized dividend yield of approximately 9.9% based on our quarter end NAV. We had $0.01 of net realized and unrealized gains, bringing our total net income for the quarter to $0.57 per share. Looking forward, our Board has declared a regular dividend for the second quarter of 2024 of $0.45 per share payable on July 29 to shareholders of record as of June 28, 2024.

In addition to the regular dividend, our Board has also declared a special dividend of $0.10 per share payable together with our Q2 dividend to shareholders of record as of May 13. This $0.10 special dividend is the first of 4 special dividends that we declared at the time of our IPO with record dates of 105, 195, 285 and 380 days post IPO. As a reminder, we intend to operate with a supplemental dividend program that sees us paying out a portion of the excess earnings over and above our regular dividend, allowing us to deliver the benefits of higher returns in the current environment to shareholders as well as grow our NAV.

Our debt-to-equity ratio at the end of the quarter was 0.82x, modestly below our target range of 1.0 to 1.25x as we repaid borrowings with a portion of the proceeds of our final private capital call and IPO, which together totaled approximately $242 million. We remain on track to relever the portfolio over the course of 2024 with the goal of ending the year within our target leverage range of 1.0 to 1.25x.

Our net asset value per share increased to $18.21 per share from $18.13 per share at the end of the prior quarter. This increase was again driven primarily by our net investment income earned over and above our regular dividend as well as a modest increase in valuations as we saw market spreads tighten further relative to the fourth quarter. This increase in valuations was offset by unrealized losses, including on one portfolio company, which we placed on nonaccrual during the quarter.

Turning to the portfolio. We had an increase in the fair value of our assets quarter-over-quarter of approximately $153 million. This increase was largely attributable to new originations, which accounted for 23 of the transactions done during the quarter, totaling approximately $131 million. We continue to benefit from the growth within our scaled and mature platform, which brought in 11 deals in the form of incremental transactions for existing portfolio companies totaling approximately $44 million. In addition, we saw drawdowns of roughly $29 million on our delayed draw term loans as our portfolio companies continue to be active in growing via acquisitions.

Prepayment activity moderated somewhat during the quarter. We had full prepayments on 5 deals totaling $34 million and partial repayments for another $5 million. As we've talked about, our position as the incumbent lender gives us a great look at ongoing financing opportunities for our portfolio companies. Prepayments in the first quarter totaled 2.2%, a 50% reduction from the 4.4% we saw in the fourth quarter and below our ongoing assumption of 5% per quarter. Overall, our portfolio grew to 195 names as of quarter end, and it remains very well diversified, with the top 10 positions representing only 12.6% of the fair value of the portfolio and our largest exposure at only 1.6%.

While new originations were down compared to the fourth quarter, Q1 is typically a seasonally slow quarter. We are pleased to report that the slowness that we saw in the first quarter of 2023 was not repeated in the most recent quarter, as we saw our volumes grow to $207 million in par amount of new originations across 34 investments this quarter from the $91 million that we committed to in the first quarter of 2023. And as I discussed, we continue to benefit from the incumbency in our portfolio which is driving a meaningful amount of deal flow.

In terms of asset selection and mix, at the end of the quarter, the portfolio remained heavily weighted towards senior loans, which represented 89% of the portfolio. 1.8% of the portfolio at fair value was in equity co-investments and the balance in junior debt. As I mentioned during our last quarterly call, we expected the allocation of senior loans in the portfolio to increase modestly as we invested the proceeds of our final capital call and IPO more readily into senior loans, including more liquid upper middle market transactions.

This played out during the quarter as we saw the allocation of senior loans increased by 2% from the 87% we reported at year-end. We remain committed to our target allocations that we communicated at the time of our IPO and on our last call with roughly 85% to 90% of our portfolio allocated to senior loans with the balance in junior debt and equity co-investments, with equity staying in the single-digit percentage range.

