Investment Valuations and Fair Value Measurements

9 Months Ended

Sep. 30, 2025

Investment Valuations And Fair Value Measurements [Abstract]

Investment Valuations and Fair Value Measurements

3. Investment Valuations and Fair Value Measurements

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

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

Pursuant to Rule 2a-5 under the 1940 Act, the Board has designated the Adviser as the "valuation designee" with respect to the fair valuation of the Company's portfolio securities, subject to oversight by and periodic reporting to the Board.

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

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

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

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

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

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

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

Level 2 Assets (Investments): The valuation techniques and significant inputs used to determine fair value are as follows:

Equity, (Level 2), generally includes warrants valued using quotes for comparable investments.

3. Investment Valuations and Fair Value Measurements (Continued)

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

Debt, (Level 3), includes 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. An income method approach incorporating a weighted average cost of capital and discount rate, or a market method approach using prices and other relevant information generated by market transactions involving identical or comparable assets, is generally used to determine fair value, though some cases use an enterprise value waterfall method. Valuation may also include a shadow rating method. Standard pricing inputs include but are not limited to the financial health of the issuer, place in the capital structure, value of other issuer debt, credit, industry, and market risk and events.

Equity, (Level 3), includes common stock, preferred stock and warrants. Such securities are valued based on specific pricing models, internal assumptions and the weighting of the best available pricing inputs. A market approach is generally used to determine fair value. Pricing inputs include, but are not limited to, financial health and relevant business developments of the issuer; EBITDA; market multiples of comparable companies; comparable market transactions and recent trades or transactions; issuer, industry and market events; and contractual or legal restrictions on the sale of the security. When a Black-Scholes pricing model is used it follows the income approach. The Black-Scholes 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.

The following is a summary by major security type of the fair valuations according to inputs used in valuing investments listed in the Consolidated Schedule of Investments as of September 30, 2025:


Investments	Level 1		Level 2		Level 3		Total
Debt	$	—	$	—	$	569,844	$	569,844
Equity		—		—		99,749		99,749
Cash equivalents		7,504		—		—		7,504
Short-term investments		444,373		—		—		444,373
Total Assets	$	451,877	$	—	$	669,593	$	1,121,470

The following is a summary by major security type of the fair valuations according to inputs used in valuing investments listed in the Consolidated Schedule of Investments as of December 31, 2024:


Investments	Level 1		Level 2		Level 3		Total
Debt	$	—	$	—	$	775,319	$	775,319
Equity		—		—		71,878		71,878
Cash equivalents		11,870		—		—		11,870
Short- term investments		296,800		—		—		296,800
Total Assets	$	308,670	$	—	$	847,197	$	1,155,867

3. Investment Valuations and Fair Value Measurements (Continued)

The following tables provide a reconciliation of the beginning and ending balances for total investments that use Level 3 inputs for the three and nine months ended September 30, 2025:


	Debt			Equity			Total
Balance, July 1, 2025	$	591,091		$	100,865		$	691,956
Purchases, including payments received in-kind and reorganizations		25,185			—			25,185
Sales and paydowns of investments and reorganizations		(37,190	)		—			(37,190	)
Amortization of premium and accretion of discount, net		252			—			252
Net change in unrealized appreciation/(depreciation)		(9,494	)		(1,116	)		(10,610	)
Balance, September 30, 2025	$	569,844		$	99,749		$	669,593
Net change in unrealized appreciation/(depreciation) in investments held as of September 30, 2025	$	(9,399	)	$	(28,057	)	$	(37,456	)


	Debt			Equity			Total
Balance, January 1, 2025	$	775,319		$	71,878		$	847,197
Purchases, including payments received in-kind and reorganizations		251,006			65,984			316,990
Sales and paydowns of investments and reorganizations		(369,958	)		—			(369,958	)
Amortization of premium and accretion of discount, net		1,323			—			1,323
Net realized losses		(96,397	)		(5,246	)		(101,643	)
Net change in unrealized appreciation/(depreciation)		8,551			(32,867	)		(24,316	)
Balance, September 30, 2025	$	569,844		$	99,749		$	669,593
Net change in unrealized appreciation/(depreciation) in investments held as of September 30, 2025	$	(18,037	)	$	(35,618	)	$	(53,655	)

The following tables provide a reconciliation of the beginning and ending balances for total investments that use Level 3 inputs for the three and nine months ended September 30, 2024:


	Debt			Equity			Total
Balance, July 1, 2024	$	815,991		$	11,696		$	827,687
Purchases, including payments received in-kind		91,749			72,332			164,081
Sales and paydowns of investments		(154,637	)		—			(154,637	)
Amortization of premium and accretion of discount, net		1,258			—			1,258
Net realized losses		(18,725	)		—			(18,725	)
Net change in unrealized appreciation/(depreciation)		14,481			(1,801	)		12,680
Balance, September 30, 2024	$	750,117		$	82,227		$	832,344
Net change in unrealized appreciation/(depreciation) in investments held as of September 30, 2024	$	(9,532	)	$	(1,802	)	$	(11,334	)


	Debt			Equity		Total
Balance, January 1, 2024	$	835,989		$	5,775	$	841,764
Purchases, including payments received in-kind		262,312			72,428		334,740
Sales and paydowns of investments		(281,262	)		—		(281,262	)
Amortization of premium and accretion of discount, net		3,724			—		3,724
Net realized losses		(18,725	)		—		(18,725	)
Net change in unrealized appreciation/(depreciation)		(51,921	)		4,024		(47,897	)
Balance, September 30, 2024	$	750,117		$	82,227	$	832,344
Net change in unrealized appreciation/(depreciation) in investments held as of September 30, 2024	$	(55,977	)	$	4,024	$	(51,953	)

The Company did not have any transfers between levels during the three and nine months ended September 30, 2025 and 2024.

