Executive Summary

Q3 2025 was steady operationally: total investment income of $99.7M slightly beat consensus while NII/share of $0.50 was essentially in line; NAV/share declined 0.9% QoQ to $20.41 on unrealized depreciation, and non‑accruals increased to ~1.2% of cost .
Revenue beat vs Street; EPS (NII/share) was ~in line: TII $99.7M vs $98.8M consensus*; NII/share $0.50 vs $0.503 consensus*; GAAP EPS $0.32 .
Funding costs improved: the inaugural ~$401M CLO priced at ~S+1.70%, BNP facility margin cut to 1.95% from 2.25%, and weighted average debt cost fell to 5.85% (from 6.02% in Q2), supporting future NII resilience .
Dividend maintained at $0.50/share; additional $0.50 declared (record 12/31/25; payable ~1/23/26), signaling confidence in run‑rate earnings despite yield compression and a modest uptick in non‑accruals .

What Went Well and What Went Wrong

What Went Well
- Slight top‑line outperformance and stable NII: TII rose to $99.7M (+0.2% QoQ) and NII/share held $0.50, covering the $0.50 dividend .
- Liability optimization: priced ~$401M CLO at ~S+1.70% and cut BNP facility margin to 1.95%; weighted average debt cost fell to 5.85% (Q2: 6.02%) .
- Strategy and underwriting discipline reiterated (prior call): “Our strategy has been and continues to be to invest in the highest quality … in a first lien position,” with low PIK and strong credit performance (Q1 call) .
What Went Wrong
- Year‑over‑year earnings pressure: TII fell to $99.7M (vs $109.8M in Q3’24) and NII/share to $0.50 (vs $0.66), reflecting lower base rates and reduced repayment income versus last year .
- Portfolio risk uptick: non‑accruals increased to ~1.2% of amortized cost (four companies) vs ~0.7% in Q2; weighted average asset yield moved down to 9.7% (cost) / 9.9% (FV) from 10.1% / 10.2% in Q2 .
- NAV per share down 18 bps QoQ to $20.41 (from $20.59), driven by $16.2M net unrealized depreciation in the quarter .

Financial Results

Metric	Q3 2024	Q1 2025	Q2 2025	Q3 2025
Total Investment Income ($USD Millions)	$109.8	$101.5	$99.5	$99.7
Net Investment Income ($USD Millions)	$58.7	$46.2	$43.7	$43.7
NII per Share ($)	$0.66	$0.52	$0.50	$0.50
GAAP EPS ($)	$0.60	$0.34	$0.41	$0.32
NAV per Share ($)	$20.83	$20.65	$20.59	$20.41
Debt-to-Equity (x)	0.99x	1.11x	1.15x	1.17x
Weighted Avg Debt Cost (%)	6.45	6.11	6.02	5.85
Wtd Avg Yield (Cost/FV, %)	11.0/11.0	10.2/10.3	10.1/10.2	9.7/9.9
Non‑accruals (% of cost)	~0.2%	~0.2%	~0.7%	~1.2%

Actual vs Estimates (Q3 2025):

Total Investment Income: $99.7M vs $98.8M consensus*
EPS (NII/share): $0.50 vs $0.503 consensus*
Coverage: Dividend $0.50/share maintained; NII/share $0.50

Portfolio Composition (% of fair value):

Instrument	Q2 2025	Q3 2025
First Lien Debt	96.4%	96.3%
Second Lien Debt	1.9%	1.9%
Other Debt	0.3%	0.3%
Equity	1.4%	1.5%
Total Portfolio FV ($B)	$3.79	$3.78

Key KPIs:

KPI	Q2 2025	Q3 2025
New Commitments ($M, net of syndications)	$149.1	$183.0
Fundings ($M)	$204.0	$198.0
Sales/Repayments ($M)	$207.5	$199.9
Net Funded Deployment ($M)	($3.5)	($1.9)
Floating‑Rate (% FV)	99.6%	99.6%
Non‑accruals (# companies)	4	4
Liquidity (Undrawn + Cash, $M)	$1,113.0 + $75.8	$1,396.1 + $71.7
Share Repurchases	1,057,127 sh @ $18.92 avg	151,417 sh @ $18.78 avg

Guidance Changes

Metric	Period	Previous Guidance	Current Guidance	Change
Regular Dividend per Share	Q4 2025 distribution	$0.50 (Q3 declared)	$0.50; record 12/31/25; payable ~1/23/26	Maintained
Financial Guidance (Revenue, Margins, EPS)	FY/Qtr	None provided	None provided	—
Funding Cost – BNP Facility Margin	Ongoing	2.25%	1.95% (amendment 9/24/25)	Improved
Capital Markets	Ongoing	Announced CLO pricing 8/6/25	Inaugural CLO closed; ~$401M at ~S+1.70%	Executed

Note: MSDL does not provide quantitative revenue/EPS guidance in filings; dividend policy remains the primary recurring “guidance” signal .

