Morgan Stanley Direct Lending Fund

What they do

MSDL holds a portfolio of debt investments in private U.S. middle-market companies, funded largely with borrowings, and earns interest and fee income that it distributes to shareholders. As of June 30, 2026, the portfolio had a fair value of approximately $3.6 billion across 229 portfolio companies in 36 industries, with an average investment size of $15.5 million. First lien debt made up 93.1% of investments at fair value and second lien debt 2.0%.

Revenue drivers

• First lien debt — Largest holding category at $3.31 billion fair value, or 93.1% of total investments at fair value as of June 30, 2026, generating interest income from senior secured middle-market loans.
• Second lien debt — Smaller subordinated position at $72.6 million fair value, or 2.0% of total investments, typically carrying higher yields than first lien loans.
• Capstone JV — Joint venture the company is ramping; as of June 30, 2026 approximately 52.3% of total capital commitments had been called, and it contributed to investment income in the quarter.
• Fee and other income — Total investment income for the quarter ended June 30, 2026 was $88.8 million, which includes interest and fee income from the debt portfolio.

Recent performance

For the quarter ended June 30, 2026, net investment income was $38.2 million, or $0.45 per share, compared with $40.5 million, or $0.47 per share, for the prior quarter. Total investment income was $88.8 million versus $89.1 million, as the effect of positions placed on non-accrual was only partly offset by the Capstone JV. Total net expenses rose to $49.8 million from $47.7 million on higher interest and financing expenses and incentive fees. Net change in unrealized depreciation was $22.8 million and net realized losses were $7.4 million, producing earnings per share of $0.09. Net asset value per share was $19.50 as of June 30, 2026, down from $19.81 at March 31, 2026.

Strategy

The company is ramping its Capstone Lending LLC joint venture, with roughly 52.3% of total capital commitments called as of June 30, 2026. On April 23, 2026, it amended the Truist Credit Facility to extend the termination date to April 2030 and the final maturity to April 2031. During the second quarter it made new investment commitments of $95.0 million (net of syndications) and fundings of $146.2 million, against sales and repayments of $240.5 million, for net funded deployment of negative $94.2 million. The board declared a regular third quarter 2026 dividend of $0.45 per share to shareholders of record as of June 30, 2026.

Risks

• Non-accrual drag — Positions placed on non-accrual reduced total investment income in the second quarter of 2026 relative to the prior quarter.
• Credit losses — The company reported net realized losses of $7.4 million and net unrealized depreciation of $22.8 million for the quarter ended June 30, 2026.
• Leverage — Debt-to-equity was 1.21x and net debt-to-equity 1.17x as of June 30, 2026, with total debt outstanding of $2.00 billion at principal.
• Concentration in first lien loans — First lien debt represented 93.1% of the portfolio at fair value as of June 30, 2026, so results are sensitive to credit and rate conditions in that asset class.

Outlook

The company declared a regular third quarter 2026 dividend of $0.45 per share, consistent with the second quarter regular dividend. Management flagged the Capstone JV ramp and the amended Truist Credit Facility, which extends the termination date to April 2030 and final maturity to April 2031, as recent developments. No forward guidance figures were provided in the earnings release.