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Morgan Stanley Direct Lending Fund Announces December 31, 2023 Financial Results and Declares First Quarter 2024 Dividend of $0.50 per Share

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Morgan Stanley Direct Lending Fund (MSDL) reported strong financial results for Q4 and fiscal year 2023, with record net investment income of $55.5 million and net asset value per share of $20.67. The company's debt-to-equity ratio improved to 0.87x, and it made new investment commitments of $242.9 million. MSDL declared a regular dividend of $0.50 per share and a special dividend of $0.10 per share. Total investment income for Q4 was $100.8 million, driven by capital deployment and rising SOFR rates. The company's investment portfolio had a fair value of $3.2 billion, with investments in 172 portfolio companies across 30 industries. MSDL priced its IPO, raising approximately $97 million, and approved a share repurchase program of up to $100.0 million. The company also entered into a new advisory agreement to reduce management and incentive fees.
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The announcement by Morgan Stanley Direct Lending Fund (MSDL) detailing its financial results for the fourth quarter and fiscal year ended December 31, 2023, is a robust indicator of the company's performance and future prospects. The reported net investment income of $55.5 million, or $0.67 per share and an increased net asset value (NAV) from $20.57 to $20.67 per share are particularly noteworthy. The reduction in debt-to-equity ratio from 1.16x to 0.87x suggests a stronger balance sheet and improved financial leverage. Additionally, the declaration of both regular and special dividends indicates a commitment to returning value to shareholders.

From an investment standpoint, the decrease in earnings per share (EPS) from $1.02 to $0.70 quarter-over-quarter could raise questions about the company's earnings trajectory. However, the increase in net investment income suggests that the underlying operations remain robust. The new investment commitments and net funded portfolio increase reflect active portfolio management and an aggressive capital deployment strategy, which could be attractive to growth-oriented investors. The special dividends following the IPO lock-up release dates also demonstrate strategic financial planning to bolster investor confidence.

The performance of MSDL is reflective of broader trends in the business development company (BDC) sector, where the ability to generate consistent, high-yield income streams is critical. The total weighted average yield of investments remaining unchanged at 12.0% and 12.1% is competitive within the industry, signaling that MSDL can maintain its income despite market fluctuations. The fact that 99.9% of the portfolio consists of floating-rate debt investments is significant, as it indicates a natural hedge against interest rate risk. This is particularly relevant given the rising SOFR rates, which could impact the cost of capital for BDCs.

MSDL's portfolio diversification across 30 industries with an average investment size of $18.6 million underscores its risk mitigation strategy. The low percentage of non-accrual investments (0.6%) suggests effective credit management and portfolio health. For potential investors and current stakeholders, the portfolio composition and performance metrics provide a transparent view of the company's strategic positioning and risk profile.

MSDL's recent developments, including the pricing of its initial public offering (IPO) and the implementation of a share repurchase program, are of legal and regulatory importance. The share repurchase program, in particular, is subject to securities law considerations and indicates the board's belief that the stock may be undervalued. Such a program can also provide a floor for the stock price and signal confidence to the market.

The new advisory agreement, which includes a waiver to reduce management and incentive fees, is a strategic move to align the interests of the advisors with those of the shareholders. The incentive fee lookback provision is an innovative structure that could potentially mitigate the risk of advisors being rewarded for short-term performance at the expense of long-term shareholder value. This aligns with best practices in corporate governance and could be seen as a positive development by investors concerned with executive compensation and alignment of interests.

NEW YORK--(BUSINESS WIRE)-- Morgan Stanley Direct Lending Fund (NYSE: MSDL) (“MSDL” or the “Company”), a business development company externally managed by MS Capital Partners Adviser Inc. (the “Adviser”), today announced its financial results for the fourth quarter and fiscal year ended December 31, 2023.

