Morgan Stanley Direct Lending Fund Q2 2025 Earnings Report

Morgan Stanley Direct Lending Fund EPS Results

• Actual EPS: $0.50
• Consensus EPS: $0.52
• Beat/Miss: Missed by -$0.02
• One Year Ago EPS: N/A

Morgan Stanley Direct Lending Fund Revenue Results

• Actual Revenue: $99.51 million
• Expected Revenue: $99.99 million
• Beat/Miss: Missed by -$484.00 thousand
• YoY Revenue Growth: N/A

Morgan Stanley Direct Lending Fund Announcement Details

• Quarter: Q2 2025
• Date: 8/7/2025
• Time: After Market Closes
• Conference Call Date: Friday, August 8, 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 Q2 2025 Earnings Call Transcript

Key Takeaways

• Positive Sentiment: The company completed a senior leadership transition with Michael Occi as CEO, Ashwin Krishnan as CIO, and Jeff Day and Orit Mizrachi as co-presidents, which management says preserves continuity and deep experience across the platform.
• Positive Sentiment: Q2 results produced Net Investment Income of $0.50 per share (in line with the declared $0.50 distribution) and the board declared a $0.50 regular distribution for Q3, with NAV at $20.59.
• Positive Sentiment: Management advanced liability optimization—fund leverage rose to 1.15x, a legacy unsecured note was refinanced with a 5‑year issue at a ~130 bps reduction, and an inaugural $400M private credit CLO was priced to diversify and lower cost of capital (expected to close in September).
• Positive Sentiment: Portfolio credit metrics remain strong: ~96% first‑lien, weighted average yield on debt ~10.1%, median EBITDA ~$90M, loan‑to‑value ~40%, and a low non‑accrual rate of ~0.7% with >98% risk‑rated 2 or better.
• Neutral Sentiment: Deployment activity was roughly balanced ($204M fundings vs $208M repayments); spreads on new capital tightened ~25 bps to ~SOFR +475 bps, and management noted improving sponsor activity late in the quarter but cautioned that repayments and modest spread compression could mildly pressure income.

Presentation

[Operator]

Welcome to Morgan Stanley Direct Lending Q2 2025 earnings call. At this time, all participants are in a listen-only mode. A question 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 Sanna Johnson. Please go ahead.

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

Good morning, welcome to Morgan Stanley Direct Lending Fund Q2 2025 earnings call. I am joined this morning by David Miller, Chairman, Michael Occi, Chief Executive Officer, Ashwin Krishnan, Chief Investment Officer, Jeff Day, Co-President, David Pessah, Chief Financial Officer, and Rebecca Shaoul, Head of Portfolio Management. Morgan Stanley Direct Lending Fund Q2 2025 financial results were released yesterday after market close and can be accessed on the investor relations section of our website at www.msdl.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, VP of 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, and 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, VP of Head of Investor Relations at Morgan Stanley Direct Lending Fund]

With that, I will now turn the call over to David Miller.

[David Miller, Chair of the Board at Morgan Stanley Direct Lending Fund]

Thank you, Sanna. Good morning, everyone. Thank you for joining us today for Morgan Stanley Direct Lending Fund's Q2 2025 conference call. I'm David Miller, Global Head of Private Credit and Private Equity at Morgan Stanley, and Chairman of Morgan Stanley Direct Lending Fund. Before we begin, I'd like to take a moment to acknowledge the tragic events that occurred last week at 345 Park Avenue. This heartbreaking incident has deeply affected our community and our industry. On behalf of our entire company, we extend our heartfelt condolences to all those affected. Turning now to today's call, the management team will walk you through MSDL Q2 performance. I wanted to introduce the team this quarter to underscore the confidence that I, the board, and the broader Morgan Stanley platform have in our private credit strategy.

[David Miller, Chair of the Board at Morgan Stanley Direct Lending Fund]

This quarter marks an important leadership transition at MSDL and across our North American direct lending business. Morgan Stanley Investment Management has a proud 40-year track record of alternatives investing, and the bedrock of the entire franchise is a deep and experienced team of professionals. The leadership appointments that we recently announced at MSDL exemplify that. The announcement included the naming of Michael Occi as CEO of Morgan Stanley Direct Lending Fund following Jeffrey Levin's resignation in July. Michael has been with the firm for nearly two decades, bringing a wealth of advisory experience and a deep familiarity with the Morgan Stanley integrated ecosystem, which serves as a key differentiator of our investing platform. Additionally, Ashwin Krishnan was named Chief Investment Officer of MSDL, a newly created role, as well as chair of our investment committee.

