Morgan Stanley Direct Lending Fund Announces December 31, 2023 Financial Results and Declares First Quarter 2024 Dividend of $0.50 per Share
- None.
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Insights
The announcement by Morgan Stanley Direct Lending Fund (MSDL) detailing its financial results for the fourth quarter and fiscal year ended December 31, 2023, is a robust indicator of the company's performance and future prospects. The reported net investment income of $55.5 million, or $0.67 per share and an increased net asset value (NAV) from $20.57 to $20.67 per share are particularly noteworthy. The reduction in debt-to-equity ratio from 1.16x to 0.87x suggests a stronger balance sheet and improved financial leverage. Additionally, the declaration of both regular and special dividends indicates a commitment to returning value to shareholders.
From an investment standpoint, the decrease in earnings per share (EPS) from $1.02 to $0.70 quarter-over-quarter could raise questions about the company's earnings trajectory. However, the increase in net investment income suggests that the underlying operations remain robust. The new investment commitments and net funded portfolio increase reflect active portfolio management and an aggressive capital deployment strategy, which could be attractive to growth-oriented investors. The special dividends following the IPO lock-up release dates also demonstrate strategic financial planning to bolster investor confidence.
The performance of MSDL is reflective of broader trends in the business development company (BDC) sector, where the ability to generate consistent, high-yield income streams is critical. The total weighted average yield of investments remaining unchanged at 12.0% and 12.1% is competitive within the industry, signaling that MSDL can maintain its income despite market fluctuations. The fact that 99.9% of the portfolio consists of floating-rate debt investments is significant, as it indicates a natural hedge against interest rate risk. This is particularly relevant given the rising SOFR rates, which could impact the cost of capital for BDCs.
MSDL's portfolio diversification across 30 industries with an average investment size of $18.6 million underscores its risk mitigation strategy. The low percentage of non-accrual investments (0.6%) suggests effective credit management and portfolio health. For potential investors and current stakeholders, the portfolio composition and performance metrics provide a transparent view of the company's strategic positioning and risk profile.
MSDL's recent developments, including the pricing of its initial public offering (IPO) and the implementation of a share repurchase program, are of legal and regulatory importance. The share repurchase program, in particular, is subject to securities law considerations and indicates the board's belief that the stock may be undervalued. Such a program can also provide a floor for the stock price and signal confidence to the market.
The new advisory agreement, which includes a waiver to reduce management and incentive fees, is a strategic move to align the interests of the advisors with those of the shareholders. The incentive fee lookback provision is an innovative structure that could potentially mitigate the risk of advisors being rewarded for short-term performance at the expense of long-term shareholder value. This aligns with best practices in corporate governance and could be seen as a positive development by investors concerned with executive compensation and alignment of interests.
“MSDL generated record performance to complete 2023, positioning the Company well for its debut to the public markets,” said Jeffrey Levin, President and Chief Executive Officer of Morgan Stanley Direct Lending Fund. “Our team’s rigorous investment selection and portfolio management process resulted in solid year-over-year performance. We are confident in MSDL's ability to navigate the current market environment. The team continues to focus on showcasing the strength of our platform to deliver strong risk-adjusted returns to our shareholders.”