“MSDL generated record performance to complete 2023, positioning the Company well for its debut to the public markets,” said Jeffrey Levin, President and Chief Executive Officer of Morgan Stanley Direct Lending Fund. “Our team’s rigorous investment selection and portfolio management process resulted in solid year-over-year performance. We are confident in MSDL's ability to navigate the current market environment. The team continues to focus on showcasing the strength of our platform to deliver strong risk-adjusted returns to our shareholders.”

QUARTERLY HIGHLIGHTS

  • Net investment income of $55.5 million, or $0.67 per share;
  • Net asset value of $20.67 per share, an increase from $20.57 per share as of September 30, 2023;
  • Debt-to-equity was 0.87x as of December 31, 2023, as compared to 1.16x as of September 30, 2023;
  • New investment commitments of $242.9 million, fundings of $253.9 million and sales and repayments of $192.2 million, resulting in net funded portfolio increase of $61.6 million; and
  • The Company’s Board of Directors (the “Board”) declared a regular dividend of $0.50 per share and a special dividend of $0.10 per share. The dividend was paid on January 25, 2024 to stockholders of record as of December 28, 2023.

SELECTED FINANCIAL HIGHLIGHTS

 

For the Quarter Ended

 

December 31, 2023

September 30, 2023

Net investment income per share

$0.67

$0.70

Net realized and unrealized gains per share

$0.03

$0.32

Earnings per share

$0.70

$1.02

Regular dividend per share

$0.50

$0.50

Special dividend per share

$0.10

$0.10

 

As of

($ in thousands, except per share information)

December 31, 2023

September 30, 2023

Investments, at fair value

$3,193,561

$3,123,450

Total debt outstanding, at principal

$1,502,263

$1,725,252

Net assets

$1,721,151

$1,481,472

Net asset value per share

$20.67

$20.57

Debt to equity

0.87x

1.16x

Net debt to equity

0.83x

1.11x

RESULTS OF OPERATIONS

Total investment income for the fourth quarter ended December 31, 2023 was $100.8 million, compared to $94.5 million for the third quarter ended September 30, 2023. The increase was primarily driven by the deployment of capital and rising SOFR rates on floating-rate debt investments.

Total operating expenses for the quarter ended December 31, 2023 was $45.3 million, compared to $43.9 million for the quarter ended September 30, 2023. The increase was primarily driven by interest and other financing expenses.

Net investment income for the quarter ended December 31, 2023 was $55.5 million, or $0.67 per share, compared to $50.6 million, or $0.70 per share, for the quarter ended September 30, 2023.

For the three months ended December 31, 2023, net change in unrealized appreciation on investments was $1.9 million.

PORTFOLIO AND INVESTMENT ACTIVITY

As of December 31, 2023, the Company’s investment portfolio had a fair value of approximately $3.2 billion, comprised of 172 portfolio companies across 30 industries, with an average investment size of $18.6 million, or 0.6% of our total portfolio on a fair value basis. The composition of Company’s investments was the following:

December 31, 2023

September 30, 2023

($ in thousands)

Cost

 

Fair Value

 

% of Total
Investments
at Fair Value

Cost

 

Fair Value

 

% of Total
Investments at
Fair Value

First Lien Debt

 

$

3,027,413

 

$

3,004,544

 

94.1%

 

$

2,960,107

 

$

2,933,870

 

93.9%

Second Lien Debt

 

 

146,014

 

 

132,415

 

4.1

 

 

145,809

 

 

134,712

 

4.3

Other Investments

 

 

53,349

 

 

56,602

 

1.8

 

 

52,685

 

 

54,868

 

1.8

Total

 

$

3,226,776

 

$

3,193,561

 

100.0%

 

$

3,158,601

 

$

3,123,450

 

100.0%

 

Investment activity for the three months ended December 31, 2023 and September 30, 2023, was as follows:

Investment Activity:

December 31, 2023

September 30, 2023

New investment commitments, at par

$242,891

$195,426

Investment fundings

$253,867

$155,072

Number of new Investment commitments in portfolio companies

12

7

Number of portfolio companies exited or fully repaid

5

1

 

Total weighted average yield of investments in debt securities at amortized cost and fair value was 12.0% and 12.1%, respectively, which was unchanged from September 30, 2023. Floating rate debt investments as a percentage of total portfolio on a fair value basis remained unchanged from September 30, 2023 at 99.9% as of December 31, 2023. As of December 31, 2023, three investments were on non-accrual status, representing approximately 0.6% of total investments at amortized cost.

