Morgan Stanley Direct Lending Fund Q4 2024 Earnings Report

Morgan Stanley Direct Lending Fund EPS Results

• Actual EPS: $0.57
• Consensus EPS: $0.63
• Beat/Miss: Missed by -$0.06
• One Year Ago EPS: N/A

Morgan Stanley Direct Lending Fund Revenue Results

• Actual Revenue: $103.00 million
• Expected Revenue: $107.02 million
• Beat/Miss: Missed by -$4.02 million
• YoY Revenue Growth: N/A

Morgan Stanley Direct Lending Fund Announcement Details

• Quarter: Q4 2024
• Date: 2/27/2025
• Time: After Market Closes
• Conference Call Date: Friday, February 28, 2025
• Conference Call Time: 10:00AM ET

Morgan Stanley Direct Lending Fund (NYSE:MSDL) (NYSE: MSDL) is a closed-end management investment company that seeks to provide investors with attractive current income and the potential for capital appreciation. The fund primarily invests in senior secured loans and other debt instruments issued by middle-market companies. By focusing on floating-rate structures, it aims to offer a measure of protection against rising interest rates while generating regular cash distributions.

The fund’s investment strategy centers on building a diversified portfolio of direct lending opportunities across a broad range of industries, including healthcare, business services, and industrials. These direct loans are typically negotiated bilaterally between the fund and the borrower, allowing for tailored covenants and structuring features designed to mitigate credit risk. In addition to senior debt, the fund may selectively allocate to second-lien loans, mezzanine debt, and structured credit instruments to enhance yield potential.

Since commencing operations in early 2021, Morgan Stanley Direct Lending Fund has leveraged the global research and credit analysis capabilities of Morgan Stanley Investment Management. The fund’s portfolio management team draws on decades of experience in direct lending and private credit to identify issuers with stable cash flows and strong collateral coverage. While the bulk of investments are focused on U.S.-based borrowers, the fund may also pursue opportunities in select developed markets where credit fundamentals align with its risk-return objectives.

The fund is managed by Morgan Stanley Investment Management’s Credit Investing group, which oversees underwriting, ongoing portfolio monitoring, and risk management. Through a combination of rigorous due diligence and active engagement with portfolio companies, the team seeks to preserve capital and support favorable downside protection. Investors in MSDL gain access to a segment of the credit markets that has traditionally been available only to large institutional lenders.

Morgan Stanley Direct Lending Fund Q4 2024 Earnings Call Transcript

Key Takeaways

• Positive Sentiment: Morgan Stanley Direct Lending completed its IPO in January 2024 and reached its targeted leverage range, with debt-to-NAV rising to 1.08x in Q4 — achieved "without stretching on credit."
• Positive Sentiment: Portfolio credit quality remained strong and stable — Q4 NAV per share was $20.81, non‑accruals were ~20 bps, >98% of the portfolio had internal ratings of 2 or better, and median EBITDA was about $86M.
• Negative Sentiment: Yield compression from late‑2024 rate cuts weighed on income — weighted average yield was ~10.4% and net investment income fell to $0.57 per share in Q4 (down from $0.66), with further pressure possible as floating‑rate portfolio resets continue.
• Positive Sentiment: Origination and deployment remained robust and selective — Q4 new commitments were ~$188M (net funded ~$144M), full‑year commitments were ~$1.5B, and >75% of non‑refinancing deployment went to new borrowers (led/co‑led >90%).
• Neutral Sentiment: Management is actively managing liabilities — it extended the secured revolver to February 2030, increased commitment to $1.45B and lowered spreads, but the post‑IPO management/incentive fee waiver expired in Jan 2025 and an unsecured note matures in Sept 2025 (refinancing optionality remains).

Presentation

[Operator]

Welcome to the Morgan Stanley Direct Lending Q4 2024 earnings call. At this time, all participants are in a listen only mode. A question and answer session will follow the prepared remarks. As a reminder, this conference call is being recorded. At this time, I'd like to turn the conference over to Ms. Sanna Johnson. Please go ahead, ma'am.

