Morgan Stanley Direct Lending Fund

Key Figures — Q2 2026 vs. Q1 2026 (Most Recent Reported Period)

Metric	Q2 2026 (30 Jun)	Q1 2026 (31 Mar)	Change ($/abs)	Change (%)
Total Investment Income ($M)	$88.8M	$89.1M	-$0.3M	-0.3%
Net Investment Income ($M)	$38.2M	$40.5M	-$2.3M	-5.7%
NII per Share	$0.45	$0.47	-$0.02	-4.3%
EPS (Net Inc. per Share)	$0.09	-$0.05	+$0.14	n/m
NAV per Share	$19.50	$19.81	-$0.31	-1.6%
Regular Distribution per Share	$0.45	$0.45	—	0.0%
Total Expenses ($M)	$50.6M	$48.6M	+$2.0M	+4.1%
Portfolio Fair Value ($B)	$3.55B	$3.67B	-$0.12B	-3.3%
Net Assets ($M)	$1,647.9M	$1,690.5M	-$42.6M	-2.5%
Gross Debt-to-Equity Ratio	1.21x	1.22x (Q1) / 1.43x (Q4 2025 implied)	-0.22x vs Q4 2025	n/m
Non-Accruals (% of portfolio at cost)	2.9%	1.5%	+1.4pp	+93%
Net Realized & Unrealized Loss per Share	-$0.36	-$0.52	+$0.16	Improved
Spillover Income per Share	~$0.86	~$0.88	-$0.02	-2.3%
Share Repurchases ($M)	$12.5M	~$15.0M (Q1 est.)	-$2.5M	-16.7%

Summary

MSDL reported Q2 2026 net investment income of $38.2 million, or $0.45 per share, with NAV declining to $19.50 per share from $19.81 in the prior quarter. Total investment income was broadly stable at $88.8 million, with the modest decrease primarily driven by the impact of positions placed on non-accrual, partially offset by contribution from the Capstone JV. Non-accruals rose to 2.9% of the portfolio at cost following the placement of US Infra Services, Spectrio and BPG Holdings on non-accrual status. On the positive side, share repurchases added $0.05 to NAV per share during the quarter, with proactive liability management including a new $350 million unsecured notes offering to pre-fund the February 2027 maturity. NAV has now declined for the fifth consecutive quarter, falling to $19.50 from $20.81 a year ago, raising concerns about the fund's ability to out-earn its credit losses — though management maintained the dividend and expressed confidence in the fund's normalized earnings power entering Q3 2026.

Q1. Financial Performance for the Period

Net investment income for Q2 2026 was $38.2 million ($0.45 per share); total investment income was $88.8 million. Total expenses increased to $50.6 million from $48.6 million in the previous quarter, driven by higher other debt expenses and an increase in incentive fees. The net increase in net assets from operations narrowed to $7.9 million for Q2 2026, versus $36.1 million in Q2 2025 — a decline of 78.1% year-over-year. Investment income declined as weighted average yields fell — the cost yield dropped to 9.1% versus 10.1% a year prior — reducing recurring interest revenue. NAV per share declined 1.6% sequentially to $19.50 from $19.81, driven by net realized and unrealized losses totalling $30.2 million. Gross debt-to-equity closed the quarter at 1.21x, down 0.22x from the previous quarter, while share repurchases of approximately $12.5 million added $0.05 to NAV per share.

Q2. Top Contributors Identified by Management

The Capstone JV contributed positively to earnings, with a growing contribution expected as it continues to scale, providing an additional source of portfolio growth. Origination momentum was solid, with three new platform investments added, and the Bridgepoint transaction highlighted the ability to take leadership roles as lender and administrative agent. Proactive liability management was also highlighted as a positive: the corporate revolver was amended and extended, and a new $350 million unsecured notes offering was issued to pre-fund the February 2027 maturity, enhancing balance sheet flexibility. The weighted average loan-to-value across the portfolio was conservative at approximately 39%, and interest coverage ratios improved from the prior quarter. Share repurchases added $0.05 to NAV per share during the quarter, bringing total accretion to $0.10 for the first half of 2026, with significant capacity remaining on the program.

