What changed in this filing

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Item 1. Business

2021-03-19 compared with 2020-03-20 · 358 added, 156 removed, 505 unchanged (50% of the section changed)

We are an externally managed specialty finance company focused on lending to middle-market companies.

We were formed as a Delaware limited liability company on May 30, 2019 with the name Morgan Stanley BDC LLC and changed our name to Morgan Stanley Direct Lending Fund LLC on August 8, 2019.

Prior to the November 25, 2019 and prior to our election to be regulated as a BDC, we completed a conversion under which Morgan Stanley Direct Lending Fund succeeded to the business of Morgan Stanley Direct Lending Fund LLC and the member of Morgan Stanley Direct Lending Fund LLC, MS Credit Partners Holdings, Inc., a wholly owned subsidiary of Morgan Stanley and affiliate of the Adviser (“MS Credit Partners Holdings”), became the sole stockholder of Morgan Stanley Direct Lending Fund (the "BDC Conversion").

Following the BDC Conversion, we elected to be treated as a BDC under the Investment Company Act of 1940, as amended (the “1940 Act”).

We have elected to be regulated as a BDC under the Investment Company Act of 1940, as amended (the “1940 Act”).

In addition, for U.S.

federal income tax purposes, for our taxable year commencing on the Initial Drawdown Date (as defined below), we intend to elect to be treated, and to comply with the requirements to qualify annually, as a RIC under Subchapter M of the Code.

On December 23, 2019, we completed our initial closing (“Initial Closing”) of capital commitments to purchase shares of our common stock, par value $0.001 per share (the “Common Stock”), in a private placement pursuant to subscription agreements with investors.

In this Initial Closing, we received aggregate capital commitments to purchase Common Stock of approximately $755 million, including a capital commitment from MS Credit Partners Holdings.

Pursuant to the terms of MS Credit Partners Holdings’ subscription agreement, MS Credit Partners Holdings made an aggregate capital commitment equal to 20% of total capital commitments to the Company up to $200,000,000.

As of December 31, 2019, the Company has accepted $150,000,000 from MS Credit Partners Holdings’ total capital commitment of up to $200,000,000, representing approximately 20% of aggregate capital commitments received.

federal income tax purposes, we have elected to be treated, and intend to comply with the requirements to qualify annually, as a RIC under Subchapter M of the Code.

Our investment objective is to achieve attractive risk-adjusted returns via current income and, to a lesser extent, capital appreciation by investing primarily in directly originated senior secured term loans issued by U.S.

middle-market companies backed by financial sponsors.

For the purposes of this report, "middle-market companies" refers to companies that, in general, generate annual earnings before interest, taxes, depreciation and amortization ("EBITDA") in the range of approximately $15 million to $100 million, which we believe is a useful proxy for cash flow.

We intend to achieve our investment objective by investing primarily in directly originated senior secured term loans including first lien senior secured term loans (including unitranche loans) and second lien senior secured term loans, with the balance of our investments expected to be in higher-yielding assets such as mezzanine debt, unsecured debt, equity investments and other opportunistic assets.

For the purposes of this Form 10-K, “middle-market companies” refers to companies that, in general, generate annual earnings before interest, taxes, depreciation and amortization (“EBITDA”) in the range of approximately $15 million to $100 million, which we believe is a useful proxy for cash flow.

Typical middle-market senior loans may be issued by middle-market companies in the context of leveraged buyouts (“LBOs”), acquisitions, debt refinancings, recapitalizations, and other similar transactions.

We expect to generate revenues primarily in the form of interest income from investments we hold.

In addition, we expect to generate income from dividends on any direct equity investments, capital gains on the sales of loans and debt and equity investments and various other loan origination and other fees.

The debt instruments in which we expect to invest are typically not initially rated by any rating agency, but we believe that if they were rated, they would be below investment grade (rated lower than "Baa3" by Moody's Investors Service, lower than "BBB–" by Fitch Ratings or lower than "BBB–" by Standard & Poor's Ratings Services), which under the guidelines established by these entities is an indication of having predominantly speculative characteristics with respect to the issuer's capacity to pay interest and repay principal.

We generally expect our debt investments to have a stated term of five to eight years and typically bear interest at a floating rate usually determined on the basis of a benchmark such as the London Inter-bank Offered Rate (“LIBOR”).

We generate revenues primarily in the form of interest income from investments we hold.

In addition, we generate income from dividends on any direct equity investments, capital gains on the sale of loans and debt and equity securities, and various other loan origination and other fees, including commitment, origination, amendment, structuring or due diligence fees, fees for providing managerial assistance and consulting fees.

The debt instruments in which we generally invest are typically not initially rated by any rating agency, but we believe that if they were rated, they would be below investment grade (rated lower than “Baa3” by Moody’s Investors Service, lower than “BBB–” by Fitch Ratings or lower than “BBB–” by Standard & Poor’s Ratings Services), which under the guidelines established by these entities is an indication of having predominantly speculative characteristics with respect to the issuer’s capacity to pay interest and repay principal.

Debt instruments that are rated below investment grade are sometimes referred to as “high yield bonds” or “junk bonds.”

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Utilizing our proprietary investment approach, we intend to execute on our investment objective by (1) drawing upon Morgan Stanley’s longstanding and deep relationships with middle-market companies, financial sponsors, commercial and investment banks, industry executives and financial intermediaries to provide a strong pipeline of investment opportunities, (2) implementing Morgan Stanley’s rigorous, fundamentals-driven and disciplined investment and risk management process, and (3) accessing Morgan Stanley’s extensive experience in credit and principal investing, credit analysis and structuring.

We believe the middle market direct lending market environment continues to be attractive.

We believe that, given the retreat of U.S.

commercial and regional banks from middle market lending, the current environment favors alternative lenders such as us, and that trends including the growth of the U.S.

middle market, significant private equity committed capital, and upcoming middle market debt maturities all provide tailwinds for the middle market direct lending sector.

Historically, direct lending has provided both higher absolute returns and risk-adjusted returns than both the broader leveraged loan and high yield bond markets.

Based on the strength of our Adviser's origination and due diligence platform, we believe we are well positioned to generate strong risk adjusted returns.

Our Investment Adviser

Morgan Stanley (NYSE:MS) (the "Firm" or "Morgan Stanley") is a global financial services firm whose predecessor companies date back to 1924 and that, through its subsidiaries and affiliates, advises, originates, trades, manages and distributes capital for governments, institutions and individuals.

Morgan Stanley maintains a significant market position in each of its business divisions—Institutional Securities ("IS"), Wealth Management ("WM") and IM.

As of December 31, 2019, IM had managed approximately $552 billion in assets under management ("AUM") across its business lines, which include equity, fixed income, liquidity, real assets and private investment funds.

Included in this AUM is approximately $54 billion of AUM in IM's strategies that primarily invest in private markets and private securities.

Our Adviser, an indirect wholly owned subsidiary of Morgan Stanley, was established in 2007 and serves as the investment adviser for the funds and accounts on the private credit platform of IM ("Private Credit" or “MSPC”).

The Private Credit platform includes dedicated strategies targeting different credit products, asset yields and issuer sizes, resulting in a strategy that is well positioned to provide scale and flexible financing solutions to borrowers, maximizes deal origination and enhances the ability to generate attractive risk adjusted returns to our investors.