[Sanna Johnson, Head of Investor Relations at Morgan Stanley Direct Lending Fund]

Good morning, welcome to Morgan Stanley Direct Lending Fund's full year and fourth quarter 2024 earnings call. Joining me this morning are Jeff Levin, Chief Executive Officer, Michael Occi, President, David Pessah, Chief Financial Officer, and Rebecca Shaoul, Head of Portfolio Management. Morgan Stanley Direct Lending Fund's fourth quarter and full year 2024 financial results were released yesterday after market closed and can be accessed on the investor relations section of our website at www.mcl.com. We have arranged for a replay of today's events that will be accessible from the Morgan Stanley Direct Lending Fund website. During this call, I want to remind you that we may make forward-looking statements based on current expectations. The statements on this call that are not purely historical are forward-looking statements.

[Sanna Johnson, Head of Investor Relations at Morgan Stanley Direct Lending Fund]

These forward-looking statements are not a guarantee of future performance and are subject to uncertainties and other factors that could cause actual results to differ materially from those expressed in the forward-looking statements, including and without limitation, market conditions, uncertainty surrounding interest rates, changing economic conditions and other factors we have identified in our filings with the SEC. Although we believe that the assumptions on which these forward-looking statements are based are reasonable, any of those assumptions can prove to be inaccurate, and as a result, the forward-looking statements based on those assumptions can be incorrect. You should not place undue reliance on these forward-looking statements. The forward-looking statements contained on this call are made as of the date hereof, we assume no obligation to update the forward-looking statements or subsequent events. To obtain copies of SEC related filings, please visit our website.

[Sanna Johnson, Head of Investor Relations at Morgan Stanley Direct Lending Fund]

With that, I will now turn the call over to Jeff Levin.

[Jeff Levin, CEO at Morgan Stanley Direct Lending Fund]

Thank you, Sanna, and thank you for joining us today for Morgan Stanley Direct Lending's fourth quarter and full year 2024 conference call. We are proud of the strong results that we generated to close what was a critical year for us. In 2024, we successfully executed our IPO in January and continued to deploy capital prudently in our efforts to generate attractive risk-adjusted returns for our growing base of shareholders. I will first begin with a summary of our performance in the fourth quarter before handing it to Michael to discuss our market outlook. Dave will provide updates on our portfolio and comment on the financial results. Our team delivered solid operating results for the fourth quarter, supported by strong underlying credit performance. At $20.81, net asset value per share was stable quarter-over-quarter.

[Jeff Levin, CEO at Morgan Stanley Direct Lending Fund]

We generated net investment income of $0.57 per share, representing 114% regular dividend coverage. During the quarter, we also had a $0.10 special dividend that had been declared by the board of directors around the time of the IPO and was paid to shareholders of record as of November 4th, 2024. For the fourth quarter, new investment commitments totaled approximately $188 million, resulting in net funded deployment for the quarter of $144 million, an increase from $124 million in the third quarter. During the quarter, MSDL's debt to NAV increased from 0.99x to 1.08x.

[Jeff Levin, CEO at Morgan Stanley Direct Lending Fund]

Importantly, we accomplished the objective that we had previously telegraphed of achieving our 1x to 1.25x target leverage range over the few quarters following the IPO without stretching on credit. Our underlying deployment activity in the quarter showcased once again our ability to leverage our unique origination engine to drive quality deal flow. Over the course of 2024, more than three quarters of our non-refinancing gross deployment was to new borrowers. While we remain focused on supporting existing borrowers through incremental financing, we think the skew towards new platforms highlights the value of our unique sourcing platform, even amidst, in our view, a more subdued LBO environment. Additionally, over the course of 2024, we led or co-led over 90% of the new borrowers added to MSDL's portfolio.

[Jeff Levin, CEO at Morgan Stanley Direct Lending Fund]

We continue to believe that sponsors are drawn to the quality of our team and our ability to be a value-add partner, given the broader Morgan Stanley platform we are a part of. On previous calls, we've highlighted the clear benefits of our ability to leverage the broader Morgan Stanley platform. Our breadth and depth of sponsor relationships allows us to see a vast range of deal flow, and that deal flow exceeds our capital base, which breeds selectivity. Flexibility is also key to our strategy. MSDL's median EBITDA has been steady in the mid $80 million context. We like to credit attributes in this segment of the market, but we have the ability to move up and down market to optimize risk-adjusted returns as we had flexed upmarket during the peak of the inflation-led dislocation a couple of years ago.