QUARTERLY HIGHLIGHTS
-
Net investment income of
, or$55.5 million per share;$0.67 -
Net asset value of
per share, an increase from$20.67 per share as of September 30, 2023;$20.57 - Debt-to-equity was 0.87x as of December 31, 2023, as compared to 1.16x as of September 30, 2023;
-
New investment commitments of
, fundings of$242.9 million and sales and repayments of$253.9 million , resulting in net funded portfolio increase of$192.2 million ; and$61.6 million -
The Company’s Board of Directors (the “Board”) declared a regular dividend of
per share and a special dividend of$0.50 per share. The dividend was paid on January 25, 2024 to stockholders of record as of December 28, 2023.$0.10
SELECTED FINANCIAL HIGHLIGHTS
|
For the Quarter Ended |
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December 31, 2023 |
September 30, 2023 |
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Net investment income per share |
|
|
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Net realized and unrealized gains per share |
|
|
|
Earnings per share |
|
|
|
Regular dividend per share |
|
|
|
Special dividend per share |
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|
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As of |
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($ in thousands, except per share information) |
December 31, 2023 |
September 30, 2023 |
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Investments, at fair value |
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|
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Total debt outstanding, at principal |
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|
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Net assets |
|
|
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Net asset value per share |
|
|
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Debt to equity |
0.87x |
1.16x |
|
Net debt to equity |
0.83x |
1.11x |
|
RESULTS OF OPERATIONS
Total investment income for the fourth quarter ended December 31, 2023 was
Total operating expenses for the quarter ended December 31, 2023 was
Net investment income for the quarter ended December 31, 2023 was
For the three months ended December 31, 2023, net change in unrealized appreciation on investments was
PORTFOLIO AND INVESTMENT ACTIVITY
As of December 31, 2023, the Company’s investment portfolio had a fair value of approximately
December 31, 2023 |
September 30, 2023 |
|||||||||||||||
($ in thousands) |
Cost |
|
Fair Value |
|
% of Total
|
Cost |
|
Fair Value |
|
% of Total
|
||||||
First Lien Debt |
|
$ |
3,027,413 |
|
$ |
3,004,544 |
|
|
|
$ |
2,960,107 |
|
$ |
2,933,870 |
|
|
Second Lien Debt |
|
|
146,014 |
|
|
132,415 |
|
4.1 |
|
|
145,809 |
|
|
134,712 |
|
4.3 |
Other Investments |
|
|
53,349 |
|
|
56,602 |
|
1.8 |
|
|
52,685 |
|
|
54,868 |
|
1.8 |
Total |
|
$ |
3,226,776 |
|
$ |
3,193,561 |
|
|
|
$ |
3,158,601 |
|
$ |
3,123,450 |
|
|
Investment activity for the three months ended December 31, 2023 and September 30, 2023, was as follows:
Investment Activity: |
December 31, 2023 |
September 30, 2023 |
||
New investment commitments, at par |
|
|
||
Investment fundings |
|
|
||
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 investments in debt securities at amortized cost and fair value was
CAPITAL AND LIQUIDITY
As of December 31, 2023, the Company had total principal debt outstanding of
RECENT DEVELOPMENTS
-
On January 23, 2024, MSDL priced its initial public offering, raising net proceeds of approximately
;$97 million -
The Company’s Board approved a share repurchase program, under which the Company may repurchase up to
of the Company’s common stock at prices below NAV, adjusted for dividends;$100.0 million -
The Company’s Board declared a regular first quarter dividend of
per share and two$0.50 per share special dividends, timed to follow the two IPO lock-up release dates that occur in 2024; and$0.10 - The Company entered into a new advisory agreement with the Adviser that includes a waiver to reduce management and incentive fees through January 24, 2025, the first anniversary of the Company’s IPO, as well as institute an incentive fee lookback commencing with the quarter ended June 30, 2024.
CONFERENCE CALL INFORMATION
Morgan Stanley Direct Lending Fund will host a conference call on Friday, March 1, 2024 at 10:00 am ET to review its financial results and conduct a question-and-answer session. All interested parties are invited to participate in the live earnings conference call by using the following dial-in numbers or audio webcast link available on the MSDL Investor Relations website:
- Audio Webcast
- Conference Call
- Domestic: 877-400-0505
- International: 323-701-0225
- Passcode: 1562166
To avoid potential delays, please join at least 10 minutes prior to the start of the earnings call. An archived replay will also be available on the MSDL Investor Relations website.