Roughly 40% of the investments that we made during the quarter were in the upper middle market as we opportunistically deployed some of the capital that we raised from the IPO. As Ken mentioned, spreads were tighter there than in the traditional middle market segment. However, we saw a number of attractive investment opportunities in the secondary market that we were able to acquire below par.

In aggregate, the weighted average interest rate on new origination came down approximately 95 basis points, with the majority of that tightening coming from the upper middle market investments made during the quarter. Spreads tightened in the traditional middle market as well by roughly 50 basis points, but remain attractive relative to historical averages.

In terms of the credit quality of the portfolio, our weighted average internal risk rating remained steady quarter-over-quarter at 4.1%. The percentage of the portfolio on our watch list, which we define as assets with a numerical risk rating of 6 or worse, grew slightly to 4.3% of the portfolio fair value from 4.2% of the portfolio, with one portfolio company added to the watch list during the quarter and one resolved. One junior capital investment was put on nonaccrual during the quarter. This investment is our only portfolio company on nonaccrual status and represents just 0.13% of the fair value of the portfolio. Overall, the portfolio remains in very good shape with our watch list percentage at a historically low level.

Turning to our liability activity during the quarter. We remained active in the secured debt markets. During the quarter, we closed our third CLO out of NCDL. We discussed this transaction on our last call as we had priced the transaction subsequent to the end of Q4. NCDL CLO-III has a weighted average cost of debt of SOFR plus 211 basis points and fits well within our other debt financings, which carry a weighted average pricing of SOFR plus 219 basis points.

Looking forward, we expect to continue to optimize our liability structure by accessing the unsecured debt market during the course of this year as market conditions continue to stabilize and that market becomes more attractive. We remain focused on ensuring that we have a diversified set of financing arrangements in place with no near-term maturities.

Lastly, and just as a reminder of some of the key terms of our IPO, we put in place a thoughtful staggered lockup release for our pre-IPO shareholders, coupled with special dividends payable over 4 quarters. Affiliated shareholders were locked up for a full year and nonaffiliated pre-IPO shareholders were locked up for 90, 180 and 270 days. With the first 15% tranche of our lockup coming off on April 23, we have nearly doubled our public float. Additionally, we implemented our share repurchase program that commenced 60 days post IPO. Through May 3, we have utilized approximately $2.1 million, leaving approximately $97.2 million remaining under the program.

I'll now turn it back to Ken for some closing remarks.

[Kenneth Kencel, executive]

Thank you, Shai. Before we get to questions, I just want to thank our team here at Churchill. Their hard work and dedication are outstanding. They are a key reason why NCDL is off to such a great start as a public company. They have been nothing short but exceptional. We're excited about the first quarter and what it represents for NCDL. And we have really appreciated your engagement and are looking forward to continuing our ongoing dialogue.

I will now turn the call over to the operator for Q&A.

[Operator]

[Operator Instructions] Our first question is coming from Vilas Abraham from UBS.

[Vilas Abraham, analyst]

You commented on the deployment into the secondary market as you guys ramp up. Can you just put that in context to the $200 million in new fundings? What portion of that was BSL? How are you thinking about rotating out of that over the next several quarters into in core middle market direct once that you're focused on?

[Shaul Vichness, executive]

Yes. Vilas, it's Shai. Thanks for the question. Yes, so the upper middle market deals that we bought in the secondary, it represented about 40% of the origination during the quarter. And again, as we talked about, that were sort of opportunistically looking at assets in that space that we could acquire on average at a discounted price to par. Again, we really did not invest really at all in the broadly syndicated market. We sort of think about relative value on a daily basis looking at again, what's accretive to the BDC. Obviously, being very sensitive to purchasing assets much above par in the current environment that might then be refinanced out. So again, that 40% was deployed into more liquid upper middle market transactions as opposed to kind of full BSL liquid loans.

The second part of your question in terms of our plans to sort of rotate that was always on the agenda, right, in terms of putting cash to work from the proceeds of our final capital call as well as the IPO and then rotating over time. As we talked about, we continue to have a very robust pipeline and feel good about our ability to fully ramp the vehicle into the traditional middle market over the course of this year.

