TCW Direct Lending Strategic Ventures LLC

Financial Statements

June 30, 2021

 

---

TCW Direct Lending Strategic Ventures LLC

(A Delaware Limited Liability Company)

 

CONTENTS

 

		Page(s)
Financial Statements
Schedules of Investments as of June 30, 2021 (unaudited) and December 31, 2020			2-5
Statements of Assets and Liabilities as of June 30, 2021 (unaudited) and December 31, 2020			6
Statements of Operations for the six months ended June 30, 2021 and 2020 (unaudited)			7
Statements of Changes in Members’ Capital for the six months ended June 30, 2021 and 2020 (unaudited)			8
Statements of Cash Flows for the six months ended June 30, 2021 and 2020 (unaudited)			9
Notes to Financial Statements (unaudited)			10-19
Administration			20

 

1

---

SCHEDULE OF INVESTMENTS

June 30, 2021

 

Industry		Issuer		Acquisition Date				Investment		% of Members’ Capital		Par Amount				Maturity Date				Amortized Cost				Fair Value
DEBT
Distributors
		ASC Acquisition Holdings, LLC (1) (2)			08/14/20			Subordinated Loan 7.00% inc PIK (7.00%, Fixed Coupon, all PIK)		4.6%		$	19,724,488				11/14/25			$	17,603,045			$	7,830,622
		ASC Acquisition Holdings, LLC (2)			08/14/20			Term Loan 9.50% inc PIK (LIBOR + 8.50%, 1.00% Floor, all PIK)		9.5%			16,189,948				08/14/25				16,189,948				16,189,948
										14.1%											33,792,993				24,020,570
Diversified Consumer Services
		School Specialty, Inc. (2)			09/15/20			Term Loan 9.25% inc PIK (LIBOR + 8.00%, 1.25% Floor, 4.00% PIK)		13.1%			22,329,816				09/15/25				22,204,335				22,329,816
Hotels, Restaurants & Leisure
		OTG Management, LLC			10/07/20			Delayed Draw Term Loan 10.00% inc PIK (LIBOR + 9.00%, 1.00% Floor, 2.00% PIK)		0.7%			1,298,233				08/26/21				1,298,233				1,108,691
		OTG Management, LLC			10/07/20			Term Loan 10.00% inc PIK (LIBOR + 9.00%, 1.00% Floor, 2.00% PIK)		2.0%			3,913,115				08/26/21				3,913,115				3,341,800
		OTG Management, LLC			06/30/16			Term Loan 10.00% inc PIK (LIBOR + 9.00%, 1.00% Floor, 2.00% PIK)		5.4%			10,695,449				08/26/21				10,692,429				9,133,913
		OTG Management, LLC			06/30/16			Term Loan 10.00% inc PIK (LIBOR + 9.00%, 1.00% Floor, 2.00% PIK)		16.9%			33,736,682				08/26/21				33,716,497				28,811,126
										25.0%											49,620,274				42,395,530
Internet & Direct Marketing Retail
		Lulu’s Fashion Lounge, LLC			08/28/17			Term Loan 10.50% inc PIK (LIBOR + 9.50%, 1.00% Floor, 2.50% PIK)		6.0%			10,256,508				08/28/22				10,186,930				10,256,508
Machinery
		Texas Hydraulics Holdings, Inc.			03/27/18			Term Loan 7.00% (LIBOR + 5.75%, 1.25% Floor)		9.5%			16,267,491				03/27/23				16,182,768				16,267,491
Pharmaceuticals
		Noramco, LLC			07/01/16			Term Loan 9.38% inc PIK (LIBOR + 8.38%, 1.00% Floor, 0.38% PIK)		16.9%			28,722,115				12/31/23				28,605,994				28,779,560
TOTAL DEBT (84.6%)										84.6%											160,593,294				144,049,475

 

The accompanying notes are an integral part of these financial statements.

2

---

TCW Direct Lending Strategic Ventures LLC

(A Delaware Limited Liability Company)

SCHEDULE OF INVESTMENTS (continued)

June 30, 2021

 

Industry		Issuer		Acquisition Date				Investment		% of Members’ Capital		Shares/ Contracts				Maturity Date				Cost				Fair Value
EQUITY
Distributors
		Animal Supply Holdings LLC (1) (2)						Class A Common Stock		0.0%			170,438							$	1,195,825			$	-
Diversified Consumer Services
		School Specialty, Inc. (1) (2)						Common Stock		0.0%			51,000								34,124				-
		School Specialty, Inc. (1) (2)						Preferred Stock A		4.4%			510,549								5,105,495				7,545,921
		School Specialty, Inc. (1) (2)						Preferred Stock B		0.0%			227,629								225,831				-
										4.4%											5,365,450				7,545,921
TOTAL EQUITY (4.4%)										4.4%											6,561,275				7,545,921
		Total Portfolio Investments (89.0%) (3)								89.0%											167,154,569				151,595,396
		Cash Equivalents (9.4%)
		Fixed Income Clearing Corporation Repo, Yield 0.00%								9.4%			16,061,450								16,061,450				16,061,450
																				$	183,216,019			$	167,656,846
		Other Assets in Excess of Other Liabilities (1.6%)																							2,723,089
		Members’ Capital (100.0%)																						$	170,379,935

