Morgan Stanley Direct Lending Fund (MSDL) risk factors, 2026 10-K

Risks Relating to Our Business and Structure

1. 01Operating as a BDC imposes numerous constraints on us and significantly reduces our operating flexibility. In addition, if we fail to maintain our status as a BDC, we might be regulated as a closed-end investment company, which would subject us to additional regulatory restrictions69% rewritten
2. 02achieve our investment objective. Furthermore, any failure to comply with the requirements imposed on BDCs by the 1940 Act could cause the SEC to bring an enforcement action against us and/or expose us to claims of private litigantsnew
3. 03We are subject to risks associated with the current interest rate environment and to the extent we use debt to finance our investments, changes in interest rates will affect our cost of capital and net investment income37% rewritten
4. 04We depend upon our Adviser and Administrator for our success and upon their access to the investment professionals and partners of Morgan Stanley and its affiliates
5. 05Our business model depends to a significant extent upon strong referral relationships with private equity sponsors. Any inability of the Adviser to maintain or develop these relationships, or the failure of these relationships to generate investment opportunities, could adversely affect our business
6. 06The time and resources that individuals associated with our Adviser devote to us may be diverted, and we may face additional competition due to the fact that neither our Adviser nor its affiliates are prohibited from raising money for or managing another entity that makes the same types of investments that we target
7. 07We may not replicate the historical results achieved by other entities sponsored or advised by members of the Investment Committee, or by the Adviser or its affiliates49% rewritten
8. 08Our financial condition and results of operations depend on our ability to manage future growth effectivelynew
9. 09The Adviser may frequently be required to make investment analyses and decisions on an expedited basis in order to take advantage of investment opportunities, and our Adviser may not have knowledge of all circumstances that could impact our investments
10. 10There are significant potential conflicts of interest that could affect our investment returns
11. 11Conflicts related to obligations the Investment Committee, the Adviser or its affiliates have to other clients and conflicts related to fees and expenses of such other clients
12. 12It should be noted that Morgan Stanley has, directly and/or indirectly, made investments in certain of its Affiliated Investment Accounts, and accordingly Morgan Stanley’s investment in us in itself may not determine the outcome in the resolution of any of the foregoing conflicts
13. 13The Investment Committee, the Adviser or its affiliates may, from time to time, possess material non-public information, or may not have access to certain information held by Morgan Stanley, each of which would limit our investment discretion82% rewritten
14. 14restrictions or internal policies or procedures, including without limitation joint transaction restrictions pursuant to the 1940 Act, we could be prohibited for a period of time from purchasing or selling the securities of such companies, and this prohibition may have an adverse effect on usnew
15. 15Our management fee and incentive fee structure may create incentives for the Adviser that are not fully aligned with the interests of our stockholders and may induce the Adviser to make speculative investments
16. 16Conflicts related to other arrangements with the Adviser and its affiliates
17. 17Our ability to enter into transactions with our affiliates is restricted25% rewritten
18. 18The recommendations given to us by our Adviser may differ from those rendered to their other clients
19. 19We operate in a highly competitive market for investment opportunities, which could reduce returns and result in losses
20. 20We will be subject to corporate-level income tax if we are unable to qualify as a RIC
21. 21We may have difficulty paying our required dividends if we recognize income before, or without, receiving cash representing such income
22. 22We will need to raise additional capital to grow because we must distribute most of our income
23. 23Regulations governing our operation as a BDC affect our ability to, and the way in which we, raise additional capital. As a BDC, the necessity of raising additional capital exposes us to risks, including the typical risks associated with leverage
24. 24We intend to finance our investments with borrowed money, which will magnify the potential for gain or loss on amounts invested and may increase the risk of investing in us
25. 25We are subject to risks associated with our Credit Facilities25% rewritten
26. 26Any inability to renew, extend or replace the Credit Facilities could adversely impact our liquidity and ability to find new investments or maintain distributions to our stockholders
27. 27Our interests in any subsidiary that enters into a Credit Facility would be subordinated, and we may not receive cash on our equity interests from any such subsidiary
28. 28Our equity interests in any such subsidiary would rank behind all of the secured and unsecured creditors, known or unknown, of such subsidiary, including the lenders in any Credit Facility
29. 29Our ability to sell investments held by any subsidiary that enters into a Credit Facility would be limited
30. 30We may enter into reverse repurchase agreements, which are another form of leverage
31. 31We are subject to risks associated with any collateralized loan obligations, or CLOs, we enter into to finance our investments73% rewritten
32. 32If we do not invest a sufficient portion of our assets in qualifying assets, we could fail to qualify as a BDC or be precluded from investing according to our current business strategy
33. 33Failure to qualify as a BDC would decrease our operating flexibility
34. 34The majority of our portfolio investments are recorded at fair value as determined in good faith by our Valuation Designee, under the supervision of our Board of Directors and, as a result, there may be uncertainty as to the value of our portfolio investments
35. 35Our Board of Directors may change our investment objective, operating policies and strategies without prior notice or stockholder approval, and we may temporarily deviate from our regular investment strategy
36. 36Provisions of the Delaware General Corporation Law, as amended, or the DGCL, and of our Certificate of Incorporation and bylaws could deter takeover attempts and have an adverse effect on the price of shares of Common Stock
37. 37The Adviser can resign on 60 days’ notice, and we may not be able to find a suitable replacement within that time, resulting in a disruption in our operations that could adversely affect our financial condition, business and results of operations
38. 38The Administrator can resign on 60 days’ notice, and we may not be able to find a suitable replacement, resulting in a disruption in our operations that could adversely affect our financial condition, business and results of operations
39. 39We are a non-diversified investment company within the meaning of the 1940 Act, and therefore we are not limited with respect to the proportion of our assets that may be invested in securities of a single issuer and our portfolio may be concentrated in a limited number of industries
40. 40We may be subject to risks associated with our investments in the software industry
41. 41Laws and regulations regulating insurance activities are complex and could negatively affect the business of our portfolio companies in the insurance services industry, which could reduce their profitability and potentially limit their growth
42. 42The liability of each of the Adviser and the Administrator is limited, and we have agreed to indemnify each against certain liabilities, which may lead them to act in a riskier manner on our behalf than each would when acting for its own account
43. 43We may invest in derivatives or other assets that expose us to certain risks, including market risk, liquidity risk and other risks similar to those associated with the use of leveragenew

