Morgan Stanley Direct Lending Fund

Good day and welcome to the Morgan Stanley Direct Lending Q1 2026 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 call 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 first quarter 2026 earnings call. I am joined this morning by Michael Osi, Chief Executive Officer, Ashwin Krishnan, Chief Investment Officer, Jeff Day, Co-President, David Pessa, Chief Financial Officer, and Rebecca Shaul, Head of Portfolio Management. Morgan Stanley Direct Lending Fund's first quarter 2026 financial results were released yesterday after market closed 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 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 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 undue reliance on these forward-looking statements. The forward-looking statements contained on the 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 and Ashwin to discuss the market and deployment. David will then walk through our results in more detail before we conclude with Q&A. Against the backdrop of moderating base rates, improving spreads, and an increasing focus on credit quality across the direct lending landscape, MSDL delivered solid performance in the first quarter. In terms of operating results, we earned net investment income of 47 cents per share, as compared with 49 cents per share for the prior quarter. The modest decline was primarily driven by the impact of the December rate cut, which flowed through during the period. Importantly, Earnings quality remained high, with the underlying portfolio continuing to perform well. In February, we modified the dividend to 45 cents per share, consistent with the actions we're seeing take place across the sector to align payouts with forward earnings power in a normalized rate environment. Our dividend remains well supported, with coverage of 104% for the quarter. We view the dividend policy as appropriate over the medium term based on MSDL's earnings levers in the context of the current market environment. During the first quarter, we took a disciplined approach to capital allocation amid a more dynamic landscape, thoughtfully optimizing the tools at our disposal to maximize risk-adjusted returns. With shares trading at a discount to NAV, share repurchases were accelerated, which was accretive. In parallel, we prioritized seeding our joint venture. which delivered approximately 150 basis points of incremental return relative to on-balance sheet deployment, although that was a contributor for only five weeks of the quarter. While these actions moderated conventional investment activity, origination momentum remained solid, with four new platform investments added during the quarter. The direct lending market continues to navigate a range of challenges, including tariffs, ongoing discussions around AI-driven disruption and fresh geopolitical risks emerging from the Middle East. In our view, the disconnect between narrative and fundamentals is a defining feature of the current phase of the cycle. We expect today's credit environment to be increasingly characterized by differentiation rather than widespread deterioration. We believe MSDL is well-positioned to continue to capitalize on this dynamic environment thanks to our unique sourcing capabilities, consistent focus on underwriting standards, and the depth of our portfolio management function. As we revisit the industry-wide pressures we outlined last quarter, we are beginning to see signs that some of these may begin to ease. Starting with the deal environment, we continue to believe that we're in the early stages of a multi-year recovery in sponsor-backed M&A, underpinned by a conducive economy, substantial private equity dry powder, and generally efficient financing markets. While activity was somewhat choppy during the first quarter amid geopolitical developments, overall opportunity levels remained solid, and our deep integration within the Morgan Stanley ecosystem continues to provide a meaningful sourcing advantage. On credit, we continue to actively monitor potential risk factors across the portfolio, including elevated rates, macro uncertainty, and the evolving impact of AI, particularly within software. Despite these cross-currents, portfolio performance remains relatively stable. Non-accruals declined modestly during the first quarter, and we continue to see resilience across the borrower base. While we did experience some NAV pressure amid heightened public market volatility, we have not witnessed widespread fundamental underperformance of our borrowers, with instances generally isolated. In this context, we believe MSDL's first lean non-cyclical orientation positions us to navigate potentially increasing industry dispersion effectively. Turning to asset yields, we are encouraged by signs that the downshift may be now in the rear view. The first quarter of 2026 marked the first quarter in the last eight in which MSDL did not experience yield compression. While the timing of the December rate cut drove the modest quarter-over-quarter decline in net investment income of a couple of pennies, we are now seeing spreads widen and terms on new investments become more lender-friendly. If sustained, that should support asset yields going forward. Jeff will provide additional color on market conditions in his remarks. Finally, on capital formation and investor sentiment through the lens of the broader direct lending market, while retail flows into the asset class have shown variability, we remain confident in the long-term outlook for private credit. MSDL is a visible part of our scaled committed capital base in U.S. direct lending. Sitting within Morgan Stanley's broader global private credit business, and $270 billion alternatives platform. Our funds are capitalized by a diversified LP base providing a stable capital foundation. Long duration fund structures allow us to be disciplined in our deployment and will continue to support us as we scale further. Private credit has proven to be a durable asset class with a clear and lasting role in diversified portfolios for both institutional and retail investors alike. As I close, I want to reiterate our commitment to the strategy that got us here. MSDL will continue to provide loans to high-quality businesses while leveraging the resources of the integrated Morgan Stanley platform. We believe our transparent revenue model, conservative balance sheet, and efficient operating structure, together with our thoughtful fee framework and repurchase program, support strong alignment with shareholders. With that, I will turn the call over to Jeff Day.