News Column

TCW DIRECT LENDING LLC - 10-Q - Management's Discussion and Analysis of Financial Condition and Results of Operations

August 7, 2014

The information contained in this section should be read in conjunction with the financial statements and notes thereto appearing elsewhere in this report. This discussion also should be read in conjunction with the "Cautionary Statement Regarding Forward Looking Statements" set forth on page 3 of this quarterly report.

Overview

We were formed on April 1, 2014 as a limited liability company under the laws of the State of Delaware. Prior to the Initial Closing Date, we will file an election to be regulated as a BDC under the 1940 Act. We also intend to elect to be treated for U.S. federal income tax purposes as a RIC. As such, we will be 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 will be required to enter into a subscription agreement in connection with its Commitment (a Subscription Agreement"). Common Units issued on the first date on which we will accept Subscription Agreements and issue Common Units to persons not affiliated with the Adviser (the "Initial Closing Date") will be issued for the a purchase price of $0.01 per Common Unit (the "Original Issuance Price"). In addition, pursuant to our operating agreement the ("LLC Agreement"), Unitholders will be obligated to make additional capital contributions to us of $99.99 in respect of each Common Unit. All of the Common Units will be issued prior to the end of the Closing Period.

We are currently in the development stage and have not commenced investment operations. Since inception, there has been no activity. The Adviser contributed an initial $1,000 capital contribution to us in exchange for 10 Common Units. To date, our efforts have been limited to organizational activities, the cost of which has been borne by the Adviser and its affiliates. We have agreed to repay the Adviser and its affiliates for organization and offering expenses incurred up to a maximum of an amount equal to 10 basis points of the aggregate Commitments, in connection with the offering of Common Units through the Closing Period, upon receipt of a formal commitment of external capital. In the event receipt of a formal commitment of external capital does not occur, all organization and offering expenses will be borne by the Adviser or its affiliates. As of June 30, 2014, there has been no formal commitment of external capital. See discussion under "Recent Developments" that follows.

Revenues

As we are currently in the development stage, there have been no revenues earned during the period from May 13, 2014 (inception) through June 30, 2014.

We plan to generate revenues in the form of interest income and capital appreciation by providing private capital to middle market companies operating in a broad range of industries primarily in the United States. The historical investment philosophy, strategy and approach of the group of investment professionals comprise the direct lending team of the Adviser (the "Direct Lending Team") has 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. We do not expect the Direct Lending Team to originate investments for us with PIK interest features. We may have investments with PIK interest features in limited circumstances involving debt restructurings or work-outs of current investments. Our highly negotiated private investments may include senior secured loans, unsecured senior loans, subordinated and mezzanine loans, convertible securities, equity securities, and equity-linked securities such as options and warrants. However, our investment bias will be towards adjustable-rate, senior secured loans. We do not anticipate a secondary market developing for our private investments.

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

12



--------------------------------------------------------------------------------

Table of Contents

Expenses

We do not currently have any employees and do not expect to have any employees. Services necessary for our business will be 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), investigative, travel, legal and other transactional expenses incurred with respect to the acquisition, formation, holding and disposition of our investments or incurred in connection with investments or transactions not consummated, 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, 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.

Expenses from May 13, 2014 (inception) through June 30, 2014 consisted of $640,387 in initial organizational costs for which we are required to reimburse the Adviser in accordance with the Administration Agreement. We have incurred $15,500 in director fee expenses related to the initial board meeting. Accumulated offering costs shown on the Company's balance sheet as of June 30, 2014 were $525,245 and will be charged to Members' Capital on the Initial Closing Date. The Company anticipates receiving commitments sufficient to allow for this reimbursement. In the event receipt of a formal commitment of external capital does not occur, all organization and offering expenses will be borne by the Adviser or its affiliates.

Financial Condition, Liquidity and Capital Resources

We are currently in the development stage and have not commenced investment operations. The Adviser has contributed an initial $1,000 capital contribution to us in exchange for 10 Units. We have agreed to repay the Adviser and its affiliates for organization and offering expenses incurred up to a maximum amount equal to 10 basis points of the aggregate Commitments, in connection with the offering of Units through the Closing Period, upon receipt of a formal commitment of external capital.

We expect to generate cash from (1) drawing down capital in respect of Units, (2) cash flows from investments and operations and (3) borrowings from banks or other lenders. We will seek to enter into any bank debt, credit facility or other financing arrangements on at least customary market terms; however, we cannot assure you we will be able to do so.

Our primary use of cash will be for (1) investments in portfolio companies and other investments to comply with certain portfolio diversification requirements, (2) the cost of operations (including expenses, the Management Fee, the Incentive Fee, and any indemnification obligations), (3) debt service of any borrowings and (4) cash distributions to the Unitholders.

13



--------------------------------------------------------------------------------

Table of Contents


For more stories on investments and markets, please see HispanicBusiness' Finance Channel



Source: Edgar Glimpses


Story Tools






HispanicBusiness.com Facebook Linkedin Twitter RSS Feed Email Alerts & Newsletters