The Adviser's investment committee servicing the Company is comprised of eight senior investments professionals of IM and is chaired by our Chief Executive Officer and President, Jeffrey S.

By leveraging the established origination and underwriting capabilities within the Private Credit platform and targeting an attractive investing area in the U.S.

middle-market, we believe we will be able to offer attractive risk-adjusted returns to our investors.

Despite the effects of the ongoing Coronavirus pandemic, we believe the middle-market direct lending market environment continues to be attractive.

We remain highly focused on conducting extensive due diligence and leveraging the Morgan Stanley platform.

We continue to seek to invest in companies that are led by strong management teams, generate substantial free cash flow, have leading market positions, benefit from sustainable business models, and are well positioned to perform well despite the impact of Coronavirus.

We believe the current market environment offers opportunities to seek compelling risk adjusted returns.

Our investment pace will depend on several factors including the market environment, deal flow, and the impact of Coronavirus.

See “ —Coronavirus Developments ” below.

Since our Initial Closing, we held additional closings and received aggregate capital commitments to purchase Common Stock.

As of December 31, 2020, total capital commitments was approximately $1,445.8 million.

We may draw down capital commitments to make investments at any time during the Investment Period.

After the end of the Investment Period, we may draw down capital commitments to the extent necessary to:

(a) pay our expenses, including management fees, any amounts that may become due under any borrowings or other financings or similar obligations, any indemnity obligations

and any other liabilities, contingent or otherwise, and/or (b) complete investments or obligations (including guarantees) in any transactions for which we have entered into a letter of intent, memorandum of understanding, written bid letter, written agreement in principle, or binding written agreement as of the end of the Investment Period (including investments that are funded in phases).

We reserve the right to conduct new or additional offerings of securities in the future.

We may pursue a “Liquidity Event,” which is defined as any of:

(1) an Exchange Listing (as defined below) or (2) a Sale Transaction.

A “Sale Transaction” means (a) the sale of all or substantially all of our assets to, or other liquidity event with, another entity or (b) a transaction or series of transactions, including by way of merger, consolidation, recapitalization, reorganization, or sale of stock in each case for consideration of either cash and/or publicly listed securities of the acquirer.

The Company’s term is perpetual.

Subject to market conditions and Board approval, we will target a quotation or listing of our Common Stock on a national securities exchange, including an initial public offering (an “Exchange Listing”), within four years from the Initial Closing.

However, if the Company has not consummated a Liquidity Event by the sixth anniversary from Initial Closing, as may be extended by up to an additional one-year period pursuant to the Adviser’s recommendation with the approval of the Board of Directors, the Board of Directors (subject to market conditions and any necessary approvals of our stockholders and applicable requirements of the 1940 Act) will use its commercially reasonable efforts to wind down, sell and/or liquidate and dissolve the Company in an orderly manner.

Morgan Stanley is a global financial services firm whose predecessor companies date back to 1924 and, through its subsidiaries and affiliates, advises, originates, trades, manages and distributes capital for governments, institutions and individuals.

Morgan Stanley maintains a significant market position in each of its business divisions—Institutional Securities (“IS”), Wealth Management (“WM”) and Investment Management (“IM”).

As of December 31, 2020 and December 31, 2019, IM had managed approximately $781 and $552 billion, respectively, in assets under management (“AUM”) across its business lines, which include equity, fixed income, liquidity, real assets and private investment funds.

Included in this AUM is approximately $61 and $54 billion of AUM in IM’s strategies that primarily invest in private markets and private securities as of December 31, 2020 and December 31, 2019, respectively.

Our Adviser, an indirect wholly owned subsidiary of Morgan Stanley, was established in 2007 and serves as the investment adviser for the funds and accounts on the Private Credit platform, including SL Investment Corp., a BDC with a similar investment strategy and investment objective to ours (“SLIC”).

The Private Credit platform includes dedicated strategies targeting different credit products, asset yields and issuer sizes, resulting in a platform that is well positioned to provide scale and flexible financing solutions to borrowers, maximizes deal origination and enhances the ability to generate attractive risk adjusted returns for our investors.

Our Adviser’s investment committee servicing the Company is comprised of ten senior investment professionals of IM and is chaired by our Chief Executive Officer and President, Jeffrey S.

Levin (the “Investment Committee”).

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All investment decisions are reviewed and approved by the Investment Committee, which has principal responsibility for approving new investments and overseeing the management of existing investments.

Our Adviser is served by an investment team (the "Investment Team"), consisting of experienced investment professionals within the Private Credit platform.

Our Adviser is served by experienced investment professionals (the “Investment Team”) within the Private Credit platform.

The Investment Team is responsible for origination, due diligence, underwriting, structuring and monitoring each investment throughout its life cycle.

The Private Credit platform is supported by numerous professionals in legal, compliance, risk management, finance, accounting and tax who help support the platform by providing guidance on our operations.

Private Credit's primary areas of focus include:

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Investments for privately-held small to medium-sized companies in high-growth sectors.

Investments comprised primarily of relatively short-dated maturity loans and securities, including convertible notes, substantially all of which include some form of an equity return component.

Our Administrator

MS BDC Administrative Services LLC, our Administrator and an indirect wholly owned subsidiary of Morgan Stanley, provides the administrative services necessary for us to operate.

Investments composed primarily of relatively short-dated maturity loans and securities, including convertible notes, substantially all of which include some form of an equity return component.

The Adviser’s principal executive offices are located at 1585 Broadway, 39th Floor, New York, NY 10036.

The Administrator

MS Private Credit Administrative Services LLC (f/k/a MS BDC Administrative Services LLC), our Administrator and an indirect wholly owned subsidiary of Morgan Stanley, provides the administrative services necessary for us to operate.

We do not currently have any employees.

Our day-to-day investment operations are managed by our Adviser, and our Administrator provides services necessary to conduct our business.

We will pay no compensation directly to any interested director or executive officer of the Company.

We will pay our Administrator our allocable portion of certain expenses incurred by our Administrator in performing its obligations under an administration agreement, dated November 25, 2019, between us and the Administrator (the "Administration Agreement"), including our allocable portion of the cost of our Chief Financial Officer and Chief Compliance Officer.

Our Administrator will be reimbursed for certain expenses they incur on our behalf.

We pay no compensation directly to any interested director or executive officer of the Company.

We pay our Administrator our allocable portion of certain expenses incurred by our Administrator in performing its obligations under an administration agreement, dated November 25, 2019, between us and the Administrator (the “Administration Agreement”), including our allocable portion of the cost of our Chief Financial Officer and Chief Compliance Officer.

Our Administrator will be reimbursed for certain expenses it incurs on our behalf.

Our Administrator reserves the right to waive all or part of any reimbursements due from the Company at its sole discretion.

See “ Item 1.

Business — Administration Agreement " for a discussion of the expenses (subject to the review and approval of our independent directors) that we expect to reimburse to the Administrator.

Business — Administration Agreement ” below for a discussion of the expenses (subject to the review and approval of our independent directors) that we expect to reimburse to the Administrator.

Coronavirus Developments

The effect on the U.S.

and global economy of the ongoing Coronavirus pandemic, uncertainty relating to more contagious strains of the Coronavirus that have emerged in the United States and globally, the vaccine rollout, the length of economic recovery, policies of the new presidential administration and tension with China are some of factors that have created stress on the market and could affect our portfolio companies.

