Q2 2024 Morgan Stanley Direct Lending Fund Earnings Call

Speaker Change: Welcome to the Morgan Stanley Direct Lending Fund's second quarter 2024 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 Mr. Michael Osi, Head of Investor Relations and Chief Administrative Officer.

Operator: 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 Mr. Michael Osi, Head of Investor Relations and Chief Administrative Officer.

Operator: At this time, all participants are in a listen-only mode.

Operator: A question and answer session will follow the prepared remarks. As a reminder, this conference call is being recorded.

Michael O.C.: At this time, I'd like to turn the call over to Mr. Michael O.C., Head of Investor Relations and Chief Administrative Officer. Please go ahead.

Michael O.C.: Good morning and welcome to Morgan Stanley Direct Lending Fund's second quarter 2024 earnings call. Joining me are Jeff Levin, President and Chief Executive Officer, David Pasachee, Financial Officer, and Rebecca Shoel, Head of Portfolio Management. Morgan Stanley Direct Lending Fund's second quarter, 2024 financial results were released yesterday after market close, and can be accessed on the Investor Relations section of our website at www.msdl.com.

Michael Osi: Good morning and welcome to Morgan Stanley Direct Lending Fund's second quarter 2024 earnings call. Joining me are Jeff Levin, President and Chief Executive Officer, David Passa, Chief Financial Officer, and Rebecca Showell, Head of Portfolio Management. Morgan Stanley Direct Lending Fund's second quarter 2024 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 event that will be accessible from the Morgan Stanley Direct Lending Fund website.

Speaker Change: Please go ahead.

Michael Osi: Good morning and welcome to Morgan Stanley Direct Lending Fund's second quarter 2024 earnings call.

Speaker Change: Joining me are Jeff Levin, President and Chief Executive Officer, David Passa, Chief Financial Officer, and Rebecca Showell, Head of Portfolio Management.

Speaker Change: Morgan Stanley Direct Lending Fund's second quarter 2024 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 event that will be accessible from the Morgan Stanley Direct Lending Fund website.

Michael O.C.: We have arranged for a replay of today's event 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 rising interest rates, changing economic conditions, and other factors we have identified in our filings with the SEC.

Michael Osi: 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 rising interest rates, changing economic conditions, and other factors we have identified in our filings with the SEC.

Speaker Change: During this call, I want to remind you that we may make forward-looking statements based on current expectations.

Speaker Change: The statements on this call that are not purely historical are forward-looking statements.

Speaker Change: 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.

Speaker Change: including, and without limitation, market conditions, uncertainty surrounding rising interest rates, changing economic conditions, and other factors we have identified in our filings with the SEC.

Michael O.C.: Although we believe that these 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.

Michael Osi: Although we believe that these 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 Jeff Levin.

Speaker Change: Although we believe that these 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.

Speaker Change: You should not place undue reliance on these forward-looking statements.

Speaker Change: 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.

Michael O.C.: To obtain copies of SEC-related filings, please visit our website.

Jeff Levin: With that, I will now turn the call over to Jeff Levin. Thank you, Michael, and thank you for joining us today for Morgan Stanley Direct Lending's second quarter of 2024 conference call. We are proud of the strong results that we generated during the second quarter. I'll first begin with an overview of our second quarter of 2024 performance before discussing our market outlook. Dave will then provide updates on our portfolio and comment on the financial results. Our team delivered portfolio growth and solid operating results for the second quarter, supported by strong credit performance. Net asset value per share increased by 16 cents to $20.83 per share.

Speaker Change: To obtain copies of SEC-related filings, please visit our website. With that, I will now turn the call over to Jeff Levin.

Jeff Levin: Thank you, Michael, and thank you for joining us today for Morgan Stanley Direct Lending's second quarter 2024 conference call. We are proud of the strong results that we generated during the second quarter. I'll first begin with an overview of our second quarter 2024 performance before discussing our market outlook. Dave will then provide updates on our portfolio and comment on the financial results.

Jeff Levin: Thank you, Michael, and thank you for joining us today for Morgan Stanley Direct Lending's second quarter 2024 conference call.

Jeff Levin: We are proud of the strong results that we generated during the second quarter. I'll first begin with an overview of our second quarter 2024 performance before discussing our market outlook. Dave will then provide updates on our portfolio and comment on the financial results.

Jeff Levin: Our team delivered portfolio growth and solid operating results for the second quarter, supported by strong credit performance. Net asset value per share increased by $0.16 to $20.83 per share, and we generated net investment income of $0.63 per share, consistent with the first quarter results and well in excess of the $0.50 per share regular dividend we declared for the quarter. For the second quarter, new investment commitments totaled approximately $673.9 million in 46 portfolio companies. Net funded deployment for the quarter was $210 million as compared with $97 million in the first quarter.

Dave: Our team delivered portfolio growth and solid operating results for the second quarter, supported by strong credit performance.

Dave: Net asset value per share increased by $0.16 to $20.83 per share and we generated net investment income of $0.63 per share consistent with the first quarter results and well in excess of the $0.50 per share regular dividend we declared for the quarter.

Jeff Levin: And we generated net investment income of $0.63 per share, consistent with the first quarter results in well and excess of the $0.50 per share regular dividend we declared for the quarter. For the second quarter, new investment commitments totaled approximately $673.9 million in 46 portfolio companies. Net funded deployment for the quarter was $210 million, as compared with $97 million in the first quarter. We remained confident in our ability to deploy our excess capital, and the second quarter results are evidence of that. During the quarter, MSDL's debt to NAV increased to 0.9 times from 0.81. Lending times and given the strength of our origination platform, we expect to achieve our target leverage of one to one and a quarter in the second half of the year without stretching on credit.

Dave: For the second quarter, new investment commitments totaled approximately $673.9 million in 46 portfolio companies.

Dave: Net funded deployment for the quarter was $210 million, as compared with $97 million in the first quarter.

Jeff Levin: We remain confident in our ability to deploy our excess capital, and the second quarter results are evidence of that. During the quarter, MSDL's debt to NAV increased to .9 times from .81 times. And given the strength of our origination platform, we expect to achieve our target leverage of 1 to 1.25 in the second half of the year without stretching on credit. We demonstrated another strong quarter of driving quality originations through our investment framework, leading or co-leading 100% of the new borrowers added to our portfolio in the second quarter.

Dave: We remain confident in our ability to deploy our excess capital, and the second quarter results are evidence of that.

Dave: During the quarter, MSDL's debt to NAV increased to 0.9 times from 0.81 times.

Dave: And given the strength of our origination platform, we expect to achieve our target leverage of 1 to 1.25 in the second half of the year without stretching on credit.

Jeff Levin: We demonstrated another strong quarter of driving quality originations through our investment framework, leading or co-leading 100% of the new borrowers added to our portfolio in the second quarter. In our view, these deals were favorable from a credit perspective when you consider the leverage alone to value profiles among other attributes. We believe we have differentiated ourselves in the Direct Lending ecosystem with the power of the Morgan Stanley brand driving performance through both scale and longstanding partnerships. Sponsors are drawn to the quality of our team and our ability to be a value ad partner given the broad platform we are a part of.

Dave: We demonstrated another strong quarter of driving quality originations through our investment framework, leading or co-leading 100% of the new borrowers added to our portfolio in the second quarter.

Jeff Levin: In our view, these deals were favorable from a credit perspective when you consider the leverage and loan-to-value profiles, among other attributes. We believe we have differentiated ourselves in the direct lending ecosystem with the power of the Morgan Stanley brand driving performance through both scale and long-standing partnership. Sponsors are drawn to the quality of our team and our ability to be a value-added partner, given the broad platform we are a part of.

Dave: In our view, these deals were favorable from a credit perspective when you consider the leverage and loan-to-value profiles, among other attributes.

Dave: We believe we have differentiated ourselves in the direct lending ecosystem with the power of the Morgan Stanley brand driving performance through both scale and long-standing partnerships.

Dave: Sponsors are drawn to the quality of our team and our ability to be a value-add partner given the broad platform we are a part of.

Jeff Levin: Our top priority is delivering shareholder value.

Jeff Levin: Our top priority is delivering shareholder value, and we're confident that our combination of relatively low expenses, a thoughtful fee structure, and our defensive investment strategy will continue to deliver value to our shareholders in the coming quarters. Turning now to the market outlook, resilience defined the first half of 2024, marked by economic outperformance against the backdrop of a potential soft landing and anticipated policy easing. Clearly, some of that narrative has been up for debate over the past week as the market evaluates the economic trajectory. That being said, the risk appetite for private credit as an asset class remains strong, with highly attractive returns and downside protection. Gross asset yields have persisted at elevated levels, and credit performance has been solid.

Jeff Levin: We're confident that our combination of relatively low expenses, a thoughtful fee structure in our defensive investment strategy will continue to deliver value to our shareholders in the coming quarters. Turning now to market outlook, resilience defined the first half of 2024, marked by economic performance against the backdrop of potential soft landing and anticipated policy easing. Clearly, some of that narrative has been up for debate over the past week as the market evaluates the economic trajectory. That being said, the risk appetite for private credit as an asset class remains strong with highly attractive returns and downside protection.

Speaker Change: Our top priority is delivering shareholder value. We're confident that our combination of relatively low expenses, a thoughtful fee structure, and our defensive investment strategy will continue to deliver value to our shareholders in the coming quarters.

Jeff Levin: 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.

Jeff Levin: At this time, I'd like to turn the call over to Mr. Michael O.C., Head of Investor Relations and Chief Administrative Officer. Please go ahead.

Speaker Change: Turning now to market outlook. Resilience defined the first half of 2024 marked by economic outperformance against the backdrop of potential soft landing and anticipated policy easing.

Speaker Change: Clearly, some of that narrative has been up for debate over the past week as the market evaluates the economic trajectory.

Jeff Levin: Good morning and welcome to Morgan Stanley Direct Lending Fund's second quarter, 2024, earnings call. Joining me are Jeff Levin, President and Chief Executive Officer, David Pasachee Financial Officer, and Rebecca Shoel, Head of Portfolio Management. Morgan Stanley Direct Lending Fund's second quarter, 2024 Financial Results, were released yesterday after Market Clothes, and can be accessed on the Investor Relations section of our website at www.msdl.com.

Speaker Change: That being said, the risk appetite for private credit as an asset class remains strong with highly attractive returns and downside protection.