CAPITAL AND LIQUIDITY

As of December 31, 2023, the Company had total principal debt outstanding of $1,502.3 million, including $282.0 million outstanding in the Company’s BNP funding facility, $520.3 million outstanding in the Company’s Truist credit facility, $275.0 million outstanding in the Company’s senior unsecured notes due September 2025, and $425.0 million outstanding in the Company’s senior unsecured notes due February 2027. The combined weighted average interest rate on debt outstanding was 6.51% for the year ended December 31, 2023. As of December 31, 2023, the Company had $917.5 million of availability under its credit facilities and $69.7 million in cash. Debt to equity was 0.87x and 1.16x as of December 31, 2023 and September 30, 2023, respectively.

RECENT DEVELOPMENTS

  • On January 23, 2024, MSDL priced its initial public offering, raising net proceeds of approximately $97 million;
  • The Company’s Board approved a share repurchase program, under which the Company may repurchase up to $100.0 million of the Company’s common stock at prices below NAV, adjusted for dividends;
  • The Company’s Board declared a regular first quarter dividend of $0.50 per share and two $0.10 per share special dividends, timed to follow the two IPO lock-up release dates that occur in 2024; and
  • The Company entered into a new advisory agreement with the Adviser that includes a waiver to reduce management and incentive fees through January 24, 2025, the first anniversary of the Company’s IPO, as well as institute an incentive fee lookback commencing with the quarter ended June 30, 2024.

CONFERENCE CALL INFORMATION

Morgan Stanley Direct Lending Fund will host a conference call on Friday, March 1, 2024 at 10:00 am ET to review its financial results and conduct a question-and-answer session. All interested parties are invited to participate in the live earnings conference call by using the following dial-in numbers or audio webcast link available on the MSDL Investor Relations website:

To avoid potential delays, please join at least 10 minutes prior to the start of the earnings call. An archived replay will also be available on the MSDL Investor Relations website.

About Morgan Stanley Direct Lending Fund

Morgan Stanley Direct Lending Fund (NYSE: MSDL) is a non-diversified, externally managed specialty finance company focused on lending to middle-market companies. MSDL has elected to be regulated as a business development company under the Investment Company Act of 1940, as amended. MSDL is externally managed by MS Capital Partners Adviser Inc., an indirect, wholly owned subsidiary of Morgan Stanley. MSDL is not a subsidiary of or consolidated with Morgan Stanley. For more information about Morgan Stanley Direct Lending Fund, please visit www.msdl.com.

Forward-Looking Statements

Statements included herein or on the webcast/conference call may constitute “forward-looking statements,” which relate to future events or MSDL’s future performance or financial condition. These statements are not guarantees of future performance, condition or results and involve a number of risks and uncertainties. Actual results and conditions may differ materially from those in the forward-looking statements as a result of a number of factors, including those described from time to time in MSDL’s filings with the SEC. MSDL undertakes no duty to update any forward-looking statements made herein or on the webcast/conference call.

