Morgan Stanley Direct Lending Fund

Welcome to Morgan Stanley Direct Lending Fund's second quarter 2026 earnings call. At this time, all participants are in listen-only mode. A question-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 Sanna Johnson, Head of Investor Relations. Please go ahead.

Good morning and welcome to Morgan Stanley Direct Lending Fund's second quarter 2026 earnings call. I am joined this morning by Michael Occi, Chief Executive Officer, Jeff Day, Co-President, David Pessah, Chief Financial Officer, and Rebecca Schewel, Head of Portfolio Management. Morgan Stanley Direct Lending Fund's second quarter 2026 financial results were released yesterday after market close 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, Cheney, 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 undue 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 Occi.

Good morning, everyone, and thank you for joining us today. I'll begin with our second quarter performance and outlook before turning the call over to Jeff to discuss the market environment and deployment activity. David will then review our financial results in greater detail, after which we will open the call up for Q&A. Beginning with operating results, We generated net investment income of 45 cents per share compared with 47 cents per share in the prior quarter. Second quarter earnings reflected a growing contribution from the capstone JB offset by the income drag associated with new non-accruals added during the quarter and higher other financing costs. For the third quarter, the Board declared a dividend of 45 cents per share unchanged from the prior quarter. Second quarter net investment income covered the dividend. and we continue to believe the reset dividend level is aligned with MSDL's normalized earnings power. Transitioning to credit, MSDL's overall portfolio health remains solid. NAV compression in the quarter was attributable in large part to a handful of underperforming investments which had previously exhibited weakness. The increase in non-accruals reflected the weighting of one net borrower addition to non-accrual status. Importantly, the proportion of the portfolio in the risk-rated two or better categories remained stable quarter over quarter, with approximately 95% of the portfolio generally performing in line with the original underwriting case. Consistent with the first quarter, we took a disciplined approach to capital allocation amid a more dynamic market landscape, seeking to thoughtfully manage leverage and maximize risk-adjusted returns. We remained active in utilizing our share repurchase program. which added $0.05 to NAV per share during the quarter and brought total program-related accretion to $0.10 for the first half of 2026. In parallel, we continued to scale the JV, which we expect to further ramp over the coming year. While conventional investment activity remained measured as we balanced these levers, origination momentum remained solid with three new platform investments added during the quarter. On the liability side, we successfully executed two proactive financing initiatives, the amendment and extension of our corporate revolver in April and a subsequent unsecured notes offering in June designed to pre-fund a portion of our February 2027 maturity. Together, these transactions underscore proactive management of the right-hand side of the balance sheet and our continued access to diversified financing sources supported by the strength of our business, and the depth of MSPC's relationships with bank partners and the fixed income community. Turning now to our outlook, we would characterize the first half of 2026 as a period of transition for direct lending. Public market valuations are pricing in a more negative outlook than our current portfolio fundamentals support. At the same time, there have been isolated instances of credit softness and we recognize that several legitimate pressures persist in the market. Borrowers continue to face elevated interest rates, geopolitical uncertainty, and the evolving impact of AI. But the underlying fundamentals of the middle market economy remain resilient. Credit performance will vary across the industry as these headwinds affect companies and sectors differently. However, we believe several of these pressures are beginning to ease, and the MSDL portfolio is well positioned to navigate them. Jeff will discuss these dynamics in greater detail shortly. We also remain constructive on the medium- to long-term outlook for New Deal activity. Although industry lending volume during the first half of the year was more uneven than anticipated, sponsors remained selective in the second quarter amid geopolitical developments in the Middle East. Encouragingly, we have seen a rebound in private equity exit activity, supported by efficient financing markets and strong demand from strategics. We expect new deployment could accelerate as sponsors gain greater conviction in the geopolitical and macro backdrop. Even amid subdued market-wide activity relative to expectations at the start of the year, opportunity levels remained respectable in the second quarter. Our deep integration within the Morgan Stanley ecosystem continued to provide what we consider to be a meaningful sourcing advantage. We reviewed a higher number of deals year over year and closed on less than 5% of the opportunities we originated in the last 12 months. Reflecting both our broad funnel and our high quality bar. While headlines around direct lending fund flows have weighed on retail investor sentiment, we have observed constructive investor engagement across channels through the lens of our platform's diversified capital base. Notably, industry-wide institutional demand for the asset class remains strong globally, with many investors continuing to seek increased allocations. Retail outflows also showed signs of deceleration in the second quarter, reinforcing our confidence that direct lending will remain a durable allocation for individual investors. And there will be a need for this capital as private equity dry powder is deployed and sponsor-backed M&A volume builds. Morgan Stanley Investment Management recently surpassed an important $2 trillion AUM milestone. As a visible component of MSIM's growing credit platform, We remain confident in our ability to continue optimizing the performance of MSDL, leveraging the strength of our team, track record, and broader support of the Morgan Stanley platform. When we constructed MSDL, we endeavored to provide a differentiated BDC offering, aligned with shareholders through our thoughtful fee structure, competitive expense profile, and defensive investment strategy. We remain intently focused on these priorities. positioning MSDL to capitalize on this dynamic backdrop and to continue delivering value to shareholders. With that, I'll turn the call over to Jeff Day.