Morgan Stanley Direct Lending Fund(MSDL) - 2023 Q4 - Annual Results

Executive Summary & Company Overview 1.1 Introduction and CEO Statement MSDL reported strong Q4 and FY2023 results, positioning for its public debut, driven by rigorous investment selection and strong risk-adjusted returns - MSDL generated record performance in 2023, positioning for its public market debut[2] - The team's rigorous investment selection and portfolio management delivered solid year-over-year performance[2] - The team focuses on leveraging its platform to deliver strong risk-adjusted returns to shareholders[2] 1.2 Quarterly Financial Highlights MSDL reported Q4 2023 earnings per share of $0.70, net investment income of $0.67 per share, with NAV increasing to $20.67 and debt-to-equity improving to 0.87x Selected Financial Highlights (Q4 2023 vs Q3 2023) | Metric | Dec 31, 2023 | Sep 30, 2023 | | :-------------------------------- | :----------- | :----------- | | Net investment income per share | $0.67 | $0.70 | | Net realized and unrealized gains per share | $0.03 | $0.32 | | Earnings per share | $0.70 | $1.02 | | Regular dividend per share | $0.50 | $0.50 | | Special dividend per share | $0.10 | $0.10 | | Investments, at fair value (in thousands) | $3,193,561 | $3,123,450 | | Total debt outstanding, at principal (in thousands) | $1,502,263 | $1,725,252 | | Net assets (in thousands) | $1,721,151 | $1,481,472 | | Net asset value per share | $20.67 | $20.57 | | Debt to equity | 0.87x | 1.16x | | Net debt to equity | 0.83x | 1.11x | Operational and Financial Results 2.1 Results of Operations Total investment income for Q4 2023 increased to $100.8 million, driven by capital deployment and rising SOFR rates, resulting in net investment income of $55.5 million - Total investment income for Q4 2023 was $100.8 million, up from $94.5 million in Q3 2023, driven by capital deployment and rising SOFR rates[5] - Net investment income for Q4 2023 was $55.5 million, or $0.67 per share[6][7] - Total operating expenses for Q4 2023 were $45.3 million, up from $43.9 million in Q3 2023, primarily due to interest and financing expenses[7] - Net change in unrealized appreciation on investments for Q4 2023 was $1.9 million[8] 2.2 Portfolio and Investment Activity MSDL's investment portfolio reached $3.2 billion fair value across 172 companies, with 94.1% in First Lien Debt, and new commitments totaling $242.9 million - As of December 31, 2023, the investment portfolio had a fair value of approximately $3.2 billion, comprising 172 portfolio companies with an average investment size of $18.6 million[9] Investment Portfolio Composition (Fair Value) | Investment Type | Dec 31, 2023 (% of Total) | Sep 30, 2023 (% of Total) | | :---------------- | :------------------------ | :------------------------ | | First Lien Debt | 94.1% | 93.9% | | Second Lien Debt | 4.1% | 4.3% | | Other Investments | 1.8% | 1.8% | Investment Activity (Q4 2023 vs Q3 2023) | Activity | Dec 31, 2023 (in thousands) | Sep 30, 2023 (in thousands) | | :-------------------------------------- | :-------------------------- | :-------------------------- | | New investment commitments, at par | $242,891 | $195,426 | | Investment fundings | $253,867 | $155,072 | | Number of new Investment commitments in portfolio companies | 12 | 7 | | Number of portfolio companies exited or fully repaid | 5 | 1 | - Total weighted average yield of debt investments remained stable at 12.0% (amortized cost) and 12.1% (fair value)[9] - Floating rate debt investments remained at 99.9% of the total portfolio on a fair value basis[9] - As of December 31, 2023, three investments were on non-accrual status, representing approximately 0.6% of total investments at amortized cost[9] 2.3 Capital and Liquidity MSDL reported $1,502.3 million in total debt outstanding, a 6.51% weighted average interest rate, $917.5 million in credit facility availability, and an improved debt-to-equity ratio of 0.87x - As of December 31, 2023, total principal debt outstanding was $1,502.3 million[10] - The combined weighted average interest rate on debt outstanding was 6.51% for the year ended December 31, 2023[10] - As of December 31, 2023, the company had $917.5 million of availability under credit facilities and $69.7 million in cash[10] - Debt to equity