Morgan Stanley Direct Lending Fund Turns to a Third-Quarter Loss

The Tip Desk · November 11, 2026 · 3 min read

Net investment income recovered to $0.48 a share as realized losses widened and NAV fell to $18.76.

Morgan Stanley Direct Lending Fund (MSDL), a business development company that lends to middle-market companies, reported a $0.32 loss a share for the quarter ended September 30, 2026, reversing $0.09 of earnings in the prior quarter.

Net investment income recovered to $40.3 million, or $0.48 a share, from $38.2 million, or $0.45 a share, after a prior-quarter decline from $40.5 million, or $0.47 a share. Total investment income was $86.1 million, down from $88.8 million, which the company attributed to positions placed on non-accrual and lower non-recurring revenue. Net expenses fell to $45.1 million from $49.8 million, primarily on lower incentive fees subject to the incentive fee cap, partially offset by higher interest and other financing expenses.

The loss was driven by marks. Net realized losses widened to $38.2 million from $7.4 million, and net unrealized depreciation widened to $29.4 million from $22.8 million. Net asset value per share fell to $18.76 from $19.50 as of June 30, after a prior-quarter decline from $19.81.

The portfolio continued to shrink. Investments at fair value were $3.43 billion, down from $3.55 billion, across 233 portfolio companies versus 229, with average investment size of $14.7 million versus $15.5 million. New investment commitments, net of syndications, slowed to $52.6 million from $95.0 million, and fundings slowed to $75.1 million from $146.2 million. Sales and repayments of $140.9 million produced net funded deployment of ($65.8) million versus ($94.2) million. Two portfolio companies were exited or fully repaid.

Weighted average yield of debt investments rose to 9.6% at amortized cost and 10.0% at fair value from 9.1% and 9.4%. Floating-rate debt remained 99.8% of the portfolio on a fair-value basis. Eleven portfolio companies were on non-accrual, about 3.4% of total investments at amortized cost. First lien debt was 92.3% of the portfolio at fair value, down from 93.1%. The Capstone JV investment rose to 3.7% from 2.9%.

Debt-to-equity rose to 1.25x from 1.21x, after a prior-quarter decline from 1.22x. Total debt outstanding at principal was $1.96 billion versus $2.00 billion. On July 9, the company issued $350.0 million of 6.100% notes due 2031. The combined weighted average interest rate on debt was 5.49% for the quarter. Credit-facility availability was $1.86 billion and unrestricted cash and liquid investments were $75.0 million.

The company repurchased 819,427 shares at an average price of $15.24. Capstone JV capital called rose to approximately 64.9% of total commitments from 52.3%.

The board declared a regular dividend of $0.45 a share to shareholders of record as of September 30. On November 3, it declared a regular distribution of $0.45 a share, payable on or around January 22, 2027, and a supplemental distribution of $0.015 a share, payable on or around December 15, 2026. Subsequent to quarter end, the board approved an amendment effective January 1, 2027, reducing the base management fee from 1.00% to 0.75% and the incentive fee on income and capital gains from 17.5% to 15.0%, and a quarterly supplemental dividend expected to equal 50% of excess NII per share above the regular dividend.