About Morgan Stanley Direct Lending Fund
Morgan Stanley Direct Lending Fund (NYSE: MSDL) is a non-diversified, externally managed specialty finance company focused on lending to middle-market companies. MSDL has elected to be regulated as a business development company under the Investment Company Act of 1940, as amended. MSDL is externally managed by MS Capital Partners Adviser Inc., an indirect, wholly owned subsidiary of Morgan Stanley. MSDL is not a subsidiary of or consolidated with Morgan Stanley. For more information about Morgan Stanley Direct Lending Fund, please visit www.msdl.com.
Forward-Looking Statements
Statements included herein or on the webcast/conference call may constitute “forward-looking statements,” which relate to future events or MSDL’s future performance or financial condition. These statements are not guarantees of future performance, condition or results and involve a number of risks and uncertainties. Actual results and conditions may differ materially from those in the forward-looking statements as a result of a number of factors, including those described from time to time in MSDL’s filings with the SEC. MSDL undertakes no duty to update any forward-looking statements made herein or on the webcast/conference call.
Consolidated Statements of Assets and Liabilities
|
|||||||
|
As of |
||||||
|
|
December 31, 2023 |
December 31, 2022 |
||||
Assets |
|
|
|
||||
Non-controlled/non-affiliated investments, at fair value (amortized cost of |
|
$ |
3,193,561 |
|
$ |
2,873,588 |
|
Cash |
|
|
69,705 |
|
|
81,215 |
|
Deferred financing costs |
|
|
14,317 |
|
|
7,624 |
|
Interest and dividend receivable from non-controlled/non-affiliated investments |
|
|
28,884 |
|
|
20,911 |
|
Subscription receivable |
|
|
41 |
|
|
2,556 |
|
Receivable for investments sold/repaid |
|
|
173 |
|
|
188 |
|
Prepaid expenses and other assets |
|
|
53 |
|
|
40 |
|
Total assets |
|
|
3,306,734 |
|
|
2,986,122 |
|
|
|
|
|
|
|||
Liabilities |
|
|
|
|
|||
Debt (net of unamortized debt issuance costs of |
|
|
1,496,032 |
|
|
1,523,475 |
|
Payable for investment purchased |
|
|
8 |
|
|
— |
|
Payable to affiliates |
|
|
2,870 |
|
|
2,086 |
|
Dividends payable |
|
|
49,968 |
|
|
33,058 |
|
Management fees payable |
|
|
2,012 |
|
|
1,783 |
|
Income based incentive fees payable |
|
|
11,766 |
|
|
8,118 |
|
Interest payable |
|
|
18,823 |
|
|
17,019 |
|
Accrued expenses and other liabilities |
|
|
4,104 |
|
|
3,278 |
|
Total liabilities |
|
$ |
1,585,583 |
|
$ |
1,588,817 |
|
|
|
|
|
|
|||
Commitments and Contingencies |
|
|
|
|
|||
|
|
|
|
|
|||
Net assets |
|
|
|
|
|||
Preferred stock, |
|
|
— |
|
|
— |
|
Common stock, par value |
|
|
83 |
|
|
71 |
|
Paid-in capital in excess of par value |
|
|
1,712,609 |
|
|
1,452,013 |
|
Total distributable earnings (loss) |
|
|
8,459 |
|
|
(54,779 |
) |
Total net assets |
|
$ |
1,721,151 |
|
$ |
1,397,305 |
|
Total liabilities and net assets |
|
$ |
3,306,734 |
|
$ |
2,986,122 |
|
Net asset value per share |
|
$ |
20.67 |
|
$ |
19.81 |
|
Consolidated Statements of Operations
|
||||||||||||
|
For the Year Ended |
|||||||||||
|
|
December 31, 2023 |
|
December 31, 2022 |
|
December 31, 2021 |
||||||
Investment Income: |
