MSDL

Business Context and Reporting Period

Morgan Stanley Direct Lending Fund (MSDL) is a non-diversified, externally managed Business Development Company (BDC) and Regulated Investment Company (RIC) focused on lending to U.S. middle-market companies, primarily those with private equity sponsor backing. The reporting period covers the fiscal year ended December 31, 2024. The Company completed its Initial Public Offering (IPO) on January 26, 2024, listing on the NYSE under the symbol "MSDL."

Key Financial Metrics

Material Changes vs. Prior Period

• Portfolio Growth: The investment portfolio grew by approximately $600 million in fair value, driven by significant capital deployment. New investments committed totaled $1.55 billion in 2024 compared to $668 million in 2023.
• Yield Compression: The weighted average yield on debt investments decreased from 12.0% in 2023 to 10.4% in 2024, primarily due to the reduction in base interest rates and repricing of the existing portfolio.
• Realized Losses: The Company reported a net realized loss of $16.5 million in 2024, compared to a net realized gain of $0.1 million in 2023. This was primarily attributed to the restructuring of certain portfolio companies.
• Expense Waivers: The Investment Adviser waived $9.9 million in base management fees and $6.0 million in incentive fees during 2024, reducing total net expenses to $193.4 million.
• Debt Structure: Total debt increased by $481 million to $1.98 billion, including the issuance of $350 million in 6.15% Notes due 2029 in May 2024.

Guidance, Outlook, and Risks

Management Commentary: Management views the current market environment as attractive for risk-adjusted returns, citing strong deal flow and the defensive nature of the portfolio anchored in first-lien senior secured loans. The Company maintains a focus on companies with strong management teams and sustainable business models.

Recent Developments (Post-Year-End):

• On February 25, 2025, the Company amended its Truist Credit Facility, increasing the size to $1.45 billion and extending the maturity date.
• An exchange offer for the 2029 Notes was completed in January 2025, with 99.32% of restricted notes exchanged for registered notes.
• A new distribution of $0.50 per share was declared on February 27, 2025.

Risks and Contingencies:

• Interest Rate Risk: Approximately 99.6% of the debt portfolio bears floating interest rates. While this provides protection against rising rates, it exposes the Company to margin compression if borrowing costs rise faster than asset yields.
• Valuation Uncertainty: The majority of investments are Level 3 fair value measurements, relying on unobservable inputs and significant management judgment.
• Conflicts of Interest: As an affiliate of Morgan Stanley, the Company faces potential conflicts regarding the allocation of investment opportunities between MSDL and other Morgan Stanley funds.
• Liquidity: Investments are generally illiquid. The Company relies on credit facilities and unsecured notes for liquidity, which are subject to covenants and market conditions.

Key Facts for Investor Verification

• Fee Waiver Expiration: Verify the expiration date of the management fee and incentive fee waivers (currently set to expire January 24, 2025), as the reversion to full fees will impact future net investment income.
• Asset Coverage Ratio: Monitor the asset coverage ratio (193.0% at year-end) to ensure it remains well above the 150% regulatory minimum required to maintain leverage and pay distributions.
• Non-Accrual Status: Review the specific portfolio companies on non-accrual status (0.2% of portfolio at cost) and the potential impact of restructurings on future cash flows.
• Share Repurchase Plan: Confirm the status of the $100 million share repurchase plan (10b5-1), which had approximately $81.9 million remaining as of December 31, 2024.
• Unfunded Commitments: Note the $564.8 million in unfunded commitments to portfolio companies, representing a significant future cash outflow requirement.