[Vilas Abraham, analyst]

Okay. That's helpful. And then just maybe just a higher-level question. Just given your line of sight into the sponsor world, just hoping that you could comment a little bit on the odds that you think deal activity is really going to pick up here over the coming quarters? It feels like there's been an expectation for a little bit now with some disappointment in Q1, maybe this is kind of sector-wide that it was a little bit stronger than turned out to be. So just curious your thoughts there looking forward?

[Kenneth Kencel, executive]

Yes. It's Ken. And great to hear from you. It's interesting. We actually saw pretty solid order last quarter. If you look at our overall platform origination activity, if you look at stats across -- certainly across the traditional rental market deal activity relative to a year ago, Q1 was actually up quite a bit. Now what's interesting is a good portion of that was not new deal M&A related. There was a much bigger increase in refinancing activity. We saw a fair amount of activity coming out of our portfolio, so add-on financing activity. But overall, we saw -- I would say we felt that this was a very solid first quarter.

Now deal activity was not as active as the fourth quarter, but that's not surprising. Our fourth quarter is typically our most active quarter. But first quarter to first quarter comparing '24 to '23, we were up pretty significantly year-over-year. And we would expect that as the year goes on to continue to improve in terms of new deal activity. Certainty regarding interest rates not going up further, I'd say is certainly the consensus view. Well, rates may not be declining as rapidly as expected, and I think we went from 6 cuts to 4 cuts to 2 cuts and maybe no cuts this year. I would say that certainty around interest rates stability there. I think as private equity firms look out over the course of the year, we would expect the activity to modestly increase.

There is obviously a significant amount of private equity dry powder out there, private equity firms that we deal with. As you know, we're also through our private equity and junior capital team, a big LP in many private equity firms, funds. That dynamic certainly telling us that private equity is anxious to get back in and deploy capital. And so we would expect deal activity to continue to improve during the course of the year as more certainty regarding rates tends to normalize.

[Operator]

[Operator Instructions] Our next question is coming from Brian Mckenna from Citizen JMP.

[Brian Mckenna, analyst]

Maybe just a question on credit quality. Nonaccruals remained very low in the absolute. But you did add one company, it's nonaccrual during the quarter. So can you just talk a little bit more about this? And then you've been able to resolve a couple of other nonaccruals over the past 12 to 18 months. So what's the expectation for a positive resolution on this new nonaccrual?

[Shaul Vichness, executive]

Yes. Brian, it's Shai. Thanks a lot for the question. Obviously, we did add the one name to the nonaccrual list this quarter. It is the only nonaccrual in the portfolio. So again, you think about the hallmarks of our strategy, diversification at the position level is one of them. So when we have a problem, obviously, it's a manageable problem. This position was in our junior debt portfolio. So just for what that's worth.

Again, like we do with all of our positions, right, we work through these transactions with the sponsors. We had dedicated resources focused on getting us to the best resolution possible. So it's early days here, but we continue to work through the situation, obviously, with the goal of maximizing value for shareholders. One comment just on the junior part of our portfolio, right? When you think about how we invest, obviously, we lean very heavily into the private equity sponsor relationships that we have as an LP in a very large number of leading private equity firms.

If you think about our activity, the majority of our activity, the vast majority in our senior lending business is with private equity firms where we have that LP relationship, when we go further down in the capital structure, so into our junior debt investments, it's virtually 100% with private equity sponsors that we know well, the same is the case with this investment. So we think that gives us, obviously, an advantage when working through troubled situations like this one. So that's what I'll say now. I mean, obviously, our hope is that we're going to recover here, maximize value, but not much more to say right now.

[Kenneth Kencel, executive]

Yes. Brian, it's Ken. I would just add to that, just to give you a sense of what we're seeing more broadly across our portfolio. As you know, we have both senior loan investments as well as junior capital and private equity. So a very large portfolio of middle market companies, we believe credit quality remains quite good. We -- certainly, there are isolated examples of situations. But overall, we're seeing no evidence of deterioration or any significant concerns. And I would certainly say NCDL is a good example of that, very isolated situations and very rare. So we feel very good about credit quality right now.