Jeff Levin: Gross asset yields have persisted at elevated levels, and credit performance has been solid. Deal flow has been resilient, and we continue to believe it is poised to accelerate. Regarding deal activity, we view the capital market rebound as on track, with sponsor M&A likely to accelerate. Recent market activity serves as a reminder that this is not likely to happen in a straight line. However, we see a growing desire for private equity firms and other asset owners to transact due to LP dynamics in generally more conducive private and public financing markets. Net net, we expect that sponsors are likely to deploy capital, which we believe will create lending opportunities for us.

Speaker Change: Gross asset yields have persisted at elevated levels and credit performance has been solid. Deal flow has been resilient and we continue to believe it is poised to accelerate.

Jeff Levin: Deal flow has been resilient, and we continue to believe it is poised to accelerate. Regarding deal activity, we view the capital markets rebound as on track, with sponsor M&A likely to accelerate. Recent market activity serves as a reminder that this is not likely to happen in a straight line. However, we see a growing desire for private equity firms and other asset owners to transact due to LP dynamics in generally more conducive private and public financing markets.

Speaker Change: Regarding deal activity, we view the capital markets rebound as on track, with sponsor M&A likely to accelerate.

Jeff Levin: We have arranged for a replay of today's event 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 rising interest rates, changing economic conditions, and other factors we have identified in our filings with the SEC.

Speaker Change: Recent market activity serves as a reminder that this is not likely to happen in a straight line. However, we see a growing desire for private equity firms and other asset owners to transact due to LP dynamics in generally more conducive private and public financing markets.

Jeff Levin: Net net, we expect that sponsors are likely to deploy capital, which we believe will create lending opportunities for us. It's important to note that both the direct and public lending markets will continue to co-exist. We believe Morgan Stanley Direct Lending's nimble approach to investing up and down the size spectrum enhances our ability to find attractive lending opportunities in an always changing market, while remaining selective, positioning us well to capitalize on quality opportunities for the foreseeable future. With that, I would like to hand the call over to David, who will provide details on Morgan Stanley Direct Lending Fund's portfolio, investment activity, and financial results.

Speaker Change: Net-net we expect that sponsors are likely to deploy capital which we believe will create lending opportunities for us.

Jeff Levin: It's important to note that both the direct and public lending markets will continue to coexist. We believe Morgan Stanley Direct Lending's nimble approach to investing up and down the size spectrum enhances our ability to find attractive lending opportunities in an always changing market while remaining selective, positioning us well to capitalize on quality opportunities for the foreseeable future.

Speaker Change: It's important to note that both the direct and public lending markets will continue to co-exist.

Jeff Levin: Although we believe that these 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.

Speaker Change: We believe Morgan Stanley Direct Lending's nimble approach to investing up and down the size spectrum enhances our ability to find attractive lending opportunities in an always-changing market, while remaining selective, positioning us well to capitalize on quality opportunities for the foreseeable future.

David Pasachee: With that, I would like to hand the call over to David, who will provide details on Morgan Stanley Direct Lending Funds portfolio, investment activity, and financial results. Thank you, Jeff. Starting with our portfolio, we ended the second quarter with a total portfolio at fair value of 3.5 billion, which was comprised of 95% first-line debt, 3% second-line debt, and then a remainder in equity and other investments. As of June 30th, we had investments in 192 portfolio companies, spending across 34 industries, with nearly 100% of our investments in floating rate debt. Our two largest industry exposures remain in software and insurance services, which accounted for 15.7% and 14.3% of the portfolio at fair value. The average position size of our investments was approximately 18.3 million or 0.5% of our portfolio on a fair value basis.

Speaker Change: With that, I would like to hand the call over to David, who will provide details on Morgan Stanley Direct Lending Fund's portfolio, investment activity, and financial results.

Jeff Levin: To obtain copies of SEC-related filings, please visit our website.

David Passa: Thank you, Jeff. Starting with our portfolio, we ended the second quarter with a total portfolio at fair value of $3.5 billion, which was comprised of 95% first lien debt, 3% second lien debt, and then a remainder in equity and other investments. As of June 30th, we had investments in 192 portfolio companies spanning across 34 industries with nearly 100% of our investments in float and rate debt. Our two largest industry exposures remain in software and insurance services, which accounted for 15.7% and 14.3% of the portfolio at fair value, respectively. The average position size of our investments was approximately 18.3 million or 0.5% of our portfolio on a fair value basis. Further, our top 10 portfolio companies represented approximately 18% at fair value of the total portfolio.

David Passa: With that, I will now turn the call over to Jeff Levin. Thank you, Michael, and thank you for joining us today for Morgan Stanley Direct Lending's second quarter of 2024 conference call. We are proud of the strong results that we generated during the second quarter.

David Passa: Thank you, Jeff. Starting with our portfolio, we ended the second quarter with the total portfolio at fair value of $3.5 billion, which was comprised of 95% first lien debt, 3% second lien debt, and then the remainder in equity and other investments.

David Passa: I'll first begin with an overview of our second quarter of 2024 performance before discussing our market outlook.

David Passa: As of June 30th, we had investments in 192 portfolio companies.

David Passa: spanning across 34 industries with nearly a hundred percent of our investments in float and rate debt. Our two largest industry exposures remain in software and insurance services which accounted for 15.7% and 14.3% of the portfolio at fair value respectively.

David Passa: Dave will then provide updates on our portfolio and comment on the financial results. Our team delivered portfolio growth and solid operating results for the second quarter, supported by strong credit performance. Net asset value per share increased by 16 cents to $20.83 per share. And we generated net investment income of $0.63 per share consistent with the first quarter results in well and excess of the $0.50 per share regular dividend we declared for the quarter.

David Passa: The average position size of our investments was approximately $18.3 million or 0.5% of our portfolio on a fair value basis.

David Pasachee: Further, our top 10 portfolio companies represented approximately 18% at fair value of the total portfolio. At the end of the second quarter, our weighted average loan to value was approximately 40%, and the weighted average EBITDA of our portfolio companies was 150 million. Additionally, the median EBITDA of our portfolio companies was approximately $82 million. At the June 30th, our weighted average yield on debt and income produced an investment was 11.7% of fair value and 11.6% of cost. With respect to our eternal risk ratings, at the June 30th, over 98% of our total portfolio had an internal risk rating of two or better, which is unchanged relative to the first quarter.

David Passa: Further, our top 10 portfolio companies represented approximately 18% at fair value of the total portfolio.

David Passa: At the end of the second quarter, our weighted average loan-to-value was approximately 40%, and the weighted average EBITDA of our portfolio companies was $150 million. Additionally, the median EBITDA of our portfolio companies was approximately $82 million. As of June 30th, our weighted average yield on debt and income-producing investments was 11.7% at fair value and 11.6% at cost. With respect to our internal risk ratings, as of June 30th, over 98% of our total portfolio had an internal risk rating of 2 or better, which is unchanged relative to the first quarter.

David Passa: For the second quarter, new investment commitments totaled approximately $673.9 million in 46 portfolio companies. Net funded deployment for the quarter was $210 million as compared with $97 million in the first quarter. We remained confident in our ability to deploy our excess capital and the second quarter results are evidence of that. During the quarter, MSDL's debt to NAV increased to 0.9 times from 0.81. Lending times and given the strength of our origination platform, we expect to achieve our target leverage of one to one and a quarter in the second half of the year without stretching on credit.

David Passa: At the end of the second quarter, our weighted average loan-to-value was approximately 40% and the weighted average EBITDA of our portfolio companies was $150 million. Additionally, the median EBITDA of our portfolio companies was approximately $82 million.

David Passa: As of June 30th, our weighted average yield on debt and income-producing investments was 11.7% at fair value and 11.6% at cost.

David Passa: With respect to our internal risk ratings, as of June 30th, over 98% of our total portfolio had an internal risk rating of 2 or better, which is unchanged relative to the first quarter.

David Pasachee: Additionally, the investments on not a cruel total of approximately 12.4 million represented 30 basis points of the total portfolio at cost. For our investment activity in the second quarter, we made new investment commitments of approximately 674 million in 22 new portfolio companies and 24 existing portfolio companies across 22 industries. Investment fund ins totaled 499.7 million, with 289.3 million in repayment, which included four repayments from eight portfolio companies for net funded investment activity of 210.4 million. Turning to our financial results for the second quarter, our total investment income was 104.2 million for the second quarter as compared to 99.1 million in the prior quarter.

David Passa: Additionally, the investments on nonaccrual totaled approximately $12.4 million, representing 30 basis points of the total portfolio at cost. For our investment activity in the second quarter, we made new investment commitments of approximately $674 million in 22 new portfolio companies and 24 existing portfolio companies across 22 industries. Investment funding totaled $499.7 million with $289.3 million in repayments, which included full repayments from eight portfolio companies for net funded investment activity of $210.4

David Passa: Additionally, the investments on non-accrual totaled approximately $12.4 million, representing 30 basis points of the total portfolio at cost.

David Passa: We demonstrated another strong quarter of driving quality originations through our investment framework, leading or co-leading 100% of the new borrowers added to our portfolio in the second quarter. In our view, these deals were favorable from a credit perspective when you consider the leverage alone to value profiles among other attributes. We believe we have differentiated ourselves in the Direct Lending ecosystem with the power of the Morgan Stanley brand driving performance through both scale and longstanding partnerships. Sponsors are drawn to the quality of our team and our ability to be a value ad partner given the broad platform we are a part of.

David Passa: For our investment activity in the second quarter, we made new investment commitments of approximately $674 million in 22 new portfolio companies and 24 existing portfolio companies across 22 industries.

David Passa: Investment fundings totaled $499.7 million with $289.3 million in repayments, which included full repayments from eight portfolio companies for net funded investment activity of $210.4 million.

David Passa: Turning to our financial results for the second quarter, our total investment income was $104.2 million for the second quarter, as compared to $99.1 million in the prior quarter. The increase was driven by recurrent interest income from deployment and repayment-related income. Peak income continues to remain relatively low, amounted to only 3% of total investment income.

David Passa: Turning to our financial results for the second quarter, our total investment income was $104.2 million for the second quarter, as compared to $99.1 million in the prior quarter. The increase was driven by recurrent interest income from deployment and repayment related income.

David Passa: Our top priority is delivering shareholder value. We're confident that our combination of relatively low expenses, a thoughtful fee structure in our defensive investment strategy will continue to deliver value to our shareholders in the coming quarters.

