Morgan Stanley Direct Lending Fund
For the period ended Sep 30, 2026. Filed Nov 5, 2026.
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A company's report for each of its first three quarters. The financial statements are not audited. It shows how the business has moved since the last annual report, and what management says changed.
Sep 30, 2026 · Filed Nov 5, 2026
MSDL$13.62-3.5%Stored close · as of Nov 6, 2026
What changed in Management’s Discussion and Analysis?
Read the current filingPrevious report: 10-Q
Period ended 2026-06-30; filed 2026-08-06.
0001193125-26-337915
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of OperationsCurrent report: 10-Q
Period ended 2026-09-30; filed 2026-11-05.
0001193125-26-449886
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of OperationsThe baseline is this issuer’s latest earlier reporting period of the same form that was filed before the current report. A previous 10-Q is a different quarter, not a year-over-year comparison. Amendments are excluded.
Compared 158 previous paragraphs and 156 current paragraphs.
135 unchanged; 18 reworded; 3 added; 5 removed; 0 previous and 0 current paragraphs rearranged.
Tables are not compared: 13 previous and 13 current tables excluded. Dates, whitespace, punctuation and numbering changes are ignored; changes to financial figures remain significant.
A changed paragraph is not evidence that risk increased or decreased. An unchanged paragraph does not establish that risk stayed the same.
Added paragraphs (3)
Current report
the impact of information technology system failures, data security breaches, data privacy compliance, network disruptions, and cybersecurity attacks, and the increasing use of artificial intelligence and machine learning technology;
Current report
In the table above, total investment income decreased from $99,722 for the three months ended September 30, 2025 to $86,140 for the three months ended September 30, 2026, and from $300,690 for the nine months ended September 30, 2025 to $263,977 for the nine months ended September 30, 2026. This decline was primarily attributable to a decrease in 1-month SOFR from 4.13% as of September 30, 2025 to 3.91% as of September 30, 2026, as well as a reduction in total portfolio cost and an increase in investments on non-accrual status. As of September 30, 2026, investments on non-accrual status increased to $123.5 million, or 3.4% of the portfolio at cost, compared to $47.6 million, or 1.2%, as of September 30, 2025. For the nine months ended September 30, 2026 and September 30, 2025, payment-in-kind (“PIK”) interest represented 5.2% and 4.0% of our total investment income, respectively.
Current report
On November 5, 2026, we and our Adviser entered into the Second Amended and Restated Investment Advisory Agreement, effective January 1, 2027. The Second Amended and Restated Investment Advisory Agreement (i) reduces the base management fee from 1.00% to 0.75% of gross assets at the end of the two most recently completed calendar quarters and (ii) reduces the incentive fee on income and capital gains from 17.5% to 15.0% (and a corresponding reduction of the incentive fee cap from 17.5% to 15.0%).
Removed paragraphs (5)
Previous report
In the table above, total investment income decreased from $99,508 for the three months ended June 30, 2025 to $88,774 for the three months ended June 30, 2026. The decrease was primarily driven by declining base rates and repricings on our existing portfolio, which impacted our weighted average yield. Our weighted average yield at cost decreased from 10.1% as of June 30, 2025 to 9.1% as of June 30, 2026. For the six months ended June 30, 2026 and June 30, 2025, 5.1% and 4.0% of our total investment income was comprised of PIK interest.
Previous report
2031 Notes
Previous report
On July 9, 2026, we issued $350,000,000 in aggregate principal amount of 6.100% notes due 2031 (the “2031 Notes”), pursuant to a Base Indenture, as supplemented by the Fourth Supplemental Indenture dated July 9, 2026.
Previous report
The 2031 Notes will mature on July 15, 2031 and may be redeemed in whole or in part at our option at any time prior to June 15, 2031 at par value plus a “make-whole” premium calculated in accordance with terms under “optional redemption” in the Indenture and at par value on June 15, 2031 or thereafter. The 2031 Notes bear interest at a rate of 6.100% per year payable semi-annually on January 15 and July 15 of each year, commencing on January 15, 2027. The 2031 Notes are general unsecured obligations of we that rank senior in right of payment to all of the our existing and future indebtedness that is expressly subordinated in right of payment to the 2031 Notes, rank pari passu with all existing and future unsecured unsubordinated indebtedness issued by us, rank effectively junior to any of the our secured indebtedness (including unsecured indebtedness that we later secure) to the extent of the value of the assets securing such indebtedness, and rank structurally junior to all existing and future indebtedness (including trade payables) incurred by the our subsidiaries, financing vehicles or similar facilities.
