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Morgan Stanley Direct Lending Fund (MSDL)·Q2 2025 Earnings Summary

Executive Summary

  • Q2 2025 was broadly in line but modestly softer sequentially: total investment income was $99.5M, net investment income (NII) was $43.7M ($0.50 per share), and GAAP EPS was $0.41, all down versus Q1 as base rates and repayment-related income fell .
  • Versus S&P Global Wall Street consensus, NII/EPS of $0.50 was slightly below the $0.515 estimate*, and investment income of $99.5M was just under the ~$100.0M estimate* (6 EPS estimates; 4 revenue estimates)*.
  • The Board declared a regular dividend of $0.50 per share for Q3 2025; NAV ticked down to $20.59 and leverage rose to 1.15x, while non-accruals increased to ~0.7% of amortized cost, up from ~0.2% in Q1 .
  • Funding actions position MSDL well: $350M 6.00% notes due 2030 (swapped to floating) with redemption of $275M 7.55% notes due 2025, plus inaugural ~$400M CLO; weighted average cost of debt fell to 6.02% .
  • Potential stock reaction catalysts: payout sustainability with NII covering the dividend, credit quality watch (non-accruals), and funding cost diversification via new notes and CLO .

What Went Well and What Went Wrong

What Went Well

  • Proactive balance sheet management: issued $350M of 6.00% notes due May 2030 and redeemed $275M of 7.55% notes due September 2025; coupon swapped to floating, reducing duration and diversifying funding .
  • Inaugural ~$400M CLO priced “at an efficient cost of funding,” adding a new liability channel for portfolio financing .
  • Dividend maintained at $0.50 per share for Q3 2025, continuing cash return discipline as NII per share was $0.50 in Q2 .

What Went Wrong

  • Sequential earnings softness: total investment income declined to $99.5M and NII fell to $43.7M ($0.50 per share) as base rates and repayment-related income decreased versus Q1 .
  • Higher net expenses as fee waivers from the IPO expired, increasing management and incentive fees quarter over quarter .
  • Credit quality mixed: non-accruals rose to investments in four companies (~0.7% of amortized cost), up from ~0.2% in Q1 and Q4 2024, warranting monitoring .

Financial Results

MetricQ2 2024Q1 2025Q2 2025
Total Investment Income ($USD Millions)$104.2 $101.5 $99.5
Net Investment Income ($USD Millions)$89.9 $46.2 $43.7
Net Investment Income per Share ($)$1.02 $0.52 $0.50
GAAP EPS ($)$0.75 $0.34 $0.41
Consensus vs Actual (S&P Global)Q2 2025
Primary EPS Consensus Mean ($)0.515*
Primary EPS Actual ($)0.50*
Primary EPS – # of Estimates6*
Revenue Consensus Mean ($USD)$99.99M*
Revenue Actual ($USD)$99.51M*
Revenue – # of Estimates4*

Values retrieved from S&P Global.*

Segment/Asset Class Composition

Asset ClassFair Value ($USD Thousands) Q1 2025% of Total Q1 2025Fair Value ($USD Thousands) Q2 2025% of Total Q2 2025
First Lien Debt$3,652,320 96.3% $3,650,847 96.4%
Second Lien Debt$71,190 1.9% $71,721 1.9%
Other Debt Investments$9,603 0.3% $9,773 0.3%
Equity$55,065 1.5% $53,155 1.4%

Key KPIs and Balance Sheet

KPIQ4 2024Q1 2025Q2 2025
Weighted Avg Yield (Amortized Cost)10.4% 10.2% 10.1%
Weighted Avg Yield (Fair Value)10.5% 10.3% 10.2%
Floating Rate Debt (% of portfolio FV)99.6% 99.6% 99.6%
Non-Accrual (% of amortized cost)~0.2% ~0.2% ~0.7%
Net Asset Value per Share ($)$20.81 $20.65 $20.59
Debt-to-Equity (x)1.08x 1.11x 1.15x
Total Debt Outstanding (Principal, $USD Millions)$1,983.4 $2,013.6 $2,054.2
Investments at Fair Value ($USD Thousands)$3,791,494 $3,788,178 $3,785,496
Credit Facility Availability ($USD Millions)$964.8 $1,084.1 $1,113.0
Unrestricted Cash ($USD Millions)$70.4 $65.6 $75.8
Weighted Avg Interest Rate on Debt6.19% 6.11% 6.02%

Share Repurchases

PeriodShares RepurchasedAvg PriceProgram Details
Q4 2024494,943 $20.20 Up to $100M authorized (Jan 2024); amended Feb 27, 2025 for 12 months
Q1 2025491,332 $20.38 Amended & restated program up to $100M
Q2 20251,057,127 $18.92 Amended & restated program up to $100M

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
Regular Dividend per Share ($)Q3 2025$0.50 (Q2 declaration) $0.50 (Aug 5, 2025 declaration) Maintained
Formal Revenue/Margin/Tax GuidanceFY/QuarterNone disclosed None disclosed N/A

Earnings Call Themes & Trends

Note: Q2 2025 earnings call transcript was not available in our corpus. Trend tracking relies on press releases.

