On November 7, 2024, Morgan Stanley Direct Lending Fund (MSDL, Financial) released its 8-K filing detailing its financial performance for the third quarter ending September 30, 2024. MSDL, a fund focused on achieving attractive risk-adjusted returns through investments in senior secured term loans, reported significant financial metrics and declared a regular dividend of $0.50 per share for the fourth quarter of 2024.
Company Overview
Morgan Stanley Direct Lending Fund is a business development company that primarily invests in directly originated senior secured term loans issued by U.S. middle-market companies backed by private equity sponsors. The fund aims to generate current income and, to a lesser extent, capital appreciation.
Performance Highlights
For the third quarter of 2024, MSDL reported a net investment income of $58.7 million, or $0.66 per share, up from $56.1 million, or $0.63 per share, in the previous quarter. Total investment income increased to $109.8 million from $104.2 million in the second quarter, driven by capital deployment and repayment-related income. However, the fund experienced net realized and unrealized losses per share of $0.06, compared to gains of $0.03 in the prior quarter.
Financial Achievements and Challenges
MSDL's investment portfolio, valued at approximately $3.6 billion, consists of 200 portfolio companies across 33 industries. The fund's focus on first lien debt, which comprises 96% of the portfolio, underscores its strategy of prioritizing secured investments. Despite the positive income growth, the fund faced challenges with realized losses of $11.0 million, which were partially offset by a net change in unrealized appreciation of $5.4 million.
Income Statement and Balance Sheet Insights
MSDL's total expenses for the quarter were $51.0 million, up from $48.1 million in the previous quarter, primarily due to increased interest and financing expenses. The fund's debt to equity ratio rose to 0.99x from 0.90x, reflecting higher leverage. As of September 30, 2024, MSDL had total assets of $3.79 billion and net assets of $1.85 billion, with a net asset value per share remaining steady at $20.83.
Investment Activity and Capital Management
During the quarter, MSDL made new investment commitments totaling $455.4 million and funded $377.0 million in investments. The fund's weighted average yield on debt securities was 11.0%, slightly down from 11.6% in the previous quarter. Notably, the fund executed an amendment to its BNP Funding Facility, extending its maturity and reducing borrowing costs.
Share Repurchase and Dividend Declaration
MSDL continued its share repurchase program, acquiring 429,653 shares at an average price of $20.06 per share. The fund declared a regular dividend of $0.50 per share for the fourth quarter, maintaining its commitment to returning value to shareholders.
Conclusion
Morgan Stanley Direct Lending Fund's third-quarter results highlight its ability to generate income and manage its investment portfolio effectively, despite facing challenges with realized losses. The fund's strategic focus on secured loans and proactive capital management positions it well within the asset management industry.
Explore the complete 8-K earnings release (here) from Morgan Stanley Direct Lending Fund for further details.