 

(1)

Non-income producing

 

(2)

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

 

 

(a)

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

 

(b)

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

 

(3)

The fair value of each non-controlled/non-affiliated investment was determined using significant unobservable inputs and such investment are consider to Level 3 within the Fair Value Hierarchy. See Note 3 “Investment Valuations and Fair Value Measurements.”

 

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

 

Aggregate acquisitions and aggregate dispositions of investments, other than government securities, totaled $1,888,818 and $31,531,472, respectively, for the period ended June 30, 2021. Aggregate acquisitions includes investment assets received as payment in kind. Aggregate dispositions includes principal paydowns on and maturities of debt investments.

 

The accompanying notes are an integral part of these financial statements.

3

---

 

SCHEDULE OF INVESTMENTS

December 31, 2020

 

Industry		Issuer		Acquisition Date				Investment		% of Members’ Capital		Par Amount				Maturity Date				Amortized Cost				Fair Value
DEBT
Distributors
		ASC Acquisition Holdings, LLC (2)			08/14/20			Term Loan 9.50% inc PIK (LIBOR + 8.50%, 1.00% Floor, all PIK)		8.9%		$	15,509,920				08/03/25			$	15,509,920			$	15,509,920
		ASC Acquisition Holdings, LLC (1) (2)			08/14/20			Term Loan 7.00% inc PIK (7.00%, Fixed Coupon, all PIK)		4.2%			19,044,337				08/03/25				17,812,420				7,313,025
										13.1%											33,322,340				22,822,945
Diversified Consumer Services
		School Specialty, Inc. (2)			09/15/20			Term Loan 9.25% inc PIK (LIBOR + 8.00%, 1.25% Floor, 4.00% PIK)		12.6%			21,885,964				09/15/25				21,745,706				21,885,964
Hotels, Restaurants & Leisure
		OTG Management, LLC			10/07/20			Incremental Delayed Draw Term Loan 10.00% inc PIK (LIBOR + 9.00%, 1.00% Floor, 2.00% PIK)		0.6%			1,293,789				08/26/21				1,293,789				1,037,618
		OTG Management, LLC			10/07/20			Incremental Term Loan 10.00% inc PIK (LIBOR + 9.00%, 1.00% Floor, 2.00% PIK)		1.8%			3,891,107				08/26/21				3,891,107				3,120,668
		OTG Management, LLC			06/30/16			Term Loan 10.00% inc PIK (LIBOR + 9.00%, 1.00% Floor, 2.00% PIK)		4.9%			10,641,135				08/26/21				10,628,354				8,534,190
		OTG Management, LLC			06/30/16			Term Loan 10.00% inc PIK (LIBOR + 9.00%, 1.00% Floor, 2.00% PIK)		15.5%			33,565,360				08/26/21				33,479,503				26,919,419
										22.8%											49,292,753				39,611,895
Information Technology Services
		ENA Holding Corporation			05/06/16			First Lien Term Loan 10.00% inc PIK (LIBOR + 9.25%, 0.75% Floor, 4.75% PIK)		12.1%			21,086,631				05/06/21				21,051,384				20,895,891
		ENA Holding Corporation			05/06/16			Revolver 10.00% inc PIK (LIBOR + 9.25%, 0.75% Floor, 4.75% PIK)		2.4%			4,123,377				05/06/21				4,123,377				4,086,266
										14.5%											25,174,761				24,982,157
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)		6.0%			10,606,637				08/28/22				10,502,480				10,479,358
Machinery
		Texas Hydraulics Holdings, Inc.			03/27/18			Term Loan 7.00% (LIBOR + 5.75%, 1.25% Floor)		12.4%			21,520,472				03/27/23				21,376,393				21,520,472
Pharmaceuticals
		Noramco, LLC			07/01/16			Senior Term Loan 9.38% inc PIK (LIBOR + 8.38%, 1.00% Floor, 0.38% PIK)		15.6%			28,693,775				12/31/23				28,554,507				27,115,618
TOTAL DEBT (97.0%)										97.0%											189,968,940				168,418,409

 

The accompanying notes are an integral part of these financial statements.