[Brian Mckenna, analyst]

Okay. That's great. Very helpful. And then, Ken, just a bigger picture industry question. You've been on the road a bunch, you've been at a number of events and conferences. So what are some of the recurring themes or questions you've been receiving? Is there anything in particular that stands out within that? And then just based on some of the dynamics and use in the market, how is NCDL positioned to perform and ultimately take market share within the industry over time?

[Kenneth Kencel, executive]

Yes. No, it's a great question. Thank you. I'd say a couple of themes that I've seen. I was just out at [ Milken ] and obviously, lots of other credit managers there, and we had a chance to dialogue with many large-scale institutional investors and questions regarding some of the types of things we're seeing. I'd say a couple of themes overall, and I think they all point very positively for us. One is scale has become a very big issue now. I get lots of questions about new managers, and I think actually most of the institutions I talk to kind of know the answer.

The reality is that today, if you're not a scaled platform with the ability to commit to and invest $250 million, $500 million per transaction in the traditional middle market, very difficult to be able to provide full solution and to be at the top of the queue, if you will, for new transaction opportunities. And frankly, there are only a handful of firms today that can really do that. So I would say scale is an increasing theme. So raising new capital is very important to that.

And obviously, in order to do that, you need to demonstrate a strong track record, right? So track record begets capital raising begets new deal opportunities. So scale is a big deal. And obviously, we continue to have great success from a capital raising standpoint. We're on track to have yet another very solid year in terms of raising capital from both institutional and retail investors, feel very good about that.

Second thing I would say thematically is differentiated sourcing if you're just out trying to find deals on a one-off basis, and you don't really have a built-in advantage from a sourcing perspective, very difficult to compete, I would say, if anything, our 300-plus LP investments are 250 advisory board seats, huge advantage for us right now, not just in terms of the ongoing relationship, but the fact that we can be very selective. And if we turn down 3 or 4 deals in a row for various reasons, industry leverage, whatever, [ the odds ] are very high that we will see that [ fifth deal, that sixth ] deal because of the connectivity and the LP relationship.

So it gives us the ability to be very selective. I mean as an example, if you were a firm that didn't have that kind of relationship, you might turn 4 deals down and they might conclude there's really not a good fit, and you may not get the call on the fifth deal, whereas in our case, that deal flow continues to be very consistent. So differentiated sourcing is a theme. And how do you find deals and what drives that deal?

And then lastly, I would say, a pronounced dispersion regarding credit quality. You see that in some of the research reports that have come on Moody's and Fitch, and we're seeing it across the BDCs, which are really a mirror for credit quality across the portfolio, as you're seeing a range of certain managers that are showing 0 nonaccruals and other managers that are showing 5% or even 6% nonaccrual. So it's a broad range, and I would say there's a great research report Moody's came out with last week that talks about that dispersion among managers. And so I think from our perspective, that's a good thing, right? Because investors are really getting a look at who has been very focused and very selective and very diversified, and that's something that we're very proud of. And I would say that, that is leading to increased fundraising, which is driving, obviously, the scale and the ability to deliver for our clients.

[Brian Mckenna, analyst]

That's great. Ken, I'll leave it there. And congrats on another great quarter.

[Kenneth Kencel, executive]

Thank you.

[Shaul Vichness, executive]

Thanks a lot.

[Operator]

[Operator Instructions] Our next question is coming from Mark Hughes from Truist Securities.

[Mark Hughes, analyst]

Yes. Thank you. Related to the comment you just made about the credit quality and the dispersion. How much of that has to do with industry selection perhaps you had mentioned earlier that the quality of the opportunities was more mixed in the first quarter. I think you said you expected that to continue. Is that mix having to do with end market or quality of the company? So a couple of thoughts together there, but any comments would be helpful.