Q3. Key Detractors and Explanation

CFO David Pessah noted that the company recorded $30.2 million in net unrealized depreciation and realized losses during the period: unrealized losses reflected underperformance at a handful of portfolio companies, including investments placed on non-accrual, while realized losses were associated with two completed restructurings. Non-accruals rose to 2.9% of the portfolio at cost as of June 30, following the placement of US Infra Services, Spectrio and BPG Holdings on non-accrual status; Co-President Jeff Day stated that these companies had faced operational challenges over an extended period and that their performance did not indicate broader portfolio stress or sector-specific trends. The broader macroeconomic environment of elevated M&A and refinancing activity also worked against portfolio growth, with sales and repayments reaching $240.5 million in Q2, vastly overwhelming the $146.2 million in new fundings. NII declined to $0.45 per share from $0.47 in the prior quarter, impacted by new non-accruals and higher other financing costs.

Q4. Current Market Outlook — Bullish, Cautious, or Selective?

Management characterised the first half of 2026 as a transition period, noting that public market valuations currently reflect a more negative outlook than supported by internal portfolio fundamentals. The tone is best described as selectively cautious. Management expects new deployment to accelerate as sponsors gain conviction in the geopolitical and macroeconomic landscape following a period of uneven lending volume. The market environment remains challenging with elevated interest rates, geopolitical uncertainty, and evolving AI impacts, leading to uneven industry lending volumes. Competition for non-software assets is high, causing some modest tightening in spreads, which could pressure future yields. Management sounded more constructive on private credit, noting that sponsor-backed M&A may be early in a multi-year recovery and that improving credit repricing should support returns.

Q5. Notable New Positions, Exits, or Strategic Shifts

MSDL launched the Capstone Lending joint venture in January 2026 to scale co-investments with an institutional partner — the most significant strategic shift of the period. The Capstone Lending LLC joint venture is proving to be a reliable execution vehicle; as of Q2, 52.3% of total capital commitments have been called (up from 47% in Q4 2025), and by shifting assets into this off-balance-sheet vehicle, MSDL is optimising its ROE without adding direct leverage to the BDC. On the origination front, the company closed on 12 first lien senior secured transactions totalling $85 million of new commitments, including three new platform investments. The company also completed restructurings involving DCA Buyer and Abracon during the second quarter. MSDL also executed an April 23, 2026 amendment to extend its Truist credit facility to 2030–2031, and net funded deployment turned negative as repayments outpaced new fundings, signalling a more selective lending posture.

Q6. Risks Flagged for the Next 6–12 Months

Main risks include macro and geopolitical uncertainty (tariffs, Middle East instability), energy market volatility, non-accrual investments, and broader spread widening, with management highlighting ongoing monitoring and tighter underwriting as mitigants. Management acknowledged ongoing challenges, including the potential for continued NAV volatility if mark-to-market losses persist, pressure from higher financing costs, and the possibility of additional non-accruals. The Q4 2025 dividend cut (from $0.50 to $0.45 per share) was intended to create a durable payout, but with NII now sitting exactly at $0.45, any further spread compression or non-accrual increases puts the dividend immediately at risk. Management noted that repayments are tracking slightly above 5% of the portfolio, highlighting elevated refinance and repayment activity that can dampen near-term growth. Internally, MSDL maintains a four-tier risk rating system, with regular credit monitoring and covenants on roughly 53% of debt investments.