Despite these factors, we believe we are very well positioned to manage the current environment.

Our portfolio was constructed almost entirely “post-COVID-19” market dislocation and we have a considerable amount of available capital that can be prudently invested in the current credit environment.

Capital preservation and principal protection are among the key tenets of what we seek to achieve with our investment strategy.

We will deploy capital as we find what we believe are compelling investment opportunities, and we intend to invest our capital at any time during our Initial Closing, through the third anniversary of the Initial Closing, subject to extension for up to an additional one-year period pursuant to the Adviser's recommendation with the approval of the Board of Directors (the “Investment Period”), providing our investors with vintage year diversification.

We cannot predict the full impact of the Coronavirus pandemic, including its duration in the United States and worldwide and the magnitude of the economic impact, including with respect to the travel restrictions, business closures and other quarantine measures that may be imposed on service providers and other individuals by various local, state, and federal governmental authorities, as well as non-U.S.

governmental authorities, especially in light of the uncertainty surrounding more contagious strains of the virus that have emerged in the United States and globally and its impact on the vaccine rollout and the length of economic recovery.

As such, the extent to which Coronavirus and/or other health pandemics may negatively affect our and our portfolio companies’ operating results and financial condition, or the duration of any potential business or supply-chain disruption for us, our Investment Adviser and/or our portfolio companies, is uncertain.

Depending on the duration and extent of the disruption to the operations of our portfolio companies, certain portfolio companies may experience financial distress and possibly default on their financial obligations to us and their other capital providers.

Some of our portfolio companies may significantly curtail business operations, furlough or lay off employees and terminate service providers, and defer capital expenditures if subjected to prolonged and severe financial distress, which would likely impair their business on a permanent basis.

These developments would likely result in a decrease in the value of our investment in any such portfolio company.

We are also subject to financial risks, including changes in market interest rates, including as a result of the Coronavirus pandemic.

As of December 31, 2020, all of our first lien and second lien debt investments at fair value were at floating rates, representing approximately 99.5% of our portfolio, based on LIBOR, and many of which are subject to certain floors.

In addition, both the CIBC Subscription Facility and the BNP Funding Facility (as defined below) have floating rate interest provisions.

In connection with the Coronavirus pandemic, the U.S.

Federal Reserve and other central banks have reduced certain interest rates and LIBOR has decreased.

A prolonged reduction in interest rates could reduce our expected gross investment income and could result in a decrease in our expected net investment income if decreases in LIBOR are not offset by a corresponding increase in the spread over LIBOR that we earn on any portfolio investments, a decrease in our operating expenses, including with respect to our income based incentive fee, or a decrease in the interest rate of any floating interest rate liabilities we may have that are tied to LIBOR.

See “Item 7A.

and Qualitative Disclosures About Market Risk—Interest Rate Risk” for an analysis of the impact of hypothetical base rate changes in interest rates.

We will continue to monitor the rapidly evolving situation relating to the Coronavirus pandemic and guidance from U.S.

and international authorities, including federal, state and local public health authorities and may take additional actions based on their recommendations.

In these circumstances, there may be developments outside our control requiring us to adjust our plan of operation.

As such, given the dynamic nature of this situation, we cannot reasonably estimate the impacts of Coronavirus on our financial condition, results of operations or cash flows in the future.

Investment Strategy

Our primary investment strategy is to make privately negotiated senior secured credit investments in U.S.

middle market companies that have leading market positions, enjoy high barriers to entry, generate strong and stable free cash flow and are led by proven management teams with strong financial sponsor backing.

middle-market companies that have leading market positions, enjoy high barriers to entry, such as high start-up costs or other obstacles that prevent new competitors from easily entering the portfolio company's industry or area of business, generate strong and stable free cash flow and are led by a proven management team with strong financial sponsor backing.

Our investment approach is focused on long-term credit performance, risk mitigation and preservation of capital.

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• Supplemental diligence beyond the credit analysis of the borrower, given the ability to analyze track records of each private equity firm.

We intend to create and maintain a well-diversified, defensive portfolio of investments focusing on generally avoiding issuer or industry concentration in order to mitigate risk and achieve our investment objective.

We intend to primarily focus on U.S.

middle-market companies.

However, to the extent that we invest in foreign companies, we intend to do so in accordance with the limitations under the 1940 Act and only in jurisdictions with established legal frameworks and a history of respecting creditor rights, including the United Kingdom and countries that are members of the European Union, as well as Canada, Australia and Japan.

Our investment strategy is predicated on seeking to lend to companies in non-cyclical industry sectors (typically avoiding sectors such as retail, restaurants, energy, alcohol, tobacco, pork manufacturing, gaming and gambling, and pornography) with proven management teams.

Investment Criteria

In order to achieve our investment objectives, we expect our investment portfolio to consist primarily of directly originated floating-rate first lien senior secured term loans (including unitranche loans), and second lien senior secured term loans of U.S.

middle-market companies.

The balance of the investments is expected to be in higher-yielding assets such as mezzanine debt, unsecured debt and equity investments in U.S.

middle-market companies, and other opportunistic asset purchases.

Our debt investments typically have maturities of five to eight years.

We intend to create a well-diversified portfolio of investments in order to mitigate risk and achieve our investment objective.

We expect our target portfolio companies to exhibit some, or all, of the following characteristics at the time of the initial investment:

• EBITDA of $15 - $100 million;

• Defensible, leading market positions;

• Niche strategy or other meaningful barriers to entry;

• Low technology or market risks;

• Diversified product offering, customer and supplier base;

• Stable cash flows;

• Low capital expenditure requirements;

• General avoidance of cyclical industry sectors;

• Predominantly North American base of operations;

• Typical loan-to-value of up to 60%;

• Experienced management teams with successful track records.

Once we are fully invested, our investments in a portfolio company are expected to generally comply with the following limits, measured as a percentage of the sum of our aggregate equity commitments and our use of leverage (expected to be 1.0x-1.3x as measured by debt-to-equity, subject to a cap of 2.0x), in each case, at the time the relevant investment is made:

• Typical investment to represent between 1% and 3%;

• No industry to represent more than 15%;

portfolio companies not to exceed 10%.

Key themes of our investment strategy include:

• Maintaining an appropriate allocation of first lien senior secured and second lien senior secured debt to allow us to achieve attractive returns within the targeted risk profile, while investing prudently based on the market and economic environment;

• Performing thorough fundamental business and industry due diligence;

• Conducting in-depth due diligence on management teams and sponsors to ensure we are investing in businesses led by experienced professionals;

• Structuring investments focused on providing us with security, covenant protection and current income while ensuring our borrowers have adequate liquidity and flexibility to operate;

• Ongoing active management of our portfolio companies through consistent dialogue with management and/or the sponsor, review of financial reporting, monitoring of key performance indicators and evaluation of exit strategies.

Competitive Advantages

We believe we will be able to execute on our investment objective and achieve attractive risk-adjusted returns as a result of our competitive strengths.

Currently, we believe that the Company is the only BDC that serves as the primary middle market loan investment vehicle (1) within a global investment banking firm, which we believe represents a significant competitive advantage for us.

Currently, we believe that the Company and SLIC are the only BDCs that, together, serve as the primary middle-market loan investment vehicle (1) within a global investment banking firm, which we believe represents a significant differentiating advantage for us.