4

---

TCW Direct Lending Strategic Ventures LLC

(A Delaware Limited Liability Company)

SCHEDULE OF INVESTMENTS (continued)

December 31, 2020

 

 

Industry		Issuer		Acquisition Date				Investment		% of Members’ Capital				Shares/ Contracts				Maturity Date				Cost				Fair Value
EQUITY
Distributors
		Animal Supply Holdings LLC (1) (2)						Class A Common Stock			0.0%				170,438							$	1,195,825			$	-
Diversified Consumer Services
		School Specialty, Inc. (1) (2)						Common Stock			0.0%				51,000								34,124				-
		School Specialty, Inc. (1) (2)						Preferred Stock A			1.6%				510,549								5,105,495				2,777,389
		School Specialty, Inc. (1) (2)						Preferred Stock B			0.0%				227,629								225,831				-
										1.6%												5,365,450				2,777,389
TOTAL EQUITY (1.6%)											1.6%												6,561,275				2,777,389
		Total Portfolio Investments (98.6%) (3)									98.6%												196,530,215				171,195,798
		Cash Equivalents (5.5%)
		Blackrock Liquidity Funds Fed Fund - Institutional Shares, Yield 0.01%									5.5%				9,618,436								9,618,436				9,618,436
																						$	206,148,651			$	180,814,234
		Other Liabilities in Excess of Other Assets (-4.1%)																									(7,201,874)
		Members’ Capital (100.0%)																								$	173,612,360

 

(1)

Non-income producing

 

(2)

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

 

 

(a)

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

 

(b)

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

 

(3)

The fair value of each non-controlled/non-affiliated investment was determined using significant unobservable inputs and such investment are consider to Level 3 within the Fair Value Hierarchy. See Note 3 “Investment Valuations and Fair Value Measurements.”

 

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

 

Aggregate acquisitions and aggregate dispositions of investments, other than government securities, totaled $31,240,131 and $234,445,286, respectively, for the period ended December 31, 2020. Aggregate acquisitions includes investment assets received as payment in kind. Aggregate dispositions includes principal paydowns on and maturities of debt investments.

 

The accompanying notes are an integral part of these financial statements.

5

---

(Dollar amounts in thousands)

STATEMENTS OF ASSETS AND LIABILITIES

 

		As of June 30, 2021 (unaudited)				As of December 31, 2020
Assets
Investments, at fair value
Non-controlled/non-affiliated investments (amortized cost of $104,596 and $134,901, respectively)		$	97,699			$	123,710
Non-controlled affiliated investments (amortized cost of $62,559 and $61,629, respectively)			53,896				47,486
Cash and cash equivalents			18,470				16,966
Interest receivable			266				1,270
Prepaid and other assets			128				162
Total Assets		$	170,459			$	189,594
Liabilities
Sub-administrator and custody fees payable		$	67			$	64
Audit fees payable			7				-
Insurance fees payable			5				-
Credit facility payable			-				15,131
Interest and credit facility expenses payable			-				786
Other fees payable			-				1
Total Liabilities		$	79			$	15,982
Members’ Capital		$	170,380			$	173,612
Commitments and Contingencies (Note 8)
Members’ Capital
Preferred members		$	170,380			$	173,612
Members’ Capital		$	170,380			$	173,612

										Noncontrolling
										interest in
		Preferred				Common				consolidated				Members’
Members’ Capital Represented by:		Members				Members				subsidiary fund				Capital
Net contributed capital		$	454,279			$	1,000			$	3,507			$	458,786
Net distributed capital			(477,778	)			(1,000	)			(4,235	)			(483,013	)
Cumulative net income, before organization costs			193,879				704				728				195,311
Organization costs			-				(704	)			-				(704	)
Total Members’ Capital as of June 30, 2021 (Unaudited)		$	170,380			$	-			$	-			$	170,380
										Noncontrolling
										interest in
		Preferred				Common				consolidated				Members’
Members’ Capital Represented by:		Members				Members				subsidiary fund				Capital
Net contributed capital		$	454,279			$	1,000			$	3,507			$	458,786
Net distributed capital			(457,278	)			(1,000	)			(4,235	)			(462,513	)
Cumulative net income, before organization costs			176,611				704				728				178,043
Organization costs			-				(704	)			-				(704	)
Total Members’ Capital as of December 31, 2020		$	173,612			$	-			$	-			$	173,612

 

The accompanying notes are an integral part of these financial statements.

6

---

TCW Direct Lending Strategic Ventures LLC

(A Delaware Limited Liability Company)

(Dollar amounts in thousands)

 

STATEMENTS OF OPERATIONS (Unaudited)

 