[Kenneth Kencel, executive]

Yes. So I think one of the things that's driving that is that with the resurgence of the BSL market and even the upper middle market, obviously, CLO formation has returned in earnest and as well as funds flows into the various funds that invest in BSL. So the BSL market has really come back full force, and I think what that's done is it's brought companies to the market that may be more repair financing or refinancing that is really designed to address issues in the portfolio. So we've got more liquidity, right, because now companies have 2 options, really. They have private credit, and they have -- and certainly, for the more larger businesses, BSL. So I think what that's done is it's brought issuers to market, particularly on the refinancing side that may have had a tough time [ going ] lender, given our posture regarding what we're willing to live with from a leverage and an industry standpoint.

So I think that trend has led to more of a mix deal flow. Now that being said, I certainly don't think that our deal flow and the deals we've chosen to do is mixed at all. In fact, I would say we've stayed in the core middle market where we've been largely insulated from those dynamics. So as you get larger and larger, I think you start to see more of that, pushing it in terms of leverage levels, pushing it in terms of new deals, for example, that are being done, but only work because there's a [ PEC ] component to the deal and deals that are being done that are really more refinancing of problems.

I would say from our perspective, by staying in the core middle market by sticking to our knitting in terms of the quality deals that are being done with significant equity contributions. That's our sweet spot, and we've stayed there. And I think by sticking to our core focus on the middle market, we've been able to continue to see excellent opportunities to invest without maybe some of the noise that you might see in the direct lenders that have been playing in that upper end of the market. That was a very good place to be 6, 9, 12 months ago when you had no BSL alternative.

Now that BSL is back, I would say that world of kind of larger direct loans tends to be a bit more challenged. We really haven't gone there. And as a result, we're still very active in our core world. And as I look out over the next several quarters, we certainly see deal flow continuing to be very good, and the quality is very good for the kinds of deals that we're investing in.

I will say, as a practical matter, you do the math and you want to stay invested in quality structures and quality companies in the right industries and the right dynamics around equity support. It's difficult to get your head around transactions with much more than 5x leverage. And we have generally taken the approach that that's kind of our outer limits as we look at deals. We occasionally see deals that for good reasons, maybe slightly above that. But I would say, overall, we're not seeing 6x levered deals. We're not seeing transaction certainly in our universe that would be pushing the envelope on leverage. So we feel very good about where we're at. We're seeing not only good quality from an industry perspective, but also structurally and from an equity support standpoint.

[Mark Hughes, analyst]

Yes, I appreciate that detail. On the -- the number of new deals, I think you did 23 this quarter, 13 last quarter. Is that part of a reflection of the investment in the upper middle market assets? Or is that something different?

[Shaul Vichness, executive]

Yes. Mark, it's Shai. Yes, that's right. I would say in terms of quarter-over-quarter from direct origination core middle market focus, it's probably fairly flat, and the upside there is from the secondary purchases.

[Mark Hughes, analyst]

Understood.

[Shaul Vichness, executive]

No real themes in terms of volume...

[Kenneth Kencel, executive]

Yes. One of the big drivers overall for us, which continues to be an important component is our portfolio. And frankly, not just our senior lending portfolio, which is about 250, 300 names, but also our private equity investments, right? So across the entire firm, we've got over 600 positions in our portfolio. So there's a lot of activity that goes on that may be related to senior, but also may be a situation where we're a co-investor on the equity side and that drives an investment or a financing opportunity as well. So having a large portfolio is a real advantage right now for us.

[Operator]

We reached the end of our question-and-answer session. I'd like to turn the floor back over for any further closing comments.

[Kenneth Kencel, executive]

Thank you, everyone, for joining us on the call today. We appreciate all of your support. We certainly enjoy the dialogue both on the call and as we move through the quarter. We appreciate you all checking in and having those conversations and certainly look forward to providing our Q2 results in August. Thanks, again.

[Operator]

Thank you. That does conclude today's teleconference and webcast. You may disconnect your line at this time and have a wonderful day. We thank you for your participation today.