[David Miller, Chair of the Board at Morgan Stanley Direct Lending Fund]

Ashwin Krishnan has been part of the private credit business since its inception in 2009, and prior to these appointments, served as the co-head of North America Private Credit. Like Michael Occi, he is a Morgan Stanley veteran and brings a commitment to advancing our core direct lending investment philosophy. Succeeding Michael Occi in his former role are Jeff Day and Orit Mizrachi, who now serve as co-presidents of MSDL. Orit and Jeff each have multiple decades of experience in the direct lending marketplace and have been key architects of the build-out of our direct lending strategy over the years. We believe that this set of changes demonstrates our relentless focus on investing in talent and our intentional approach to preserving leadership continuity. This helps us toward our pursuit of generating strong risk-adjusted returns for investors, supported by an unwavering commitment to our defensive credit approach.

[David Miller, Chair of the Board at Morgan Stanley Direct Lending Fund]

Our investment process remains rigorous and consistent. The team that has constructed our portfolios and originated hundreds of investments, all while maintaining our high credit quality, remains firmly in place. The team has the full support of the broader Morgan Stanley platform to continue building on this strong foundation. Including MSDL, the North America direct lending platform has now grown to more than $20 billion of committed capital. As we look ahead, the board and I have deep confidence in this team's ability to serve as a trusted partner to sponsors and to continue delivering strong results for shareholders. Thank you for your partnership and continued support. With that, I'll hand the call over to Michael.

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

Thank you, David. I'm honored to speak with you for the first time in my new role as CEO, and I'm excited to carry forward the momentum that we have built across the platform. As David noted, this has been an important period in the evolution of MSDL. I'm incredibly proud of the quality of our team, and I'm energized by the opportunity to help lead the next chapter of our growth. Ashwin Krishnan stepping into the new role of CIO and the expanded roles for Orit Mizrachi and Jeff Day reflect a thoughtful long-term vision for the platform, one rooted in continuity, deep investment experience, and an unwavering commitment to delivering for our stakeholders. We'll walk through our Q2 results, provide an update on the portfolio, and share our outlook for the H2 of the year.

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

I'll start with a few key highlights before turning it over to Ashwin. We generated solid performance in the Q2 as we continued to deploy capital prudently in the face of what was another volatile environment for financial markets. We are encouraged by some positive trends in sponsor activity levels that took hold in the H2 of the quarter. At the same time, we're prepared for the risk of more turbulence over the balance of the year as investors grasp for more visibility on trade policy impacts and the direction of the economy. In terms of operating results, we generated net investment income of $0.50 per share, in line with the $0.50 dividend declared.

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

Our high quality earnings in the Q2 were driven by continued stability in the underlying credit performance of the portfolio and were characterized by low and declining contributions from payment-in-kind and other income. We remain comfortable with our distribution level, supported by a normalization in asset yields and due to the progress that we have continued to make on optimizing the right-hand side of the balance sheet. To that end, we successfully executed upon several of the debt-related enhancements during and subsequent to the quarter. First, fund level leverage increased modestly to 1.15x, with much of that increase being back-end loaded in the quarter. Second, we successfully refinanced our legacy unsecured debt with a new five-year bond we priced in May at a yield improvement of 130 basis points.

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

Earlier this week, we priced our inaugural CLO, a financing that will serve to further diversify MSDL's leverage mix. While the full benefit of these actions is yet to be realized, they reinforce our proactive and nimble approach to managing our liability profile. On the deployment side, gross and net investment activity was relatively consistent quarter-over-quarter, with $204 million of investment fundings offset by a similar quantum of repayments. Our unique sourcing engine generated what we believe to be a diverse mix of attractive lending opportunities across our preferred industry verticals. Our mix of new capital deployed in the quarter was consistent with prior periods, with nearly two-thirds of the non-refinancing volume driven by new platforms we added in the quarter, all of which were transactions that we led or co-led.

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

In addition to that, we saw a healthy source of fundings from the existing book. We believe the combination of our deep origination team and our ability to leverage the broader Morgan Stanley franchise continues to differentiate our business in the marketplace. Sponsors increasingly look to us as a value add partner, one that is capable of delivering more than just capital. Our breadth and depth of relationships allows us to see a vast range of deal flow, and we can remain selective even in slower deal environments, given that this opportunity set dwarfs the scale of our capital base. We believe that our selective approach enables us to stay true to our core mission of principal preservation, as evidenced by our credit results.

