
KBRA assigns a rating of BBB to Morgan Stanley Direct Lending Fund&#39;s (NYSE:MSDL, the company&#34;, )) $350 million, 6.10% senior unsecured notes due July 15, 2031. The rating Outlook is Stable.


Key Credit

KBRA assigns a rating of BBB to Morgan Stanley Direct Lending Fund&#39;s (NYSE:<a class="ticker" href="https://www.benzinga.com/quote/MSDL">MSDL</a>, the company&#34, )) $350 million, 6.10% senior unsecured notes due July 15, 2031. The rating Outlook is Stable.


Key Credit Considerations


The rating and Outlook are supported by MSDL&#39;s strong ties to the ~$1.9 trillion assets under management and/or supervision of Morgan Stanley Asset Management. The company benefits from investment banking, global capital markets, investment management, and wealth management within the Morgan Stanley (NYSE:<a class="ticker" href="https://www.benzinga.com/quote/MS">MS</a>) ecosystem in addition to MS&#39; robust sponsor and banking relationships. As part of the MS ecosystem, MSDL leverages the broad MS private credit platform ("MSPC"), which includes $23 billion of committed capital in direct lending along with SEC exemptive relief to co-invest with certain other affiliated investment vehicles managed by the company&#39;s adviser, MS Capital Partners Inc. (&#34;Adviser&#34;) or its affiliates. Furthermore, as of 1Q26, MSDL&#39;s $3.7 billion diversified investment portfolio at fair value (FV) comprises approximately 93.8% senior secured first lien loans spread across 227 companies in 36 industries, primarily in less cyclical sectors. The investment portfolio&#39;s median EBITDA is $91.1 million, and the top three sectors are Software (20.7%), Insurance Services (10.1%), and IT Services (9.9%). Asset quality remains solid with six portfolio companies on non-accrual, comprising only 1.0% and 1.5% of total investments at FV and cost, respectively at 1Q26. While the portfolio remains somewhat unseasoned due to its short operating history, 94.5% of the investment portfolio maintained an internal rating of 2 or higher, indicating performance at or above underwriting expectations.


At 1Q26, MSDL maintained gross leverage of 1.22x, in line with its target leverage range of 1.0x to 1.25x and well within the regulatory minimum asset coverage ratio of 150%. MSDL&#39;s funding mix is solid and includes a corporate revolver, SPV asset-based facilities, and senior unsecured notes. As of 1Q26, ~54% of the company’s total debt outstanding is senior unsecured, providing greater financial flexibility and low asset encumbrance for the benefit of unsecured noteholders. The proceeds from the issuance will used to repay a portion of its secured debt, increasing the percentage of unsecured debt and further increasing financial flexibility. Liquidity remained solid as of 1Q26, with sufficient bank credit availability of ~$1.4 billion and $96.7 million of unrestricted cash and cash equivalents set against $425 million of notes due within the next two years and total unfunded commitments of $449 million, a portion of which is not expected to be drawn.


Counterbalancing MSDL’s credit strengths are the company’s limited operating history offset by the long tenure of its management in private credit, the relatively illiquid investments, retained earnings constraints as a regulated investment company (&#34;RIC&#34;), and an uncertain economic environment with high base rates, inflation, and geopolitical risk that could increase non-accruals.


MSDL is a New York-based, externally managed, non-diversified, publicly traded closed-end investment management company regulated as a business development company (&#34;BDC&#34;) under the Investment Company Act of 1940. For tax purposes, MSDL has elected to be treated as a RIC. The company commenced operations in January 2020 and closed its initial public offering on January 26, 2024. MSDL&#39;s Adviser is a wholly owned subsidiary of Morgan Stanley, a leading global investment bank. MSDL is neither a subsidiary nor is it consolidated with MS. Morgan Stanley has no obligation, contractual or otherwise, to financially support MSDL. MSDL’s obligations are neither MS’ obligations nor are they guaranteed by MS, and MS has no history of financially supporting any MS BDC even during periods of financial distress.


Rating Sensitivities


Given the Stable Outlook, a rating upgrade is not expected in the medium term. A rating downgrade and/or Outlook change to Negative could be considered if management alters its stated company strategy by increasing its focus on riskier investments coupled with higher leverage metrics. A prolonged downturn in the U.S. economy with negative impact on MSDL’s earnings performance, asset quality, and leverage or a significant change in senior management and/or risk management policies could also lead to negative rating action.