[Jeff Levin, CEO at Morgan Stanley Direct Lending Fund]

We think that the deal flow to capital imbalance and our nimble approach to financing the middle market will continue to serve as a key competitive advantage for us. With that, I would like to hand the call over to Michael, who will provide some commentary on our broader market outlook. Michael was appointed to President of the BDC at the end of 2024, and we are excited to see his role expand as we continue to optimize our business for the benefit of our shareholders.

[Michael Occi, President at Morgan Stanley Direct Lending Fund]

Thank you, Jeff. I look forward to continuing to work with this outstanding team and all of our partners and investors in the years to come. I will start by making some observations on the macro and direct lending backdrop. The punchline is that we are pleased about the performance of MSDL's portfolio and as we look ahead, are optimistic that the market will continue to generate attractive risk-adjusted investing opportunities for us.

[Michael Occi, President at Morgan Stanley Direct Lending Fund]

We believe a generally resilient economy, the outcome of the U.S. presidential election, and the Federal Reserve's 100 basis points of rate cuts in late 2024 all helped to compound market optimism in the fourth quarter. While the health of the public debt markets has driven increased competition in the private credit market, credit performance has continued to be solid vis-a-vis MSDL's portfolio, as observed through strong borrower fundamentals as well as healthy fund level credit statistics. We believe this is a reflection of the continued strength of the middle market economy as well as our defensively minded investment strategy. Spreads for new loans compressed in 2024, although that compression generally stabilized in the second half. In our view, gross asset yields are likely to continue to remain elevated, offering attractive opportunities for us.

[Michael Occi, President at Morgan Stanley Direct Lending Fund]

We think that the market pricing is even more compelling risk-adjusted when you consider the stability over the last several quarters in the loan to values and leverage ratios for the capital we have deployed in MSDL. Shifting to deal volumes, it was constructive to see a modest pickup in LBO activity during 2024. Private credit remains the funding source of choice for LBOs. Prospectively, we believe that activity will continue to accelerate due to the combination of anticipated deregulation, healthy public and private financing marks, significant [critically dry powder], and aging sponsor portfolios. In our assessment, though, the rebound will be gradual as it is tough for sponsors to underwrite to uncertainty in Washington's legislative agenda, particularly in certain sectors.

[Michael Occi, President at Morgan Stanley Direct Lending Fund]

That said, we believe that we are well positioned to capitalize on that potential M&A pickup over the course of the year as the market gets more policy visibility. On a related topic, we are closely monitoring for any potential impacts to our existing portfolio from government reform, including tariffs. We believe that the portfolio should be relatively insulated. However, as uncertainty surrounding specific measures and the broader impact remains, we will remain vigilant in monitoring developments and remain in close contact with management teams and private equity sponsors to assess potential risk and action plans. Over the course of 2025 and beyond, as Jeff alluded to, we look forward to continuing to source and underwrite lending opportunities that offer strong risk-adjusted returns and in turn create value for MSDL's shareholders.

[Michael Occi, President at Morgan Stanley Direct Lending Fund]

I will now hand the call over to David, who will provide details on Morgan Stanley Direct Lending Fund's portfolio, investment activity, and financial results.

[David Pessah, CFO at Morgan Stanley Direct Lending Fund]

Thank you, Michael. Starting with our portfolio, we ended the year with a total portfolio at fair value of $3.8 billion, which represented a year-over-year increase of approximately 19%. Our portfolio was comprised of approximately 97% first lien debt, 2% second lien debt, and the remainder in equity and other debt investments. We had investments in 208 portfolio companies spanning across 33 industries with nearly 100% of our investments in floating rate debt. Our two largest industry exposures remain in software and insurance services, which accounted for 18.9% and 12% of the portfolio at fair value, respectively. The average position size of our investments was approximately $18.2 million or approximately 50 basis points of our total portfolio on a fair value basis.