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

Furthermore, we believe our transparent revenue model, efficient and conservative debt profile, relatively low operating expense base, and thoughtful fee structure highlight our strong alignment with shareholders and reinforce our continued focus on executing a defensive investment strategy to drive long-term shareholder value. With that, I'll turn the call over to Ashwin.

[Ashwin Krishnan, CIO at Morgan Stanley Direct Lending Fund]

Thank you, Michael and David, for the warm introduction. It has been amazing to see the evolution of this platform since I joined the team in 2009, and I'm looking forward to connecting with many of you in this expanded role as CIO of MSDL. As Michael noted, the quarter began with elevated macro uncertainty driven by the potential for meaningful changes to global tariffs, contributing to volatility in the public markets. This prompted larger borrowers to seek capital in the private credit market. As a result of this dynamic, the weighted average borrower EBITDA for new platform deployments during the quarter increased slightly relative to the Q1 to approximately $120 million.

[Ashwin Krishnan, CIO at Morgan Stanley Direct Lending Fund]

This highlights the breadth of our origination funnel and our ability to take advantage of attractive credit opportunities across the size spectrum, similar to how we flexed higher amid the regional banking crisis in the Q1 of 2023. Our target remains in that ±$90 million EBITDA range, as evidenced by MSDL's blended portfolio median, which finished the quarter largely unchanged at that level. Beginning in June, we began to witness a meaningful shift in activity levels amongst the private equity community, as evidenced by our own pipeline build in response to optimism and the resilience of the U.S. economy.

[Ashwin Krishnan, CIO at Morgan Stanley Direct Lending Fund]

While we are optimistic that the recovery in sponsor activity can be in the early stages of finally materializing, we are well-positioned to take advantage of potential bouts of volatility as the market digests the evolving macro picture, underlying tariff impacts, and rate policy responses, among other factors. With private equity dry powder now running at approximately five times the level of private credit dry powder, the industry is well-positioned to take advantage as financing opportunities emerge. While we could ultimately witness a dynamic where the recovery in deal activity is strong enough to shift deal terms back in favor of lenders, that dynamic did not materialize during the Q2. spreads on total capital deployed by MSDL in the Q2 compressed by approximately 25 basis points relative to Q1 to an average of SOFR plus 475 basis points.

[Ashwin Krishnan, CIO at Morgan Stanley Direct Lending Fund]

Importantly, we continue to earn an illiquidity premium of more than 100 basis points over the leveraged loan market. Gross asset yields remain elevated in a historical context, offering attractive opportunities for shareholders. Should we see Fed cuts, a corresponding compression and borrowing costs should serve as a positive benefit for our borrowers' free cash flow profiles, all else being equal. Over the last several quarters, we have seen MSDL's interest coverage ratio move higher and our PIK total income ratio to decline. When you also consider the stability in loan to value and leverage ratios for the capital we have deployed in MSDL over the last several quarters, we think that these credit attributes make for a compelling risk-adjusted return proposition.

[Ashwin Krishnan, CIO at Morgan Stanley Direct Lending Fund]

Digging a bit deeper into portfolio construction, we maintain an overweight in professional services businesses and an underweight in more trade-sensitive verticals, such as manufacturing and consumer goods-oriented companies, relative to other BDCs in the market. We believe that the sectors that will be hit hardest by tariffs will be those that rely on offshore assembly or parts such as consumer and capital goods. In contrast, software, insurance services, and business services should be better insulated from the tariffs and retaliatory tariffs. We believe MSDL's sector weighting is more defensive relative to other BDCs. We continue to closely monitor potential tariff impacts across the portfolio and remain in close contact with management teams and private equity sponsors to assess potential risk and action plans. Sponsors and management teams have been proactive in formulating thoughtful strategies to mitigate any potential tariff impacts.

[Ashwin Krishnan, CIO at Morgan Stanley Direct Lending Fund]

Based on our geographic and industry orientation, we continue to believe that MSDL's portfolio is relatively insulated from direct impact. Looking ahead, we will remain focused on the same strategy that has made us successful, making first lien senior secured loans to high quality middle market companies in less cyclically sensitive industries. We believe that we continue to be well-positioned to source and underwrite investment opportunities that offer strong risk-adjusted returns and in turn create value for MSDL shareholders. I will now hand the call over to David Pessah.