To access ratings and relevant documents, click <a xmlns="http://www.w3.org/1999/xhtml" rel="nofollow" href="https://cts.businesswire.com/ct/CT?id=smartlink&amp;url=https%3A%2F%2Fwww.kbra.com%2Fissuers%2F64551%2Fsecurity-ratings&amp;esheet=54562469&amp;newsitemid=20260629858221&amp;lan=en-US&amp;anchor=here&amp;index=1&amp;md5=8d47036da31d98ae2e37605860872505" shape="rect">here</a>.


Methodology

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Disclosures


A description of all substantially material sources that were used to prepare the credit rating and information on the methodology(ies) (inclusive of any material models and sensitivity analyses of the relevant key rating assumptions, as applicable) used in determining the credit rating is available in the Information Disclosure Form(s) located <a xmlns="http://www.w3.org/1999/xhtml" rel="nofollow" href="https://cts.businesswire.com/ct/CT?id=smartlink&amp;url=https%3A%2F%2Fwww.kbra.com%2Fissuers%2F64551%2Fdisclosures&amp;esheet=54562469&amp;newsitemid=20260629858221&amp;lan=en-US&amp;anchor=here&amp;index=3&amp;md5=47ddb1e70ac74ced446fa91d80256da2" shape="rect">here</a>.


Information on the meaning of each rating category can be located <a xmlns="http://www.w3.org/1999/xhtml" rel="nofollow" href="https://cts.businesswire.com/ct/CT?id=smartlink&amp;url=https%3A%2F%2Fwww.kbra.com%2Funderstanding-ratings%2Frating-scales%2Flong-term-credit-rating&amp;esheet=54562469&amp;newsitemid=20260629858221&amp;lan=en-US&amp;anchor=here&amp;index=4&amp;md5=da787a9bb4e8a087be0b6f890ab36db6" shape="rect">here</a>.


Further disclosures relating to this rating action are available in the Information Disclosure Form(s) referenced above. Additional information regarding KBRA policies, methodologies, rating scales and disclosures are available at <a xmlns="http://www.w3.org/1999/xhtml" rel="nofollow" href="https://cts.businesswire.com/ct/CT?id=smartlink&amp;url=https%3A%2F%2Fwww.kbra.com&amp;esheet=54562469&amp;newsitemid=20260629858221&amp;lan=en-US&amp;anchor=www.kbra.com&amp;index=5&amp;md5=ffa302052c5a76c369a7691fd6d4a2c0" shape="rect">www.kbra.com</a>.


About KBRA


Kroll Bond Rating Agency, LLC (KBRA), one of the major credit rating agencies (CRA), is a full-service CRA registered with the U.S. Securities and Exchange Commission as an NRSRO. Kroll Bond Rating Agency Europe Limited is registered as a CRA with the European Securities and Markets Authority. Kroll Bond Rating Agency UK Limited is registered as a CRA with the UK Financial Conduct Authority. In addition, KBRA is designated as a Designated Rating Organization (DRO) by the Ontario Securities Commission for issuers of asset-backed securities to file a short form prospectus or shelf prospectus. KBRA is also recognized as a Qualified Rating Agency by Taiwan’s Financial Supervisory Commission and is recognized by the National Association of Insurance Commissioners as a Credit Rating Provider (CRP) in the U.S.


Doc ID: 1015770

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Analytical Contacts


Josh Mandelbaum, Director (Lead Analyst)
 +1 301-969-3186
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Teri Seelig, Managing Director
 +1 646-731-2386
 <a xmlns="http://www.w3.org/1999/xhtml" rel="nofollow" href="mailto:teri.seelig@kbra.com" shape="rect">teri.seelig@kbra.com</a>


Joe Scott, Global Head of Financial Institutions (Rating Committee Chair)
 +1 646-731-2438
 <a xmlns="http://www.w3.org/1999/xhtml" rel="nofollow" href="mailto:joe.scott@kbra.com" shape="rect">joe.scott@kbra.com</a>


Business Development Contact


Constantine Schidlovsky, Senior Director
 +1 646-731-1338
 <a xmlns="http://www.w3.org/1999/xhtml" rel="nofollow" href="mailto:constantine.schidlovsky@kbra.com" shape="rect">constantine.schidlovsky@kbra.com</a>

MSDL

KBRA Assigns Rating to Morgan Stanley Direct Lending Fund's $350 Million Senior Unsecured Notes

Kroll Bond Rating Agency assigns BBB rating to MSDL notes with stable outlook

<section class="insight" data-version="1">
 <section data-block="information">
 <h3>Information</h3>
 KBRA assigns a rating of BBB to Morgan Stanley Direct Lending Fund&amp;#39;s (NYSE:MSDL, the company&amp;#34;, )) $350 million, 6.10% senior unsecured notes due July 15, 2031. The rating Outlook is Stable.