		For the Six Months Ended				For the Six Months Ended
		June 30, 2021				June 30, 2020
Investment Income:
Non-controlled/non-affiliated investments:
Interest income		$	5,221			$	17,508
Interest income paid-in-kind			690				652
Fee income			17				72
Non-controlled affiliated investments:
Interest income			611				-
Interest income paid-in-kind			1,199				-
Total investment income			7,738				18,232
Expenses:
Interest and credit facility expenses			281				5,070
Sub-administrator and custody fees			69				141
Audit fees			45				52
Insurance fees			45				49
Valuation fees			27				71
Tax service fee			11				18
Other			1				1
Total expense			479				5,402
Net investment income			7,259				12,830
Net realized and unrealized gain/(loss) on investments
Net realized gain/(loss):
Non-controlled/non-affiliated investments			234				1,944
Net change in unrealized appreciation/(depreciation):
Non-controlled/non-affiliated investments			4,294				(7,730	)
Non-controlled affiliated investments			5,481				-
Net realized and unrealized gain/(loss) on investments			10,009				(5,786	)
Net increase in Members’ Capital from operations		$	17,268			$	7,044
Net increase in Members’ Capital from operations attributable to the Preferred Members from operations		$	17,268			$	7,044

The accompanying notes are an integral part of these financial statements.

 

7

---

STATEMENTS OF CHANGES IN MEMBERS’ CAPITAL (Unaudited)

 

										For the Six Months Ended
										June 30, 2021
		Preferred Members				Common Members				Noncontrolling interest in consolidated subsidiary fund				Total
Members’ Capital, beginning of period		$	173,612			$	-			$	-			$	173,612
Net increase (decrease) in Members’ Capital resulting from operations:
Net investment income			7,259				-				-				7,259
Net realized gain/(loss) on investments			234				-				-				234
Net change in unrealized appreciation/(depreciation) on investments			9,775				-				-				9,775
Net decrease in Members’ Capital resulting from capital activity:
Distributions to Members			(20,500	)			-				-				(20,500	)
Total decrease in Members’ Capital			(3,232	)			-				-				(3,232	)
Members’ Capital, end of period		$	170,380			$	-			$	-			$	170,380

 

 

										For the Six Months Ended
										June 30, 2020
		Preferred Members				Common Members				Noncontrolling interest in consolidated subsidiary fund				Total
Members’ Capital, beginning of period		$	244,658			$	-			$	-			$	244,658
Net increase (decrease) in Members’ Capital resulting from operations:
Net investment income			12,830				-				-				12,830
Net realized gain/(loss) on investments			1,944				-				-				1,944
Net change in unrealized appreciation/(depreciation) on investments			(7,730	)			-				-				(7,730	)
Net decrease in Members’ Capital resulting from capital activity:
Distributions to Members			(48,000	)			-				-				(48,000	)
Total decrease in Members’ Capital			(40,956	)			-				-				(40,956	)
Members’ Capital, end of period		$	203,702			$	-			$	-			$	203,702

The accompanying notes are an integral part of these financial statements.

 

8

---

STATEMENTS OF CASH FLOWS (Unaudited)

 

		For the Six				For the Six
		Months Ended				Months Ended
		June 30, 2021				June 30, 2020
Cash Flows from Operating Activities
Net increase in members’ capital resulting from operations		$	17,268			$	7,044
Adjustments to reconcile the net increase in members’ capital resulting from operations to net cash provided by (used in) operating activities:
Purchases of investments			-				(13,498	)
Proceeds from sales and paydowns of investments			31,532				46,380
Net realized (gain)/loss on investments			(234	)			(1,944	)
Net change in unrealized (appreciation)/depreciation on investments			(9,775	)			7,730
Interest paid-in-kind			(1,889	)			(652	)
Accretion of discount			(33	)			(464	)
Increase (decrease) in operating assets and liabilities:
(Increase) decrease in interest receivable			1,004				(817	)
(Increase) decrease in prepaid and other assets			34				(130	)
Increase (decrease) in interest and credit facility expenses payable			(786	)			(847	)
Increase (decrease) in sub-administrator and custody fees payable			3				(9	)
Increase (decrease) in audit fees payable			7				18
Increase (decrease) in insurance fees payable			5				-
Increase (decrease) in other fees payable			(1	)			-
Net cash (used in) provided by operating activities			37,135				42,811
Cash Flows from Financing Activities
Distributions to Members			(20,500	)			(48,000	)
Repayments of credit facility			(15,131	)			(15,000	)
Net cash (used in) provided by financing activities			(35,631	)			(63,000	)
Net increase (decrease) in cash			1,504				(20,189	)
Cash and cash equivalents, beginning of period			16,966				66,749
Cash and cash equivalents, end of period		$	18,470			$	46,560
Supplemental disclosure of cash flow information and non-cash financing activities
Credit facility - interest and unused fee paid		$	1,032			$	5,895
Credit facility - administrative fee paid		$	-			$	23
Credit facility - surveillance paid		$	35			$	-

The accompanying notes are an integral part of these financial statements.

 

9

---

TCW Direct Lending Strategic Ventures LLC

(A Delaware Limited Liability Company)

 

NOTES TO FINANCIAL STATEMENTS (Unaudited)

June 30, 2021    

1.	ORGANIZATION

Investment Objective: TCW Direct Lending Strategic Ventures LLC (the “Fund”) is a closed-end investment company formed as a Delaware limited liability company for the purpose of investing in corporate senior secured middle-market floating rate loans. Investments may include other loans and securities received as a result of the restructuring, workout or bankruptcy of an existing loan.