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

Thank you. Starting with our portfolio. We ended the quarter with a total portfolio at fair value of $3.8 billion. Our portfolio was comprised of approximately 96% first lien debt, 2% second lien debt, and the remainder in equity and other debt investments. Our investments increased to 214 portfolio companies spanning across 34 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 19.4% and 11.4% of the portfolio at fair value, respectively. The average position size remains at approximately 50 basis points of our total portfolio. Our portfolio continues to be highly diversified with low borrower concentrations. Regarding credit metrics for our portfolio companies, as of quarter end, the weighted average loan to value was approximately 40%.

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

The median EBITDA was approximately $90 million. Our weighted average yield on debt and income producing investments was 10.1% at cost and 10.2% at fair value, representing a decline of approximately 10 basis points quarter-over-quarter. Turning to credit quality. We placed two positions on non-accrual, 48forty Solutions and FPG Intermediate Holdco. Our non-accrual rate increased to just 70 basis points of the total portfolio at cost, which remains quite low in an industry context. It is also important to note that the credit health of the book remains high in our assessment, with the proportion of the portfolio risk-rated two or better amounted to over 98% unchanged quarter-over-quarter.

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

For our investment activity in the Q2, we made new investment commitments net of syndications of approximately $149 million across nine new portfolio companies and 12 existing portfolio companies. Investment fundings included fundings of existing commitments totaling approximately $204 million, offset by $208 million in repayments, which continued to be elevated during the quarter. Moving to our financial results for the Q2. Our total investment income was $100 million for the Q2 as compared to $101 million in the prior quarter. PIK income continues to remain relatively low and decreased quarter-over-quarter from 4.1%-3.9% of total investment income. Total net expenses for the Q2 were $55.9 million, compared to $55.2 million in the prior quarter.

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

Net investment income for the Q2 was $43.7 million or $0.50 per share, compared to $46.2 million or $0.52 per share from the prior quarter. As mentioned during our last earnings call, we are expecting a reduction of $0.01 per share due to the timing of when the IPO related waivers expired. The remainder of the bridge consisted of a combination of repricing and refinancing activity during the quarter. For the Q2, the net change in unrealized losses were $7.7 million, which was driven by underperformance in a small number of portfolio companies. Turning to our balance sheet. As of June 30th, total assets were $3.9 billion, and total net assets were $1.8 billion.

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

Our ending NAV per share for the Q2 was $20.59, as compared to $20.65 in the prior period. Our debt to equity increased to 1.15 times as compared to 1.11 times in the prior quarter. Our unsecured debt comprised of 55% of funded debt at the end of the quarter. In May, we issued a $350 million five-year unsecured note at 6% with the premise of refinancing our $275 million unsecured note priced at 7.55% that was coming due in September, which we were able to repay in full in June. This transaction further optimized our debt mix by adding capacity, extending our maturity ladder, and lowering our overall cost of capital.

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

We expect the benefit from this cost reduction to be more pronounced in our Q3 results. This week we reached another milestone for our platform by successfully pricing our inaugural private credit CLO that further diversifies our funding mix at a highly efficient cost of capital. The aggregate principal amount is approximately $400 million, which is expected to close sometime in September. Focusing now on our distributions. In the current quarter, we paid a $0.50 regular distribution. Our board of directors declared a regular distribution for the Q3 of $0.50 per share to shareholders of record on September 30, 2025. Our spillover remains consistent at approximately $0.82. With that, operator, please open the line for questions.

[Operator]

Thank you. If you would like to signal with questions, please press star one on your touchtone telephone. If you're joining us today using a speakerphone, please make sure your mute function is turned off to allow your signal to reach our equipment. Again, that is star one if you would like to signal with questions, star one. Our first question comes from Doug Harter. First question will come from Melissa Wedel with J.P. Morgan.

[Melissa Wedel, VP of U.S. Equities Research at J.P. Morgan]

Thanks for taking my questions today. It seems that there's a lot going on in terms of managing the liability stack. That all makes sense. Also, notice that you guys really leaned into the share repurchase this quarter. I wanted to just revisit that a bit, and I assume it looked like that stepped up with the discount to NAV increasing. I assume we should expect more of the same. Also just wanted to confirm. It looks like you've got about half of the repurchase authorization left. Can you update us on that?

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

Yeah, Melissa. Thanks. It's Michael. On the buyback, as we've talked about in prior quarters, it's formulaic. It's a 10b5-1 program. We have subscribed to the accretion arguments, which we obviously benefited from modestly. Given your discount comments, a little bit more utilization in Q2 versus Q1 in light of the more elevated volatility following Liberation Day. We've got about 70% left, so call it $30 million of cumulative utilization in the H1 of the year. We kind of size that program based on market precedent, but we think it's appropriately sized relative to the equity base.

