Morgan Stanley Direct Lending Fund

Please stand by. We are about to begin. Welcome to the Morgan Stanley Direct Lending Fund's fourth quarter and full year 2025 earnings call. At this time, all participants are in a listen-only mode. A question and answer session will follow the prepared remarks. As a reminder, this conference is being recorded. At this time, I'd like to turn the call over to Santa Johnson, head of investor relations. Please go ahead.

Good morning, and welcome to Morgan Stanley Direct Lending Fund's fourth quarter and full year 2025 earnings call. I am joined this morning by Michael Osi, Chief Executive Officer, Jeff Day, Co-President, David Pessa, Chief Financial Officer, and Rebecca Shaul, Head of Portfolio Management. Morgan Stanley Direct Lending Fund's fourth quarter and full year 2025 financial results were released yesterday after market close and can be accessed on the Investor Relations section of our website at www.mscl.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. 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 under-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. With that, I will now turn the call over to Michael Osi.

Good morning, everyone. Thank you for joining us today. I'll start with some earnings highlights and our outlook before turning it over to Jeff Day to discuss deployment in the portfolio. David will then walk through our results in more detail before we conclude with Q&A. We generated solid performance in the fourth quarter. In terms of operating results, we earned net investment income of 49 cents per share, as compared with 50 cents per share for the prior quarter. Earnings quality remained high, characterized by limited contributions from payment in kind and other income. Our underlying portfolio continues to perform well, and we remain confident that MSDL is well positioned from an execution perspective. As we reflect on 2025, I would be remiss not to acknowledge at the outset that the direct lending industry faced a number of obstacles. Though these factors have affected sentiment for the asset class, we think that some of these pressures may soon ease. Starting with asset yields, we acknowledge the contraction in MSDL's portfolio yields since the late 2023 peak. However, that contraction has decelerated, and there's evidence that it may be winding down, driven by the spread stability that we witnessed throughout 2025, the repricing trade having largely run its course, and the Fed now potentially in the late innings of its easing cycle. Secondly, investors have been rightfully looking for cues of credit stress across the industry given still elevated rates, tariff policy, and other shifts in the economy. Despite these economic dynamics, our borrowers have been resilient, and we believe that our book has held up well. Underperformance in MSDL's portfolio has been isolated and has not generally been driven by systemic factors. As we have all seen in recent weeks, the market's latest concern has been artificial intelligence as a threat to software. While we recognize that AI will be disruptive, we are confident in our underwriting process that has explicitly taken AI risk into account for a number of years. As part of this, we benefit from being part of the broader Morgan Stanley platform. a global financial services leader in software and technology. As Jeff will review in more detail, this provides us with immense resources that augment our underwriting process as well as our portfolio management efforts. Lastly, on the deal environment, which has been another area of focus for the market, M&A was famously slow to recover from the post-COVID trough, but we started to see a rebound in PE sponsor activity take hold in the second half of 2025. We think that this pickup will be a multi-year phenomenon that will continue to be a structural tailwind for lenders like us. Against this evolving backdrop, we remain focused on protecting NAV, preserving balance sheet flexibility, and providing shareholders with a consistent distribution. These are priorities for our leadership as we position MSDL for long-term success through economic cycles. Accordingly, The Board declared a distribution of 45 cents per share for the first quarter of 2026, representing a 5-cent reduction from the prior quarter. This adjustment aligns the distribution with the normalization of short-term interest rates and implies a still robust yield on NAV of approximately 9%. We think that this enables MSDL to deliver a distribution that is durable and consistent with our dividend policy framework that remains rooted in our pursuit of generating attractive, and transparent risk adjusted returns to shareholders. We will remain focused on optimizing MSDL's return on NAV without deviating from our thoughtful capital management approach and more defensive investment strategy. During the second half of 2025, we made strides to recalibrate the right-hand side of the balance sheet, including through the refinancing of legacy unsecured debt, the execution of our inaugural CLO, and the repricing of our asset-based facility. Aligned with this mission, we also successfully closed a joint venture that will deploy assets consistent with MSDL's selective credit box, and that will utilize appropriate leverage. While this only closed one week ago, the JV is already close to 50% ramped, and we believe will be accretive to MSDL's net investment income all as equal. With the broader support of Morgan Stanley, we have remained true to our strategy of providing loans to high-quality, sponsor-backed businesses, and leveraging the broader integrated firm in those efforts. We also believe that our transparent revenue model, efficient and conservative debt profile, relatively low operating expense base, thoughtful fee structure, and repurchase program highlight our strong alignment with shareholders. With that, I will turn the call over to Jeff Day.