Q2 2026 Morgan Stanley Direct Lending Fund Earnings Call Transcript
Key Points
- Net investment income of $0.45 per share covered the declared dividend for the third quarter, with management expressing confidence in the sustainability of this level.
- The Capstone JV contributed positively to earnings, with a growing contribution expected as it continues to scale, providing an additional source of portfolio growth.
- Share repurchases added $0.05 to NAV per share during the quarter, bringing total accretion to $0.10 for the first half of 2026, with significant capacity remaining on the program.
- Proactive liability management included amending and extending the corporate revolver and issuing a new $350 million unsecured notes offering to pre-fund the February 2027 maturity, enhancing balance sheet flexibility.
- Portfolio credit quality remained stable, with approximately 95% of the portfolio performing in line with underwriting expectations and risk-rated 2 or better categories stable quarter-over-quarter.
- Origination momentum was solid, with three new platform investments added, and the Bridgepoint transaction highlighted the ability to take leadership roles as lender and administrative agent.
- The weighted average loan-to-value across the portfolio was conservative at approximately 39%, and interest coverage ratios improved from the prior quarter.
- Net investment income decreased to $0.45 per share from $0.47 in the prior quarter, impacted by new non-accruals and higher other financing costs.
- Non-accruals increased to 2.9% of the portfolio at cost, with three new positions added during the quarter, reflecting company-specific operational challenges.
- NAV per share declined to $19.50 from $19.81, driven by unrealized losses on underperforming investments and realized losses from completed restructurings.
- The market environment remains challenging with elevated interest rates, geopolitical uncertainty, and evolving AI impacts, leading to uneven industry lending volumes.
- Competition for non-software assets is high, causing some modest tightening in spreads, which could pressure future yields.
- The company experienced higher other debt expenses and an increase in incentive fees, partially offsetting the benefits from the JV.
- Repayments have been sticky, requiring a balance between redeploying cash into new investments versus repurchasing stock, which may limit growth opportunities.
Welcome to Morgan Stanley Direct Lending Funds Second Quarter 2026 Earnings Call. At this time, all participants are in 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 call over to Sana Johnson, Head of Investor Relations. Please go ahead.
Good morning, and welcome to Morgan Stanley Direct Lending Fund's second-quarter 2026 earnings call. I am joined this morning by Michael Osi, Chief Executive Officer Jeff Day, Co-President David Pesa, Chief Financial Officer and Rebecca Schoule, head of portfolio management. Morgan Stanley Direct Lending Fund second quarter 2026 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
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