[David Pessah, CFO at Morgan Stanley Direct Lending Fund]

Further, our top 10 portfolio companies represented approximately 16% at fair value of the total portfolio. Regarding our credit metrics as of year-end, our weighted average loan to value was approximately 40%. The median EBITDA was approximately $86 million, and our weighted average yield on debt and income producing investments was 10.4% at cost and 10.5% at fair value. We did see further compression in yields over the last quarter, which were primarily attributable to the decrease in base rates and to a lesser extent, repricing dynamics which were more concentrated in the second and third quarter of this year. While our portfolio yield may be impacted further by the most recent rate cut, we also stand to benefit on our cost on our floating debt. Turning to credit quality.

[David Pessah, CFO at Morgan Stanley Direct Lending Fund]

Over 98% of our total portfolio had an internal risk rating of two or better, which is relatively unchanged throughout 2024. As of December 31st, our non-accruals remained unchanged from the prior quarter, with just 20 basis points of the portfolio at cost. For investment activity in the fourth quarter, we made new investment commitments of approximately $188 million across 10 new portfolio companies and 17 existing portfolio companies. Investment fundings total approximately $187 million, with $44 million in repayments for net funded investment activity of approximately $144 million. For the full fiscal year 2024, we made new investment commitments of approximately $1.5 billion across 60 new portfolio companies.

[David Pessah, CFO at Morgan Stanley Direct Lending Fund]

Investment fundings totaled $1.2 billion, with $657 million in repayments in 24 portfolio companies for net funded investment activity of approximately $574 million. Moving to our fourth quarter and year-end results. Our total investment income was $103 million for the fourth quarter as compared to $110 million in the prior quarter. The decline in our core earnings was driven by the aforementioned impact from the change in portfolio yields and the limited non-recurrent income from repayment activity. PIK income continues to remain relatively low, amounted to only 3% of total investment income. Total net expenses for the fourth quarter were $52.3 million, compared to $51 million in the prior quarter.

[David Pessah, CFO at Morgan Stanley Direct Lending Fund]

As a reminder, our management fee and incentive fee waiver, which was put into place following our IPO, expired recently on January 24th, 2025. Net investment income for the fourth quarter was $50.7 million or $0.57 per share, compared to $58.7 million or $0.66 per share from the prior quarter. As of December 31st, total assets were $3.9 billion, and total net assets were $1.8 billion. Our ending NAV per share for the fourth quarter was $20.81 as compared to $20.83 in the prior period. As Jeff covered earlier, we successfully achieved our target leverage range in the fourth quarter. Our debt-to-equity ratio increased to 1.08x as compared to 0.99x in the prior quarter, with much of the increase being back-end loaded.

[David Pessah, CFO at Morgan Stanley Direct Lending Fund]

Approximately 53% of our funded debt was in the form of unsecured notes with well-laddered maturities through 2029. Subsequent to quarter end, we successfully executed an extension of our secured revolving credit facility by extending our maturity to February 2030, lowering our drawn spread by 10 basis points and our undrawn spread by 2.5 basis points, lastly, increasing our total commitment by $150 million-$1.45 billion. We continue to remain pleased with our debt capital stack and will continue to strategically evaluate opportunities, including with our upcoming unsecured maturity in September of this year. Focusing now on our distributions. In the current quarter, we paid a $0.50 regular distribution as well as our second $0.10 special distribution for the year.

[David Pessah, CFO at Morgan Stanley Direct Lending Fund]

Our board of directors declared a regular distribution for the first quarter of $0.50 per share to shareholders of record on March 31st, 2025. As of December 31st, 2024, our estimated spillover net investment income was $68 million or $0.78 per share. Every year-end, the board authorized an amended and restated share repurchase program to repurchase up to $100 million in the aggregate of the company's shares at prices below its net asset value per share. With that, operator, please open the line for questions.

[Operator]

If you would like to ask a question, please signal by pressing star one on your telephone keypad. If you are using a speakerphone, please make sure your mute function is turned off to allow your signal to reach our equipment. Once again, that is star one if you would like to ask a question. We'll take our first question from Sean-Paul Adams with Raymond James.