Previous report
In connection with the offering of the 2031 Notes, on June 30, 2026 the Company entered into over-the-counter interest rate swaps pursuant to which the Company receives a fixed interest rate of 6.10% per annum and pays a floating interest rate of SOFR + 2.20% per annum on $350,000 of the 2031 Notes on a quarterly basis, commencing on October 15, 2026. The Company designated the interest swap as the hedging instrument in a qualifying hedge accounting relationship.
Reworded paragraphs (18)
Previous wording
Capstone Lending, a Delaware limited liability company, was formed as a joint venture (“Capstone Lending”) between us and a large institutional investor (the “JV Partner”), commenced operations on January 2, 2026 and operates under a limited liability company agreement. Capstone Lending’s principal purpose is to make investments, primarily in senior loans issued by middle-market companies. We and the JV Partner each agreed to contribute up to $200,000 and $50,000, respectively, to Capstone Lending. We and the JV Partner have equal control of Capstone Lending’s investment decisions and generally all other decisions in respect of Capstone Lending must be approved by Capstone Lending’s investment committee or board of directors, each of which consists of an equal number of representatives of us and the JV Partner.
Current wording
Capstone Lending LLC (“Capstone Lending”), a Delaware limited liability company formed as a joint venture between us and a large institutional investor (the “JV Partner”), commenced operations on January 2, 2026 and operates under a limited liability company agreement. Capstone Lending’s principal purpose is to make investments, primarily in senior loans issued by middle-market companies. We and the JV Partner each agreed to contribute up to $200,000 and $50,000, respectively, to Capstone Lending. We and the JV Partner have equal control of Capstone Lending’s investment decisions and generally all other decisions in respect of Capstone Lending must be approved by Capstone Lending’s investment committee or board of directors, each of which consists of an equal number of representatives of us and the JV Partner.
Previous wording
As of June 30, 2026, we and the JV Partner made equity contributions of $104,532 and $26,133, respectively, to Capstone Lending
Current wording
As of September 30, 2026, we and the JV Partner made equity contributions of $129,812 and $32,453, respectively, to Capstone Lending.
Previous wording
(1) As of June 30, 2026 and December 31, 2025, the Company had certain investments in seven and four portfolio companies, respectively, that were on non-accrual status.
Current wording
(1) As of September 30, 2026 and December 31, 2025, the Company had certain investments in eleven and four portfolio companies, respectively, that were on non-accrual status.
Previous wording
Additionally, for the three and six months ended June 30, 2026, we recorded $1,399 and $2,696, respectively, of non-recurring interest income (e.g., prepayment premiums, accelerated accretion of upfront loan origination fees and unamortized discounts, etc.) as compared to $1,354 and $3,021 for the same periods in the prior year, primarily as a result of prepayments.
Current wording
Additionally, for the three and nine months ended September 30, 2026, we recorded $361 and $3,057, respectively, of non-recurring interest income (e.g., prepayment premiums, accelerated accretion of upfront loan origination fees and unamortized discounts, etc.) as compared to $1,560 and $5,009 for the same periods in the prior year, primarily as a result of prepayments.
Previous wording
Interest and other financing expenses, including unused commitment fees, amortization of debt issuance costs, net change in unrealized (appreciation) depreciation on effective interest rate swaps and hedged items and deferred financing costs, decreased from $34,707 for the three months ended June 30, 2025 to $32,018 for the three months ended June 30, 2026. The decrease was primarily due to the reduction of our average interest rate which decreased from 6.02% as of June 30, 2025 to 5.40% as of June 30, 2026, mainly driven by declining base rates and a shift in our funding mix toward lower costing debt.
Current wording
Interest and other financing expenses, including unused commitment fees, amortization of debt issuance costs, net change in unrealized (appreciation) depreciation on effective interest rate swaps and hedged items and deferred financing costs, decreased from $33,903 for the three months ended September 30, 2025 to $33,183 for the three months ended September 30, 2026 and from $102,788 nine months ended September 30, 2025 to $95,865 for the nine months ended September 30, 2026. The decrease was primarily due to the reduction of rates offset by the issuance of the 2031 Notes during the third quarter of 2026.