Limited Liability Company Agreement: The Amended and Restated Limited Liability Company agreement (the “Agreement”), dated June 5, 2015, was entered into by and among TCW Direct Lending LLC, an affiliated fund (also known as the “BDC”) and two third-party members (the “Third-Party Members”). The BDC and each Third-Party Member own a Preferred Membership Interest (collectively the “Preferred Members”) and a Common Membership Interest (collectively the “Common Members”) (together, the “Members”). The BDC owns 80% of the Preferred and Common Membership Interests and the Third-Party Members own the remaining 20% of Preferred and Common Membership Interests. The initial closing date of the Fund was June 5, 2015 (“Initial Closing Date”).

The Agreement amends and restates the original agreement, dated May 26, 2015 that the BDC entered into as the sole member of the Fund.

Term: The Fund will continue until the sixth anniversary of the Initial Closing Date unless dissolved earlier or extended for two additional one-year periods by the BDC, in its sole discretion upon notice to the Management Committee. Thereafter, the term of the Fund may be extended by the BDC for additional one-year periods, in each case with the prior consent of the Management Committee. On February 25, 2021, the Management Committee approved a one year extension of the term of the Fund to June 5, 2022.

Commitment Period: The Commitment Period commenced on June 5, 2015, the Initial Closing Date, and ended June 5, 2019, the third anniversary of the Initial Closing Date. In accordance with the Fund’s Limited Liability Company Agreement, the Fund may complete investment transactions that were significantly in process as of the end of the Commitment Period and which the Fund reasonably expects to be consummated prior to 90 days subsequent to the expiration date of the Commitment Period. The Fund may also affect follow-on investments in existing portfolio companies.

Management Committee: Pursuant to the Agreement, the management committee of the Fund has exclusive responsibility for the management, policies and control of the Fund. The BDC and one of the two Third-Party Members, collectively, each appointed one voting member of the Management Committee. The Management Committee can act on behalf and in the name of the Fund to implement the objectives of the Fund and exercise any rights and powers the Fund may possess. The Management Committee will authorize portfolio investment activity, transactions between the Fund and the BDC, and other Members and borrowings of the Fund.

Administration Agreement: The Fund entered into an Administration Agreement with TCW Asset Management Company LLC (“TAMCO”), dated June 5, 2015 to furnish, or arrange for others to furnish, administrative services necessary for the operation of the Fund. In connection therein, TAMCO, as Administrator retained the services of State Street Bank and Trust Company to assist in providing certain administrative, accounting, operational, investor and financial reporting services for the Fund.

Custody Services Agreement: The Fund entered into a Custody Services Agreement dated June 3, 2015 with State Street Bank and Trust Company to provide custodian services for the Fund.

 

10

---

        

        

        

 

NOTES TO FINANCIAL STATEMENTS (Unaudited) (continued)

 

Capital Commitments: Commitments from the Preferred Members and Preferred Members as Common Members are as follows. The commitment amount funded does not include amounts contributed in anticipation of a potential investment that the Fund did not consummate and therefore returned to the Members’ as unused capital. As of June 30, 2021, aggregate commitments and commitments funded were as follows:

 

		Committed Capital				Commitments Funded				Percentage     Funded
Preferred Membership Interests		$	600,000,000			$	454,279,088				75.7	%
Common Membership Interests			2,000,000				1,000,000				50.0	%
Total		$	602,000,000			$	455,279,088

Recallable Amounts: Each Preferred Member may be required to re-contribute amounts previously distributed equal to 100% of distributions of proceeds during the Commitment Period representing a return of capital contributions made in respect of the Preferred Membership Interest. The recallable amounts as of June 30, 2021 were as follows:

 

Recallable Amounts

Recallable   Amounts Funded

Percentage     Funded

Preferred Membership Interests

$

127,837,000

none

n/a

 

2.	SIGNIFICANT ACCOUNTING POLICIES

The Fund is an investment company following the accounting and reporting guidance in Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) No. 946 Financial Services – Investment Companies.

Basis of Presentation: The Fund’s financial statements are prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for investment companies.

These consolidated financial statements include the accounts of the Fund and the Luxembourg Company. All significant intercompany transactions and balances have been eliminated in consolidation.

Use of Estimates: The preparation of the accompanying financial statements in accordance with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of income and expenses during the reporting year. Actual results could differ from those estimates.

Investments: The Fund records investment transactions on the trade date. The Fund 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 Fund receives legal or contractual title to the asset and bears the risk of loss.