David Pasachee: The increase was driven by recurrent interest income from deployment and repayment-related income. Take income continues to remain relatively low, amounted to only 3% of total investment income. Net investment income for the second quarter was 56.1 million, or 63 cents per share, compared to 54.7 million, or 63 cents per share, from the prior quarter. Total expenses for the second quarter were 48.1 million compared to 44.5 million in the prior quarter.

David Passa: Peak income continues to remain relatively low, amounted to only 3% of total investment income.

David Passa: Turning now to market outlook, resilience defined the first half of 2024 marks by economic performance against the backdrop of potential soft landing and anticipated policy easing. Clearly some of that narrative has been up for debate over the past week as the market evaluates the economic trajectory. That being said, the risk appetite for private credit as an asset class remains strong with highly attractive returns and downside protection. Gross asset yields have persisted at elevated levels and credit performance has been solid.

David Passa: Net investment income for the second quarter was $56.1 million, or $0.63 per share, compared to $54.7 million, or $0.63 per share, from the prior quarter. Total expenses for the second quarter were $48.1 million, compared to $44.5 million in the prior quarter. As a reminder, we have instituted a partial waiver of our management and income-based incentive fees in connection with our IPO through January 24th, 2025. For the second quarter, the net change in unrealized gains was $2.8 million.

David Passa: Net investment income for the second quarter was $56.1 million or $0.63 per share compared to $54.7 million or $0.63 per share from the prior quarter.

David Passa: Total expenses for the second quarter were $48.1 million compared to $44.5 million in the prior quarter. As a reminder, we have instituted a partial waiver of our management and income-based incentive fees in connection with our IPO through January 24, 2025.

David Pasachee: As a reminder, we have instituted a partial labor of our management and income-based incentives in connection with our IPO through January 24, 2025. For the second quarter, the net change in unrealized gains was $2.8 million. As of June 30, total assets were 3.7 billion and total net assets were 1.9 billion. Our end in that per share for the second quarter increased to $20.83 compared to $20.67 at the end of the first quarter. At the end of the second quarter, our debt equity ratio was 0.9 times compared to 0.81 times as of March 31, 2024, which was driven by our fund and deployment this quarter and will continue to trend upward into our target leverage range.

David Passa: Deal flow has been resilient and we continue to believe it is poised to accelerate. Regarding deal activity, we view the capital market rebound as on track with sponsor M&A likely to accelerate. Recent market activity serves as a reminder that this is not likely to happen in the straight line. However, we see a growing desire for private equity firms and other asset owners to transact due to LP dynamics in generally more conducive private and public financing markets.

David Passa: For the second quarter, the net change in unrealized gains was $2.8 million.

David Passa: As of June 30th, total assets were $3.7 billion, and total net assets were $1.9 billion. Our ended NAV per share for the second quarter increased to $20.83 compared to $20.67 at the end of the first quarter. At the end of the second quarter, our debt to equity ratio was 0.9 times compared to 0.81 times as of March 31st, 2024, which was driven by our funded deployment this quarter and will continue to trend upward into our target leverage range.

David Passa: As of June 30, total assets were $3.7 billion and total net assets were $1.9 billion.

David Passa: Our end-in-nav per share for the second quarter increased to $20.83 compared to $20.67 at the end of the first quarter.

David Passa: At the end of the second quarter, our debt-to-equity ratio was 0.9 times compared to 0.81 times as of March 31st, 2024, which was driven by our funded deployment this quarter and will continue to trend upward into our target leverage range.

David Passa: Net net, we expect that sponsors are likely to deploy capital, which we believe will create lending opportunities for us. It's important to note that both the direct and public lending markets will continue to coexist. We believe Morgan Stanley direct lending's nimble approach to investing up and down the size spectrum enhances our ability to find attractive lending opportunities in an always changing market while remaining selective, positioning us well to capitalize on quality opportunities for the foreseeable future.

David Pasachee: At the June 30, approximately 63 percent of our fund and debt was in the form of unsecured notes, with well-blended maturities ranging from 2025 to 2029. During the quarter, we closed an offer of 350 million aggregate principal amount of unsecured notes due in 2029, which bear a fixed coupon of 6.15%. In connection with our note offering, we swap. the issue to flow in. Also, as we discussed last call, we execute an extension of our secured revolving credit facility from January 2020 to April 2029, increasing our total commitments to 1.3 billion while preserving our attractive price.

David Passa: As of June 30th, approximately 63% of our front-end debt was in the form of unsecured notes, with well-voted maturities ranging from 2025 to 2029. During the quarter, we closed an offering of $350 million aggregate principal amount of unsecured notes due in 2029, which bear a fixed coupon of 6.15%. In connection with our note offering, we swapped the issue to floating. Also, as we discussed last call, we executed an extension of our secured revolving credit facility from January 2028 to April 2029, increasing our total commitments to $1.3 billion while preserving our attractive price.

David Passa: As of June 30th approximately 63% of our front-end debt was in the form of unsecure notes with well-voted maturities ranging from 2025 to 2029.

David Passa: During the quarter, we closed an offering of $350 million aggregate principal amount of unsecured notes due in 2029, which bear a fixed coupon of 6.15%. In connection with our note offering, we swapped the issue to floating.

David Passa: With that, I would like to hand the call over to David who will provide details on Morgan Stanley direct lending funds portfolio, investment activity, and financial results. Thank you, Jeff. Starting with our portfolio, we ended the second quarter with a total portfolio at fair value of 3.5 billion, which was comprised of 95% first-line debt, 3% second-line debt, and then a remainder in equity and other investments. As a June 30th, we had investments in 192 portfolio companies spending across 34 industries with nearly 100% of our investments in floating rate debt.

David Passa: Also, as we discussed last call, we executed an extension of our secured revolving credit facility from January 2028 to April 2029, increasing our total commitments to $1.3 billion while preserving our attractive pricing.

David Pasachee: We continue to remain pleased with our debt capital stack and will continue to strategically evaluate opportunities to further diversify our sources of leverage.

David Passa: We continue to remain pleased with our debt capital stack and will continue to strategically evaluate opportunities to further diversify our sources of leverage. Last, our Board of Directors declared a regular distribution for the third quarter of 50 cents per share to shareholders as a record on September 30, 2024. Our estimated spillover net investment income is $63.5 million or 71 cents on a per share basis, which provides continuous stability for a consistent regular distribution.

David Passa: We continue to remain pleased with our debt capital stack and will continue to strategically evaluate opportunities to further diversify our sources of leverage.

David Pasachee: Last, our Board of Directors declared a regular distribution for the third quarter of 50 cents per share to shareholders of record on September 30th, 2024. Our estimated spill over net investment income is 63.5 million or 71 cents on a per share basis, which provides continuous ability for a consistent regular distribution. As a reminder, in connection with our IPO earlier this year, our Board of Directors also declared two 10 cents special dividends to be paid in October 2024 and January 2025, respectively.

David Passa: Last, our Board of Directors declared a regular distribution for the third quarter of $0.50 per share to shareholders of record on September 30, 2024. Our estimated spillover net investment income is $63.5 million or $0.71 on a per share basis.

David Passa: Our two largest industry exposures remain in software and insurance services, which accounted for 15.7% and 14.3% of the portfolio at fair value The average position size of our investments was approximately 18.3 million or 0.5% of our portfolio on a fair value basis. Further, our top 10 portfolio companies represented approximately 18% at fair value of the total portfolio. At the end of the second quarter our weighted average loan to value was approximately 40% and the weighted average EBITDA of our portfolio companies was 150 million.

David Passa: As a reminder, in connection with our IPO earlier this year, our Board of Directors also declared two $0.10 special dividends to be paid in October 2024 and January 2025, respectively. With that, operator, please open the line for questions. Thank you, and if anyone would like to ask a question, please signal by pressing star 1 on your telephone key.

David Passa: which provides continuous stability for a consistent regular distribution.

David Passa: As a reminder, in connection with our IPO earlier this year, our Board of Directors also declared two $0.10 special dividends to be paid in October 2024 and January 2025, respectively.

Operator: With that, operator, please open the line for questions. Thank you. And if anyone would like to ask a question, please signal by pressing star one on your telephone keypad. If you're using a speaker phone, please make sure your mute function is turned off to allow your signal to reach our equipment. Again, you could press star one to ask a question, and we'll pause for just a moment to allow everyone an opportunity to signal for questions.

Operator: Thank you, and if anyone would like to ask a question, please signal by pressing star 1 on your telephone keypad. If you're using a speakerphone, please make sure your mute function is turned off to allow your signal to reach our equipment. Again, you can press star 1 to ask a question, and we'll pause for just a moment to allow everyone an opportunity to signal for questions. Our first question is from Sean Paul Adams with Raymond James. Your line is open. Hi guys. Good morning. You currently have a high level of

Speaker Change: With that, operator, please open the line for questions.

Speaker Change: Thank you, and if anyone would like to ask a question, please signal by pressing star 1 on your telephone keypad. If you're using a speakerphone, please make sure your mute function is turned off to allow your signal to reach our equipment.

Operator: Additionally, the median EBITDA of our portfolio companies was approximately 82 million. At the June 30th, our weighted average yield on debt and income produced an investment was 11.7% of fair value and 11.6% of cost. With respect to our eternal risk ratings, at the June 30th, over 98% of our total portfolio had an internal risk rating of two or better, which is unchanged relative to the first quarter. Additionally, the investments on not a cruel total of approximately 12.4 million represented 30 basis points of the total portfolio at cost.

Speaker Change: Again, you can press star 1 to ask a question, and we'll pause for just a moment to allow everyone an opportunity to signal for questions.

Speaker Change: Thank you so much for watching this video.

Speaker Change: i

Sean Paul Adams: Our first question is coming from Sean Paul Adams with Raymond James; your line's open. Hi, guys. Good morning.

Speaker Change: Our first question is coming from Sean Paul Adams with Raymond James. Your line is open.

Jeff Levin: You currently have a high level of portfolio overlap with a number of large BDCs in the space.

Speaker Change: Hi guys, good morning.

Speaker Change: You currently have a high level of portfolio overlap with a number of large BDCs in the space. How long do you think it will take to rotate into more unique non-overlapping positions?