Key Credit
 </section>

 <section data-block="ai-summary-paragraph">
 <h3>AI Summary</h3>
 KBRA assigns a BBB rating with a Stable Outlook to MSDL&#039;s $350 million 6.10% notes due July 15, 2031, reflecting strong Morgan Stanley ecosystem support and solid asset quality. The portfolio is largely senior secured (93.8%), with leverage at 1.22x and ample liquidity, though limited operating history and macro risks persist. The rating suggests modest default risk but manageable refinancing through unsecured debt.
 </section>

 <section data-block="ai-summary-bullets">
 <h3>Key Points</h3>
 <ul><li>Kroll Bond Rating Agency assigns BBB rating to MSDL notes; stable outlook.</li><li>MSDL&#039;s portfolio: 93.8% senior secured first lien; leverage 1.22x.</li><li>Top sectors Software, Insurance Services, IT Services concentrated exposure.</li><li>Proceeds from notes issuance aim to repay secured debt.</li><li>Liquidity remains robust; approximately $1.4B revolver capacity and $96.7M cash.</li></ul>
 </section>

 <section data-block="companies-mentioned">
 <h3>Companies Mentioned</h3>
 <ul><li>Morgan Stanley (MS): Parent firm; MS ecosystem supports MSDL through product, capital markets access, and platform, but no guaranteed backing.</li><li>Morgan Stanley Direct Lending Fund (MSDL) (MSDL): Subject of rating; credit profile influenced by MS-backed private credit platform and funding mix.</li><li>Morgan Stanley Asset Management (MSAM): Provided context for broader MS ecosystem advantages; not a direct guarantor but enhances distribution and capabilities.</li><li>MS Private Credit Platform (MSPC) (MSPC): Represents direct lending platform within MS ecosystem; contributes capital and co-investment flexibility.</li><li>Kroll Bond Rating Agency (KBRA): Ranked BBB with Stable Outlook; rating action itself can influence market perception of MSDL.</li></ul>
 </section>

 <section data-block="category">
 <h3>Industry News</h3>
 Category: Industry News. The piece reports a third-party credit rating action on a private credit fund, illustrating how external ratings affect valuation and investor perception in the BDC space. It highlights leverage, liquidity, and portfolio quality as key credit drivers for MSDL.
 </section>

 <section data-block="market-moving">
 <h3>Market-Moving</h3>
 <ul><li>KBRA rating action could modestly influence MSDL note spreads.</li><li>Proceeds from issuance to repay secured debt may increase unsecured debt share.</li><li>Near-term liquidity cushions mitigate some downside risk.</li></ul>
 </section>

 <section data-block="key-facts">
 <h3>Key Facts</h3>
 <ul><li>Notes: $350 million, 6.10% senior unsecured notes due July 15, 2031.</li><li>Rating: BBB; Outlook: Stable.</li><li>1Q26 leverage: 1.22x; target range: 1.0x–1.25x; asset coverage: 150%.</li><li>Portfolio FV: $3.7 billion; 93.8% senior secured first lien.</li><li>Liquidity: bank capacity ~$1.4 billion; cash $96.7 million; notes due in 2 years: $425 million.</li></ul>
 </section>

 <section data-block="trading-thesis">
 <h3>Trading Thesis</h3>
 Neutral to mildly constructive over 3–6 months as rating stability supports note pricing and unsecured refinancing.
 </section>
</section>



KBRA assigns a rating of BBB to Morgan Stanley Direct Lending Fund&#39;s (NYSE:<a class="ticker" href="https://www.benzinga.com/quote/MSDL">MSDL</a>, the company&#34, )) $350 million, 6.10% senior unsecured notes due July 15, 2031. The rating Outlook is Stable.