[Melissa Wedel, VP of U.S. Equities Research at J.P. Morgan]

Okay. Appreciate that update. I also wanted to just touch on sort of where the portfolio stands right now. You guys have gotten leverage up to the middle of the target range. Obviously, your repayments and exits for the last few quarters have pretty much offset new deployment. I'm curious about how you're thinking about the back half of this year in terms of the deployment opportunity, but also any line of sight you have into repayments. Thank you.

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

Great question. I think if you look at the repayments as a headline matter, pretty consistent with the prior quarter and kind of the average over the last handful of quarters. Gross of just north of $200 million, as you can see. You kind of break that down. You got one-third of that that's true repays, and it's a pretty diversified mix in terms of takeouts with the public market, M&A to strategics or financial buyers. No real abnormalities in terms of the behavior underneath the repays. I think as we think about managing capacity and deployment, our expectation is that that may continue in time. The counter to that is you now have had just under 50% of the portfolio having been repriced cumulative over the last 18 months.

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

We do expect, just given the efficiency of this market, of the public markets, that we should anticipate kind of a ±5-ish% churn rate quarterly, as we have seen, you know, in the Q2. From a deployment point of view and back to leverage a little bit, we've talked about kind of a sweet spot of 1.15-1.20 within that band of 1.0-1.25, so some flex around it. We've got some leverage upside there. We're in no race to do that.

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

The leverage capacity anticipated repayments, we have capacity to deploy here. It's not heroic relative to where it was pro forma for the dilution and leverage from the IPO. When you consider the capital base that David alluded to earlier, north of $20 billion, we have this flywheel moving. We continue to be extremely active from a pipeline point of view. Ashwin referenced that kind of green shoots we've started to see in the back half of the Q2. The point I'm making is there's kind of a distinction a little bit between the maturity here with MSDL, where we're more in optimization mode. We have capacity to deploy, but it's really about precision on borrower concentrations, industry concentrations.

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

It benefits diversification-wise from the point of view that we have multiple pools of capital that we're feeding with this unique origination engine.

[Melissa Wedel, VP of U.S. Equities Research at J.P. Morgan]

Very helpful. Thank you.

[Operator]

We'll go to Doug Harter with UBS next.

[Cory Johnson, Analyst at UBS]

Hi, this is Cory Johnson on for Doug. In the press release, it just mentioned that one of the reasons for decrease in investment income from Q1 was the result of like lower base rates. I guess given that those cuts took place in Q4, should we expect any further impacts from those? Generally, like, how long does it take to run through the portfolio? Is it maybe about two quarters or so?

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

Yeah, Cory, the residual impact was really in reference to some incremental spread compression we saw in the quarter. You'll see we quoted a 475 for the weighted average of new capital deployed in the quarter relative to where it had been for the prior nine months at ±500. The band in the current market, if you kind of look at the pipeline, is anywhere between 450 and 550 mathematically, some modest tightening. We do think it has troughed in terms of the tightening we've seen in the market. Said differently, the 10 basis points of asset yield compression you saw in the Q2, that has started to diminish. We expect there to be stability. There's a convergence in kind of the back book asset yield and where the market is today.

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

As we think about NII and the kind of confidence we communicated around the $0.50 for Q3 and what the board kind of talked about, you know, maybe some modest residual impact in terms of that portfolio churn I just referenced, with new deals coming in at modestly tighter spreads than they're coming off. You do have the offset in terms of standing to benefit from the actions we've done on the debt side, the refinancing on the unsecured. We'll get the full benefit of from in the Q3, a little bit of leverage upside. You kind of add it all together in a blender, and we continue to be confident in the $0.50. I think it's attractive on a NAV basis when you consider the senior orientation of the portfolio.

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

Going from there, back to your question on reference rates, tough to predict what the Fed is gonna do. That will obviously be a factor. Ultimately it's a board decision, but for now, we're very good with the $0.50.

[Cory Johnson, Analyst at UBS]

Thank you.

[Operator]

Once again, if you would like to signal with questions, please press star one on your touch tone telephone. Again, that is star one if you would like to signal with questions. Our next question will come from Heli Sheth with Raymond James.

[Heli Sheth, Analyst at Raymond James]

Hey, good morning. Thanks for the question. Just wanted to follow up with a quick one on tariffs. Do you have any update to what you would size tariff impact on now that we have some clarity on it?