Income Recognition: Interest and unused commitment fee income are recorded on an accrual basis unless doubtful of collection or the related investment is in default. Realized Gains and losses on investments are recorded on a specific identification basis. Amendment, consent, waiver and forbearance fees received in exchange for a concession that result in a change in yield are recognized immediately when earned as interest income. The Fund 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, as reported in the Statement of Operations, and reflected in the amortized cost basis of the investment. Discounts associated with a revolver as well as fees associated with a delayed draw that remains unfunded are treated as a discount to the issuers’ term loan. Fee income received from the Advisor that the Advisor received from a portfolio company for services rendered, are recognized immediately as income.

 

11

---

TCW Direct Lending Strategic Ventures LLC

(A Delaware Limited Liability Company)

June 30, 2021

 

Cash and Cash Equivalents: The Fund considers cash equivalents to be liquid investments, including money market funds or individual securities purchased with an original maturity of three months or less. Cash and cash equivalents held by the Fund are generally comprised of money market funds and demand deposits, valued at cost, which approximates fair value.

Income Taxes: The Fund is exempt from federal and state income taxes and, consequently, no income tax provision has been made in the accompanying financial statements.

The Fund has invested in numerous jurisdictions and is therefore subject to varying policies and statutory time limitations with respect to examination of tax positions. The Fund reviews and evaluates tax positions in its major jurisdictions and determines whether or not there are uncertain tax positions that require financial statement recognition.

The Fund recognizes interest and penalties, if any, related to unrecognized tax benefits as an income tax expense in the Statement of Operations. As of and during the period ended June 30, 2021 and 2020, the Fund did not have a liability for any unrecognized tax benefits, nor did it recognize any interest and penalties related to unrecognized tax benefits.

The Fund is subject to examination by U.S. federal tax authorities for returns filed for the prior three years and by state tax authorities for returns filed for the prior four years.

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

Subsequent Events: The Management Committee evaluated the activity of the Fund through August 9, 2021, the date that the financial statements are available to be issued, and have concluded that no other subsequent events have occurred that would require recognition or disclosure other than those described below.

 

3.	INVESTMENT VALUATIONS AND FAIR VALUE MEASUREMENTS

Investments at Fair Value: Investments held by the Fund for which market quotes are readily available are valued at fair value. Fair value is generally determined on the basis of last reported sales price or official closing price on the primary exchange in which each security trades, or if no sales are reported, based on the midpoint of the valuation range obtained for debt investments from a quotation reporting system, established market makers or pricing service. Investments held by the Fund for which market quotes are not readily available or market quotations are not considered reliable are valued at fair value by the Management Committee based on similar instruments, internal assumptions and the weighting of the best available pricing inputs.

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

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.

 

12

---

        

 

NOTES TO FINANCIAL STATEMENTS (Unaudited) (continued)

 

Level 3 values are based on significant unobservable inputs that reflect the Fund’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 these securities.

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

 

The following is a summary by major security type of the fair valuations according to inputs used in valuing investments listed in the Schedule of Investments as of December 31, 2020.

 

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

 

		Debt				Equity
Balance at December 31, 2020		$	168,418,409			$	2,777,389
Accreted Discounts			33,165				-
Purchases1			1,888,818				-
Sales and paydowns			(31,531,472	)			-
Realized gain/(loss)			233,845				-
Change in unrealized appreciation/(depreciation)			5,006,710				4,768,532
Balance at June 30, 2021		$	144,049,475			$	7,545,921
Change in unrealized appreciation/(depreciation) in investments still held as of June 30, 2021		$	5,006,710			$	4,768,532

¹ Purchases of Debt include payment in-kind (PIK) interest of $1,888,818.

During the period ended June 30, 2021, the Fund did not have any transfers between levels.

 

13

---

TCW Direct Lending Strategic Ventures LLC

(A Delaware Limited Liability Company)

June 30, 2021

 

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

 

		Debt				Equity
Balance at December 31, 2019		$	384,203,968			$	78,842
Accreted Discounts			463,729				-
Purchases1			14,150,006				-
Sales and paydowns			(46,379,250	)			-
Realized gain/(loss)			1,944,372				-
Change in unrealized appreciation/(depreciation)			(7,578,850	)			(78,842	)
Balance at June 30, 2020		$	346,803,975			$	-
Change in unrealized appreciation/(depreciation) in investments still held as of June 30, 2020		$	(6,498,280	)		$	(78,842	)

¹ Purchases of Debt include payment in-kind (PIK) $651,676.

During the period ended June 30, 2020, the Fund did not have any transfers between levels.

Level 3 Assets (Investments): The following valuation techniques and significant inputs are used to determine 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.

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; contractual or legal restrictions on the sale of the security. When a Black-Scholes pricing model is used, 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.

 

14

---

NOTES TO FINANCIAL STATEMENTS (Unaudited) (continued)

 

The following table summarizes by major security type the valuation techniques and quantitative information utilized in determining the fair value of the Level 3 investments as of June 30, 2021.