[Sean-Paul Adams, Analyst at Raymond James]

Guys, good morning. A quick scan of your industry concentrations show about 6.6% in auto and automobile components alone. What was your review of the, you know, portfolio concentrations when it comes to, you know, the possibilities around tariffs? You know, have you guys changed your strategy to be a little bit more defensive in the, you know, new outlook for 2025? Thank you.

[Jeff Levin, CEO at Morgan Stanley Direct Lending Fund]

Yeah, sure. This is Jeff. Thanks for the question. It's not direct auto exposure. Typically, that's service offering into the end market there or software, enterprise software specifically, into dealerships, et cetera. Again, it's not direct exposure. That being said, as you'd expect, substantial work has been underway on our team with regards to the broader portfolio and potential impact of tariffs, that being somewhat challenging to underwrite for both private equity and private credit, given uncertainty and things moving around with everything happening in D.C. That being said, the two sectors were the longest are enterprise software and insurance brokerage, which we think are somewhat insulated from tariff exposure. That being said, again, it's unknown.

[Jeff Levin, CEO at Morgan Stanley Direct Lending Fund]

From a primary standpoint, I think we're well protected, but secondary and tertiary impact of how this will play out over the coming months and years is to be determined, frankly. We have a full work stream on our side, thinking through and analyzing the various businesses and sectors that were long and the risk profile there. We're not overly concerned, again, given the two sectors were the longest. That's an analysis that's ongoing. As we deploy new capital, obviously, this is very much front and center in terms of how we're allocating the dry powder that we have within the portfolio.

[Sean-Paul Adams, Analyst at Raymond James]

Got it. Thank you. As a quick follow-up, what are your just general thoughts on where you think M&A activity is gonna go over the next three quarters?

[Jeff Levin, CEO at Morgan Stanley Direct Lending Fund]

Yeah, that's a great question and highly topical these days. I think, you know, at certain points last year, there was a really bullish sentiment in terms of the backdrop of private equity, dry powder being pent up, LPs of buyout firms really wanting their capital back. I think then obviously the natural tailwind of potential deregulation with the new administration. I think the uncertainty around tariffs has slowed as well as other factors, deportation, et cetera, impacting cost of labor among other issues. I think right now, we're watching the market closely with regards to deal activity. I'd say I think the backdrop and the tailwind of private equity dry powder continues to be the case.

[Jeff Levin, CEO at Morgan Stanley Direct Lending Fund]

With every passing quarter, that shot clock on their capital to invest it and return it continues to pass. With every passing quarter, I think the conviction around LBO volume coming back increases. That being said, I think given the uncertainty right now, it will be more back-ended in this calendar year than I think in the first quarter or two based on what we're seeing. You know, all that being said, if you look at 2024, LBO volume was extremely modest. I think we had somewhere between 50 and 60 new platforms in our portfolio over the course of last year. Again, even in light of a market where I think some of our competitors may have struggled to deploy capital into new platforms, we really didn't have that experience.

[Jeff Levin, CEO at Morgan Stanley Direct Lending Fund]

As we noted, the fourth quarter was in line with the broader 2024 calendar year. I think that speaks to two things. You know, we have a really robust investment team here dedicated to the strategy. As you've heard from us before, you know, we have the benefit of being part of this institution, which has a best in class sell side investment bank with, you know, hundreds if not thousands of bankers interfacing with users of private credit daily, that being corporates and private equity firms. I think our deal flow arguably really should be best in class, given the combination of what's a great private credit manager and an investment banking house.

[Jeff Levin, CEO at Morgan Stanley Direct Lending Fund]

As we mentioned earlier in the prepared remarks, I think this imbalance of deal flow to capital is really helpful to us. We can be really selective as we invest. I continue to be bullish on deal flow over the coming vintage years. It's hard to pick off in what quarter in calendar 2025 we're going to see a real uptick in LBO volume. I don't think it's Q1. I'd be surprised, frankly, if it's Q2. We'll see.

[Sean-Paul Adams, Analyst at Raymond James]

Really appreciate the color. Thank you.

[Operator]

I apologize. We'll now take our next question from Melissa Wedel with JPMorgan.