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

Yeah. Heli, thanks for the question. We've continued to update that dynamic assessment of potential impacts. As Ashwin said, we do expect kind of direct impacts given the orientation domestically, also towards the services businesses. We are overweight the market in that regard. We quoted in the Q1 potential for kind of low to mid-single digits direct impact. I think just more taking a step back on macro, you know, it does feel like the economy continues to fight through. Some of that, I think, is understandable considering that a lot of the tariffs initially rolled out were deferred. Through the lens of the portfolio, some good resiliency.

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

If you look at kind of revenue and EBITDA growth rates continue to be in a very good place quarter-over-quarter in the teens and mid to high single digits respectively. You know, we are monitoring it, to be clear, not complacent about tariffs. We're looking at input costs. Based on the kind of conversations we're having with the sponsors and the underlying borrowers over the last few months, you know, we continue to feel good about this posture around, you know, less direct impact, continued to face the unknown around secondary impacts, but we think we're pretty well positioned.

[Heli Sheth, Analyst at Raymond James]

Got it. Thanks. Appreciate the color.

[Operator]

We'll take a question from Paul Johnson with KBW.

[Paul Johnson, Analyst at KBW]

Yeah, thanks. Good morning. Thanks for taking my question. Just kind of wondering, you know, with the recent management transition.

[Paul Johnson, Analyst at KBW]

You know, you guys have a rather large investment committee. With Jeff's departure, I guess, how does the committee change and is there any kind of change in, like, the dynamic or anything from, you know, Jeff's prior on that committee?

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

Yeah. Paul, thanks for the question. Yeah, I think the headline, which you've heard before, and I think the market has generally validated, is business as usual. That includes for, from the perspective of the investment strategy. As Ashwin alluded to, continues to be a focus at the very top of the capital structure, avoiding the cyclicals. From a investment committee composition point of view, it's a deep committee. I think the follow-through comment on that, just on the depth of the team, also kind of business as usual from the point of view of redundancy in sponsor coverage. The makeup and the DNA of what we do, how we invest, how we screen, how we deploy capital remains unchanged.

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

I don't want to steal Ashwin's thunder, but, you know, his kind of presence, on that committee as co-head, previously continues on naturally, in this seamless transition.

[Paul Johnson, Analyst at KBW]

I appreciate all that. One on just the new written-off goal this quarter, 48forty. Just kind of wondering if you can maybe provide some color on kind of where maybe that's at in its stage of restructuring, kind of that has the lender sort of support in the lender group to kind of move forward. It's still very early in the process there.

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

Paul, it's still a little fresh. I don't have a lot of precision on predicting when there's gonna be a resolution there. Rest assured that we're working with the other lenders and the sponsor for as swift as possible of a conclusion there. In the meantime, kind of monitoring the liquidity situation. I think in totality, as we talked about, you know, it's a small, less than a handful that fall in that mix. We continue to feel very good about the health of the book. The composition of the threes and fours actually mathematically going down quarter-over-quarter. Ashwin talked a little bit about the other credit stats, but we feel very good.

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

It's not to say that, you know, we couldn't get some macro headwinds here, if you think about the underlying credit performance vis-à-vis LTV or the fundamentals vis-à-vis LTV leverage and what it's thrown off quarter over quarter in terms of declining PIK, growing interest coverage, and then kind of the name by name, sector by sector health of the portfolio. We continue to feel very good about our positioning ahead of that potential macro uncertainty.

[Paul Johnson, Analyst at KBW]

Got it. Appreciate all that. That's all for me. Thank you.

[Operator]

Thank you. At this time, I'd like to turn the call back to Michael Occi for closing remarks.

[Michael Occi, 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 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 are pleased with how MSDL is positioned in this environment due to the sourcing advantages of our unique credit platform. We look forward to providing an update on our Q3 2025 earnings call in November.

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

Thank you.

[Operator]

That does conclude today's conference. We do thank you for your participation. Have an excellent day.

Participants

Executives

• Ashwin Krishnan, CIO
• David Miller, Chair of the Board
• David Pessah, CFO
• Michael Occi, CEO
• Sanna Johnson, VP of Head of Investor Relations

Analysts

• Cory Johnson, Analyst at UBS
• Heli Sheth, Analyst at Raymond James
• Melissa Wedel, VP of U.S. Equities Research at J.P. Morgan
• Paul Johnson, Analyst at KBW