Previous wording
Base management fees were $9,182 and $18,612 for the three and six months ended June 30, 2026 and $9,624 and $18,601 for the three and six months ended June 30, 2025, respectively.
Current wording
Base Management Fees were $8,837 and $27,449 for the three and nine months ended September 30, 2026 and $9,628 and $28,229 for the three and nine months ended September 30, 2025, respectively.
Previous wording
The incentive fee consists of two components: (1) income based incentive fee and (2) capital gains incentive fee. The income based incentive fees were $6,518 and $12,318 for the three and six months ended June 30, 2026 and $9,279 and $18,747 for the three and six months ended June 30, 2025, respectively. The decrease was primarily a result of the incentive fee cap, which limits the amount of incentive fees payable to the adviser due to net realized losses. For the six months ended June 30, 2026, net realized losses were primarily driven by the restructuring of our first lien debt investments in Abracon Group Holdings LLC and Vardiman Black Holdings LLC.
Current wording
The incentive fee consists of two components: (1) income based incentive fee and (2) capital gains incentive fee. The income based incentive fees were $441 and $12,759 for the three and nine months ended September 30, 2026 and $9,281 and $28,029 for the three and nine months ended September 30, 2025, respectively. The decrease was primarily a result of the Incentive Fee Cap, which limits the amount of incentive fees payable to the Adviser due to net realized losses. For the nine months ended September 30, 2026, net realized losses were primarily driven by the restructuring of our first lien debt investments in AMCP Pet Holdings, Inc.
Previous wording
For the three and six months ended June 30, 2026, net realized losses were $7,431 and $20,602 which was primarily due to the restructuring of our first lien debt investments in Abracon Group Holdings LLC and Vardiman Black Holdings LLC.
Current wording
For the three and nine months ended September 30, 2026, net realized losses were $38,186 and $58,787, respectively. The realized loss balance for the three months ended September 30, 2026, was primarily due to the restructuring of our first lien debt investments in AMCP Pet Holdings Inc. The year to date realized loss balance also includes losses from the restructuring of 48Forty Solutions LLC in January 2026, and Abracon Group Holdings LLC and DCA Investment Holdings LLC in June 2026.
Previous wording
For the three and six months ended June 30, 2026, net change in unrealized depreciation on our investments of $22,793 and $54,631 was primarily the result of the changes in spreads in the secondary markets as well as financial performance in certain portfolio companies. For the three and six months ended June 30, 2025, net change in unrealized depreciation on our investments of $7,753 and $24,859 was primarily driven by changes in spreads in the primary and secondary markets.
Current wording
For the three and nine months ended September 30, 2026, net change in unrealized depreciation on our investments of $29,381 and $84,013 was primarily the result of financial performance in certain portfolio companies. Comparatively, for the three and nine months ended September 30, 2025, net change in unrealized depreciation on our investments of $16,131 and $40,990 was primarily driven by changes in spreads in the secondary markets as well as financial performance in certain portfolio companies. The unrealized loss in 2026 is due to an isolated few investments driven by underperformance at the underlying portfolio companies.
Previous wording
As of June 30, 2026, we had approximately $71,573 of unrestricted cash, cash equivalents, and short term investments (including investments in money market funds), which taken together with our approximately $249,000 and $1,222,547 of availability under the BNP Funding Facility and the Truist Credit Facility (subject to borrowing base availability) (each as defined in Note 6. “Debt” in the notes to the accompanying consolidated financial statements), respectively, we expect to be sufficient for our investing activities and sufficient to conduct our operations in the near term. As of June 30, 2026, we believed we had adequate financial resources to satisfy unfunded portfolio company commitments of $402,105.
Current wording
As of September 30, 2026, we had approximately $74,975 of unrestricted cash, cash equivalents, and short term investments (including investments in money market funds), which taken together with our approximately $442,000 and $1,422,089 of availability under the BNP Funding Facility and the Truist Credit Facility (subject to borrowing base availability) (each as defined in Note 6. “Debt” in the notes to the accompanying consolidated financial statements), respectively, we expect to be sufficient for our investing activities and sufficient to conduct our operations in the near term. As of September 30, 2026, we believed we had adequate financial resources to satisfy unfunded portfolio company commitments of $367,033.