Operator: For our investment activity in the second quarter, we made new investment commitments of approximately 674 million in 22 new portfolio companies and 24 existing portfolio companies across 22 industries. Investment fund ins totaled 499.7 million with 289.3 million in repayment, which included four repayments from eight portfolio companies for net funded investment activity of 210.4 million. Turning to our financial results for the second quarter, our total investment income was 104.2 million for the second quarter as compared to 99.1 million in the prior quarter.

Jeff Levin: How long do you think it will take to rotate into more unique, non-overlapping positions? Yes, Jeff. Thanks for the question.

Jeff Levin: It's Jeff. Thanks for the question. Look, I think we benefit from, in our opinion, granted we're biased, the most unique and differentiated origination platform in the market. So if you see overlap within our portfolio and others, that's based on our investment strategy, which really is focusing on investing in the highest quality opportunities that we originate. And most of the deals come through our direct origination team that's dedicated to our private credit business within the investor management platform.

Jeff Levin: Look, I think the we benefit from, in our opinion, granted by the most unique and differentiated origination platform in the market. So, if you see overlap within our portfolio in others, that's based on our investment strategy, which really is focusing on investing in the highest quality opportunities that we originate. Most of the deals come through our direct origination team that's dedicated to our private credit business within the investment management platform. We do work in close coordination in certain instances with the south side of the firm, so the investment banking division, capital markets team, within Morgan Stanley, to further expand the tentacles that we have into the private equity ecosystem and find ways to lead and co-lead, again, the highest quality opportunities.

Speaker Change: Yes, it's Jeff. Thanks for the question.

Speaker Change: Look, I think we benefit from...

Speaker Change: In our opinion, granted we're biased, the most unique and differentiated origination platform in the market. So if you see overlap within our portfolio and others.

Speaker Change: That's based on our investment strategy.

Speaker Change: which really is focusing on investing in the highest quality opportunities.

Jeff Levin: The increase was driven by recurrent interest income from deployment and repayment related income. Take income continues to remain relatively low, amounted to only 3% of total investment income. Net investment income for the second quarter was 56.1 million or 63 cents per share compared to 54.7 million or 63 cents per share from the prior quarter. Total expenses for the second quarter were 48.1 million compared to 44.5 million in the prior quarter. As a reminder, we have instituted a partial labor of our management and income based incentives in connection with our IPO through January 24, 2025.

Speaker Change: that we originate and most of the deals come through

Speaker Change: Our direct origination team that's dedicated to our private credit business within the investor management platform.

Jeff Levin: We do work in close coordination in certain instances with the sell side of the firm, so the investment banking division, capital markets team within Morgan Stanley to further expand the tentacles that we have into the private equity ecosystem and find ways to lead and co-lead, again, the highest quality opportunities. And so, as we mentioned earlier, All the deals that we did in the quarter that were new logos into our portfolio in the second quarter, we led or co-led all of the deals. So we're directly originating all these situations.

Morgan Stanley: We do work in close coordination in certain instances with the sell side of the firm, so the investment banking division, capital markets team within Morgan Stanley to further expand the tentacles that we have into the private equity ecosystem and find ways to

Jeff Levin: And so, as we mentioned earlier, all the deals that we did in the quarter that were new logos into our portfolio in the second quarter, we let our co-lead all of the deals. So, we're directly originating all these situations. Private equity firms, as you probably know, they club these deals up as well. So, they want to diversify their funding sources based on their financing needs, both at closed and then ongoing, as they look to grow, generally within acquisition strategy. So, again, we're less focused in terms of what the overlap looks like with other BDCs and really focused on widening out our origination footprint as best as possible, and then sifting through that opportunity set, investing in what we deem to be the highest quality opportunities that we can find.

Speaker Change: to lead and co-lead, again, the highest quality opportunities. And so, as we mentioned earlier,

Speaker Change: All the deals that we did in the quarter that were new logos

Jeff Levin: For the second quarter, the net change in unrealized gains was 2.8 million. As a June 30, total assets with 3.7 billion and total net assets were 1.9 billion. Our end in that per share for the second quarter increased to $20.83 compared to $20.67 at the end of the first quarter. At the end of the second quarter, our debt equity ratio was 0.9 times compared to 0.81 times as a March 31, 2024, which was driven by our fund and deployment this quarter and will continue to trend upward into our target leverage range.

Speaker Change: into our portfolio in the second quarter. We let her co-lead all of the deals.

Jeff Levin: Private equity firms, as you probably know, they do, they club these deals up as well. So they want to diversify their funding sources based on their financing needs, both by closing and ongoing as they look to grow, generally through an acquisition strategy. So, Again, we're less focused in terms of what the overlap looks like with other BDCs and really focused on widening out our origination footprint as best as possible and then sifting through that opportunity set, investing in what we deem to be the highest quality opportunities that we can find.

Speaker Change: So, we're directly originating all these situations.

Speaker Change: Private equity firms, as you probably know, they club these deals up as well, so they want to diversify their funding sources based on their financing needs, both at close and then ongoing as they look to grow, generally with an acquisition strategy.

Speaker Change: Again, we're less focused in terms of what the overlap looks like with other BDCs and really focused on widening out our origination footprint as best as possible and then sifting through that opportunity set, investing in what we deem to be the highest quality opportunities that we can find.

Jeff Levin: At the June 30, approximately 63 percent of our fund and debt was in the form of unsecure notes, with well-bladded maturities ranging from 2025 to 2029. During the quarter, we closed an offer of 350 million aggregate principal amount of unsecure notes due in 2029, which bear a fixed coupon of 6.15%. In connection with our note offering, we swap, the issue to flow in. Also, as we discuss last call, we execute an extension of our secured revolving credit facility from January 2020 to April 2029, increasing our total commitments to 1.3 billion while preserving our attractive price.

Sean Paul Adams: Okay, that's a wonderful explanation.

Sean Paul Adams: Thank you for the color. I appreciate it.

Speaker Change: Okay, that's a wonderful explanation. Thank you for the color. I appreciate it.

Operator: Our next question is coming from Melissa Waddell with JP Morgan. Your line is open.

Melissa Woodayle: Our next question is coming from Melissa Woodayle with JP Morgan.

Jeff Levin: Your line is open. Good morning. Thanks for taking my questions today. One is to catch quickly on your comments about acceleration of, I think, the origination environment into the second half. I apologize if I missed it, but did you mention what your expectations are in terms of repayments as well? Should we be thinking about a lot of repy happening in the second half?

Melissa Waddell: Our next question is coming from Melissa Waddell with J.P. Morgan. Your line is open. Good morning. Thanks for taking my questions today. Wanted to touch quickly on your comments about acceleration of

Melissa Waddell: Good morning. Thanks for taking my questions today.

Jeff Levin: I wanted to touch quickly on your comments about the acceleration of, I think, the originations environment into the second half. I apologize if I missed it, but did you mention what your expectations are in terms of repayments as well? Should we be thinking about a lot of rebuy happening in the second half?

Melissa Waddell: I apologize if I missed it, but did you mention what your expectations are in terms of repayments as well? Should we be thinking about a lot of re-buy happening in the second half?

Jeff Levin: We continue to remain pleased with our debt capital stack and will continue to strategically evaluate opportunities to further diversify our sources of leverage. Last, our Board of Directors declared a regular distribution for the third quarter of 50 cents per share to shareholders of record on September 30th, 2024. Our estimated spill over net investment income is 63.5 million or 71 cents on a per share basis, which provides continuous ability for a consistent regular distribution.

Jeff Levin: yeah hi it's Jeff thanks for the

Jeff Levin: Yeah, hi, Jeff. Thanks for the question. Predicting repayments, of course, is always hard to do. Repricing in repayments has picked up as you saw on the quarter relative to prior quarters. Gross originations, as you saw, picked up quite a bit in the second quarter as well, with close to 700 million of gross originations, but two-thirds of which was truly new capital being deployed. You know, really hard to know how that plays out over the course of the year. The markets, as you know, have presented some volatility over the last week or so, so we'll see how that plays out and what that means for private credit and no BO activity in the spread environment over time.

Jeff Levin: Yeah, hi, it's Jeff. Thanks for the question. Predicting repayments, of course, is always hard to do. You know, repricing, and repayments picked up, as you saw, in the quarter relative to prior quarters. Gross originations, as you saw, picked up quite a bit in the second quarter as well, with close to $700 million of gross originations, about two-thirds of which were truly new capital being deployed. Really hard to know how that plays out over the course of the year.

Speaker Change: Hi Jeff, thanks for the question.

Speaker Change: Predicting repayments, of course, always hard to do. You know, repricing and repayments...

Speaker Change: has picked up as you saw in the quarter relative to prior quarters.

Jeff Levin: As a reminder, in connection with our IPO earlier this year, our Board of Directors also declared two 10 cents special dividends to be paid in October 2024 and January 2025 respectively.

Speaker Change: Gross Originations, as you saw, picked up quite a bit in the second quarter as well with close to $700 million of gross originations.

Speaker Change: by two-thirds of which

Speaker Change: was truly new capital being deployed.

Jeff Levin: With that, operator, please open the line for questions. Thank you. And if anyone would like to ask a question, please signal by pressing star one on your telephone keypad. If you're using a speaker phone, please make sure your mute function is turned off to allow your signal to reach our equipment. Again, you could press star one to ask a question, and we'll pause for just a moment to allow everyone an opportunity to signal for questions.

Speaker Change: You know, really hard to know how that plays out over the course of the year, the markets.

Jeff Levin: The markets, as you know, have presented some volatility over the last week or so, so we'll see how that plays out and what that means for private credit and LBO activity in the spread environment over time. You know, we continue to be focused, frankly, on optimizing our deployment in terms of the highest quality deals that we can invest in, and monitoring our portfolio really closely, and so I think, Melissa, the second quarter, we feel really good about with regards to the capital that we deployed, obviously increasing leverage a bit from Q1 to Q2, with an eye towards the target leverage by the end of the year, as I mentioned before.

Speaker Change: As you know, I presented some volatility over the last week or so, so we'll see how that plays out and what that means for private credit and LBO activity in the spread environment over time. You know, we continue to be focused, frankly, on optimizing our deployment in terms of the highest quality deals that we can invest in.