Key Credit Considerations


The rating and Outlook are supported by MSDL&#39;s strong ties to the ~$1.9 trillion assets under management and/or supervision of Morgan Stanley Asset Management. The company benefits from investment banking, global capital markets, investment management, and wealth management within the Morgan Stanley (NYSE:<a class="ticker" href="https://www.benzinga.com/quote/MS">MS</a>) ecosystem in addition to MS&#39; robust sponsor and banking relationships. As part of the MS ecosystem, MSDL leverages the broad MS private credit platform ("MSPC"), which includes $23 billion of committed capital in direct lending along with SEC exemptive relief to co-invest with certain other affiliated investment vehicles managed by the company&#39;s adviser, MS Capital Partners Inc. (&#34;Adviser&#34;) or its affiliates. Furthermore, as of 1Q26, MSDL&#39;s $3.7 billion diversified investment portfolio at fair value (FV) comprises approximately 93.8% senior secured first lien loans spread across 227 companies in 36 industries, primarily in less cyclical sectors. The investment portfolio&#39;s median EBITDA is $91.1 million, and the top three sectors are Software (20.7%), Insurance Services (10.1%), and IT Services (9.9%). Asset quality remains solid with six portfolio companies on non-accrual, comprising only 1.0% and 1.5% of total investments at FV and cost, respectively at 1Q26. While the portfolio remains somewhat unseasoned due to its short operating history, 94.5% of the investment portfolio maintained an internal rating of 2 or higher, indicating performance at or above underwriting expectations.


At 1Q26, MSDL maintained gross leverage of 1.22x, in line with its target leverage range of 1.0x to 1.25x and well within the regulatory minimum asset coverage ratio of 150%. MSDL&#39;s funding mix is solid and includes a corporate revolver, SPV asset-based facilities, and senior unsecured notes. As of 1Q26, ~54% of the company’s total debt outstanding is senior unsecured, providing greater financial flexibility and low asset encumbrance for the benefit of unsecured noteholders. The proceeds from the issuance will used to repay a portion of its secured debt, increasing the percentage of unsecured debt and further increasing financial flexibility. Liquidity remained solid as of 1Q26, with sufficient bank credit availability of ~$1.4 billion and $96.7 million of unrestricted cash and cash equivalents set against $425 million of notes due within the next two years and total unfunded commitments of $449 million, a portion of which is not expected to be drawn.


Counterbalancing MSDL’s credit strengths are the company’s limited operating history offset by the long tenure of its management in private credit, the relatively illiquid investments, retained earnings constraints as a regulated investment company (&#34;RIC&#34;), and an uncertain economic environment with high base rates, inflation, and geopolitical risk that could increase non-accruals.


MSDL is a New York-based, externally managed, non-diversified, publicly traded closed-end investment management company regulated as a business development company (&#34;BDC&#34;) under the Investment Company Act of 1940. For tax purposes, MSDL has elected to be treated as a RIC. The company commenced operations in January 2020 and closed its initial public offering on January 26, 2024. MSDL&#39;s Adviser is a wholly owned subsidiary of Morgan Stanley, a leading global investment bank. MSDL is neither a subsidiary nor is it consolidated with MS. Morgan Stanley has no obligation, contractual or otherwise, to financially support MSDL. MSDL’s obligations are neither MS’ obligations nor are they guaranteed by MS, and MS has no history of financially supporting any MS BDC even during periods of financial distress.


Rating Sensitivities


Given the Stable Outlook, a rating upgrade is not expected in the medium term. A rating downgrade and/or Outlook change to Negative could be considered if management alters its stated company strategy by increasing its focus on riskier investments coupled with higher leverage metrics. A prolonged downturn in the U.S. economy with negative impact on MSDL’s earnings performance, asset quality, and leverage or a significant change in senior management and/or risk management policies could also lead to negative rating action.


To access ratings and relevant documents, click <a xmlns="http://www.w3.org/1999/xhtml" rel="nofollow" href="https://cts.businesswire.com/ct/CT?id=smartlink&amp;url=https%3A%2F%2Fwww.kbra.com%2Fissuers%2F64551%2Fsecurity-ratings&amp;esheet=54562469&amp;newsitemid=20260629858221&amp;lan=en-US&amp;anchor=here&amp;index=1&amp;md5=8d47036da31d98ae2e37605860872505" shape="rect">here</a>.


Methodology

<ul xmlns="http://www.w3.org/1999/xhtml" class="bwlistsquare">
<li xmlns="http://www.w3.org/1999/xhtml">
<a xmlns="http://www.w3.org/1999/xhtml" rel="nofollow" href="https://cts.businesswire.com/ct/CT?id=smartlink&amp;url=https%3A%2F%2Fwww.kbra.com%2Fpublications%2FJgmgGVBR&amp;esheet=54562469&amp;newsitemid=20260629858221&amp;lan=en-US&amp;anchor=Financial+Institutions%3A+Finance+Company+Global+Rating+Methodology&amp;index=2&amp;md5=79d57fff962681ece64182e3e88cd080" shape="rect">Financial Institutions: Finance Company Global Rating Methodology</a>

