TCW Direct Lending's Net Assets Dip Amidst Pace Industries Default

TL;DR

**TCW Direct Lending is showing cracks with a key borrower default and declining asset values; proceed with extreme caution.**

AI Summary

TCW Direct Lending LLC reported a net asset decrease to $242,235,175 as of September 30, 2025, down from $255,782,741 at December 31, 2024. The company's total investments decreased from $753,814,617 to $688,532,285 over the same period. Debt investments saw a significant reduction in fair value from $172,216,363 to $139,685,748, while equity investments experienced a slight decrease from $159,366,009 to $151,785,778. Notably, Pace Industries, Inc. debt investments, totaling $43,250,797, are in default as of September 30, 2025, representing a substantial portion of the debt portfolio. The company's non-qualifying assets, primarily TCW Direct Lending Strategic Ventures LLC Preferred membership Interests, amounted to $37,031,795, or 5.4% of total assets, remaining within the 1940 Act limits. Cash equivalents increased from $1,765,814 to $2,062,648, and short-term investments, mainly U.S. Treasury Bills, decreased from $420,466,431 to $394,998,111.

Why It Matters

This 10-Q reveals a concerning trend for TCW Direct Lending LLC, with a notable decline in net assets and significant debt defaults, particularly from Pace Industries, Inc. Investors should be wary of the concentration risk and potential for further write-downs in the debt portfolio. For employees and customers of the underlying portfolio companies, especially those in default like Pace Industries, this could signal instability and operational challenges. In the broader direct lending market, this highlights the inherent risks of private credit, especially in a potentially tightening economic environment, and could prompt increased scrutiny from regulators on valuation practices and risk management.

Risk Assessment

Risk Level: high — The risk level is high due to the default of Pace Industries, Inc. investments, which represent a significant portion of the debt portfolio at $43,250,797 as of September 30, 2025. This default indicates substantial credit risk within the portfolio. Additionally, the net change in unrealized depreciation for controlled affiliated investments was -$17,323,390, and for non-controlled affiliated investments was -$32,894,135, signaling widespread valuation challenges.

Analyst Insight

Investors should thoroughly review the credit quality of TCW Direct Lending's remaining portfolio, particularly its exposure to other highly leveraged or distressed companies. Consider reducing exposure if the concentration of defaulted or underperforming assets continues to grow, as this indicates potential for further capital erosion.

Financial Highlights

total Assets

$688,532,285

cash Position

$2,062,648

Key Numbers

• $242.2M — Net Assets (Decreased from $255.8M at Dec 31, 2024)
• $139.7M — Total Debt Investments Fair Value (Decreased from $172.2M at Dec 31, 2024)
• $151.8M — Total Equity Investments Fair Value (Decreased from $159.4M at Dec 31, 2024)
• $43.3M — Pace Industries, Inc. Debt Investments Fair Value (Investment in default as of September 30, 2025)
• $37.0M — Non-Qualifying Assets (5.4% of total assets as of September 30, 2025)
• 18,034,649 — Common Units Outstanding (As of November 13, 2025)
• -$17.3M — Net Change in Unrealized Depreciation (Controlled Affiliates) (For the period ended September 30, 2025)
• -$32.9M — Net Change in Unrealized Depreciation (Non-Controlled Affiliates) (For the period ended September 30, 2025)
• $21.5M — Aggregate Acquisitions of Investments (For the period ended September 30, 2025)
• $40.6M — Aggregate Dispositions of Investments (For the period ended September 30, 2025)

Key Players & Entities

• TCW Direct Lending LLC (company) — Registrant
• Pace Industries, Inc. (company) — Investment in default
• Deloitte & Touche LLP (company) — Auditor
• SEC (regulator) — Securities and Exchange Commission
• SSI Parent, LLC (company) — Portfolio company
• Ruby Tuesday Operations LLC (company) — Portfolio company
• Cedar Electronics Holdings, Corp. (company) — Portfolio company
• Overton Chicago Gear, LLC (company) — Portfolio company
• Noramco, LLC (company) — Portfolio company
• TCW Direct Lending Strategic Ventures LLC (company) — Non-qualifying asset investment