The Firm has deep relationships with many middle-market private equity firms and middle-market companies that provide significant investment opportunity.

We are currently intended to be the primary direct investment pool of capital (1) across the Firm for senior secured middle market loans.

We, together with SLIC, are currently intended to be the primary direct investment pool of capital (1) across the Firm for senior secured middle-market loans.

We intend to capitalize on the significant number of lending opportunities with middle-market companies that the Firm has longstanding relationships with.

We believe the large volume of untapped potential lending opportunities and scale of the Morgan Stanley origination and due diligence platform will allow us to increase investment selectivity and potentially enhance risk-adjusted returns.

(1) Inclusive of certain accounts managed by our Adviser and its affiliates with whom we intend to co-invest in accordance with the conditions to the exemptive order that we have applied for and is currently pending with the SEC.

See "Item 7—Certain Relationships and Related Transactions, and Director Independence" for a description of the requested relief.

Any such order, if issued, would be

subject to certain terms and conditions and there can be no assurance that any such order will be granted by the SEC subject to the terms and conditions we have requested or at all.

(1) Inclusive of the Affiliated Investment Accounts (as defined below) on the Private Credit platform together with SLIC and one or more future Morgan Stanley sponsored direct lending BDCs or funds or accounts with whom we co-invest in accordance with the conditions to the exemptive relief described under “ Item 7.

Management’s Discussion and Analysis of Financial Condition and Results of Operations—Overview ”.

We believe that we will be well positioned to manage the current economic environment.

We believe that the current market environment offers opportunities to seek compelling risk-adjusted returns.

In addition, we believe that capital to be raised can be prudently invested to take advantage of the favorable conditions and we expect will provide better risk adjusted returns than before the market dislocation caused by Coronavirus.

Ability to Leverage Morgan Stanley's Relationships and Network (2)

Morgan Stanley has invested heavily in its people and in its infrastructure in order to develop a substantial network of close business relationships with thousands of individuals, companies, institutions and governments in the U.S.

and around the world.

We believe that the Firm's market presence and network of relationships will be an important source of investment opportunities for us and will constitute a distinct and sustainable competitive advantage relative to other BDCs.

We believe that the Firm's market presence and network of relationships will be an important source of investment opportunities for us and constitutes a distinct and sustainable competitive advantage relative to other BDCs.

Additionally, we believe that we will be able to potentially assist our portfolio companies through our introductions and referrals to the investment banking and capital markets services of the Firm.

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The investment professionals of the Adviser consult with teams across IM, IS (and its business units, Investment Banking, Sales and Trading, Commodities and Equity and Fixed Income Research) and WM, subject in all cases to applicable regulations, information barriers, confidentiality provisions and policies and procedures, to assess potential investments and determine the investment opportunities to which we should devote substantial time and resources.

Upon the consummation of a transaction, our Adviser’s Investment Teams seek to leverage Morgan Stanley's capabilities to effectively monitor each portfolio company investment.

We believe the expertise, infrastructure, track record, relationships and institutional knowledge of Morgan Stanley provides a strong platform for successful private credit investing, including significant due diligence advantages.

In addition, our Adviser has formed an advisory council ("Advisory Council") to facilitate optimal coordination with the various business units of the Firm so as to seek to ensure all relevant resources are fully utilized in executing our investment strategy.

Subject in all cases to applicable regulations, information barriers, confidentiality provisions and policies and procedures, the Advisory Council provides us with insight into current market trends, relative valuation of different market segments, capital supply/demand dynamics, recent publicly available transactions, competitive landscape, macro-economic factors and outlook, political environment, credit markets developments, public equity market activity, and perspective of institutional investors.

Upon the consummation of a transaction, our Adviser seeks to leverage Morgan Stanley’s capabilities to effectively monitor each portfolio company investment.

We believe the expertise, infrastructure, track record, relationships and institutional knowledge of Morgan Stanley provide a strong platform for successful private credit investing, including significant due diligence advantages.

In addition, our Adviser formed an advisory council (“Advisory Council”) to facilitate optimal coordination with the various business units of the Firm so as to seek to ensure all relevant resources are fully utilized in executing our investment strategy.

Subject in all cases to applicable regulations, information barriers, confidentiality provisions and policies and procedures, the Advisory Council is intended to provide us with insight into current market trends, relative valuation of different market segments, capital supply/demand dynamics, recent publicly available transactions, competitive landscape, macro-economic factors and outlook, political environment, credit markets developments, public equity market activity, and perspective of institutional investors.

The Advisory Council includes senior professionals representing the three divisions across the Morgan Stanley organization.

We believe this Advisory Council provides us with invaluable insights beneficial to our investment origination, due diligence and monitoring processes and provides us with what we believe to be a competitive advantage.

We believe the Advisory Council should provide us with invaluable insights beneficial to our investment origination, due diligence and monitoring processes and provide us with what we believe to be a competitive advantage.

Highly Differentiated Deal Sourcing Advantages

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In addition to leveraging the Morgan Stanley resources described above, our Adviser employs a highly rigorous, fundamentals driven and disciplined investment process which has been developed at Morgan Stanley over its decades of investing experience.

The Adviser generally seeks to invest in companies that have leading, defensible market positions, generate strong and stable free cash flow, have high barriers to entry, highly capable management teams and strong financial sponsor ownership.

The Adviser generally seeks to invest in companies that have leading, defensible market positions, generate strong and stable free cash flow, and have high barriers to entry, highly capable management teams and strong financial sponsor ownership.

We believe that our Adviser's investment approach coupled with our portfolio construction strategy, flexible capital, and focus on financial covenant protection, differentiates us from our competitors.

(2) Access to certain parts of Morgan Stanley may be limited in certain instances by a number of factors, including third party confidentiality obligations and information barriers established by Morgan Stanley in order to manage potential conflicts of interest and regulatory restrictions, including without limitation joint transaction restrictions pursuant to the 1940 Act.

Investments may or may not be made for a variety of reasons, including, without limitation, application of Private Credit’s investment opportunity screening, investment committee approval, acquisition terms, diversification, portfolio construction considerations, timing, size, availability of financing, and nature of business plan.

Experienced and Accomplished Investment Team & Investment Committee

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Levin, our Chief Executive Officer and President, has principal management responsibility for the Company and serves as Chair of the Investment Committee.

Levin has more than 18 years of experience in direct lending, mezzanine lending, credit investing and leveraged finance.

Through his tenure at The Carlyle Group as a Partner and President of TCG BDC Inc.

Levin has more than 19 years of experience in direct lending, mezzanine lending, credit investing and leveraged finance, and has served as the Chief Executive Officer and President and a member of the Board of Directors of SLIC, a BDC advised by our Adviser, since September 2020.

Prior to that, through his tenure at The Carlyle Group as a Partner and President of TCG BDC Inc.

and TCG BDC II, Inc., he also has direct experience in successfully capitalizing and managing BDCs.

Before working at The Carlyle Group, Mr.

Levin was a founding member of the Morgan Stanley Private Credit platform.

Levin was a senior member of the Morgan Stanley Private Credit platform.

In addition, the investment professionals of the Private Credit platform have strong financial sponsor and intermediary relationships and a highly developed network within Morgan Stanley.

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Morgan Stanley is committed to align its interests with those of our stockholders.