3. Investment Valuations and Fair Value Measurements (Continued)

Level 3 Valuation and Quantitative Information: The following table summarizes the valuation techniques and quantitative information utilized in determining the fair value of the Level 3 investments as of September 30, 2025:

         Investment Type

         Fair Value

         Valuation Technique

         Unobservable Input

         Range

         Weighted
Average*

         Impact to
Valuation from an
Increase in Input

Debt

57,841

Income Method

Discount Rate

11.5% to 16.1%

14.0%

Decrease

Debt

36,116

Market Method

EBITDA Multiple

5.5x to 6.5x

6.0x

Increase

          
         Market Method

         Revenue Multiple

         0.5x to 0.7x

         0.6x

         Increase

Debt

131,539

Market Method

EBITDA Multiple

5.8x to 9.0x

7.2x

Increase

Debt

304,454

Market Method

Revenue Multiple

0.1x to 1.6x

0.9x

Increase

Debt

39,894

Income Method

Discount Rate

16.0% to 20.0%

18.0%

Decrease

         Debt

         Market Method

         Indicative Bid

         100.0% to 100.0%

         100.0%

         Increase

Equity

16,493

Market Method

EBITDA Multiple

5.8x to 9.0x

6.5x

Increase

Equity

83,256

Market Method

Revenue Multiple

0.1x to 1.6x

1.2x

Increase

Equity

-

Market Method

EBITDA Multiple

5.5x to 6.5x

6.9x

Increase

           
         Market Method

         Revenue Multiple

         0.5x to 0.8x

         0.6x

         Increase

* Weighted based on fair value

During the nine months ended September 30, 2025, two debt investments with an aggregate fair value of $68,766 transitioned from a yield analysis and market approach valuation model to a market approach valuation model. The changes in approach were driven by considerations given to the financial performance of each portfolio company.

3. Investment Valuations and Fair Value Measurements (Continued)

The following table summarizes the valuation techniques and quantitative information utilized in determining the fair value of the Level 3 investments as of December 31, 2024:

         Investment Type

         Fair Value

         Valuation
Technique

         Unobservable Input

         Range

         Weighted
Average*

         Impact to
Valuation from an
Increase in Input

Debt

230,930

Income Method

Discount Rate

9.4% to 27.0%

16.0%

Decrease

Debt

142,385

Market Method

EBITDA Multiple

4.8x to 8.0x

6.9x

Increase

          
         Revenue Multiple

         0.2x to 1.1x

         0.7x

         Increase

Debt

84,974

Income Method

Discount Rate

10.8% to 15.9%

13.1%

Decrease

          
         Income Method

         Take Out Indication

         100.0% to 100.0%

         100.0%

         Increase

Debt

87,670

Income Method

Discount Rate

17.6% to 17.6%

17.6%

Decrease

          
         Market Method

         EBITDA Multiple

         4.5x to 5.5x

         5.0x

         Increase

Debt

133,299

Market Method

EBITDA Multiple

5.0x to 7.8x

6.4x

Increase

Debt

96,061

Market Method

Revenue Multiple

0.6x to 1.4x

1.0x

Increase

Equity

12,469

Market Method

EBITDA Multiple

5.0x to 7.8x

6.1x

Increase

Equity

35,618

Market Method

Revenue Multiple

0.8x to 1.4x

1.3x

Increase

Equity

21,296

Market Method

EBITDA Multiple

4.8x to 8.0x

7.0x

Increase

          
         Revenue Multiple

         0.2x to 0.8x

         0.2x

         Increase

Equity

2,464

Market Method

EBITDA Multiple

7.0x to 7.3x

7.1x

Increase

          
         Revenue Multiple

         1.0x to 1.1x

         1.1x

         Increase

          
         Income Method

         Implied Volatility

         20.0% to 30.0%

         25.0%

         Increase

          
         Expected Term (in years)

         2.0x to 2.5x

         2.3x

         Increase

Equity

31

Market Method

EBITDA Multiple

4.5x to 5.5x

5.0x

Increase

          
         Income Method

         Implied Volatility

         35.0% to 45.0%

         40.0%

         Increase

          
         Expected Term (in years)

         0.5x to 1.0x

         0.8x

         Increase

* Weighted based on fair value

The Company generally utilizes the midpoint of a valuation range provided by an external, independent valuation firm in determining fair value.

TCW Direct Lending VII LLC 10-Q