 

The following table summarizes by major security type the valuation techniques and quantitative information utilized in determining the fair value of the Level 3 investments as of December 31, 2020.

 

 

15

---

TCW Direct Lending Strategic Ventures LLC

(A Delaware Limited Liability Company)

June 30, 2021

 

4.	ALLOCATIONS AND DISTRIBUTIONS

Allocation of profit and loss: Income, expenses, gains and losses of the Fund are allocated among the Members in such a manner that, at the end of each period, each Member’s capital account is equal to the respective net amount, positive or negative, which would be distributed to such Member if the Fund were to liquidate the assets of the Fund for an amount equal to book value and distribute the proceeds in a manner consistent with the distribution priorities described in the Agreement.

Distribution: Interest, dividends, other cash flow received by the Fund in respect of Portfolio Investments (“Interest Amounts”) and proceeds attributable to the repayment or disposition of Portfolio Investments (“Proceeds”) received by the Fund are distributed by the Fund to the Members to the extent that such Interest Amounts and Proceeds are available to the Fund after the application of the priority of payments stipulated in the Credit Agreement and after taking into account reserves and working capital needs.

Interest Amounts available to the Fund for distribution to the Members will be distributed in the following order and priorities:

First, one-hundred percent (100%) to the Preferred Members in an amount equal to any declared and unpaid dividends on Preferred Membership Interests, which amounts shall be distributed pro rata among the Preferred Members in accordance with their respective entitlements to such dividends.

Second, one-hundred percent (100%) to the payment of Fund expenses; and

Thereafter, one-hundred percent (100%) to the Common Members, which amounts shall be distributed among the Common Members pro rata based on their respective Unreturned Contributions or, if the Unreturned Contributions of the Common Members equal zero, pro rata based on the respective Commitments of such Common Members in their capacities as Preferred Members with respect to Preferred Membership Interest.

Proceeds available to the Fund for distribution to the Members will be distributed in the following order and priorities:

First one-hundred percent (100%) to the Preferred Members in an amount equal to any declared and unpaid dividends on Preferred Membership Interests, which amounts shall be distributed pro rata among the Preferred Members in accordance with their respective entitlements to such dividends,

Second, one-hundred percent (100%) to the Preferred Members pro rata based on, and up to the amount of, their respective Unreturned Contributions; and Thereafter, one-hundred percent (100%) to the Common Members, which amounts shall be distributed among the Common Members pro rata based on their respective Unreturned Contributions or, if the Unreturned Contributions of the Common Members equal zero, pro rata based on the respective Commitments of such Common Members in their capacities as Preferred Members with respect to Preferred Membership Interests.

Preferred Member Dividends: Each Preferred Membership Interest is entitled to quarterly dividends at a rate equal to LIBOR plus 6.50% per annum (subject to a LIBOR floor of 1.5% per annum) of the Unreturned Contributions associated with their Preferred Membership Interest. Dividends are cumulative and paid when declared by the Management Committee.

Unreturned Contributions: With respect to any Member in respect of each class such Member holds, an amount equal to the excess, if any, of (a) the aggregate contributions of such Member over (b) the aggregate amount distributed to such Member from Proceeds (other than amounts paid in respect of dividends to such Member).

 

16

---

NOTES TO FINANCIAL STATEMENTS (Unaudited) (continued)

 

5.	FUND EXPENSES

The Fund is responsible for all costs and expenses which include organizational expenses, operating expenses; investigative, travel, legal and other transactional expenses incurred with respect to the acquisition, formation, holding and disposition of the Fund’s Portfolio Investments or incurred in connection with Portfolio Investments or transactions not consummated; costs and expenses relating to the liquidation of the Fund; taxes, or extraordinary expenses (such as litigation expenses and indemnification payments to either the Management Committee or the Administrative Agent); valuation-related costs and expenses; and all other costs and expenses of the Fund’s operations, administration and transactions.

Organizational Expenses: Organization expenses will be paid from capital contributions called from the holders of Common Membership Interests. As of June 30, 2021 and December 31, 2020, organization expenses paid inception-to-date total $704,290.

Portfolio Investment Expenses: Expenses related to Portfolio Investments will be paid from capital contributions called from Preferred Membership Interests.

Fund Expenses: Other Fund expenses including those related to unconsummated investments will be paid first from Interest Amounts as provided for in the above Distribution footnote. To the extent that such Interest Amounts are insufficient or unavailable to pay expenses when due, such expenses will be paid from capital contributions called from the holders of Common Membership Interests provided that the aggregate amount called for Fund expenses (including organizational expenses) does not exceed $2 million. To the extent that the foregoing sources of payment are insufficient or unavailable to pay when due, such expenses will be paid from capital contributions called from the Preferred Members.