|
|
|
|
|
|
||||||
From non-controlled/non-affiliated investments: |
|
|
|
|
|
|
||||||
Interest income |
|
$ |
355,530 |
|
|
$ |
223,119 |
|
|
$ |
108,277 |
|
Payment-in-kind |
|
|
4,276 |
|
|
|
1,626 |
|
|
|
1,021 |
|
Dividend income |
|
|
2,124 |
|
|
|
1,488 |
|
|
|
409 |
|
Other income |
|
|
5,808 |
|
|
|
4,360 |
|
|
|
10,109 |
|
Total investment income |
|
|
367,738 |
|
|
|
230,593 |
|
|
|
119,816 |
|
Expenses: |
|
|
|
|
|
|
||||||
Interest and other financing expenses |
|
|
112,883 |
|
|
|
67,182 |
|
|
|
21,015 |
|
Management fees |
|
|
30,550 |
|
|
|
26,715 |
|
|
|
13,860 |
|
Income based incentive fees |
|
|
42,012 |
|
|
|
26,635 |
|
|
|
15,852 |
|
Capital gains incentive fees |
|
|
— |
|
|
|
(2,441 |
) |
|
|
1,809 |
|
Professional fees |
|
|
4,470 |
|
|
|
3,206 |
|
|
|
2,440 |
|
Offering costs |
|
|
— |
|
|
|
— |
|
|
|
42 |
|
Directors’ fees |
|
|
345 |
|
|
|
362 |
|
|
|
336 |
|
Administrative service fees |
|
|
178 |
|
|
|
72 |
|
|
|
212 |
|
General and other expenses |
|
|
633 |
|
|
|
510 |
|
|
|
1,538 |
|
Total expenses |
|
|
191,071 |
|
|
|
122,241 |
|
|
|
57,104 |
|
Expense support |
|
|
— |
|
|
|
44 |
|
|
|
98 |
|
Management fees waiver |
|
|
(22,913 |
) |
|
|
(20,036 |
) |
|
|
(10,395 |
) |
Net expenses |
|
|
168,158 |
|
|
|
102,249 |
|
|
|
46,807 |
|
Net investment income (loss) before taxes |
|
|
199,580 |
|
|
|
128,344 |
|
|
|
73,009 |
|
Excise tax expense |
|
|
1,519 |
|
|
|
334 |
|
|
|
80 |
|
Net investment income/(loss) after taxes |
|
|
198,061 |
|
|
|
128,010 |
|
|
|
72,929 |
|
Net realized and unrealized gain (loss) on investment transactions: |
|
|
|
|
|
|
||||||
Net Realized gain (loss) on non-controlled/non-affiliated investments: |
|
|
118 |
|
|
|
537 |
|
|
|
1,895 |
|
Net change in unrealized appreciation (depreciation) on non-controlled/non-affiliated investments |
|
|
32,835 |
|
|
|
(80,005 |
) |
|
|
8,431 |
|
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 |
|
Per share information—basic and diluted |
|
|
|
|
|
|
||||||
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 |
|
View source version on businesswire.com: https://www.businesswire.com/news/home/20240229360545/en/
Investors
Michael Occi
msdl@morganstanley.com
Media
Alyson Barnes
212-762-0514
alyson.barnes@morganstanley.com
Source: Morgan Stanley Direct Lending Fund
FAQ
What was Morgan Stanley Direct Lending Fund's net investment income for the fourth quarter of 2023?
What was the net asset value per share for Morgan Stanley Direct Lending Fund as of December 31, 2023?
What was the debt-to-equity ratio for Morgan Stanley Direct Lending Fund as of December 31, 2023?
How much were the new investment commitments made by Morgan Stanley Direct Lending Fund in the fourth quarter of 2023?
What dividends did Morgan Stanley Direct Lending Fund declare for its shareholders?
What was the total investment income for Morgan Stanley Direct Lending Fund in the fourth quarter of 2023?
What was the fair value of Morgan Stanley Direct Lending Fund's investment portfolio as of December 31, 2023?
How much did Morgan Stanley Direct Lending Fund raise in its initial public offering?
What program did Morgan Stanley Direct Lending Fund's Board approve for share repurchase?