Morgan Stanley Direct Lending (MSDL)

The following information was previously provided to subscribers of BDC Buzz Premium Reports along with:

  • Target prices, buying points, and suggested limit orders (used during market volatility).
  • Risk profile, potential credit issues, changes in NAV, and overall rankings. Please see BDC Risk Profiles for additional details.
  • Dividend coverage projections (base, best, worst-case scenarios). Please see BDC Dividend Coverage Levels for additional details.


On January 26, 2024, Morgan Stanley Direct Lending (MSDL) closed its IPO of 5 million shares at $20.67 per share raising net proceeds of around $97 million. MSDL is one of the larger ones with total assets over $3 billion and I will likely start coverage of this BDC next month. As mentioned earlier, the Morgan Stanley Investment Management platform has around $1.5 trillion of AUM.

It should be noted that there was an increase in trading activity just after we mentioned the potential for coverage on Friday (not sure if it’s related). Trading volumes will likely pick up after the expiration of share lock-ups (mentioned later).

The company entered into an amended and restated investment advisory agreement to reduce management and incentive fees through the first anniversary of the IPO as well as instituted an incentive fee lookback.

The Amended and Restated Investment Advisory Agreement incorporates (i) a cumulative three-year lookback provision and (ii) a cap on quarterly income incentive fee payments based on net realized capital loss, if any, during the applicable three-year lookback period. From January 24, 2024 to January 24, 2025 the Adviser has also agreed to waive any portion of the Base Management Fee in excess of 0.75% and each component of the incentive fee above 15%.

The Board declared a regular first-quarter dividend of $0.50 per share and two $0.10 per share special dividends, timed to follow the two IPO lock-up release dates that occur in 2024:

In conjunction with our IPO our Board of Directors declared two $0.10 per share special dividends to be paid 195 and 285 days post IPO. These will occur in the third and fourth quarters of this year.

MSDL has the lowest leverage (0.83 before IPO proceeds) which is conservative given it has the highest amount of first-lien (94%) with better than average NAV performance.

 

 

As of December 31, 2023, three investments were on non-accrual status, representing $19.3 million at cost and $12.5 million at fair value or around 0.4% of the portfolio.

The Board approved a share repurchase program of up to $100 million for the common stock at prices below NAV, adjusted for dividends.

Each of MS Credit Partners Holdings and our directors, officers and members of the Investment Committee agreed that they will not transfer their shares in accordance with the transfer restrictions provided for in a lock-up agreement with the underwriters in our IPO for a period of 365 days after the date of the prospectus relating to the IPO, which was January 23, 2024.

Certain other stockholders holding in the aggregate approximately 88.0% of the outstanding shares of Common Stock agreed that they will not transfer their shares that they own prior to the IPO in accordance with the transfer restrictions provided for in a lock-up agreement with the underwriters in our IPO for 365 days after January 23, 2024 (or January 22, 2025), provided, however that:

  • 33% of the shares of our Common Stock held by such stockholder prior to this offering will be automatically released from the transfer restrictions at any time beginning 180 days after January 23, 2024 (or July 21, 2024)
  • An additional 33% of the shares of our Common Stock held by such stockholder prior to this offering will be automatically released from the transfer restrictions at any time beginning 270 days after January 23, 2024 (or October 19, 2024)
  • The remaining 33% of the shares of our Common Stock held by such stockholder prior to this offering will be released from such transfer restrictions 365 days after January 23, 2024 (or January 22, 2025)

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