FAQ

Risk Factors

• Default on Pace Industries, Inc. Debt Investments [high — financial]: TCW Direct Lending LLC holds $43,250,797 in debt investments in Pace Industries, Inc. which are in default as of September 30, 2025. This represents a significant portion of the company's debt portfolio and poses a direct financial risk.
• Decrease in Investment Portfolio Value [medium — market]: The total investment portfolio decreased from $753,814,617 to $688,532,285 between December 31, 2024, and September 30, 2025. Debt investments alone saw a fair value reduction of $32,530,615, indicating potential market depreciation or strategic divestitures.
• Net Asset Decrease [medium — financial]: Net assets decreased by $13,547,566 from $255,782,741 to $242,235,175 during the nine months ended September 30, 2025. This decline reflects the overall performance and asset management of the company.
• Non-Qualifying Assets [low — regulatory]: The company holds $37,031,795 in non-qualifying assets, representing 5.4% of total assets. While within the 1940 Act limits, these assets require careful monitoring to ensure continued compliance.

Industry Context

The direct lending industry operates in a dynamic environment characterized by fluctuating interest rates and credit market conditions. Companies like TCW Direct Lending LLC are active in providing capital to businesses, often those that may not have access to traditional bank financing. The sector is sensitive to macroeconomic trends, regulatory changes, and the creditworthiness of its borrowers.

Regulatory Implications

TCW Direct Lending LLC must adhere to regulations such as the Investment Company Act of 1940. The presence of non-qualifying assets, even within limits, necessitates ongoing compliance monitoring. Defaults on investments, like Pace Industries, Inc., can trigger closer scrutiny from regulators and investors regarding risk management practices.

What Investors Should Do

1. Monitor Pace Industries, Inc. default resolution.
2. Analyze the drivers of investment portfolio decline.
3. Assess the impact of unrealized depreciation.

Key Dates

• 2025-09-30: Reporting period end for 10-Q — Provides the latest financial snapshot, including the default of Pace Industries, Inc. debt.
• 2025-12-31: Previous fiscal year end — Establishes the baseline for period-over-period comparisons of assets and liabilities.

Glossary

Net Assets

The total value of a company's assets minus its liabilities. (Indicates the overall value of the company available to its members.)

Debt Investments

Investments in loans or bonds issued by other entities. (A core asset class for TCW Direct Lending, with significant fair value changes and a notable default.)

Equity Investments

Investments in the ownership of other companies. (Another key asset class, showing a slight decrease in fair value.)

Non-Qualifying Assets

Assets that do not meet certain regulatory requirements, such as those under the Investment Company Act of 1940. (These assets are subject to specific limits and require careful management to maintain regulatory compliance.)

Fair Value

The price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. (Used to value the company's investment portfolio, reflecting market conditions.)

Year-Over-Year Comparison

Compared to the prior fiscal year-end (December 31, 2024), TCW Direct Lending LLC has experienced a notable decrease in its net assets, falling from $255.8M to $242.2M as of September 30, 2025. The total investment portfolio has also shrunk significantly, from $753.8M to $688.5M. This decline is particularly evident in debt investments, which saw their fair value drop by $32.5M, and is compounded by the default of a substantial debt investment in Pace Industries, Inc.

Filing Documents

• ck0001603480-20250930.htm (10-Q) — 4753KB
• ck0001603480-ex31_1.htm (EX-31.1) — 17KB
• ck0001603480-ex31_2.htm (EX-31.2) — 17KB
• ck0001603480-ex32_1.htm (EX-32.1) — 9KB
• ck0001603480-ex32_2.htm (EX-32.2) — 9KB
• ck0001603480-ex99_1.htm (EX-99.1) — 1467KB
• 0001193125-25-279849.txt ( ) — 18053KB
• ck0001603480-20250930.xsd (EX-101.SCH) — 1418KB
• ck0001603480-20250930_htm.xml (XML) — 3550KB

