Capital Management - As of March 1, 2023, the MS Private Credit platform managed committed capital of approximately $14.9 billion at fair value[24] - Direct Lending strategy managed approximately $13.0 billion in committed capital as of March 1, 2023[26] - Opportunistic Credit managed approximately $1.9 billion in committed capital as of March 1, 2023[26] - As of December 31, 2022, IM managed approximately $1.3 trillion in assets under management across various business lines[28] Investment Strategy - The Company's investment strategy focuses on U.S. middle-market companies with annual EBITDA of $15 million to $200 million[37] - The company aims to maintain a debt-to-equity ratio of 1.0x – 1.25x, with a cap of 2.0x[35] - The company benefits from a differentiated direct origination platform, leveraging relationships with middle-market private equity firms and companies[54] - The Adviser employs a rigorous due diligence process, including financial analysis, ESG considerations, and management background checks[61] Portfolio Composition - As of December 31, 2022, the company had investments in 150 portfolio companies across 30 industries, with a total investment portfolio at fair value of $2,873,588,000[78] - Approximately 100% of the debt portfolio was invested in floating interest rate debt, with a weighted average total yield of 10.9%[78] - The composition of the investment portfolio at fair value included 93.8% in First Lien Debt, 4.5% in Second Lien Debt, and 1.7% in Other Securities[79] - The geographic composition of investments shows 95.6% in the United States, with a total cost of $2,809,482,000[80] Financial Health - The asset coverage ratio as of December 31, 2022, was 191.2%, indicating strong financial health[82] - The company anticipates generating cash from operations, including interest received on debt investments, and plans to distribute substantially all net income to stockholders[81] Fees and Incentives - The base management fee is calculated at an annual rate of 1.0% of average gross assets, with a waiver of excess fees prior to an Exchange Listing[85] - The incentive fee structure includes no fees if pre-incentive fee net investment income does not exceed a hurdle rate of 1.50%[90] - The incentive fee on capital gains is calculated at 17.5% of realized capital gains, net of losses, with cumulative capital gains considered[94] Regulatory Compliance - The company is subject to regulatory restrictions on co-investments and joint transactions with affiliates, which may limit investment opportunities[72] - The SEC has granted an exemptive order allowing the company to co-invest with affiliated accounts under certain conditions, ensuring fair terms[73] - The company must distribute most of its income to qualify as a RIC, which affects its ability to raise additional capital[115] - The company operates under the constraints of being a BDC, which limits operational flexibility and investment strategies[113] Risk Management - The Adviser has developed risk policies to regularly assess the risk profile of each debt investment, enhancing proactive management[66] - Investments are classified into four risk categories, with Category 1 indicating the least risk and Category 4 indicating substantial risk of loss[67] - The company is exposed to risks from the current interest rate environment, with a significant portion of its debt portfolio (approximately 56%) linked to floating rates based on LIBOR[190] Conflicts of Interest - The Adviser may face conflicts of interest due to its affiliation with Morgan Stanley, which could affect the company's investment returns[203] - The company cannot assure that it will replicate the historical investment returns achieved by other Morgan Stanley funds, as market conditions may differ[198] - The Adviser may receive an incentive fee even during periods of net loss, creating potential conflicts of interest[215] Tax Considerations - To maintain RIC status, the company must distribute at least 90% of its investment company taxable income as dividends[156] - The company may incur a 4% nondeductible federal excise tax if it fails to meet the Excise Tax Avoidance Requirement[160] - The company is required to diversify its holdings, ensuring at least 50% of asset value consists of cash and government securities, and no more than 25% is invested in any single issuer[165] Operational Structure - The company does not currently have any employees, with day-to-day operations managed by its Adviser[181] - The company relies heavily on the expertise and network of investment professionals from its Adviser, with no internal management capacity[191]
Morgan Stanley Direct Lending Fund(MSDL) - 2022 Q4 - Annual Report