Jeff Levin: You know, we continue to be focused, frankly, on optimizing our deployment in terms of the highest quality deals that we can invest in and monitoring our portfolio really closely. And so I think most of the second quarter, we feel really good about with regards to the capital that we deployed. Obviously, increasing leverage a bit from Q1 to Q2 with an eye towards the target leverage by the end of the year, as I mentioned before. You know, the what's in our control clearly is how we deploy capital. And we continue to really focus on doing that very cautiously, given the macroeconomic uncertainty that exists.

Speaker Change: and monitoring our portfolio really closely. And so I think...

Speaker Change: Most of the second quarter, we feel really good about with regards to the capital that we deployed, obviously increasing leverage a bit.

Speaker Change: from Q1 to Q2, with an eye towards the target leverage by the end of the year, as I mentioned before. You know, what's in our control clearly is how we deploy capital, and we continue to really focus on doing that very cautiously, given the macroeconomic uncertainty that exists.

Jeff Levin: Our first question is coming from Sean Paul Adams with Raymond James, your line's open. Hi, guys. Good morning. You currently have a high level of portfolio overlap with a number of large BDCs in the space. How long do you think it will take to rotate into more unique non-overlapping positions? Yes, Jeff. Thanks for the question. Look, I think the we benefit from, in our opinion, granted by the most unique and differentiated origination platform in the market.

Jeff Levin: What's in our control clearly is how we deploy capital, and we continue to really focus on doing that very cautiously, given the macroeconomic uncertainty that exists. The repayments are less in our control, frankly, but repayments and repricings also have a positive side, because it gives us an opportunity to bow out of certain situations that we may want to, and that could be based on structure, pricing, whatever it may be, but hard to predict what the back half of the year looks like in terms of repayments.

Jeff Levin: So, if you see overlap within our portfolio in others, that's based on our investment strategy, which really is focusing on investing in the highest quality opportunities that we originate, and most of the deals come through our direct origination team that's dedicated to our private credit business within the investment management platform. We do work in close coordination in certain instances with the south side of the firm, so the investment banking division, capital markets team, within Morgan Stanley, to further expand the tentacles that we have into the private equity ecosystem and find ways to lead and co lead, again, the highest quality opportunities.

Jeff Levin: The repayments are less in our control, frankly, but repayments in reprisings also, there's a positive there as well, because it gives us an opportunity to bow out of certain situations that we may want to, and that could be based on structure, pricing, whatever it may be, but harder to predict what the back half of the year looks like in terms of repayments.

Speaker Change: The repayments are less in our control, frankly, but repayments and repricings also, there's a positive there as well because it gives us an opportunity to bow out of certain situations that we may want to. That could be based on structure, pricing, whatever it may be, but hard to predict what the back half of the year looks like in terms of repayments.

Operator: Thank you. And again, if anyone would like to ask the question, you can press star one on your telephone keypad.

Speaker Change: Thank you.

Operator: And again, if anyone would like to ask a question, they can press star 1 on your telephone keypad. Our next question is coming from Kenneth Lee with RBC. Your line is open.

Speaker Change: And again, if anyone would like to ask a question, you can press star 1 on your telephone keypad. Our next question is coming from Kenneth Lee with RBC. Your line is open. Hey, good morning. Thanks for taking my question.

Kenneth Lee: Our next question is coming from Kenneth Lee, RPC.

Jeff Levin: Your line is open. Hey, good morning. Thanks for taking my question. Just wondering whether you could just flesh out some thoughts around relative trackness of either the upper middle market or middle market segments for potential originations of near-term, just giving what you're seeing right now. Thanks.

Kenneth Lee: Hey, good morning. Thanks for taking my question. I'm just wondering whether you could just flesh out some thoughts around relative trackness of either the upper middle market or middle market segments to originations in the near term, just given what you're seeing right now. Thanks.

Kenneth Lee: I'm just wondering whether you could just flesh out some thoughts around relative attractiveness of either the upper middle market or middle market segments.

Speaker Change: potential originations of the near term, just given what you're seeing right now. Thanks.

Jeff Levin: Sure, thanks for the question. You know, when you look at our deal flow, it really does span up and down the size spectrum, and so we have deep origination teams I mentioned earlier, dedicated to our direct lending business, and then obviously the reach of the institution more broadly within the investment banking division, of the capital markets division, fixed income, and so on and so forth. I think really equips us with the opportunity set all the way up and down market. And so roughly half the deals in the portfolio above 100 EBITDA, roughly half below. Media in EBITDA in the book generally has been between 60, 65 million or so when we put money in the ground initially, so at close of a transaction. And then the median has ticked up to be over 80 million dollars because these businesses have performed well, growing both organically and organically. And I should mention we continue to see that in the second quarter.

Jeff Levin: Sure, thanks for the question. When you look at our deal flow... It really does span up and down the size spectrum and so we have a deep origination team as I mentioned earlier dedicated to our direct lending business. And then, obviously, the reach of the institution more broadly within the Investment Banking Division and the Capital Markets Division, fixed income, and so on and so forth, I think, really equips us with the opportunity set all the way up and down market.

Speaker Change: Sure, thanks for the question.

Speaker Change: You know, when you look at our deal flow,

Speaker Change: It really does span up and down the size spectrum, and so we have a deep origination team as I mentioned earlier dedicated to our direct lending business.

Jeff Levin: And so as we mentioned earlier, all the deals that we did in the quarter that were new logos into our portfolio in the second quarter, we let our co lead all of the deals. So, we're directly originating all these situations. Private equity firms, as you probably know, they club these deals up as well. So, they want to diversify their funding sources based on their financing needs both at closed and then ongoing, as they look to grow, generally within acquisition strategy.

Speaker Change: and then obviously the reach of the institution more broadly.

Speaker Change: Within the investment banking division of the capital markets division fixed income and so on so forth. I think really equips us with

Jeff Levin: And so roughly half the deals in the portfolio above 100 of EBITDA, roughly half below. Median EBITDA in the book generally has been between 60, 65 million or so when we put money in the ground initially, so at the close of a transaction.

Speaker Change: The opportunity set all the way up and down market and so roughly half the deals in the portfolio above a hundred of EBITDA roughly half below median EBITDA in the book

Jeff Levin: So, again, we're less focused in terms of what the overlap looks like with other BDCs and really focused on widening out our origination footprint as best as possible, and then sifting through that opportunity set, investing in what we deem to be the highest quality opportunities that we can find. Okay, that's wonderful explanation. Thank you for the color. I appreciate it.

Speaker Change: generally has been between $60-65 million or so when we put money in the ground initially, so at close of a transaction, and then the median has ticked up to be over $80 million because these businesses have performed well.

Jeff Levin: And then, the median has ticked up to be over $80 million because these businesses have performed well, growing both organically and inorganically, and I should mention we continue to see that in the second quarter. The health of this portfolio, we continue to feel really good about, as you can probably note in the materials. The non-accrual rate continues to be extremely low. In terms of the opportunity to set up and down the market, though, it varies, right?

Speaker Change: growing both organically and inorganically, and I should mention we continue to see that in the second quarter.

Jeff Levin: So the health of this portfolio we continue to feel really good about as you can probably note in the materials. The non-a-cruel rate continues to be extremely well in terms of the opportunity set up and down market, though it varies. Right last year in 2023 when the syndicate of loan market was closed or generally closed, much larger companies were coming to the private credit market because that was the source of open financing, and we are in our competitors, frankly, were able to monetize that. In the current market with the syndicated loan spaces in a much healthier place, larger companies have opportunities to go to the private and public markets, and that's typical. Last year was an outlier, frankly, and so our deployment in the second quarter, frankly, it looked pretty much in line with our historical averages of our capital deployment in terms of weighted average EBITDA and median EBITDA. The leverage on new deals did take down a bit, and so the leverage across the portfolio did come down a touch, which is great. Loan to value was pretty modest as well, below historical averages, so the loan to value in the quarter a new money deployed was in the low 30s percentage, so enormous enterprise value below us.

Speaker Change: The health of this portfolio, we continue to feel really good about.

Speaker Change: As you can probably note in the materials, the non-accrual rate continues to be extremely low. In terms of the opportunity set up and down market, though, it varies, right? Last year, in 2023, when the syndicated loan market was closed,

Jeff Levin: Our next question is coming from Melissa Woodayle with JP Morgan. Your line is open. Good morning. Thanks for taking my questions today. One is to catch quickly on your comments about acceleration of, I think, the origination environment into the second half. I apologize if I missed it, but did you mention what your expectations are in terms of repayments as well? Should we be thinking about a lot of repy happening in the second half?

Jeff Levin: Last year, in 2023, when the syndicated loan market was closed, or generally closed, much larger companies were coming to the private credit market because that was the source of open financing, and we and our competitors, frankly, were able to exploit that.

Speaker Change: are generally closed, much larger companies were coming to the private credit market because that was the source of open financing, and we and our competitors, frankly, were able to monetize that.

Jeff Levin: The current market, where the syndicated loan space is in a much healthier place, larger companies have opportunities to go to the private and public markets, and that's typical. Last year was an outlier, frankly, and so our deployment in the second quarter, frankly, looked pretty much in line with our historical averages of our capital deployment in terms of weighted average EBITDA and median EBITDA and the like. Leverage on new deals did tick down a bit, and so the leverage across the portfolio did come down a touch, which is great.

Speaker Change: in the current market where the syndicated loan space is in a much healthier place.

Speaker Change: Larger companies have opportunities to go to the private and public markets.

Jeff Levin: Yeah, hi, Jeff. Thanks for the question. Predicting repayments, of course, always hard to do. Repricing in repayments has picked up as you saw on the quarter relative to prior quarters. Gross originations, as you saw, picked up quite a bit in the second quarter as well with close to 700 million of gross originations, but two-thirds of which was truly new capital being deployed. You know, really hard to know how that plays out over the course of the year.

Speaker Change: And that's typical. Last year was an outlier, frankly.

Speaker Change: And so, our deployment in the second quarter, frankly, it looked...

Speaker Change: pretty much in line with our historical averages of our capital deployment in terms of weighted average EBITDA and median EBITDA and the like. Leverage on new deals did take down a bit.

Jeff Levin: Loan-to-value was pretty modest as well, below historical averages, so the loan-to-value in the quarter on new money deployed was in the low 30s percent, so enormous enterprise value below us. I tell you today, I wouldn't say that I would favor one segment of the market over the other. Every situation is completely unique.

Speaker Change: And so the leverage across the portfolio did come down a touch, which is great. Loan-to-value was pretty modest as well, below historical averages. So the loan-to-value in the quarter on new money deployed was in the low 30s percentage.