Previous wording
For the three and six months ended June 30, 2026 and June 30, 2025, there were no shares issued through ATM offerings.
Current wording
For the three and nine months ended September 30, 2026 and September 30, 2025, there were no shares issued through ATM offerings.
Previous wording
The following table summarizes our distributions declared and payable for the six months ended June 30, 2026 and June 30, 2025, respectively:
Current wording
The following table summarizes our distributions declared and payable for the nine months ended September 30, 2026 and September 30, 2025, respectively:
Previous wording
The following table summarizes the shares repurchased under our share repurchase program during the six months ended June 30, 2026:
Current wording
The following table summarizes the shares repurchased under our share repurchase program during the nine months ended September 30, 2026:
Previous wording
The following table summarizes the shares repurchased under our share repurchase program during the six months ended June 30, 2025:
Current wording
The following table summarizes the shares repurchased under our share repurchase program during the nine months ended September 30, 2025:
Previous wording
As of June 30, 2026 and December 31, 2025, a letter of credit of $11,775 and $9,775, respectively, was outstanding, which reduced the unused availability under the Truist Credit Facility by the same amount. Under the Truist Credit Facility, the Company may borrow in U.S. dollars or certain other permitted currencies. As of June 30, 2026 and December 31, 2025, the Company had borrowings denominated in Euros (EUR) of 3,060 and 3,298, respectively, Canadian dollars (CAD) of 3,300 and 3,300, respectively and Pound Sterling (GBP) of 1,020 and 1,020, respectively.
Current wording
As of September 30, 2026 and December 31, 2025, a letter of credit of $11,934 and $9,775, respectively, was outstanding, which reduced the unused availability under the Truist Credit Facility by the same amount. Under the Truist Credit Facility, the Company may borrow in U.S. dollars or certain other permitted currencies. As of September 30, 2026 and December 31, 2025, the Company had borrowings denominated in Euros (EUR) of 3,783 and 3,298, respectively, Canadian dollars (CAD) of 3,300 and 3,300, respectively and Pound Sterling (GBP) of 1,020 and 1,020, respectively.
Previous wording
As of June 30, 2026 and December 31, 2025, the carrying value of the CLO 2025-1 Issued Debt was presented net of unamortized debt issuance costs of $2,891 and $2,869, respectively.
Current wording
As of September 30, 2026 and December 31, 2025, the carrying value of the CLO 2025-1 Issued Debt was presented net of unamortized debt issuance costs of $3,217 and $2,869, respectively.
Previous wording
As of June 30, 2026, the carrying value of the Company’s 2027 Notes, 2029 Notes and 2030 Notes were presented net of unamortized debt issuance costs of $619, $2,244 and $3,534 and unamortized original issuance discount of $132, $2,236 and $2,914, respectively. As of December 31, 2025, the carrying value of the Company’s 2027 Notes, 2029 Notes and 2030 Notes were presented net of unamortized debt issuance costs of $1,252, $2,626 and $3,798 and unamortized original issuance discount of $238, $2,621 and $3,286, respectively.
Current wording
As of September 30, 2026, the carrying value of the Company’s 2027 Notes, 2029 Notes, 2030 Notes, and 2031 Notes were presented net of unamortized debt issuance costs of $196, $2,043, $3,580, and $3,582 and unamortized original issuance discount of $78, $2,040, $2,725, and $3,490, respectively. As of December 31, 2025, the carrying value of the Company’s 2027 Notes, 2029 Notes, 2030 Notes, and 2031 Notes were presented net of unamortized debt issuance costs of $1,252, $2,626, $3,798, and $0 and unamortized original issuance discount of $238, $2,621, $3,286, and $0, respectively.
Previous wording
On August 4, 2026, our Board declared a distribution of $0.45 per share, which is payable on or around October 23, 2026 to shareholders of record as of September 30, 2026.
Current wording
On November 3, 2026, our Board declared a distribution of $0.45 per share, which is payable on or around January 22, 2027 to shareholders of record as of December 31, 2026. On November 3, 2026, our Board also declared a supplemental distribution of $0.0150 per share, which is payable on or around December 15, 2026 to shareholders of record as of November 30, 2026.