MS Credit Partners Holdings, a wholly owned subsidiary of Morgan Stanley and an affiliate of the Adviser, made an initial capital contribution of $35,000 to the Company as of December 31, 2019.

Effective November 25, 2019, we issued 1,750 shares of common stock to MS Investor Credit Partners Holdings in connection with the BDC Conversion.

Pursuant to the terms of a subscription agreement, MS Credit Partners Holdings made an aggregate capital commitment equal to 20% of total capital commitments to the Company up to $200,000,000.

MS Credit Partners Holdings, Inc., a wholly owned subsidiary of Morgan Stanley and an affiliate of the Adviser (“MS Credit Partners Holdings”), invested seed capital of $35 thousand to the Company as of December 31, 2019.

Pursuant to the terms of MS Credit Partners Holdings’ subscription agreement, MS Credit Partners Holdings has made an aggregate capital commitment of $200 million to the Company.

As of December 31, 2020 and December 31, 2019, MS Credit Partners Holdings’ total capital commitment represented approximately 14% and 20% of aggregate capital commitments received, respectively.

Market Opportunity

We believe the middle market direct lending market environment continues to provide attractive risk adjusted returns due to several factors.

Despite the ongoing effects of the Coronavirus pandemic, we believe the middle-market direct lending market environment continues to be attractive.

We believe that volatility and uncertainty remains as a result of the Coronavirus pandemic, including uncertainty relating to more contagious strains of the Coronavirus that have emerged in the United States and globally, and its impact on the vaccine rollout, the length of economic recovery, as well as uncertainty related to policies of the new presidential administration and tension with China.

We believe that these factors have created stress on many middle-market lending sources, and we believe that the private credit market will be more favorable for lenders than before the market dislocation, which could be reflected by lower leverage multiples, higher yields and stronger loan documentation and covenants.

We are well capitalized as of December 31, 2020, with over $1.5 billion of available capital (approximately $1.1 billion of available uncalled equity, approximately $66.2 million of available capacity under our revolving credit agreement, as amended, or, the CIBC Subscription Facility, with CIBC Bank USA, as administrative agent and arranger, entered into on December 31, 2019 and subsequently amended on February 3, 2020, and November 17, 2020), and $300.0 million of committed capacity under our revolving funding facility, as amended, or, the BNP Funding Facility, with BNP Paribas, as administrative agent and arranger, entered into on October 14, 2020, and subsequently amended on December 11, 2020).

As of December 31, 2020, we have called $297.4 million of the total committed equity capital of $1,445.8 million.

We believe our strong capital base positions us well to invest over the near term and throughout the Investment Period when we identify opportunities that we believe offer compelling value.

Conducting detailed due diligence is central to our investment strategy and we will continue to seek to build a highly diversified portfolio of predominantly first lien senior secured term loans, avoid the more cyclical industry sectors, and fully leverage the vast origination and due diligence resources of Morgan Stanley.

We believe the middle-market direct lending market environment continues to provide attractive risk adjusted returns due to several historical factors.

Advantageous Market Landscape

We believe that the middle market senior secured loan asset class remains a highly attractive investment area due to its significant size, strong risk adjusted returns relative to liquid credit asset classes such as broadly syndicated loans and high yield bonds, and the continued supply-demand imbalance that favors non-bank lenders such as ourselves.

We believe that the middle-market senior secured loan asset class remains a highly attractive investment area due to its significant size, historically strong risk adjusted returns relative to liquid credit asset classes such as broadly syndicated loans and high yield bonds, and the continued supply-demand imbalance that favors non-bank lenders such as ourselves.

We believe that focusing on lending to private equity owned middle-market businesses provides for an attractive risk adjusted return, with demonstrated stability of leverage multiples and attractive loan to value ratios due to significant equity contributions from the private equity owners.

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Risk Adjusted Returns

We believe middle market companies typically have less leverage, larger equity contributions, lower rates of default, and achieve higher recoveries as compared to broadly syndicated loans.

Middle-market companies, we believe, typically have less leverage, larger equity contributions, lower rates of default, and achieve higher recoveries as compared to broadly syndicated loans.

We believe middle-market loans also tend to garner more attractive pricing, conservative structures, tighter legal documentation, meaningful financial covenants, and provide for greater access to management than broadly syndicated loans.

Furthermore, we believe middle-market loans typically maintain shorter maturities, and often avoid riskier large deal debt characteristics such as covenant-lite structures.

Maintaining financial covenants allows us to diagnose and respond to borrower underperformance typically before value materially erodes.

We believe it is this more conservative loan structuring that also contributes to the better overall performance of middle-market loans.

Additionally, we believe the floating-rate nature of senior secured middle-market loans provides a natural hedge against inflation and mitigates interest rate risk while providing for increased returns in a rising interest rate environment.

Benefits of Middle-Market Focus

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Middle-market lenders are often able to complete more thorough due diligence investigations prior to investment than lenders in the broadly syndicated loan asset class.

Investment Criteria

In order to achieve our investment objectives, our investment portfolio is expected to consist primarily of directly originated floating-rate first lien senior secured term loans (including unitranche loans), and second lien secured term loans of U.S.

middle market companies.

The balance of the investments is expected to be in higher-yielding assets such as mezzanine debt, unsecured debt and equity investments in U.S.

middle market companies.

Our debt investments will typically have maturities of five to eight years.

We intend to create a well-diversified portfolio of investments in order to mitigate risk and achieve our investment objective.

We expect our target portfolio companies to exhibit some or all of the following characteristics at time of the initial investment:

EBITDA of $15 - $100 million;

Defensible, leading market positions;

Niche strategy or other meaningful barriers to entry;

Low technology or market risks;

Diversified product offering, customer and supplier base;

Stable cash flows;

Low capital expenditure requirements;

Generally, avoid cyclical industry sectors;

Predominantly North American base of operations;

Typical loan-to-value of up to 60%;

Experienced management teams with successful track records.

Once we are fully invested, our investments in a portfolio company are expected to generally comply with the following limits, measured as a percentage of the sum of our target aggregate equity commitments in excess of $1.0 billion and our use of leverage (expected to be 1.0x-1.3x as measured by debt-to-equity, subject to a cap of 2.0x), in each case, at the time the relevant investment is made:

Typical investment to represent between 1% and 3%;

No industry to represent more than 15%;

portfolio companies not to exceed 10%.

Key themes of our investment strategy include:

Maintaining an appropriate allocation of first lien senior secured and second lien senior secured debt to allow us to achieve attractive returns within the targeted risk profile, while investing prudently based on the market and economic environment;

Performing thorough fundamental business and industry due diligence;

Conducting in-depth due diligence on management teams and sponsors to ensure we are investing in businesses led by experienced professionals;

Structuring investments focused on providing us with security, covenant protection and current income while ensuring our borrowers have adequate liquidity and flexibility to operate;

Ongoing active management of our portfolio companies through consistent dialogue with management and/or sponsor, review of financial reporting, monitoring of key performance indicators and evaluation of exit strategies.

Investment Process

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Our Adviser is responsible for origination, underwriting, structuring and monitoring our investments.

The Adviser’s investment process has five stages:

Origination, Preliminary Screen, Due Diligence & Structuring, Investment Committee Approval & Closing and Portfolio Management;

and it employs the same rigorous and disciplined investment process to all types of investments.