Jeff Levin: I tell you today I wouldn't say that I would favor one segment of the market over the other. Every situation is completely unique. You know we don't invest much below, call it, 25 or 30 million dollars of EBITDA, and that's just based on businesses being a bit more fragile. Companies just lack the scale and diversification of customers and suppliers, so we generally skew above that threshold. As I mentioned, median EBITDA in the book today just over 80 million dollars, but every deal structure completely bespoke in terms of analyzing the quality of the cash flows, the management team, the amount of equity behind us, the quality of the equity as well. So who's the sponsor? Who's the partner? What's their track record like? What's the growth strategy? How much risk does the equity sponsor going to take to accomplish their goals and objectives? The coveted package as well, obviously both financial covenants and non-financial covenants within the document, the industry sector. So a lot, a lot goes into how we think about deploying capital. And you know at the low end of the market, I today there's not, in my opinion, that much of a spread premium relative to the what I'd call the core and upper middle market. And part of that is just supply and demand. If you go down to credit facilities of, you know, one to hundred million dollars, there's so many direct lenders that can undripe and hold those facilities, so it's there's competition there. And again, it's really bespoke to the situation. I wouldn't generalize and say we like the lower middle or upper end of the market today more than the other. It really varies. I think it'll be of volume as you know in the first half of the year was relatively muted relative to historical averages. We do think that that'll change over time just give the amount of dry powder within the private equity world. You know, as I mentioned, it won't be a straight line. You know the markets have been somewhat volatile over the last week or so, as you know, so we'll see how that plays out of the course of the year. But if you put on your called 12 or 18 month hat, barring some significant market dislocation, we do think that will be a volume will pick up, which is going to further facilitate deal flow for us in the market. But we feel great about our market positioning. We'll continue to invest up and down the side spectrum based on where we see value and again monitor our portfolio extremely closely to preserve the value of the money that we have in the ground. So sort of you long-winded can but hopefully that color's helpful.

Speaker Change: So, enormous enterprise value below us.

Jeff Levin: The markets, as you know, have presented some volatility over the last week or so, so we'll see how that plays out and what that means for private credit and no BO activity in the spread environment over time. You know, we continue to be focused, frankly, on optimizing our deployment in terms of the highest quality deals that we can invest in and monitoring our portfolio really closely. And so I think most of the second quarter, we feel really good about with regards to the capital that we deployed, obviously, increasing leverage a bit from Q1 to Q2 with an eye towards the target leverage by the end of the year, as I mentioned before.

Speaker Change: I tell you today, I wouldn't say that I would favor one segment of the market over the other. Every situation is completely unique.

Jeff Levin: We don't invest much below, call it $25 or $30 million of EBITDA, and that's just based on businesses being a bit more fragile, companies just lack the scale and diversification of customers and suppliers, so we generally skew above that threshold, as I mentioned, median EBITDA in the book today, just over $80 million. But every deal is structured completely bespoke in terms of analyzing the quality of the cash flows, the management team, the amount of equity behind us, the quality of the equity as well, so who's the sponsor, who's the partner, what's their track record like, what's the growth strategy, how much risk is the equity sponsor going to take to accomplish their goals and objectives, the covenant package as well, obviously, both financial covenants and non-financial covenants within the document, the industry sector, so a lot goes into how we think about deploying capital.

Speaker Change: You know, we don't invest much below, call it $25 or $30 million of EBITDA, and that's...

Speaker Change: just based on businesses being a bit more fragile, companies just lack the scale and diversification of customers and suppliers. So, we generally skew above that threshold. As I mentioned, Meaty and EBITDA on the book today, just over $80 million.

Speaker Change: but every deal is structured completely bespoke.

Speaker Change: In terms of analyzing the quality of the cash flows, the management team, the amount of equity behind us.

Jeff Levin: You know, the what's in our control clearly is how we deploy capital. And we continue to really focus on doing that very cautiously given the macroeconomic uncertainty that exists. The repayments are less in our control, frankly, but repayments in reprisings also, there's a positive there as well, because it gives us an opportunity to bow out of certain situations that we may want to, and that could be based on structure, pricing, whatever it may be, but harder predict what the back half of the year looks like in terms of repayments. Thank you. And again, if anyone would like to ask the question, you can press star one on your telephone keypad.

Speaker Change: the quality of the equity as well. So who's the sponsor? Who's the partner? What's their track record like? What's the growth strategy? How much risk is the equity sponsor going to take to accomplish their goals and objectives?

Speaker Change: The covenant package as well, obviously, both financial covenants and non-financial covenants within the document. The industry sector, so a lot goes into how we think about deploying capital.

Jeff Levin: And, you know, at the low end of the market today, there's not, in my opinion, that much of a spread premium relative to what I'd call the core and upper middle market, and part of that is just supply and demand. If you go down to credit facilities of, you know, $100 million, there are so many direct lenders that can underwrite and hold those facilities, so there's competition there. And so, again, it's really bespoke to the situation. I wouldn't generalize and say we like the lower, middle, or upper end of the market today more than others. It really varies.

Speaker Change: And, you know, at the low end of the market...

Speaker Change: Today, there's not, in my opinion, that much of a spread premium relative to what I'd call the core and upper-middle market, and part of that is just supply and demand. If you go down to credit facilities of, you know, $100 million, there's so many direct lenders that can underwrite and hold those facilities, so there's competition there.

Jeff Levin: Our next question is coming from Kenneth Lee, RPC. Your line is open. Hey, good morning. Thanks for taking my question. Just wondering whether you could just flesh out some thoughts around relative trackness of either the upper middle market or middle market segments for potential originations of near-term, just giving what you're seeing right now. Thanks.

Speaker Change: And so, again, it's really bespoke to the situation. I wouldn't generalize and say, we like the lower middle or upper end of the market today, more than the other.

Jeff Levin: I think LBO volume, as you know, in the first half of the year was relatively muted relative to historical averages. We do think that that'll change over time, just given the amount of dry powder within the private equity world. You know, as I mentioned, it won't be a straight line. The markets have been somewhat volatile over the last week or so, as you know, so we'll see how that plays out over the course of the year.

Speaker Change: It really varies, I think.

Speaker Change: LBO volume, as you know, in the first half of the year.

Speaker Change: was relatively muted relative to historical averages. We do think that that'll change over time, just given the amount of dry powder within the private equity world.

Speaker Change: You know, as I mentioned, it won't be a straight line.

Jeff Levin: Sure, thanks for the question. You know, when you look at our deal flow It really does span up and down the size spectrum and so we have deep origination teams I mentioned earlier dedicated to our direct lending business and then obviously the reach of the institution more broadly within the investment banking division of the capital markets division fixed income and so on and so forth. I think really equips us with the opportunity set all the way up and down market.

Speaker Change: You know, the markets have been somewhat volatile over the last week or so, as you know. So we'll see how that plays out over the course of the year. But if you put on your, call it 12 or 18-month hat,

Jeff Levin: But if you put on your, call it, 12- or 18-month hat, barring some significant market dislocation, we do think that LBO volume will pick up, which is going to further facilitate deal flow for us in the market. But we feel great about our market positioning. We'll continue to invest up and down the size spectrum based on where we see value and, again, monitor our portfolio extremely closely to preserve the value of the money that we have in the ground. I don't know how long-winded Ken is, but hopefully, that color's helpful.

Speaker Change: Barring some significant market dislocation, we do think that LBO volume will pick up.

Speaker Change: which is going to further facilitate deal flow for us in the market.

Speaker Change: But we feel great about our market positioning. We'll continue to invest up and down the size spectrum based on where we see value. And again, monitor our portfolio extremely closely to preserve the value of the money that we have in the ground. So sorry to be long-winded, Ken, but hopefully that color is helpful.

Jeff Levin: No, that is super helpful. That is super helpful. And on that last point there, in terms of the conversations you've been having with the sponsors and looking at your pipeline there, you know, are there any specifics that's giving you confidence for... in terms of potential M&A activity in the second half there?

Jeff Levin: And so roughly half the deals in the portfolio above 100 EBITDA roughly half below. Media in EBITDA in the book generally has been between 60, 65 million or so when we put money in the ground initially so at close of a transaction and then the median has ticked up to be over 80 million dollars because these businesses have performed well growing both organically and organically and I should mention we continue to see that in the second quarter.

Jeff Levin: That is super helpful. And on that last point there, in terms of the conversations you've been having with these sponsors and looking to your pipeline there, you know, is there any specifics that that's giving you confidence for potential pickup and in potential M&A activity in the second half there? Thanks. Yeah, nothing overly specific. You know, limited partners. This is a secret. Limited partners want their money back. So there's a force there. You know, we saw a pickup and continuation fund deals over the last 12 or so months. I'd say that trend appears to have cooled off a bit, unclear exactly why.

Ken: That is super helpful, that is super helpful. And on that last point there, in terms of the conversations you've been having with the sponsors and looking through your pipeline there, you know, is there any specifics that's giving you confidence for potential?

Speaker Change: potential pick up in potential M&A activity in the second half there. Thanks.

Jeff Levin: yet nothing overly specific uh... you know limited partners this is a secret limited partners want the money back so there's there's there's a there's a force there you know we saw a pickup and continuation fund deals uh... i had to go to the last twelve or so months i'd say that trend appears to have cooled off a bit unclear exactly why uh... but i think just the sheer fact of the amount of drive had are sitting within the private equity world coupled with the fact that lps you know are eager to have their their mother their capital back uh... those forces i think will drive a narrower uh... delta between buyers and sellers The deals that we have done, as I mentioned, multiples continue to be quite high. And so that's been great for us as lenders sitting at the top of the capital stack with a mountain of value below us, again, just insulating our loans from a lot of downside protection.

Speaker Change: Yes, nothing overly specific, you know, limited partners. This is no secret. Limited partners want their money back.

Jeff Levin: So the health of this portfolio we continue to feel really good about as you can probably note in the materials the non-a-cruel rate continues to be extremely well in terms of the opportunity set up and down market though it varies right last year in 2023 when the syndicate of loan market was closed or generally closed much larger companies were coming to the private credit market because that was the source of open financing and we are in our competitors frankly were able to monetize that. In the current market with the syndicated loan spaces in a much healthier place larger companies have opportunities to go to the private and public markets and that's typical last year was an outlier frankly and so our deployment in the second quarter frankly it looked pretty much in line with our historical averages of our capital deployment in terms of weighted average EBITDA and median EBITDA and the leverage on new deals did take down a bit and so the leverage across the portfolio did come down a touch which is which is great loan to value was pretty modest as well below historical averages so the loan to value in the quarter a new money deployed was in the low 30s percentage so enormous enterprise value below us.