improved to 0.87x as of December 31, 2023, from 1.16x in the prior quarter[10] Corporate Updates 3.1 Recent Developments MSDL completed its IPO, raising $97 million, approved a $100.0 million share repurchase program, declared Q1 dividends, and implemented a new advisory agreement with fee waivers - On January 23, 2024, MSDL completed its IPO, raising approximately $97 million in net proceeds[15] - The Board approved a share repurchase program for up to $100.0 million of common stock at prices below NAV[15] - The Board declared a regular Q1 dividend of $0.50 per share and two $0.10 per share special dividends[15] - A new advisory agreement includes a waiver to reduce management and incentive fees through January 24, 2025, and institutes an incentive fee lookback[15] 3.2 Conference Call Information MSDL will host a conference call on March 1, 2024, at 10:00 am ET to discuss financial results and conduct a Q&A session - Morgan Stanley Direct Lending Fund will host a conference call on March 1, 2024, at 10:00 am ET to review financial results and conduct a Q&A session[12] - Conference Call Dial-in: Domestic: 877-400-0505, International: 323-701-0225, Passcode: 1562166[15] - An audio webcast link will be available on the MSDL Investor Relations website[12] Company Information & Disclosures 4.1 About MSDL MSDL (NYSE: MSDL) is a non-diversified, externally managed specialty finance BDC focused on lending to middle-market companies, managed by MS Capital Partners Adviser Inc - Morgan Stanley Direct Lending Fund (NYSE: MSDL) is a non-diversified, externally managed specialty finance company focused on lending to middle-market companies[13] - MSDL is regulated as a business development company (BDC) under the Investment Company Act of 1940[13] - MSDL is externally managed by MS Capital Partners Adviser Inc., a subsidiary of Morgan Stanley[13] 4.2 Forward-Looking Statements The report contains forward-looking statements regarding future events or MSDL's performance, which are not guarantees and involve risks and uncertainties - Statements in this report or on the webcast/conference call may constitute forward-looking statements related to future events or MSDL's performance[14] - These statements are not guarantees of future performance and involve risks and uncertainties[14] - MSDL disclaims any duty to update forward-looking statements made in this report or on the webcast/conference call[14] Consolidated Financial Statements 5.1 Consolidated Statements of Assets and Liabilities MSDL's total assets increased to $3,306.7 million as of December 31, 2023, with net assets growing to $1,721.2 million and NAV per share reaching $20.67 Consolidated Statements of Assets and Liabilities (Selected Items, in thousands) | Item | Dec 31, 2023 | Dec 31, 2022 | | :---------------------------------------------------- | :----------- | :----------- | | Non-controlled/non-affiliated investments, at fair value | $3,193,561 | $2,873,588 | | Cash | $69,705 | $81,215 | | Total assets | $3,306,734 | $2,986,122 | | Debt (net of unamortized debt issuance costs) | $1,496,032 | $1,523,475 | | Total liabilities | $1,585,583 | $1,588,817 | | Total net assets | $1,721,151 | $1,397,305 | | Net asset value per share | $20.67 | $19.81 | 5.2 Consolidated Statements of Operations Total investment income significantly increased to $367.7 million for FY2023, with net investment income after taxes at $198.1 million and earnings per share of $3.11 Consolidated Statements of Operations (Selected Items, in thousands, except per share) | Item | Dec 31, 2023 | Dec 31, 2022 | Dec 31, 2021 | | :---------------------------------------------------- | :----------- | :----------- | :----------- | | Total investment income | $367,738 | $230,593 | $119,816 | | Net expenses | $168,158 | $102,249 | $46,807 | | Net investment income after taxes | $198,061 | $128,010 | $72,929 | | Net realized and unrealized gain (loss) | $32,953 | $(79,468) | $10,326 | | Net increase (decrease) in net assets resulting from operations | $231,014 | $48,542 | $83,255 | | Net investment income (loss) per share (basic and diluted) | $2.67 | $2.08 | $2.34 | | Earnings (loss) per share (basic and diluted) | $3.11 | $0.79 | $2.67 | | Weighted average shares outstanding | 74,239,743 | 61,676,363 | 31,159,302 |