Q7. Direct URL to Earnings Release

The most recent Q2 2026 earnings press release (8-K/Exhibit 99.1) is available directly on the SEC EDGAR filing system and on the MSDL investor relations website:

SEC EDGAR (Q2 2026 8-K Exhibit 99.1):
https://www.sec.gov/Archives/edgar/data/0001782524/000119312526338351/d156013dex991.htm

MSDL Investor Relations Website:
https://www.msdl.com/investor-relations/newsroom/msdl-announces-june-2026-financial-results.html

Q3 2026 Earnings Release Date Announcement (SEC EDGAR, 05 Oct 2026 — the event trigger for this report):
https://www.sec.gov/Archives/edgar/data/0001782524/000119312526414170/msdl-ex99_1.htm

Q8. Earnings Call Transcript and Management Commentary — Q2 2026 (7 August 2026)

Source note: A full verbatim transcript is not freely available as of the report date. The following is compiled from earnings call highlight summaries published by Yahoo Finance, The Globe and Mail, Investing.com, and TradingView, all dated 7–8 August 2026. Speakers are identified where sourced. The Q3 2026 call (covering the quarter to 30 September 2026) is scheduled for 6 November 2026 — transcript not yet available.

Prepared Remarks — CEO Michael Occi:

CEO Michael Occi commented: "MSDL's overall portfolio health remains solid. NAV compression in the quarter was attributable in large part to a handful of underperforming investments which had previously exhibited weakness." He added, "We continue to feel pretty good about the foundation of NII and the read-through around the distribution as we look to the quarters ahead."

CEO Occi stated that second-quarter net investment income covered the dividend and that management believes the current payout is aligned with the fund's normalized earnings power.

Prepared Remarks — CFO David Pessah:

CFO David Pessah noted that the company recorded $30.2 million in net unrealized depreciation and realized losses during the period. Unrealized losses reflected underperformance at a handful of portfolio companies, including investments placed on non-accrual, while realized losses were associated with two completed restructurings.

Prepared Remarks — Co-President Jeff Day (Credit/Portfolio Commentary):

Non-accruals rose following the placement of US Infra Services, Spectrio and BPG Holdings on non-accrual status. Co-President Jeff Day stated that these companies had faced operational challenges over an extended period and that their performance did not indicate broader portfolio stress or sector-specific trends.

The shift of several loans to non-accrual weighed on the portfolio's weighted-average yield during the quarter. Management framed this yield pressure as temporary, contingent on successful restructurings or recoveries, but acknowledged that it currently constrains income generation.

Q&A Session Highlights:

Q: How is the Board thinking about the sustainability of the $0.45 dividend, given the potential for continued quarter-to-quarter noise from credit issues and new non-accruals? A: CEO Michael Occi stated that management and the Board continue to feel good about supporting the $0.45 dividend as a baseline NII matter.

NII of $0.45 per share was driven by growing contributions from the Capstone JV, though offset by higher financing costs and income drag from new non-accruals. The company maintained a disciplined capital allocation strategy, utilizing share repurchases to add $0.05 to NAV per share while scaling the JV to maximize risk-adjusted returns.

The company confirmed it will continue to ramp the JV over the coming year, balancing hold sizes, diversification, and leverage implications. On the Bridgepoint transaction, CEO Occi noted that the deal's migration in role speaks to improved visibility in the marketplace.

Looking ahead, management reiterated support for the $0.45 quarterly dividend, pointing to spillover income of approximately $0.86 per share and expected NII accretion from the Capstone JV ramp.

Management expressed confidence that the Capstone joint venture would continue to ramp and contribute to income growth over the coming year, noting the JV had deployed only 52.3% of committed capital as of quarter end, suggesting significant runway for additional earnings contribution as the remaining capital is called and invested.

On AI exposure, management noted that software investments remain concentrated in mission-critical systems with high switching costs, and the proprietary AI scorecard identifies a low single-digit percentage of the portfolio in the high-risk category.

The full Q2 2026 earnings call replay is available via the MSDL Investor Relations website at www.msdl.com. The next earnings call covering Q3 2026 (quarter ended 30 September 2026) is scheduled for 6 November 2026 at 10:00 a.m. ET. Dial-in: Domestic 800-330-6710 | International +1 213-279-1505 | Passcode: 4969183.