Risks Relating to Our Investments

1. 44Limitations of investment due diligence expose us to investment risk
2. 45Our debt investments may be risky and we could lose all or part of our investments
3. 46Defaults by our portfolio companies will harm our operating results
4. 47We may experience fluctuations in our periodic operating results
5. 48Economic recessions or downturns could impair our portfolio companies and defaults by our portfolio companies will harm our operating results
6. 49Inflation could adversely impact our portfolio companies and our results of our operations
7. 50We may hold the debt securities of distressed companies that may enter into bankruptcy proceedings
8. 51Our investments in private middle-market portfolio companies are risky, and you could lose all or part of your investment
9. 52Subordinated liens on collateral securing debt investments that we will make to our portfolio companies may be subject to control by senior creditors with first priority liens. If there is a default, the value of the collateral may not be sufficient to repay in full both the first priority creditors and us
10. 53Covenant-lite loans may expose us to different risks, including with respect to liquidity, ability to restructure loans, credit risks and less protective loan documentation, than is the case with loans that contain financial maintenance covenants
11. 54The lack of liquidity in our investments may adversely affect our business
12. 55Price declines and illiquidity in the corporate debt markets may adversely affect the fair value of our portfolio investments, reducing our net asset value through increased net unrealized depreciation
13. 56Our investments in OID and PIK instruments may expose us to investment risk
14. 57Our portfolio companies may be unable to repay or refinance outstanding principal on their loans at or prior to maturity45% rewritten
15. 58Our portfolio companies may prepay loans, which may reduce our yields if capital returned cannot be invested in transactions with equal or greater expected yields
16. 59Our investments in portfolio companies may expose us to environmental risks
17. 60We have not yet identified all of the portfolio company investments we will acquire and we may have difficulty sourcing investment opportunities
18. 61Our failure to make follow-on investments in our portfolio companies could impair the value of our portfolio71% rewritten
19. 62preserve or enhance the value of our investmentnew
20. 63Because we generally do not hold controlling equity interests in our portfolio companies, we may not be able to exercise control over our portfolio companies or to prevent decisions by management of our portfolio companies that could decrease the value of our investments
21. 64We can offer no assurance that portfolio company management will be able to operate their companies in accordance with our expectations
22. 65Our portfolio companies may incur debt that ranks equally with, or senior to, our investments in such companies and such portfolio companies may not generate sufficient cash flow to service their debt obligations to us22% rewritten
23. 66to repay the outstanding secured loan obligations, then our unsecured claims would rank equally with the unpaid portion of such secured creditors’ claims against the portfolio company’s remaining assets, if anynew
24. 67We may suffer a loss if a portfolio company defaults on a loan and the underlying collateral is not sufficient
25. 68We may be subject to risks under hedging transactions and may become subject to risks if we invest in foreign securities60% rewritten
26. 69We may not realize gains from our equity investments
27. 70We may be subject to risks to the extent we provide managerial assistance to our portfolio companies