 

Consolidated Statements of Assets and Liabilities
(In thousands, except share and per share amounts)

 
 

 

As of

 

 

December 31, 2023

December 31, 2022

Assets

 

 

 

Non-controlled/non-affiliated investments, at fair value (amortized cost of $3,226,776 and $2,939,646 at December 31, 2023 and December 31, 2022, respectively)

 

$

3,193,561

 

$

2,873,588

 

Cash

 

 

69,705

 

 

81,215

 

Deferred financing costs

 

 

14,317

 

 

7,624

 

Interest and dividend receivable from non-controlled/non-affiliated investments

 

 

28,884

 

 

20,911

 

Subscription receivable

 

 

41

 

 

2,556

 

Receivable for investments sold/repaid

 

 

173

 

 

188

 

Prepaid expenses and other assets

 

 

53

 

 

40

 

Total assets

 

 

3,306,734

 

 

2,986,122

 

 

 

 

 

 

Liabilities

 

 

 

 

Debt (net of unamortized debt issuance costs of $5,564 and $7,899 at December 31, 2023 and December 31, 2022, respectively)

 

 

1,496,032

 

 

1,523,475

 

Payable for investment purchased

 

 

8

 

 

 

Payable to affiliates

 

 

2,870

 

 

2,086

 

Dividends payable

 

 

49,968

 

 

33,058

 

Management fees payable

 

 

2,012

 

 

1,783

 

Income based incentive fees payable

 

 

11,766

 

 

8,118

 

Interest payable

 

 

18,823

 

 

17,019

 

Accrued expenses and other liabilities

 

 

4,104

 

 

3,278

 

Total liabilities

 

$

1,585,583

 

$

1,588,817

 

 

 

 

 

 

Commitments and Contingencies

 

 

 

 

 

 

 

 

 

Net assets

 

 

 

 

Preferred stock, $0.01 par value; (1,000,000 shares authorized; no shares issued and outstanding)

 

 

 

 

 

Common stock, par value $0.001 (100,000,000 shares authorized and 83,278,831 and 70,536,678 shares issued and outstanding as of December 31, 2023 and December 31, 2022, respectively)

 

 

83

 

 

71

 

Paid-in capital in excess of par value

 

 

1,712,609

 

 

1,452,013

 

Total distributable earnings (loss)

 

 

8,459

 

 

(54,779

)

Total net assets

 

$

1,721,151

 

$

1,397,305

 

Total liabilities and net assets

 

$

3,306,734

 

$

2,986,122

 

Net asset value per share

 

$

20.67

 

$

19.81

 

 

Consolidated Statements of Operations
(In thousands, except share amounts)

 

 

For the Year Ended

 

 

December 31, 2023

 

December 31, 2022

 

December 31, 2021

Investment Income:

 

 

 

 

 

 

From non-controlled/non-affiliated investments:

 

 

 

 

 

 

Interest income

 

$

355,530

 

 

$

223,119

 

 

$

108,277

 

Payment-in-kind

 

 

4,276

 

 

 

1,626

 

 

 

1,021

 

Dividend income

 

 

2,124

 

 

 

1,488

 

 

 

409

 

Other income

 

 

5,808

 

 

 

4,360

 

 

 

10,109

 

Total investment income

 

 

367,738

 

 

 

230,593

 

 

 

119,816

 

Expenses:

 

 

 

 

 

 

Interest and other financing expenses

 

 

112,883

 

 

 

67,182

 

 

 

21,015

 

Management fees

 

 

30,550

 

 

 

26,715

 

 

 

13,860

 

Income based incentive fees

 

 

42,012

 

 

 

26,635

 

 

 

15,852

 

Capital gains incentive fees

 

 

 

 

 

(2,441

)

 

 

1,809

 

Professional fees

 

 

4,470

 

 

 

3,206

 

 

 

2,440

 

Offering costs

 

 

 

 

 

 

 

 

42

 

Directors’ fees

 

 

345

 

 

 

362

 

 

 

336

 

Administrative service fees

 

 

178

 

 

 

72

 

 

 

212

 

General and other expenses

 

 

633

 

 

 

510

 

 

 

1,538

 

Total expenses

 

 

191,071

 

 

 

122,241

 

 

 

57,104

 

Expense support

 

 

 

 

 

44

 

 

 

98

 

Management fees waiver

 

 

(22,913

)

 

 

(20,036

)

 

 

(10,395

)

Net expenses

 

 

168,158

 

 

 

102,249

 

 

 

46,807

 