 

6.	ADVISER FEE INCOME

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 Fund’s activities will be allocated pro rata among the Fund and any other funds or accounts advised by the Adviser participating in such investment and the Fund’s share will be the property of the Fund. Notwithstanding the foregoing, for administrative or other reasons, certain fees described in clauses (i) through (iv) above (including any fees for administrative agent services provided by the Adviser or an affiliate with respect to a particular loan or portfolio of loans made by the Fund) may be paid to the Adviser or the affiliate (rather than directly to the Fund), in which case the amount of such fees (net of any related expenses associated with the generation of such fees borne by the Adviser or such affiliate that have not been and will not be reimbursed by the Portfolio Company) shall be paid to the Fund.

Since inception of the Fund through June 30, 2021 and December 31, 2020 the Adviser was paid directly $1,697,083 and $1,680,211, respectively, of which $16,872 and $107,168 were paid during the period ended June 30, 2021 and the year ended December 31, 2020, respectively. Since Inception of the Fund through June 30, 2021 and December 31, 2020 the Fund has recognized $1,697,083 and $1,680,211, respectively, of these fees.

 

17

---

TCW Direct Lending Strategic Ventures LLC

(A Delaware Limited Liability Company)

June 30, 2021

 

 

7.	REVOLVING CREDIT AGREEMENT

On June 5, 2015, the Fund, as borrower entered into a Credit Facility with Cortland Capital Market Services LLC, as administrative agent and various financial institutions (the “Lending Group”) to make loans (Advances) to the Fund for the purpose of funding eligible investments. Effective August 21, 2015, the Credit Agreement was amended to increase the Credit Facility to $600 million (“Facility Amount”) from $500 million. The Commitment Period to make an Advance ends on the earlier of the end of the (i) Investment Period and (ii) the Facility Maturity Date. The Investment Period ended on June 5, 2018. The Facility Maturity Date is June 4, 2021 and may be extended pursuant to the Credit Agreement or end earlier if the Facility Amount is reduced to zero or the Advances automatically become due and payable. On April 30, 2021, the Fund terminated the Credit Facility and all Advances outstanding were repaid in full.

The lender has a priority interest in the interest, dividends and other cash flow received by the Fund (Interest Amounts) and proceeds attributable to the repayment or disposition of Portfolio Investments (Proceeds) received by the Fund as described in note 4 – distribution of Interest Amounts and distribution of Proceeds.

As of June 30, 2021, there were no Advances outstanding. As of December 31, 2020, there were $15,131,282 in Advances outstanding, which approximated fair value.

Interest was payable at a rate equal to LIBOR plus 3.50% per annum (subject to a LIBOR floor of 1.50%) on the amount of Advances outstanding. The Fund received a rating from an approved rating agency commensurate with the rate of interest paid by the Fund. As of December 31, 2020, the all-in rate of interest was 5.00%.

Whenever the Fund was paid an origination, structuring, or similar upfront fee by the obligor of an eligible investment, the Lending Group was entitled to an origination fee equal to 0.75% of the eligible investment funded with the proceeds of Advances.

The summary information regarding the Credit Facility for the period ended June 30, 2021 and 2020 is as follows (dollar amounts in thousands):

 

As of June 30, 2021 and December 31, 2020, the Fund has complied with the covenant requirements detailed in the Credit Agreement.

 

18

---

NOTES TO FINANCIAL STATEMENTS (Unaudited) (continued)

 

8.	COMMITMENTS AND CONTINGENCIES

At June 30, 2021, the Fund did not have any unfunded commitments.

At December 31, 2020, the Fund did not have any unfunded commitments.

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

 

9.	FINANCIAL HIGHLIGHTS

The following summarizes the Fund’s financial highlights for the period ended June 30, 2021 and 2020:

 

 

1

The net investment income and expense ratio are calculated for the Members taken as a whole.

The Internal Rates of Return (IRR) since inception of the Members, after financing costs and other operating expenses are 12.1% and 11.9% through June 30, 2021 and 2020, respectively.

The IRR is computed based on cash flow due dates contained in notices to Members (contributions from and distributions to the Members) and the net assets (residual value) of the Members’ capital account at period end and is calculated for the Members taken as a whole.

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 return may vary significantly upon realization.

 

19

---

TCW Direct Lending Strategic Ventures LLC

(A Delaware Limited Liability Company)

June 30, 2021

 

ADMINISTRATION    

ADMINISTRATOR    

TCW Asset Management Company

1251 Avenue of the Americas, Suite 4700

New York, NY 10020

(212) 771-4000

PORTFOLIO MANAGER    

Richard T. Miller

Group Managing Director

INDEPENDENT AUDITORS

Deloitte & Touche LLP    

555 West 5^th Street    

Los Angeles, CA 90013

CUSTODIAN

State Street Bank and Trust Company

One Lincoln Street

Boston, MA 02111

SUB-ADMINISTRATOR

State Street Bank and Trust Company

One Lincoln Street

Boston, MA 02111

 

20