Earnings Call Themes & Trends

(Company did not have a Q3’25 transcript available in our library; themes reflect Q1’25 call and Q2/Q3 filings.)

Topic	Previous Mentions (Q1 2025)	Previous Mentions (Q2 2025)	Current Period (Q3 2025)	Trend
Macro/tariffs	Management sees tariffs delaying M&A; portfolio insulated by sector mix (software, insurance)	— (filing only)	No call; yields down modestly; non‑accruals increased	Mixed (macro headwind; portfolio resilient)
Deployment/M&A	Strong origination; led/co‑led all new borrower facilities; selective underwriting	New commitments $149M; net deployment ($3.5M)	New commitments $183M; net deployment ($1.9M)	Stable/modestly improving
Leverage target	Target 1.15x–1.20x; reached ~1.11x Q1	1.15x	1.17x	Moving toward target
Funding optimization	Extended/cheaper Truist facility; plan to optimize unsecured stack	Issued $350M 2030s; redeemed 2025s; swapped to float	Closed ~$401M CLO; BNP margin cut to 1.95%; debt cost 5.85%	Positive
Credit quality	Non‑accruals ~0.2% cost; first‑lien focus; low PIK	Non‑accruals ~0.7% cost	Non‑accruals ~1.2% cost; 4 names	Deteriorating from very low levels
Dividend/Capital Return	$0.50 regular; repurchases ~$10M in Q1	$0.50 declared; repurchased 1.06M shares	$0.50 declared; repurchased 151k shares	Stable dividend; slower buybacks

Management Commentary

Strategy and positioning (Q1 call): “Our strategy has been and continues to be to invest in the highest quality private credit transactions … at the top of the capital structure in a first lien position,” emphasizing “avoiding the more deeply cyclical industry sectors” and maintaining “highly predictable and sticky cash flow streams” .
Origination edge (Q1 call): “We led or co‑led all the facilities for new borrowers,” leveraging the broader Morgan Stanley platform to drive selective deployment and risk‑adjusted returns .
Balance sheet optimization (Q1 call): Extended secured facility, lowered spreads; Q2 filing shows unsecured refinancing; Q3 filing shows CLO execution and facility margin cuts as tangible follow‑through .

Q&A Highlights

The Q3 2025 earnings call transcript was not available in our library; no Q&A content to report for the quarter. For context from Q1 2025:
- Run‑rate NII: Fee waiver roll‑off drove ~$0.04 sequential NII/share headwind in Q1, with ~$0.01 residual expected in Q2 (addressed as temporary) .
- Buyback approach: Programmatic 10b5‑1 framework used to repurchase stock when accretive .
- Leverage: Target range reiterated at 1.15x–1.20x, with a disciplined path to the midpoint .

Estimates Context

Q3 2025 performance vs S&P Global consensus:
- Total Investment Income: $99.7M vs $98.8M estimate* (small beat) .
- EPS (NII per share): $0.50 vs $0.503 estimate* (essentially in line/slight miss) .
Implications: Street may modestly trim forward NII given lower asset yields and a higher non‑accrual base, but improved funding costs (CLO, BNP margin cut) provide an offset that can support dividend coverage near term .

Note: *Values retrieved from S&P Global.

Key Takeaways for Investors

Dividend appears covered by NII ($0.50 vs $0.50), supported by liability optimization and disciplined leverage at 1.17x, though lower asset yields and higher non‑accruals warrant monitoring .
Slight revenue beat and in‑line NII suggest a stable run‑rate; continued focus on first‑lien exposure (~96%) and 99.6% floating mitigates downside as rates evolve .
Funding actions (CLO at ~S+1.70%, BNP margin cut, lower weighted debt cost to 5.85%) should cushion NII against asset yield compression, improving through‑cycle earnings resilience .
Credit quality drifted from very strong levels (non‑accruals ~1.2% cost, 4 names); watchlist migration and any incremental non‑accruals are the key risk to dividend sustainability and NAV .
Deployment is disciplined (net deployment slightly negative) and selective; enhanced liquidity ($1.40B undrawn plus $71.7M cash) provides ample capacity to lean into wider spreads if macro volatility resurfaces .
Near‑term trading setup: balanced—supportive dividend and funding tailwinds vs modestly weaker credit/yield backdrop; catalysts include resolution of any credit issues, continued liability refinancings, and potential improvement in sponsor M&A pipelines .

Citations

Q3 2025 8‑K/Press release, financial statements, and operating detail:
Q2 2025 8‑K/Press release and financial statements:
Q1 2025 8‑K/Press release and financial statements:
Q1 2025 earnings call transcript (quotes/themes):
Q3 2024 8‑K/Press release and financial statements for YoY comps:

Note on estimates: Items marked with an asterisk (*) reflect S&P Global consensus data (Primary EPS Consensus Mean and Revenue Consensus Mean) for Q3 2025.

Morgan Stanley Direct Lending Fund (MSDL)·Q3 2025 Earnings Summary