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Morgan Stanley Direct Lending Fund (MSDL)·Q4 2024 Earnings Summary

Executive Summary

  • Net investment income was $50.7 million ($0.57 per share), covering the regular dividend by 114%, while NAV per share was stable at $20.81; lower base rates and limited repayment-related income drove a sequential decline versus Q3 ($0.66) .
  • Leverage reached 1.08x (from 0.99x), achieving the stated 1.0–1.25x target range post-IPO without stretching on credit; management reiterated disciplined deployment and focus on capital preservation .
  • Portfolio yields compressed further (10.5% FV vs. 11.0% in Q3), reflecting late-2024 Fed cuts and repricing earlier in 2024; credit quality remained strong with non-accruals at ~0.2% of amortized cost and >98% of the portfolio rated 2 or better .
  • Capital stack enhanced post-quarter: Truist facility extended to Feb 2030, spread lowered to 1.775%, and commitment increased to $1.45B; Board authorized a renewed $100M 10b5-1 repurchase plan and declared a $0.50 regular dividend for Q1 2025 .
  • Consensus estimates (S&P Global) were unavailable at time of analysis; estimate comparisons cannot be drawn. We note management’s commentary on drivers (rate reset lag and limited repayment-related income) that may impact near-term NII trajectory .

What Went Well and What Went Wrong

What Went Well

  • Dividend coverage remained strong: “We generated net investment income of $0.57 per share, representing 114% regular dividend coverage” .
  • Credit quality and diversification: non-accruals ~20 bps at cost; “Over 98% of our total portfolio had an internal risk rating of 2 or better” with 208 companies across 33 industries and top-10 concentration ~16% .
  • Origination engine and selectivity: “We led or co-led over 90% of the new borrowers added… sponsors are drawn to the quality of our team… given the broader Morgan Stanley platform” .

What Went Wrong

  • Sequential NII decline driven by base rate cuts and lack of nonrecurring income: “Total investment income… was $103.0 million… decrease was primarily driven by lower base rates and repayment related income” and “core NII… $0.62 to $0.57… 100% driven by the change in rates” .
  • Higher net expenses QoQ: net expenses rose to $52.3 million vs. $51.0 million, primarily due to higher management and income-based incentive fees; fee waivers expired on Jan 24, 2025, a headwind going forward .
  • Yield compression: weighted average yields fell to 10.4% (cost) and 10.5% (FV) from 11.0%/11.0% in Q3, reflecting the late-2024 rate cuts and earlier repricing dynamics .

Financial Results

Core Financials vs Prior Periods and Dividend

MetricQ2 2024Q3 2024Q4 2024
Total Investment Income ($USD Millions)$104.2 $109.8 $103.0
Net Investment Income ($USD Millions)$56.1 $58.7 $50.7
NII per Share ($)$0.63 $0.66 $0.57
Earnings per Share ($)$0.66 $0.60 $0.58
Regular Dividend per Share ($)$0.50 $0.50 $0.50
Regular Dividend Coverage (%)126% (0.63/0.50) 132% (0.66/0.50) 114% (0.57/0.50)
Debt-to-Equity (x)0.90x 0.99x 1.08x
NAV per Share ($)$20.83 $20.83 $20.81

Segment Breakdown (Fair Value Mix)

SegmentQ3 2024 Fair Value ($mm)Q3 % of FVQ4 2024 Fair Value ($mm)Q4 % of FV
First Lien Debt$3,492.3 96.0% $3,654.5 96.5%
Second Lien Debt$84.1 2.3% $69.4 1.8%
Other Debt Investments$8.8 0.2% $9.2 0.2%
Equity$55.1 1.5% $58.4 1.5%
Total Investments$3,640.3 100.0% $3,791.5 100.0%

KPIs and Portfolio Metrics

KPIQ2 2024Q3 2024Q4 2024
Weighted Avg Yield at Amortized Cost (%)11.6% 11.0% 10.4%
Weighted Avg Yield at Fair Value (%)11.7% 11.0% 10.5%
Floating Rate Debt (% of FV)99.6% 99.6% 99.6%
Non-accrual (% of amortized cost)~0.3% ~0.2% ~0.2%
Portfolio Companies (count)192 200 208
Avg Investment Size ($mm)$18.3 $18.2 $18.2
Weighted LTV (%)——~40%
Median EBITDA ($mm)——~$86
Top-10 Concentration (% of FV)——~16%

Investment Activity

MetricQ2 2024Q3 2024Q4 2024
New Investment Commitments (par, $mm)$673.9 $455.4 $188.3
Investment Fundings ($mm)$499.7 $377.0 $187.3
Sales and Repayments ($mm)$289.3 $252.9 $43.6
Net Funded Deployment ($mm)$210.4 $124.1 $143.7
New Investment Commitments (number)22 19 10
Exits/Fully Repaid (number)8 11 2

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
Regular Dividend per ShareQ1 2025$0.50 (Q4 2024) $0.50 (declared, payable Apr 25, 2025) Maintained
Special Dividend per ShareQ4 2024$0.10 (record Nov 4, 2024) $0.10 (paid in Q4 2024) Maintained/Completed
Share Repurchase Program2025$100M plan expiring Mar 25, 2025 $100M 10b5-1 program extended for 12 months Extended
Truist Credit Facility MaturityRevolverPrior maturity not specified in cited filingsExtended to Feb 2030 Extended
Truist Facility Drawn SpreadRevolver~1.875% (derived: lowered by 10 bps to 1.775%) 1.775% Lowered
Truist Facility CommitmentRevolver~$1.30B (derived: +$150M to $1.45B) $1.45B Increased
Target Leverage RangeOngoing1.0x–1.25x 1.0x–1.25x (achieved 1.08x) Maintained
Unsecured Notes MaturitySep 2025$275M due Sep 2025 Management will evaluate refinancing in 2025 Strategic update

