Morgan Stanley Direct Lending Fund: The Dividend Is Likely To Get Slashed (Rating Downgrade)

Roberts Berzins, CFA 16.07K Followers Follow Summary I'm downgrading the Morgan Stanley Direct Lending Fund to a "Sell" due to rising non-accruals and deteriorating fundamentals. Q2 saw NII per share fall to $0.55 and non-accruals spike from 1.5% to 2.9%, driving a $0.31 NAV decline. Dividend coverage is thin, with base coverage at ~90% on a cash basis and limited prospects for sustainable growth. Upcoming loan maturities, especially in software, and high-risk 2021/2022 vintages signal elevated default risk through 2027–2029. Dilok Klaisataporn/iStock via Getty Images The current turbulence around the Government debt and the yield curve has put the fears of a private credit implosion in the backseat. While I have never agreed with the private credit bears that This article was written by Roberts Berzins, CFA 16.07K Followers Follow Roberts Berzins has over a decade of experience in the financial management helping top-tier corporates shape their financial strategies and execute large-scale financings. He has also made significant efforts to institutionalize REIT framework in Latvia to boost the liquidity of pan-Baltic capital markets. Other policy-level work includes the development of national SOE financing guidelines and framework for channeling private capital into affordable housing stock. Roberts is a CFA Charterholder, ESG investing certificate holder, has had an internship in Chicago board of trade (albeit, being resident and living in Latvia), and is actively involved in "thought-leadership" activities to support the development of pan-Baltic capital markets. Analyst’s Disclosure: I/we have no stock, option or similar derivative position in any of the companies mentioned, and no plans to initiate any such positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article. Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.