Speaker Change: So there's a force there.

Speaker Change: You know, we saw a pickup and continuation fund deals.

Speaker Change: over the last 12 or so months.

Jeff Levin: But I think just the sheer fact of the amount of drive had are sitting within the private equity world, coupled with the fact that LPs, you know, are eager to have their capital back. Those forces, I think, will drive a narrower delta between buyers and sellers. The deals that we have done, as I mentioned, multiples continue to be quite high. And so that's been great for us as lenders sitting at the top of the capital stack with a mountain of value below us. Again, just insulating our loans from a lot of downside protection. But nothing, nothing globally specific in terms of why we think markets will come back.

Speaker Change: I'd say that trend appears to have cooled off a bit, unclear exactly why, but I think just the sheer fact of the amount of drive I've had or sitting within the private equity world.

Speaker Change: Coupled with the fact that LPs, you know are eager to have their capital back Those forces I think will drive a narrower Delta between buyers and sellers

Speaker Change: The deal that we have done

Speaker Change: As I mentioned, multiples continue to be quite high, and so that's been great for us as lenders sitting at the top of the capital stack.

Speaker Change: with a mountain of value below us. Again, just insulating our loans from a lot of downside protection. But nothing overly specific in terms of why we think...

Jeff Levin: But nothing overly specific in terms of why we think markets will come back. I think, generally speaking, except for late last week and early this week, the financing markets have been extremely strong, so that naturally facilitates activity. We did see, as noted in the numbers, our Q2 was quite a bit more active than it was in the first quarter. So we did see an uptick in activity, which is good. And, generally speaking, we think that it's going to continue.

Jeff Levin: I think you're gently speaking; except for late last week and early this week, the financing market has been extremely strong, to that naturally facilitates, you know, activity. We did see, you know, as noted in the numbers, our Q2 was quite a bit more active than the first quarter. So we did see enough taken activity, which was good. And generally speaking, we think that's going to continue.

Speaker Change: Markets will come back. I think you're generally speaking Except for late last week and early this week The financing markets have been extremely strong so that naturally facilitates

Speaker Change: You know, activity. We did see, as noted in the numbers, our Q2 was quite a bit more active than the first quarter. So we did see an uptick in activity, which is good. And generally speaking, we think that's going to continue.

Kenneth Lee: Great. Very helpful there.

Kenneth Lee: Great. Very helpful there. Next time.

Operator: Next again. And again, if anyone would like to ask a question, please signal by pressing star one on your telephone keypad.

Kenneth Lee: I tell you today I wouldn't say that I would favor one segment of the market over the other every situation is completely unique you know we don't invest much below call it 25 or 30 million dollars of EBITDA and that's just based on businesses being a bit more fragile companies just lack the scale and diversification of customers and suppliers so we generally skew above that threshold as I mentioned median EBITDA in the book today just over 80 million dollars but every deal structure completely bespoke in terms of analyzing the quality of the cash flows the management team the amount of equity behind us the quality of the equity as well so who's the sponsor who's the partner what's their track record like what's the growth strategy how much risk does the equity sponsor going to take to accomplish their goals and objectives the coveted package as well obviously both financial covenants and non financial covenants within the document the industry sector so a lot a lot goes into how we think about deploying capital and you know at the low end of the market I today there's not in my opinion that much of a spread premium relative to the what I'd call the core and upper middle market and part of that is just supply and demand if you go down to credit facilities of you know one to hundred million dollars there's so many direct lenders that can undripe and hold those facilities so it's there's competition there and so again it's it's really bespoke to the situation I wouldn't generalize and say we like the lower middle or upper end of the market today more than the other it's it really varies I think it'll be of volume as you know in the in the first half of the year was relatively muted relative to historical averages we do think that that'll change over time just give the amount of dry powder within the private equity world you know as I mentioned we it won't be a straight line you know the markets have been somewhat volatile over the last week or so as you know so we'll see how that plays out of the course of the year but if you put on your called 12 or 18 month hat barring some significant market dislocation we do think that will be a volume we'll pick up which is going to further facilitate deal flow for us in the market but we feel great about our market positioning we'll continue to invest up and down the side spectrum based on where we see value and again monitor our portfolio extremely closely to preserve the value of the money that we have in the ground so sort of you long-winded can but hopefully that color's helpful No, that is super helpful. That is super helpful.

Speaker Change: Great. Very helpful there. Thanks again.

Operator: And again, if anyone would like to ask a question, please signal by pressing star 1 on your telephone keypad. Our next question is coming from Paul Johnson with KBW. Your line is open.

Speaker Change: And again, if anyone would like to ask a question, please signal by pressing star 1 on your telephone keypad. Our next question is coming from Paul Johnson with KBW. Your line is open.

Paul Johnson: Our next question is coming from Paul Johnson with KBW; your line's open. Thank you, Mark. Can you tell us what has been probably heard more?

Paul Johnson: Thank you for your time.

Paul Johnson: Um, can you tell us what kind of percent? Probably...

Detective Martin: I'm going to have to go out and take the bus.

Paul Johnson: Paul, sorry, it's hard to hear your apologies. Thank you. Sorry about that. Is this asking roughly, can you let us know kind of what percent originations are in the BDC across the overall Morgan Stanley Direct Lending platform?

Paul Johnson: Paul, I'm sorry. It's hard to hear you. Apologies.

Paul Johnson: Thank you for your time.

Speaker Change: Paul, I'm sorry. It's hard to hear you. Apologies.

Paul Johnson: Apologies. Sorry about that. Are you able to hear me now? Much better, thanks. Yeah, sorry about that. Anyway, I was just asking, roughly, can you let us know kind of what percent originations are in the BDC? across the overall Morgan Stanley Direct Lending platform.

Paul Johnson: Apologies. Sorry about that. Are you able to hear me now?

Paul Johnson: Much better, thanks.

Speaker Change: Yeah, sorry about that. Anyway, I was just asking, roughly, can you let us know kind of what percent originations are in the BDC just across the overall Morgan Stanley Direct Lending platform?

Jeff Levin: Yeah, sure.

Jeff Levin: Yeah, sure. I don't think we'll, I don't think we'll disclose the specifics, I think. You know, we have an extremely robust allocation policy that governs how we allocate deals. So we have several pools of capital in both BDC and non-BDC format as part of our capital base that we have exemptive relief with the SEC to co-invest across these funds. And so, in my opinion, each pool of capital is a significant asset to one another and the shareholders and LPs across the investor base, and the investor base here across our business is extremely diversified and global in nature, with some of the most sophisticated institutions in the world allocating capital to us.

Jeff Levin: I don't think we disclose this specifics. I think, you know, we have an extremely robust allocation policy that governs how we allocate deals. So we have several pools of capital in both BDC and non-BDC format as part of our capital base that we have exemptive relief with the SEC to co-invest across these funds. And so, in my opinion, each pool of capital is a significant asset to one another and the shareholders in LPs across the investor base. And the investor base here across our business is extremely diversified in global in nature, with some of the most sophisticated institutions in the world allocating capital to us.

Paul Johnson: Yeah, sure. I don't think we, I don't think we disclose the specifics. I think...

Speaker Change: You know, we have an extremely robust allocation policy.

Speaker Change: that governs how we allocate deals.

Speaker Change: So we have several pools of capital in both BDC and non-BDC format as part of our capital base.

Speaker Change: That we have exemptive relief with the SEC to co-invest

Speaker Change: Across these funds and so

Speaker Change: In my opinion, each pool of capital is a significant asset to one another and the shareholders and LPs across.

Speaker Change: The investor base here across our business is extremely diversified and global in nature with some of the most sophisticated institutions in the world allocating capital to us. So it's very sticky, stable money across the business here. But in terms of the percentage of the deals that get allocated...

Jeff Levin: So it's very sticky, stable money across the business here. But in terms of the percentage of the deals that could allocate it to this vehicle, effectively all the deals that we do get allocated across all the funds, assuming there's available capital. And there's several layers of oversight in terms of how we allocate the deals; there's allocation committees and the flows up through our investment committee and so on and so forth.

Jeff Levin: So it's very sticky, stable money across the business here, but in terms of the percentage of the deals that get allocated to this vehicle, effectively all the deals that we do get allocated across all the funds, assuming there's available capital. And there are several layers of oversight in terms of how we allocate the deals. There are allocation committees, and it flows up through our investment committee and so on and so forth. And we have a majority independent board of directors, as you're probably familiar with.

Speaker Change: to this vehicle, effectively all the deals that we do get allocated across all the funds, assuming there's available capital.

Speaker Change: and there's several layers of oversight.

Speaker Change: In terms of how we allocate the deals, there's allocation committees, and it flows up through our investment committee, and so on and so forth, and we have a majority independent board of directors, as you're probably familiar with.

Jeff Levin: And we have a majority independent board of directors, as you're probably familiar with. So the long story short, we have an allocation policy that governs how it works, generally speaking it's based on available capital. And there's some of the spoke nature to it though, and that if one pool of capital is very late in its investment period and doesn't have much capital left, that pool of capital will receive a smaller allocation of the deal. Or let's say that pool of capital has, based on the investment objectives, looking at deals only of a certain size or leverage threshold.

Jeff Levin: So, long story short, we have an allocation policy that governs how it works. Generally speaking, it's based on available capital. And there's somewhat of a bespoke nature to it, though, in that if one pool of capital is very late in its investment period and doesn't have much capital left, that pool of capital will receive a smaller allocation of the deal. Or let's say that the pool of capital, based on its investment objectives, is looking only at deals of a certain size or leverage threshold or is already getting close to a limit in terms of industry concentration, that could also impact how we allocate these deals.

Jeff Levin: And on that last point there in terms of the conversations you've been having with these sponsors and looking to your pipeline there, you know, is there any specifics that that's giving you confidence for potential pickup and in potential M&A activity in the second half there? Thanks. Yeah, nothing overly specific. You know, limited partners. This is a secret limited partners want their money back. So there's a force there. You know, we saw a pickup and continuation fund deals over the last 12 or so months.