[Melissa Wedel, Analyst at JPMorgan]

Good morning. Thanks for taking my questions. I want to touch on NII trends. Obviously, there was a step down sequentially in 4Q with some rate cuts. I think the question is really, you know, we know that there tends to be a lag in changes in base rates and how they flow through BDC income statements. How much of the rate declines do you think flowed through into 4Q? Put differently, should we be expecting something similar directionally in the first quarter?

[David Pessah, CFO at Morgan Stanley Direct Lending Fund]

Thanks for the question. This is Dave. About 2/3 of our portfolio did reset in Q4. We do have about a third left in terms of the lag as you mentioned before. What I would say, though, in just thinking about NII in general is that if you look at the core NII from Q3 into Q4, it went from $0.62-$0.57, as you can see in our materials. That was, you know, 100% driven by the change in rates, period-over-period. We did not have any non-recurrent income flow through into Q4, which is what we saw in Q3. That was about $0.02 of incremental pickup in Q3 as you just try to do the NII bridge, period-over-period.

[Melissa Wedel, Analyst at JPMorgan]

Okay. That's helpful. Thank you. When you touched on the liability structure as well. Just wanted to refresh on how you're thinking about the split, you know, ideally between secured and unsecured. Thank you.

[David Pessah, CFO at Morgan Stanley Direct Lending Fund]

Yep. No. Right now, you kind of saw that at 12/31, we're at 53% in the unsecured. I think you'll see us probably be in that 50% mix between secured and unsecured. It's not, you know, it may dip down below that, but we'll try to stay within that kind of framework. I will note, I kind of said that in the prepared remarks as well, we do have that September 2025 note that is coming due. That does have a fixed cost right now of 7.55%. We'll look opportunistically to refinance that this upcoming year.

[Melissa Wedel, Analyst at JPMorgan]

Thank you.

[Operator]

We'll now take our next question from Paul Johnson with KBW.

[Paul Johnson, Analyst at KBW]

Yeah, good morning. Thanks for taking my questions. Interesting to see just the repayment numbers so low this quarter. Any idea, you know, in terms of what you think drove that?

[Jeff Levin, CEO at Morgan Stanley Direct Lending Fund]

Yeah, it's a good question. I think, you know, this business reporting quarterly publicly is always interesting because the business in any one quarter or two, you know, we could see huge upticks in deployment or not. We could see repayments spike or not because it can be a lumpy business. I always encourage people to look and analyze these businesses not over a single quarter, but over more like a calendar year or frankly even two, given the nature of the asset class in general. I don't think anything in particular drove, you know, fewer repayments in Q4. We'll see what this calendar year looks like. Obviously, the public market is in a really healthy place.

[Jeff Levin, CEO at Morgan Stanley Direct Lending Fund]

I think, you know, within our asset class, we've been able to maintain the liquidity premium relative to the syndicated loan market, that's been very healthy and steady, frankly. You know, in the fourth quarter, the capital that we put out was at roughly SOFR 500. You know, TBD, the impact of repayments over the coming quarters. I don't think there's anything in particular, to answer your question directly, which drove fewer repayments in the fourth quarter relative to prior quarters.

[Paul Johnson, Analyst at KBW]

Gotcha. Thanks for that. You know, just in terms of, you know, amendments within the book, just wondering, was there any, you know, trends there, any change, you know, quarter-over-quarter in terms of sort of credit related amendments in the portfolio?

[Jeff Levin, CEO at Morgan Stanley Direct Lending Fund]

I think just to hit a couple of things too, as it relates to amendments. Repricings was really more of an early in 2024 dynamic. We saw that subside over the course of the rest of the year. In terms of credit, you know, we're really proud of the health of this portfolio. I think we've executed really in line with what we articulated to both our pre-IPO investors as well as you all in the public markets when we took this vehicle public about a year ago. The health of the book remains really strong. You know, I think our stats from a non-accruals perspective, from a PIK income perspective, have been and continue to be best in class.