</li>
</ul>
Disclosures


A description of all substantially material sources that were used to prepare the credit rating and information on the methodology(ies) (inclusive of any material models and sensitivity analyses of the relevant key rating assumptions, as applicable) used in determining the credit rating is available in the Information Disclosure Form(s) located <a xmlns="http://www.w3.org/1999/xhtml" rel="nofollow" href="https://cts.businesswire.com/ct/CT?id=smartlink&amp;url=https%3A%2F%2Fwww.kbra.com%2Fissuers%2F64551%2Fdisclosures&amp;esheet=54562469&amp;newsitemid=20260629858221&amp;lan=en-US&amp;anchor=here&amp;index=3&amp;md5=47ddb1e70ac74ced446fa91d80256da2" shape="rect">here</a>.


Information on the meaning of each rating category can be located <a xmlns="http://www.w3.org/1999/xhtml" rel="nofollow" href="https://cts.businesswire.com/ct/CT?id=smartlink&amp;url=https%3A%2F%2Fwww.kbra.com%2Funderstanding-ratings%2Frating-scales%2Flong-term-credit-rating&amp;esheet=54562469&amp;newsitemid=20260629858221&amp;lan=en-US&amp;anchor=here&amp;index=4&amp;md5=da787a9bb4e8a087be0b6f890ab36db6" shape="rect">here</a>.


Further disclosures relating to this rating action are available in the Information Disclosure Form(s) referenced above. Additional information regarding KBRA policies, methodologies, rating scales and disclosures are available at <a xmlns="http://www.w3.org/1999/xhtml" rel="nofollow" href="https://cts.businesswire.com/ct/CT?id=smartlink&amp;url=https%3A%2F%2Fwww.kbra.com&amp;esheet=54562469&amp;newsitemid=20260629858221&amp;lan=en-US&amp;anchor=www.kbra.com&amp;index=5&amp;md5=ffa302052c5a76c369a7691fd6d4a2c0" shape="rect">www.kbra.com</a>.


About KBRA


Kroll Bond Rating Agency, LLC (KBRA), one of the major credit rating agencies (CRA), is a full-service CRA registered with the U.S. Securities and Exchange Commission as an NRSRO. Kroll Bond Rating Agency Europe Limited is registered as a CRA with the European Securities and Markets Authority. Kroll Bond Rating Agency UK Limited is registered as a CRA with the UK Financial Conduct Authority. In addition, KBRA is designated as a Designated Rating Organization (DRO) by the Ontario Securities Commission for issuers of asset-backed securities to file a short form prospectus or shelf prospectus. KBRA is also recognized as a Qualified Rating Agency by Taiwan’s Financial Supervisory Commission and is recognized by the National Association of Insurance Commissioners as a Credit Rating Provider (CRP) in the U.S.


Doc ID: 1015770

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Analytical Contacts


Josh Mandelbaum, Director (Lead Analyst)
 +1 301-969-3186
 <a xmlns="http://www.w3.org/1999/xhtml" rel="nofollow" href="mailto:josh.mandelbaum@kbra.com" shape="rect">josh.mandelbaum@kbra.com</a>


Teri Seelig, Managing Director
 +1 646-731-2386
 <a xmlns="http://www.w3.org/1999/xhtml" rel="nofollow" href="mailto:teri.seelig@kbra.com" shape="rect">teri.seelig@kbra.com</a>


Joe Scott, Global Head of Financial Institutions (Rating Committee Chair)
 +1 646-731-2438
 <a xmlns="http://www.w3.org/1999/xhtml" rel="nofollow" href="mailto:joe.scott@kbra.com" shape="rect">joe.scott@kbra.com</a>


Business Development Contact


Constantine Schidlovsky, Senior Director
 +1 646-731-1338
 <a xmlns="http://www.w3.org/1999/xhtml" rel="nofollow" href="mailto:constantine.schidlovsky@kbra.com" shape="rect">constantine.schidlovsky@kbra.com</a>

KBRA assigns a BBB rating with a Stable Outlook to MSDL's $350 million 6.10% notes due July 15, 2031, reflecting strong Morgan Stanley ecosystem support and solid asset quality. The portfolio is largely senior secured (93.8%), with leverage at 1.22x and ample liquidity, though limited operating history and macro risks persist. The rating suggests modest default risk but manageable refinancing through unsecured debt.

KBRA Assigns Rating to Morgan Stanley Direct Lending Fund's $350 Million Senior Unsecured Notes

AI Summary

Sentiment Rationale

Trading Thesis

Market-Moving

Key Facts

Companies Mentioned

Industry News

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