The Investment Team works on a particular transaction from origination to close and continues to monitor each investment throughout its life cycle.

We believe we benefit from the Adviser’s highly differentiated direct origination platform.

The origination platform includes opportunities sourced by the existing Morgan Stanley divisions and businesses.

The Firm has deep relationships with many middle market private equity firms and middle market companies that provide significant investment opportunity.

We seek to capitalize on the significant number of lending opportunities with middle market companies that the Firm has longstanding relationships with.

The Firm has deep relationships with many middle-market private equity firms and middle-market companies that provide significant investment opportunities.

We, together with SLIC, are currently intended to be the primary direct investment pool of capital (1) across the Firm for senior secured middle-market loans.

We seek to capitalize on a significant number of lending opportunities with middle-market companies that the Firm has longstanding relationships with.

We believe the large volume of untapped potential lending opportunities already sourced by the Firm and the scale of the Morgan Stanley origination platform should allow us to increase investment selectivity and potentially enhance risk-adjusted returns.

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Feedback from the Investment Committee is processed and disseminated in an outcome email that documents the takeaways from the meeting, including preferred financing structure as well as terms, key diligence items and next steps.

Opportunities that gain consensus advance to the Due Diligence & Structuring phase.

Opportunities that are approved by the screening team assigned to such opportunity, which screening team consists of a sub-set of the Investment Committee, advance to the Due Diligence & Structuring phase.

Due Diligence & Structuring

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• Negotiation of legal documentation.

(1) Inclusive of the Affiliated Investment Accounts (as defined below) on the Private Credit platform together with SLIC and one or more future Morgan Stanley sponsored direct lending BDCs with whom we co-invest in accordance with the conditions to the exemptive relief described under “Item 7.

Management’s Discussion and Analysis of Financial Condition and Results of Operations—Overview”.

Investment Committee Approval & Closing

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Frequency of review of individual loans is determined on a case by case basis, based on Internal Risk Rating, total exposure and other criteria set forth by the Investment Committee.

Performing loans are typically discussed every quarter, while any loan that has been downgraded under our Internal Risk Rating scale is typically discussed quarterly at a minimum and more frequently as appropriate.

Performing loans, or loans on which the borrower has historically made payments of principal and interest on time, are typically discussed every quarter, while any loan that has been downgraded under our Internal Risk Rating scale is typically discussed quarterly at a minimum and more frequently as appropriate.

In addition, the Adviser holds monthly “watchlist” meetings which include a discussion of all transactions that have been downgraded, or are at risk for downgrade, under our Adviser's Internal Risk Rating system.

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Please see below for a description of the four categories of the Adviser's Internal Risk Rating system:

In the opinion of our Adviser, investments in Category 1 involve the least amount of risk relative to our initial cost basis at the time of origination or acquisition.

Category 1 In the opinion of our Adviser, investments in Category 1 involve the least amount of risk relative to our initial cost basis at the time of origination or acquisition.

Category 1 investments performance is above our initial underwriting expectations and the business trends and risk factors are generally favorable, which may include the performance of the portfolio company, or the likelihood of a potential exit.

In the opinion of our Adviser, investments in Category 2 involve a level of risk relative to our initial cost basis at the time of origination or acquisition.

Category 2 investments are generally performing in line with our initial underwriting expectations and risk factors to ultimately recoup the cost of our principal investment are neutral to favorable.

Category 2 In the opinion of our Adviser, investments in Category 2 involve a level of risk relative to our initial cost basis at the time of origination or acquisition.

Category 2 investments are generally performing in line with our initial underwriting expectations and risk factors to ultimately recoup the cost of our principal investment and are neutral to favorable.

All new originated or acquired investments are initially included in Category 2.

In the opinion of our Adviser, investments in Category 3 indicate that the risk to our ability to recoup the initial cost basis at the time of origination or acquisition has decreased materially since the origination or acquisition of the investment, such as declining financial performance, non-compliance with debt covenants;

Category 3 In the opinion of our Adviser, investments in Category 3 indicate that the risk to our ability to recoup the initial cost basis at the time of origination or acquisition has increased materially since the origination or acquisition of the investment, such as declining financial performance and non-compliance with debt covenants;

however principal and interest payments are not more than 120 days past due.

In the opinion of our Adviser, investments in Category 4 involve a borrower performing substantially below expectations and indicate that the loan's risk has increased substantially since origination or acquisition.

Category 4 In the opinion of our Adviser, investments in Category 4 involve a borrower performing substantially below expectations and indicate that the loan's risk has increased substantially since origination or acquisition.

Most or all of the debt covenants are out of compliance and payments are substantially delinquent.

For Category 4 investments, it is anticipated that we will not recoup our initial cost basis and may realize a substantial loss of our initial cost basis at the time of origination or acquisition upon exit.

Our Adviser rates the investments in our portfolio at least quarterly, and it is possible that the rating of a portfolio investment may be reduced or increased over time.

For investments rated 3 or 4, our Adviser enhances its level of scrutiny over the monitoring of such portfolio company.

Refer to “ Item 7.

Management ’ s Discussion and Analysis of Financial Condition and Results of Operations—Portfolio, Investment Activity and Results of Operations.

” for the portfolio distribution of Internal Risk Rating as of December 31, 2020.

Beyond the policies and protocols detailed above, our Adviser’s Investment Team servicing the Company performs analysis and projections in response to market conditions to assess potential exposure to our portfolio.

Sample analysis includes evaluation of the impact from fall in energy prices, volatility in FX rates, Brexit, global recession and interest rate sensitivity .

Sample analysis includes evaluation of the impact from fall in energy prices, volatility in foreign currency exchange rates, market impacts of responses to the COVID-19 pandemic, global recession and interest rate sensitivity.

The Internal Risk Ratings do not constitute any rating of investments by a nationally recognized statistical rating organization or represent or reflect any third-party assessment of any of our investments.

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As a diversified global financial services firm, Morgan Stanley engages in a broad spectrum of activities.

In the ordinary course of its business, Morgan Stanley is a full-service investment banking and financial services firm and therefore engages in activities where Morgan Stanley's interests or the interests of its clients may conflict with the interests of our investors, notwithstanding Morgan Stanley's participation as our investor.

Morgan Stanley has advised and may advise clients with a wide variety of investment objectives that in some instances may overlap or conflict with our investment objectives and present conflicts of interest.

Certain members of the Investment Team and the Investment Committee will make investment decisions on behalf of both Morgan Stanley and other entities, including those with investment objectives that overlap with our investment objectives.

These activities create potential conflicts in allocating investment opportunities among us and other investment funds, accounts and similar arrangements sponsored and/or advised by the Adviser and its affiliates.

As a BDC regulated under the 1940 Act, we are subject to certain limitations relating to co-investments and joint transactions with affiliates, which likely will, in certain circumstances, limit our ability to make investments or enter into other transactions alongside the Adviser and other investment funds, accounts and similar arrangements sponsored and/or advised by the Adviser and its affiliates.

Although the Adviser has implemented allocation policies and procedures, there can be no assurance that such regulatory restrictions will not adversely affect our ability to capitalize on attractive investment opportunities.

In the ordinary course of its business, Morgan Stanley is a full-service investment banking and financial services firm and therefore engages in activities where Morgan Stanley’s interests or the interests of its clients may conflict with the interests of the investors in the Company.