[Jeff Levin, CEO at Morgan Stanley Direct Lending Fund]

Again, we're really proud of that. You know, through our lens, we feel like that we've really executed. We always keep our eye closely to the entire portfolio with a double click on names that are underperforming. That list fortunately is quite narrow here. You know, and I think in terms of what to expect from us in the future, gonna look a lot like the past in terms of staying defensive, focusing on the sectors that we think are resilient, and taking into account, you know, everything that continues to be in motion with regards to the economy, geopolitical issues, tariffs, so on and so forth. It's an interesting time to deploy capital right now. We're being highly selective, as you'd expect us to be.

[Jeff Levin, CEO at Morgan Stanley Direct Lending Fund]

We continue to be hopeful, you know, that deal flow, you know, will be overwhelming, comes back really in full force over the course of the year. As mentioned, you know, if you look at last year, we didn't have an issue finding good places to invest. We're hopeful that that same continues to be true this year.

[Paul Johnson, Analyst at KBW]

Thank you. That's all for me.

[Operator]

As a final reminder, that is star one, if you would like to ask a question. We'll now take our next question from Doug Harter with UBS.

[Doug Harter, Analyst at UBS]

Thanks. Hoping you could talk about your leverage outlook for the year, kind of given the commentary you've made about the environment.

[Jeff Levin, CEO at Morgan Stanley Direct Lending Fund]

I'll go first and then others in the room feel free. You know, the stated target of 1x to 1.25x when we took the vehicle public, you know, I think we guided you all that we would be in that range at some point over the few quarters post-IPO. We executed in line with that strategy, as you can tell. I think, you know, we got upwards of 110 or 111. It was a little bit back-ended in terms of the quarter, fourth quarter. You know, TBD. It's a totally fair and great question. I think we have the benefit of having a really best-in-class deal flow engine.

[Jeff Levin, CEO at Morgan Stanley Direct Lending Fund]

We have a headwind of a market right now that presents fewer opportunities that we and our competitors would like to see. We are doing our absolute best to find ways to deploy capital into deals that we are really comfortable with and we think offer really good risk-adjusted returns. It'd be really easy, you know, for us to stay within that range or the high end of the range, for the sake of NII and capital deployment. As I tell the team all the time, making the loan is easy. It's getting your money back is the hard part. We continue to be focused on quality. You know, that 1x to 1.25x range we think is absolutely reasonable.

[Jeff Levin, CEO at Morgan Stanley Direct Lending Fund]

It goes without saying, though, if repayments spike substantially and deal flow is really poor and we don't think the market opportunity is attractive, we're not gonna put money in the ground for the sake of a leverage multiple over a very short period of time. That in no means is to guide you that I'm worried about our target leverage range. I'm not. We think, as I mentioned before, we don't think over the short term within this business. We think medium and long term in terms of how we deploy capital, because these assets are grossly illiquid generally. We need to be really comfortable when we're deploying capital that we're gonna get our money back. I think long-winded way of saying 1x-1.25x continues to be the range.

[Jeff Levin, CEO at Morgan Stanley Direct Lending Fund]

Where within that range we reside in every given quarter, TBD, and will be based on a number of factors. Rest assured, we're deploying capital with an eye towards capital preservation and defensiveness first and foremost.

[Doug Harter, Analyst at UBS]

Great. Appreciate the answer.

[Operator]

It appears there are no further telephone questions. I would like to turn the conference back to Mr. Levin for closing remarks.

[Jeff Levin, CEO at Morgan Stanley Direct Lending Fund]

Thank you. On behalf of the management team, I greatly appreciate you joining us today along with your support of the Morgan Stanley Direct Lending Fund. Our team remains focused on executing our defensive investment strategy to drive shareholder value. I couldn't be more pleased with our continued execution. We look forward to providing an update on our first quarter of 2025 earnings call in May. Thank you.

[Operator]

That does conclude today's conference. We thank you all for your participation. You may now disconnect.

Participants

Executives

• David Pessah, CFO
• Jeff Levin, CEO
• Michael Occi, President
• Sanna Johnson, Head of Investor Relations

Analysts

• Doug Harter, Analyst at UBS
• Melissa Wedel, Analyst at JPMorgan
• Paul Johnson, Analyst at KBW
• Sean-Paul Adams, Analyst at Raymond James