TopicPrevious Mentions (Q4 2024 and Q1 2025)Current Period (Q2 2025)Trend
Base rates and repayment-related incomeLower base rates and repayment-related income drove investment income declines in Q4 ; similar dynamic in Q1 .Q2 investment income decreased primarily due to lower base rates and lower repayment-related income .Continued headwind
Expenses/FeesHigher net expenses from management and incentive fees in Q4 ; waiver expiration impact starting Q1 .Net expenses increased as IPO-related fee waivers expired, raising management and incentive fees .Upward pressure
Credit Quality / Non-Accruals~0.2% non-accruals (2 companies) in Q4 and Q1 .~0.7% non-accruals (4 companies) in Q2 .Deteriorated modestly
Funding Cost / LiquidityWA cost of debt 6.19% in Q4; Truist amendment improved terms in Q1 .WA cost of debt fell to 6.02%; $350M 2030 notes, redemption of $275M 2025 notes; ~$400M CLO priced .Improving/diversifying
Origination/DeploymentNet funded deployment +$143.7M in Q4; +$3.8M in Q1 .Net funded deployment (-$3.5M) in Q2; commitments $149.1M, fundings $204.0M, sales/repayments $207.5M .Softer/net outflow
Shareholder ReturnsRegular dividend $0.50 maintained; special $0.10 in 2024 .Regular dividend $0.50 declared for Q3 2025 .Maintained

Management Commentary

  • “The decrease [in total investment income] was primarily driven by lower base rates as well as lower repayment related income as compared to the prior period.”
  • “The increase in net expenses quarter over quarter was primarily attributable to higher net management and income based incentive fees incurred following the expiration of the Adviser’s waiver of a portion of the base management and incentive fees in connection with the Company’s initial public offering, which expired in January 2025.”
  • “The combined weighted average interest rate on debt outstanding was 6.02% for the quarter ended June 30, 2025.”
  • “The Company successfully priced $350 million of 6.00% Notes due May 2030 and swapped the fixed rate coupon to floating rate… fully redeemed the $275 million of 7.55% Notes due September 2025.”
  • “On August 6, 2025, the Company successfully priced its inaugural CLO with approximately $400 million of aggregate principal amount, at an efficient cost of funding.”

Q&A Highlights

  • The Q2 2025 earnings call transcript was not available in our document set. No Q&A details could be extracted or verified.

Estimates Context

  • EPS/NII: Actual $0.50 was slightly below consensus $0.515*, a modest miss likely attributable to lower base rates and repayment income and higher fees post waiver expiration*.
  • Revenue (investment income): Actual $99.5M was essentially in-line with ~$100.0M consensus*, reflecting stable portfolio yields but fewer repayment-related fees*.
  • Estimates coverage: 6 EPS estimates and 4 revenue estimates*.

Values retrieved from S&P Global.*

Key Takeaways for Investors

  • Dividend covered by NII per share ($0.50 NII vs $0.50 dividend), supporting payout stability; monitor coverage given softer investment income and higher fees .
  • Credit watch: non-accruals rose to ~0.7% of amortized cost (4 companies) from ~0.2% (2 companies) in Q1/Q4; the level remains low but the trend should be monitored .
  • Funding cost tailwinds: WA cost of debt declined to 6.02% and new funding channels (2030 notes, CLO) diversify liabilities and may support future NII stability .
  • Leverage edged up to 1.15x; incremental flexibility exists with $1.1B of facility availability and $75.8M cash, but deployment turned slightly negative (-$3.5M net) this quarter .
  • Asset mix remains conservative (96.4% first lien) with yields holding around 10.1–10.2%, balancing income with credit risk .
  • Slight consensus miss on NII/EPS underscores sensitivity to base rates/repayment fees; estimate revisions may modestly drift lower near-term absent a rebound in repayment activity*.
  • Near-term trading: watch for updates on credit migration and deployment pace; medium-term thesis: liability optimization and diversified funding should help smooth earnings through rate/fee cycles .