Earnings Call Themes & Trends

TopicPrevious Mentions (Q2 2024)Previous Mentions (Q3 2024)Current Period (Q4 2024)Trend
Yield compression11.6%/11.7% (cost/FV) Down to 11.0%/11.0% Down to 10.4%/10.5% Declining yields
Repricing dynamics—Repricing more concentrated earlier in 2024 (context from Q4 remarks) Yield impact from rate cuts; repricing largely earlier in 2024 Stabilizing repricing; rate-cut impact
Deployment paceNet funded $210.4M $124.1M $143.7M Moderate, steady
Dividend policy$0.50 declared/paid $0.50 declared $0.50 declared for Q1 2025 Maintained
Leverage trajectory0.81x→0.90x 0.99x 1.08x; target 1.0–1.25x confirmed Increasing toward target
Credit qualityNon-accrual ~0.3% ~0.2% ~0.2%; >98% risk rating 2 or better Stable/strong
Macro/tariffs——Monitoring tariff impacts; portfolio largely insulated (software/insurance) Watchful stance
Sector exposure——Software 18.9%, Insurance services 12% of FV Concentration consistent

Management Commentary

  • “Net asset value per share was stable quarter-over-quarter. We generated net investment income of $0.57 per share, representing 114% regular dividend coverage.” — Jeff Levin .
  • “Over the course of 2024, we led or co-led over 90% of the new borrowers added… sponsors are drawn to the quality of our team… given the broader Morgan Stanley platform.” — Jeff Levin .
  • “We believe… the federal reserve’s 100 basis points of rate cuts in late 2024… helped to compound market optimism… gross asset yields are likely to continue to remain elevated.” — Michael Occi .
  • “Over 98% of our total portfolio had an internal risk rating of 2 or better… nonaccruals remained unchanged… just 20 basis points of the portfolio at cost.” — David Pessah .
  • “Subsequent to quarter end, we… extended [our secured revolver] to February 2030, lowered our drawn spread by 10 basis points… increased our total commitment by $150 million to $1.45 billion.” — David Pessah .

Q&A Highlights

  • NII trajectory and rate reset lag: About two-thirds of the portfolio reset in Q4; NII per share declined from $0.62 (core) in Q3 to $0.57 purely on rate changes with no nonrecurring income in Q4 .
  • Capital structure mix: Management targets ~50% mix between secured and unsecured; highlighted upcoming Sep 2025 note and opportunistic refinancing plans .
  • Repayments lumpy: Q4 repayments were low; management emphasized quarterly lumpiness and advised analyzing over full-year horizons .
  • Tariff exposure: ~6.6% exposure tied to auto-related services/software, not direct auto; management running detailed workstreams, sees software/insurance concentration as relatively insulated but monitoring secondary/tertiary effects .
  • Leverage outlook: Target remains 1.0–1.25x; willingness to prioritize credit quality over short-term leverage metrics amid variable deal flow and repayments .

Estimates Context

  • S&P Global consensus estimates for revenue and EPS for Q2–Q4 2024 were unavailable at the time of analysis due to data access limits; therefore, we cannot assess beats/misses versus Wall Street consensus [GetEstimates error].
  • Near-term estimate risks: management flagged rate reset lag (one-third yet to reset) and absence of repayment-related fees in Q4, implying potential pressure on NII if base-rate declines persist; fee waivers also expired on Jan 24, 2025, modestly increasing run-rate expenses .

Key Takeaways for Investors

  • Dividend safety: Q4 regular dividend coverage of 114% and spillover NII of ~$68M ($0.78/share) provide cushion; regular $0.50 dividend maintained into Q1 2025 .
  • Credit resilience: Non-accruals at ~0.2% and >98% risk ratings 2 or better underpin stability; sector concentration in software/insurance appears relatively insulated from tariff risk, but monitoring continues .
  • Yield pressure vs. funding benefits: Asset yields compressed with rate cuts, but revolver extension and lower spreads support funding costs and liquidity ($1.45B commitment, Feb 2030 maturity) .
  • Deployment selective yet steady: Net funded deployment improved to $143.7M vs. $124.1M in Q3; unique origination pipeline and lead roles sustain volume despite subdued LBO backdrop .
  • Leverage within target: 1.08x achieved; expect dynamic management within 1.0–1.25x range based on deal quality and repayments rather than chasing leverage for NII optics .
  • Cost headwinds: Expiration of fee waivers as of Jan 24, 2025 and rate reset lag may temper near-term NII; watch for refinancing of Sep 2025 notes and any further facility pricing improvements .
  • Potential catalysts: Continued dividend declarations, buyback activity under extended $100M 10b5-1 plan, and signs of LBO activity acceleration could support sentiment and deployment .

Notes:

  • All figures reflect USD and are sourced from MSDL’s Q4 2024 8-K (including Exhibit 99.1) and the Q4 2024 earnings call transcript as cited above.
  • Consensus estimate comparisons were not possible due to unavailability via S&P Global at the time of this analysis.