Risks Relating to an Investment in Our Common Stock

1. 71Investing in our Common Stock may involve an above average degree of risk
2. 72We cannot assure you that the market price of our Common Stock will not decline below our net asset value. The market price of our Common Stock may be volatile and may fluctuate significantly
3. 73There is a risk that you may not receive distributions or that our distributions may not grow over time and a portion of our distributions may be a return of capital
4. 74Purchases of our Common Stock by us under the Company 10b5-1 Plan may result in the price of our Common Stock being higher than the price might otherwise exist in the open market
5. 75Purchases of our Common Stock by us under the Company 10b5-1 Plan may result in dilution to our net asset value per share
6. 76We have not established any limit on the amount of funds we may use from available sources, such as borrowings, if any, or proceeds from any offering of securities, to fund dividends (which may reduce the amount of capital we ultimately invest in assets)21% rewritten
7. 77Sales of substantial amounts of our Common Stock in the public market, including shares of our Common Stock held by MS Credit Partners Holdings, may have an adverse effect on the market price of our Common Stock
8. 78Our stockholders may experience dilution in their ownership percentage
9. 79Our stockholders will experience dilution in their ownership percentage if they opt out of our DRIP
10. 80Our stockholders may receive shares of our Common Stock as dividends, which could result in adverse tax consequences to them
11. 81We may in the future determine to issue preferred stock, which could adversely affect the value of shares of Common Stock
12. 82Our stockholders may be subject to filing requirements under the Exchange Act as a result of an investment in us
13. 83Our stockholders may be subject to the short-swing profits rules under the Exchange Act as a result of an investment in us25% rewritten
14. 84Holders of any preferred stock that we may issue will have the right to elect certain members of our Board of Directors and have class voting rights on certain matters

Risks Related to the Notes

1. 85The Notes are unsecured and therefore are effectively subordinated to any secured indebtedness we may incur. Additionally, the Notes are not guaranteed by Morgan Stanley23% rewritten
2. 86The Notes are obligations exclusively of the Company and not of any of our subsidiaries. None of our subsidiaries is a guarantor of the Notes and the Notes are not required to be guaranteed by any subsidiaries we may acquire or create in the futurenew
3. 87A downgrade, suspension or withdrawal of the credit rating assigned by a rating agency to us or the Notes, if any, could cause the liquidity or market value of the Notes to decline significantly
4. 88An increase in market interest rates could result in a decrease in the value of the Notes
5. 89The Indentures governing the Notes contain limited protection for holders of such notes48% rewritten
6. 90create restrictions on the payment of dividends or other amounts to us from our subsidiariesnew
7. 91The optional redemption provision for the Notes may materially adversely affect the return on the Notes
8. 92If an active trading market for the Notes does not develop or is not maintained, a noteholder may not be able to sell such notes46% rewritten
9. 93We may not be able to repurchase the Notes upon a Change of Control Repurchase Event82% rewritten
10. 94New or modified laws or regulations governing our or Morgan Stanley’s operations may adversely affect our business
11. 95The outcome of the U.S. presidential, congressional and other elections creates significant uncertainty with respect to the legal, tax and regulatory regime in which we and our portfolio companies will operatenew
12. 96We are highly dependent on information systems, and systems failures could significantly disrupt our business, which may, in turn, negatively affect the value of shares of our Common Stock and our ability to pay distributions27% rewritten
13. 97We, the Adviser and the Administrator currently or in the future are expected to routinely transmit and receive personal, confidential and proprietary information by email and other electronic means
14. 98We are subject to risks associated with artificial intelligence and machine learning technology100% rewritten
15. 99The misuse of AI tools, whether intentional or inadvertent, may expose the Company to additional risks. In addition, AI tools and technology are evolving rapidly and the integration of AI in systems and operations create new risks that can be difficult to assess and anticipatenew
16. 100The use of third-party and open-source AI tools (if any) can pose additional risks relating to data protection and information security, including the potential exposure of confidential information to unauthorized recipients and the misuse of intellectual property, which could adversely affect the Companynew
17. 101Terrorist attacks, acts of war, natural disasters, outbreaks or pandemics, may impact our portfolio companies and our Adviser and harm our business, operating results and financial condition
18. 102We may be the target of litigation
19. 103Our Compliance with Section 404 of the Sarbanes-Oxley Act involves significant expenditures, and non-compliance with Section 404 of the Sarbanes-Oxley Act would adversely affect us and the market price of our common stock
20. 104We incur significant costs as a result of being registered under the Exchange Actnew
21. 105We invest through a joint venture and could enter into additional joint ventures in the futurenew
22. 106Federal Deposit Insurance Corporation, or FDIC and may otherwise be materially affected by adverse developments affecting the financial services industry, such as actual events or concerns involving liquidity, defaults or non-performance by financial institutions or transactional counterparties