Morgan Stanley has advised and may advise clients with a wide variety of investment objectives that in some instances may overlap or conflict with the investment objectives of the Company and present conflicts of interest.

For instance, the Adviser sponsors SLIC whose investment objectives overlap with those of the Company.

These activities create potential conflicts in allocating investment opportunities among the Company and other investment funds, accounts and similar arrangements sponsored and/or advised by the Adviser and its affiliates.

As a BDC regulated under the 1940 Act, the Company is subject to certain limitations relating to co-investments and joint transactions with affiliates, which likely will, in certain circumstances, limit the Company's ability to make investments or enter into other transactions alongside the Adviser and other investment funds, accounts and similar arrangements sponsored and/or advised by the Adviser and its affiliates.

Although the Adviser has implemented allocation policies and procedures, there can be no assurance that such regulatory restrictions will not adversely affect the Company's ability to capitalize on attractive investment opportunities.

We may, however, invest alongside our Adviser’s and/or its affiliates’ other clients, in certain circumstances where doing so is consistent with our Adviser’s allocation policies and procedures, applicable law and SEC staff interpretations, guidance and exemptive relief orders.

The SEC has granted our Adviser exemptive relief that, allows us to enter into certain negotiated co-investment transactions alongside certain Affiliated Investment Accounts (as defined below), which are managed by the Adviser or its affiliates, in a manner consistent with our investment objective, positions, policies, strategies, and restrictions as well as regulatory requirements and other pertinent factors, subject to compliance with certain conditions specified thereunder (the “Order”).

Pursuant to the Order, we are permitted to co-invest with our affiliates if a “required majority” (as defined in Section 57(o) of the 1940 Act) of our eligible directors makes certain conclusions in connection with a co-investment transaction, including that (1) the terms of the transaction, including the consideration to be paid, are reasonable and fair to us and our stockholders and do not involve overreaching in respect of us or our stockholders on the part of any person concerned, and (2) the transaction is consistent with the interests of our stockholders and is consistent with our investment objective and strategies.

As of December 31, 2020, the fair value of our investments was approximately $637.0 million in 36 portfolio companies.

As of December 31, 2019, the Company did not hold any investments.

During the year ended December 31, 2020, we made new

investment commitments (prior to any sale/repayments) of approximately $948.7 million and new investment fundings of

approximately $714.7 million.

Approximately $89.0 million of investments were sold/repaid, of which $33.5 million of investments

were sold and realized gains of $2.2 million.

The composition of our investment portfolio at cost and fair value is as follows (dollar amounts in thousands):

December 31, 2020

Cost Fair Value % of Total Investments at Fair Value

First Lien Debt $ 575,009 $ 580,867 91.2 %

Second Lien Debt 53,505 53,155 8.3

Other Securities 2,959 2,959 0.5

Total $ 631,473 $ 636,981 100.0 %

The industry composition of our investments at fair value is as follows:

December 31, 2020 (1)

Auto Components 4.6 %

Automobiles (0.1)

Commercial Services & Supplies 10.0

Containers & Packaging 2.0

Diversified Consumer Services 1.5

Diversified Financial Services 2.7

Energy Equipment & Services 2.3

Food Products 11.2

Health Care Providers & Services 1.3

Health Care Technology 1.4

Industrial Conglomerates 5.0

Insurance 19.4

Interactive Media & Services 3.6

IT Services 12.0

Leisure Products 3.8

Multi-Utilities 0.1

Professional Services 7.1

Real Estate Management & Development 5.3

Total 100.0 %

(1) Negative percentage is resulted from negative fair value of an unfunded loan commitment.

The geographic composition of our investments at cost and fair value is as follows (dollar amounts in thousands):

December 31, 2020

Cost Fair Value % of Total

Investments at

United States $ 631,473 $ 636,981 100.0 %

Total $ 631,473 $ 636,981 100.0 %

See the Consolidated Schedule of Investments as of December 31, 2020 in “ Item 8.

Consolidated Financial Statements and Supplementary Data—Consolidated Schedule of Investments ” for more information on these investments.

Capital Resources and Borrowings

As a RIC, we intend to distribute substantially all of our net income to our stockholders.

We anticipate generating cash in the future from the issuance of shares and cash flows from operations, including interest received on our debt investments.

We anticipate generating cash from the issuance of shares and cash flows from operations, including interest received on our debt investments.

Additionally, we are permitted, under specified conditions, to issue multiple classes of indebtedness and one class of shares senior to our Common Stock if our asset coverage, as defined in the 1940 Act, is at least equal to 150% immediately after each such issuance.

On December 31, 2019, we entered into a revolving credit agreement (the “CIBC Subscription Facility”) with CIBC Bank USA as administrative agent and arranger.

The CIBC Subscription Facility allows us to borrow up to $100 million at any one time outstanding, subject to certain restrictions, including availability under the borrowing base, which is based on unused capital commitments.

The amount of permissible borrowings under the CIBC Subscription Facility may be increased to up to an aggregate amount of $500 million with the consent of the lenders.

The CIBC Subscription Facility has a maturity date of December 31, 2022.

During the period ended December 31, 2019, there was no amount borrowed under the CIBC Subscription Facility.

As of December 31, 2019, we were in compliance with all covenants and other requirements of the CIBC Subscription Facility.

Furthermore, while any indebtedness and senior securities remain outstanding, we must take provisions to prohibit any distribution to our stockholders (which may cause us to fail to distribute amounts necessary to avoid entity-level taxation under the Code), or the repurchase of such securities or shares unless we meet the applicable asset coverage ratios at the time of the distribution or repurchase.

As of December 31, 2020, our asset coverage ratio was 190.3%.

As of December 31, 2019, we did not have any borrowings outstanding.

While any indebtedness and senior securities remain outstanding, we must take provisions to prohibit any distribution to our stockholders (which may cause us to fail to distribute amounts necessary to avoid entity-level taxation under the Code), or the repurchase of such securities or shares unless we meet the applicable asset coverage ratios at the time of the distribution or repurchase.

In addition, we must also comply with positive and negative covenants customary for these types of facilities.

Our contractual obligations consisted of the following as of December 31, 2020 (dollar amounts in thousands).

We did not have any borrowings outstanding as of December 31, 2019:

Payments Due by Period

1 year 1-3 years 3-5

years After 5

CIBC Subscription Facility $ 333,850 $ — $ 333,850 $ — $ —

BNP Funding Facility $ — $ — $ — $ — $ —

Total Contractual Obligations $ 333,850 $ — $ 333,850 $ — $ —

See “ Item 7.

Management ’ s Discussion and Analysis of Financial Condition and Results of Operations—Financial Condition, Liquidity and Capital Resources.

Investment Advisory Agreement

We entered into an investment advisory agreement, dated November 25, 2019 (the "Investment Advisory Agreement"), with our Adviser.

We have entered into an investment advisory agreement, dated November 25, 2019 (the “Investment Advisory Agreement”), with our Adviser.

Pursuant to the Investment Advisory Agreement with our Adviser, we will pay our Adviser a fee for investment advisory and management services consisting of two components—a base management fee and an incentive fee.

As a part of the Investment Advisory Agreement, we agreed to reimburse the Adviser for certain expenses it incurs on our behalf.