Financial Statements

Financial Statements Consolidated Schedules of Investments as of September 30, 2025 (unaudited) and December 31, 2024 3 Consolidated Statements of Assets and Liabilities as of September 30, 2025 (unaudited) and December 31, 2024 13 Consolidated Statements of Operations for the three and nine months ended September 30, 2025 and 2024 (unaudited) 14 Consolidated Statements of Changes in Members' Capital for the three and nine months ended September 30, 2025 and 2024 (unaudited) 15 Consolidated Statements of Cash Flows for the nine months ended September 30, 2025 and 2024 (unaudited) 17

Notes to Consolidated Financial Statements (unaudited)

Notes to Consolidated Financial Statements (unaudited) 18 Item 2.

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

Management's Discussion and Analysis of Financial Condition and Results of Operations 36 Item 3.

Quantitative and Qualitative Disclosures About Market Risk

Quantitative and Qualitative Disclosures About Market Risk 48 Item 4.

Controls and Procedures

Controls and Procedures 48 PART II. OTHER INFORMATION 48 Item 1.

Legal Proceedings

Legal Proceedings 48 Item 1A.

Risk Factors

Risk Factors 49 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 49 Item 3. Defaults Upon Senior Securities 49 Item 4. Mine Safety Disclosures 49 Item 5. Other Information 49 Item 6. Exhibits 50

SIGNATURES

SIGNATURES 52 TCW DIRECT LENDING LLC Consolidated Schedule of Investments (Unaudited) As of September 30, 2025 Industry Issuer Acquisition Date Investment % of Net Assets Par Amount Maturity Date Amortized Cost Fair Value DEBT (1) Diversified Consumer Services SSI Parent, LLC (fka School Specialty, Inc.) (4) 09/15/20 Term Loan - 12.26 % (SOFR + 8.00 %, 1.25 % Floor) 3.0 % 7,334,188 12/29/26 $ 7,334,188 $ 7,334,188 3.0 % 7,334,188 7,334,188 Hotels, Restaurants & Leisure Ruby Tuesday Operations LLC (4) 02/24/21 Term Loan - 16.39 % inc PIK (SOFR + 12.00 %, 1.25 % Floor, all PIK) 4.1 % 10,011,826 02/24/27 9,991,095 10,011,826 Ruby Tuesday Operations LLC (4) 02/01/23 Incremental Term Loan - 20.39 % inc PIK (SOFR + 16.00 %, 1.25 % Floor, all PIK) 1.2 % 2,529,062 02/24/27 2,529,062 2,928,001 5.3 % 12,520,157 12,939,827 Household Durables Cedar Electronics Holdings, Corp. (4) 05/19/15 Term Loan - 12.38 % (SOFR + 8.00 %, 1.50 % Floor) 5.8 % 14,018,452 12/31/26 14,017,838 14,018,452 Cedar Electronics Holdings, Corp. (4) 01/30/19 Incremental Term Loan - 15.00 % inc PIK ( 15.00 %, Fixed Coupon, all PIK) 2.7 % 6,546,381 12/31/26 6,479,044 6,546,381 8.5 % 20,496,882 20,564,833 Industrial Conglomerates Overton Chicago Gear, LLC (fka H-D Advanced Manufacturing Company) (4) 08/22/24 Revolver - 6.00 % inc PIK ( 6.00 %, Fixed Coupon, all PIK) 7.1 % 17,092,378 01/31/28 17,092,378 17,092,378 Overton Chicago Gear, LLC (fka H-D Advanced Manufacturing Company) (4) 08/22/24 Term Loan A - 6.00 % inc PIK ( 6.00 %, Fixed Coupon, all PIK) 4.7 % 11,499,903 01/31/28 11,497,109 11,499,903 11.8 % 28,589,487 28,592,281 Metals & Mining Pace Industries, Inc. (2)(4)(9) 06/01/20 HoldCo Term Loan - 6.27 % inc PIK (SOFR + 2.00 %, 1.50 % Floor, all PIK) 0.0 % 108,418,536 06/01/40 78,137,869 —

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View this 10-Q filing on SEC EDGAR