Net investment income (loss) before taxes

 

 

199,580

 

 

 

128,344

 

 

 

73,009

 

Excise tax expense

 

 

1,519

 

 

 

334

 

 

 

80

 

Net investment income/(loss) after taxes

 

 

198,061

 

 

 

128,010

 

 

 

72,929

 

Net realized and unrealized gain (loss) on investment transactions:

 

 

 

 

 

 

Net Realized gain (loss) on non-controlled/non-affiliated investments:

 

 

118

 

 

 

537

 

 

 

1,895

 

Net change in unrealized appreciation (depreciation) on non-controlled/non-affiliated investments

 

 

32,835

 

 

 

(80,005

)

 

 

8,431

 

Net realized and unrealized gain (loss)

 

 

32,953

 

 

 

(79,468

)

 

 

10,326

 

Net increase (decrease) in net assets resulting from operations

 

$

231,014

 

 

$

48,542

 

 

$

83,255

 

Per share information—basic and diluted

 

 

 

 

 

 

Net investment income (loss) per share (basic and diluted)

 

$

2.67

 

 

$

2.08

 

 

$

2.34

 

Earnings (loss) per share (basic and diluted)

 

$

3.11

 

 

$

0.79

 

 

$

2.67

 

Weighted average shares outstanding

 

 

74,239,743

 

 

 

61,676,363

 

 

 

31,159,302

 

 

Investors

Michael Occi

msdl@morganstanley.com



Media

Alyson Barnes

212-762-0514

alyson.barnes@morganstanley.com

Source: Morgan Stanley Direct Lending Fund

FAQ

What was Morgan Stanley Direct Lending Fund's net investment income for the fourth quarter of 2023?

Morgan Stanley Direct Lending Fund reported a net investment income of $55.5 million for the fourth quarter of 2023.

What was the net asset value per share for Morgan Stanley Direct Lending Fund as of December 31, 2023?

The net asset value per share for Morgan Stanley Direct Lending Fund was $20.67 as of December 31, 2023.

What was the debt-to-equity ratio for Morgan Stanley Direct Lending Fund as of December 31, 2023?

The debt-to-equity ratio for Morgan Stanley Direct Lending Fund was 0.87x as of December 31, 2023.

How much were the new investment commitments made by Morgan Stanley Direct Lending Fund in the fourth quarter of 2023?

Morgan Stanley Direct Lending Fund made new investment commitments of $242.9 million in the fourth quarter of 2023.

What dividends did Morgan Stanley Direct Lending Fund declare for its shareholders?

Morgan Stanley Direct Lending Fund declared a regular dividend of $0.50 per share and a special dividend of $0.10 per share.

What was the total investment income for Morgan Stanley Direct Lending Fund in the fourth quarter of 2023?

The total investment income for Morgan Stanley Direct Lending Fund in the fourth quarter of 2023 was $100.8 million.

What was the fair value of Morgan Stanley Direct Lending Fund's investment portfolio as of December 31, 2023?

The fair value of Morgan Stanley Direct Lending Fund's investment portfolio was approximately $3.2 billion as of December 31, 2023.

How much did Morgan Stanley Direct Lending Fund raise in its initial public offering?

Morgan Stanley Direct Lending Fund raised net proceeds of approximately $97 million in its initial public offering.

What program did Morgan Stanley Direct Lending Fund's Board approve for share repurchase?

Morgan Stanley Direct Lending Fund's Board approved a share repurchase program of up to $100.0 million for the company's common stock.

What agreement did Morgan Stanley Direct Lending Fund enter into to reduce management and incentive fees?

Morgan Stanley Direct Lending Fund entered into a new advisory agreement to reduce management and incentive fees through January 24, 2025.

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Morgan Stanley is an American multinational investment bank and financial services company headquartered at 1585 Broadway in Midtown Manhattan, New York City. With offices in 41 countries and more than 75,000 employees, the firms clients include corporations, governments, institutions, and individuals.