Speaker Change: So, long story short...

Speaker Change: We have an allocation policy that governs how it works. Generally speaking, it's based on available capital.

Speaker Change: And...

Speaker Change: The, um...

Speaker Change: There's somewhat of a bespoke nature to it, though, in that if one pool of capital

Speaker Change: is very late in its investment period and doesn't have much capital left.

Speaker Change: that pool of capital will receive a smaller allocation of the deal, or let's say that pool of capital has, based on the investment objectives, is looking at deals only of a certain size or leverage threshold, or is already getting close to a limit in terms of an industry concentration, that could also impact how we allocate these deals.

Jeff Levin: Or it's already getting close to a limit in terms of an industry concentration. That could also impact how we allocate these deals. But this pool of capital, again, is getting allocated across effectively everything that we do. It will vary in size in terms of what percentage of each deal gets allocated to this fund based on a number of factors, as I just mentioned.

Jeff Levin: I'd say that trend appears of cooled off a bit unclear exactly why. But I think just the sheer fact of the amount of drive had are sitting within the private equity world coupled with the fact that LPs, you know, are eager to have their capital back. Those forces I think will drive a narrower delta between buyers and sellers. The deals that we have done, as I mentioned, multiples continue to be quite high.

Jeff Levin: But this pool of capital... Again, it's getting allocated across effectively everything that we do. It will vary in size in terms of what percentage of each deal gets allocated to this fund based on a number of factors, as I just mentioned. So hopefully that's helpful.

Speaker Change: But this pool of capital...

Speaker Change: Again, it's getting allocated across effectively everything that we do. It will vary in size in terms of what percentage of each deal gets allocated to this fund based on a number of factors as I just mentioned. So hopefully that's helpful.

Jeff Levin: So hopefully that's helpful.

Paul Johnson: Yeah, thanks for that. And then on new originations that you guys are doing now, sort of what level are you guys getting call protection on on those new investments and kind of what level of call protection do you get these days? Is it two years? Three years? What? Where's the market at?

Paul Johnson: And so that's been great for us as lenders sitting at the top of the capital stack with a mountain of value below us. Again, just insulating our loans from a lot of downside protection. But nothing nothing globally specific in terms of why we think markets will come back. I think you're gently speaking except for late last week and early this week, the financing market has been extremely strong to that naturally facilitates, you know, activity.

Speaker Change: Yeah, thanks for that and then on new originations that you guys are doing now

Speaker Change: What level are you guys getting call protection on those new investments and kind of what level of call protection do you get these days? Is it two years, three years? Where's the market at?

Jeff Levin: Yeah, so it varies. Guide Deal by Deal, generally speaking, you know, we're investing in the top of the capital structure, the lowest risk part of the capital structure. And so usually, it's roughly one year of protection at one on one. There are outliers, of course, on both sides. But generally speaking, again, we're skewing towards, you know, the very top of the capital stack with, you know, 30 to 40 percent or so loan to value in this past quarter. At the lower end of that range, the weighted average across the book is just over 40 percent. And so call protection is something that I would say is gravy if and when it happens.

Jeff Levin: We did see, you know, as noted in the numbers, our Q2 was quite a bit more active than the first quarter. So we did see enough taken activity, which was good. And generally speaking, we think that's going to continue.

Speaker Change: Yeah, so it varies.

Speaker Change: Guide deal by deal generally speaking, you know, we're investing in the top of the capital structure the lowest risk

Jeff Levin: Great. Very helpful there.

Jeff Levin: Next again.

Speaker Change: Part of the capital structure and so

Speaker Change: Usually it's roughly one year of protection.

Speaker Change: at 101.

Speaker Change: There's outliers, of course, on both sides, but generally speaking, again, we're skewing towards...

Jeff Levin: And again, if anyone would like to ask a question, please signal by pressing star one on your telephone keypad.

Speaker Change: You know, the very top of the capital stack with the...

Jeff Levin: Our next question is coming from Paul Johnson with KBW, your line's open.

Speaker Change: You know, 30 to 40% or so loan to value in this past quarter was at the lower end of that range, the weighted average across the book.

Speaker Change: is just over 40 percent and so call protection is something that I would say is it's gravy if and when it happens we when we underwrite to our returns

Jeff Levin: Thank you, Mark.

Jeff Levin: When we underwrite our returns, we're not underwriting for prepayment penalties. The format of our return profile is really all contractual via SOFR plus spread plus OID or commitment fees up front or admin agent fees. I should note that, unlike maybe some other players in the space, 100 percent of any income that we generate associated with our capital deployed, so whether that be everything that I just said, it all flows through the vehicles. So we're not trapping any of the income or fee generation or anything at the advisor level. It all flows through to the benefit of the shareholder base.

Jeff Levin: Can you tell us what has been probably heard more?

Speaker Change: We're not underwriting to prepayment penalties.

Speaker Change: The format of our return profile is really all contractual via...

Jeff Levin: Paul, sorry, it's hard to hear you apologies.

Speaker Change: So for a plus spread

Speaker Change: Plus OID or commitment fees up front or admin agent fees. I should note that you know, unlike maybe some other players in the space 100% of any income that we generate associated with

Jeff Levin: Thank you.

Jeff Levin: Sorry about that.

Jeff Levin: Is this asking roughly, can you let us know kind of what percent originations are in the BDC across the overall Morgan Stanley direct lending platform?

Speaker Change: with our capital deployed. So whether that be everything that I just said, it all flows through the vehicles. So we're not trapping any of the income or fee generation or anything at the advisor level. It all flows through to the benefit of the shareholder base.

Jeff Levin: Yeah, sure.

Paul Johnson: Got it. I appreciate that. Thanks for the helpful answers. That's all for me.

Paul Johnson: I don't think we disclose this specifics.

Speaker Change: I appreciate that. Thanks for the helpful answers. That's all for me.

Paul Johnson: I think, you know, we have a extremely robust allocation policy that governs how we allocate deals.

Operator: And there are no additional questions at this time. I will now turn the call back to Jeff Levin for closing remarks.

Speaker Change: Thank you.

Speaker Change: And there are no additional questions at this time. I will now turn the call back to Jeff Levin for closing remarks.

Jeff Levin: Thank you. On behalf of the management team, I greatly appreciate you joining us today along with your support of the Morgan Stanley Direct Lending Fund. Our team remains focused on executing our defensive investment strategy to drive shareholder value, and I couldn't be more pleased with our progress to date. We are well positioned to capitalize in any market environment due to our sourcing advantages and unique credit platform, and we look forward to providing an update on our third-quarter 2024 earnings call in November. Thanks.

Jeff Levin: So we have several pools of capital in both BDC and non-BDC format as part of our capital base that we have exemptive relief with the SEC to co-invest across these funds.

Jeff Levin: Thank you. On behalf of the management team, I greatly appreciate you joining us today along with your support of the Morgan Stanley Direct Lending Fund.

Jeff Levin: Our team remains focused on executing our defensive investment strategy to drive shareholder value, and I couldn't be more pleased with our progress to date. We are well positioned to capitalize in any market environment due to our sourcing advantages and unique credit platform.

Jeff Levin: And so, in my opinion, each pool of capital is a significant asset to one another and the shareholders in LPs across the investor base.

Jeff Levin: And the investor base here across our business is extremely diversified in global in nature with some of the most sophisticated institutions in the world allocating capital to us.

Jeff Levin: and we look forward to providing an update on our third quarter 2024 earnings call in November . Thanks.

Operator: This concludes today's call. Thank you for your participation. You may now disconnect.

Operator: So it's very sticky, stable money across the business here.

Speaker Change: This concludes today's call. Thank you for your participation. You may now disconnect.

Operator: But in terms of the percentage of the deals that could allocate it to this vehicle, effectively all the deals that we do get allocated across all the funds, assuming there's available capital.

Operator: And there's several layers of oversight in terms of how we allocate the deals, there's allocation committees and the flows up through our investment committee and so on and so forth.

Operator: And we have a majority independent board of directors as you're probably familiar with.

Operator: So the long story short, we have an allocation policy that governs how it works, generally speaking it's based on available capital.

Operator: And there's some of the spoke nature to it though, and that if one pool of capital is very late in its investment period and doesn't have much capital left, that pool of capital will receive a smaller allocation of the deal.

Operator: Or let's say that pool of capital has based on the investment objectives is looking at deals only of a certain size or leverage threshold.

Operator: Or it's already getting close to a limit in terms of an industry concentration.

Operator: That could also impact how we allocate these deals.

Operator: But this pool of capital, again, is getting allocated across effectively everything that we do.

Operator: It will vary in size in terms of what percentage of each deal gets allocated to this fund based on a number of factors as I just mentioned.

Operator: So hopefully that's helpful.

Operator: Yeah that is thanks for that and then on new originations that you guys are doing now sort of what level are you guys getting call protection on those new investments and kind of what what level of call protection do you get these days is the two years three years what where's the market at yeah so it varies deal by deal generally speaking you know we're investing in the top of the capital structure the lowest risk part of the of the capital structure and so usually it's roughly one year of protection at 101 there's outliers of course on both sides but generally speaking again we're skewing towards you know the very top of the capital stack with the you know 30 to 40 percent or so loan to value in this past quarter that the lower into that range the weighted average across the book is it's just over 40 percent and so call protection is something that I would say is it's gravy if and when it happens we when we underwrite to our returns we're not underwriting to prepayment penalties the format of our term profile is really all contractual via sofa plus spread plus OID or commitment fees upfront or admin agent fees I should note that you know unlike maybe some other players in the space 100 percent of any income that we generate associated with our capital deployed so whether that be everything that I just said it all flows through the vehicles and so we're not we're not trapping any of the income or fee generation or anything at the advisor level it all flows through to the benefit of the shareholder base got appreciate that thanks for the helpful answers that's all for me thank you and there are no additional questions at this time I will now turn the call back to Jeff Levin for closing remarks thank you on behalf of the manager team greatly appreciate you joining us today along with your support of the Morgan Stanley Direct lending fund our team remains focused on executing our defensive investment strategy to drive shareholder value and I couldn't be more pleased with our progress to date we are well positioned to capitalize in any market environment due to our sourcing advantages and unique credit platform and we look forward to providing an update on our third quarter 2024 earnings call in November thanks this concludes today's call thank you for your participation you may now disconnect you[inaudible]