In New York City, New York, the Q2 results for the BDC Morgan Stanley Direct Lending Fund are in focus. The fund, trading under the ticker MSDL on the NYSE, is part of the Morgan Stanley private credit platform of $18 billion. Recently, the company completed its IPO after operating as a private BDC for several years. MSDL boasts an 11.6% yield, slightly above the median in its sector, and trades at a discount to book value. Notably, it delivered a total NAV return of 3.3% for the quarter, outperforming the sector median of 2.3%.

Similar to other BDCs, MSDL has a strategic allocation to less-cyclical sectors like Software, Insurance, and Commercial Services. However, it maintains a somewhat lower exposure to the Healthcare sector compared to its peers. With a diversified portfolio consisting of 192 investments, MSDL positions itself well within the middle-market sweet spot, aiming for balance between upper and lower middle-market focused BDCs.

Looking ahead, MSDL has planned lock-up expiry dates in October 2024 and January 2025, alongside a $100 million share repurchase program to support its share price. The fund’s income dynamics in Q2 showed a slight rise in net investment income, alongside a steady $0.50 base dividend and anticipated special dividends to aid stock performance during lock-up expiries. The NAV saw a modest 0.8% increase, primarily driven by retained income.

Performance-wise, MSDL has demonstrated resilience over the years compared to its peers, although upcoming changes in fee structures post-IPO may impact its future outperformance levels. Despite a recent rally in stock price, investors might find a more favorable entry point post the second lock-up expiry in October. Overall, MSDL’s focus on a high-quality, first-lien portfolio has kept non-accruals low and potential losses minimal, making it an attractive option for investors seeking stability in the BDC space.