The Adviser agreed to waive any reimbursement by us for any offering and organizational expenses the Adviser incurs on the Company’s behalf in excess of the greater of (i) one million dollars ($1,000,000), and (ii) one-tenth of one percent (0.10%) of the aggregate capital commitments raised in the initial and subsequent closings of our initial private offering during the three year period commencing on the date of the Initial Closing.

As of December 31, 2019, no management fee or incentive fees were accrued or paid to the Adviser.

The Adviser agreed to waive any reimbursement by us of offering and organizational expenses the Adviser incurs on the Company’s behalf in excess of the greater of (i) one million dollars ($1,000,000), and (ii) one-tenth of one percent (0.10%) of the aggregate capital commitments raised in the initial and subsequent closings of our initial private offering during the three year period commencing on the date of the Initial Closing.

Base Management Fee

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The first part is determined and paid quarterly based on our pre-incentive fee net investment income and the second part is determined and payable in arrears based on net capital gains as of the end of each calendar year or upon termination of the Investment Advisory Agreement.

Pre-incentive fee net investment income is defined as interest income, dividend income and any other income accrued during the calendar quarter, minus operating expenses for the quarter, including the base management fee, expenses payable under the Administration Agreement, any interest expense and distributions paid on any issued and outstanding preferred stock, but excluding

the incentive fee.

Pre-incentive fee net investment income does not include any realized capital gains, realized capital losses or unrealized capital appreciation or depreciation.

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For the purpose of computing the incentive fee on capital gains, the calculation methodology will look through derivative financial instruments or swaps as if we owned the reference assets directly.

Our Board of Directors monitors the mix and performance of our investments over time and seeks to satisfy itself that the Adviser is acting in our interests and that our fee structure appropriately incentivizes the Adviser to do so.

Our board of directors (our “Board of Directors”) monitors the mix and performance of our investments over time and seeks to satisfy itself that the Adviser is acting in our interests and that our fee structure appropriately incentivizes the Adviser to do so.

Examples of Quarterly Incentive Fee Calculation

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Pre-incentive net investment income does not exceed hurdle rate, therefore there is no incentive fee.

Alternative 2

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In addition, our Administrator assists us in determining and publishing our net asset value, overseeing the preparation and filing of our tax returns and the printing and dissemination of reports to our stockholders, our internal control assessment under the Sarbanes-Oxley Act and generally overseeing the payment of our expenses and the performance of administrative and professional services rendered to us by others.

Payments under the Administration Agreement are equal to an amount that reimburses our Administrator for its costs and expenses and our allocable portion of expenses incurred by our Administrator in performing its obligations under the Administration Agreement, including our allocable portion of the compensation paid to our Chief Compliance Officer and Chief Financial Officer.

Our Board of Directors, including our independent directors, reviews the allocable portion of overhead and other expenses incurred by our Administrator in performing its obligations under the Administration Agreement to determine whether such expenses are reasonable and allocated appropriately among the Company and other funds sponsored or managed by the Administrator and its affiliates.

Payments under the Administration Agreement are equal to an amount that reimburses our Administrator for its costs and expenses and our allocable portion of certain expenses incurred by our Administrator in performing its obligations under the Administration Agreement, including our allocable portion of the compensation paid to our Chief Compliance Officer and Chief Financial Officer.

Our Board of Directors, including our independent directors, reviews the allocable portion of certain expenses incurred by our Administrator in performing its obligations under the Administration Agreement to determine whether such expenses are reasonable and allocated appropriately among the Company and other funds sponsored or managed by the Administrator and its affiliates.

The Administration Agreement may be terminated by either party without penalty upon 60 days’ written notice to the other party.

Additionally, we ultimately bear the costs of any sub-administration agreements that our Administrator enters into.

Our Administrator reserves the right to waive all or part of any reimbursements due from us at its sole discretion.

The Administration Agreement provides that, absent willful misfeasance, bad faith or gross negligence in the performance of its duties or by reason of the reckless disregard of its duties and obligations, our Administrator and its officers, managers, partners, agents, employees, controlling persons, members and any other person or entity affiliated with it will be entitled to indemnification from us for any damages, liabilities, costs and expenses (including reasonable attorneys' fees and amounts reasonably paid in settlement) arising from the rendering of our Administrator's services under the Administration Agreement or otherwise as administrator for us.

Our Administrator reserves the right to waive all or part of any reimbursements due from the Company at its sole discretion.

In addition, our Administrator has, pursuant to a sub-administration agreement, engaged State Street Bank and Trust Company (“State Street”), to act on behalf of our Administrator in the performance of certain other administrative services for us.

We have also engaged State Street directly to serve as our custodian, transfer agent, distribution paying agent and registrar.

Summary Risk Factors

The risk factors described below are a summary of the principal risk factors associated with an investment in us.

These are not the only risks we face.

You should carefully consider these risk factors, together with the risk factors set forth in “Item 1A.

Risk Factors” of this report and other reports and documents we file with the SEC.

Risks Relating to Our Business and Structure

• We have a limited operating history.

• Operating as a BDC imposes numerous constraints on us and significantly reduces our operating flexibility.

• We 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 income.

• Changes in LIBOR, or its discontinuation, may adversely affect our business and results of operations.

• We 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.

• Our business model depends to a significant extent upon strong referral relationships with sponsors.

• We are dependent on the Adviser's key personnel in seeking to achieve our investment objectives.

• We may not replicate the historical results achieved by other entities managed or sponsored by members of the Adviser’s Investment Committee, or by the Adviser or its affiliates.

• Our financial condition and results of operation depend on our ability to manage future growth effectively.

• The Adviser may frequently be required to make investment analyses and decisions on an expedited basis.

• There are significant potential conflicts of interest that could affect our investment returns.

• Our ability to enter into transactions with our affiliates is restricted.

• Our management 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.

• Shares of our Common Stock are illiquid investments for which there is not a secondary market.

• We operate in a highly competitive market for investment opportunities.

• We will be subject to corporate-level income tax if we are unable to qualify as a RIC.

• Regulations 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.

• We 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.

• We are subject to risks associated with the CIBC Subscription Facility, the BNP Funding Facility and any other Credit Facility.

• Investors in shares of our Common Stock may fail to fund their capital commitments when due.

• Failure to qualify as a BDC would decrease our operating flexibility.

• The majority of our portfolio investments are recorded at fair value as determined in good faith by our Board of Directors and, as a result, there may be uncertainty as to the value of our portfolio investments.

• Our activities may be limited as a result of potentially being deemed to be controlled by a bank holding company (“BHC”).

• New or modified laws or regulations governing our operations may adversely affect our business.

• Our 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.

• The Adviser and Administrator can each resign on 60 days’ notice, and we may not be able to find a suitable replacement within that time.

• We are highly dependent on information systems, and systems failures could significantly disrupt our business.

• Terrorist attacks, acts of war, natural disasters, outbreaks or pandemics, such as the Coronavirus pandemic, may impact our portfolio companies and our Adviser and harm our business, operating results and financial condition.

• Uncertainties resulting from the United Kingdom’s decision to leave the European Union could adversely affect our business.

• We 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.

• The liability of each of the Adviser and the Administrator is limited.

• Risks relating to compliance with the AIFMD.

Risks Relating to Our Investments

• Limitations of investment due diligence expose us to investment risk.

• Our debt investments may be risky and we could lose all or part of our investments.

• Defaults by our portfolio companies will harm our operating results.

• Our investments, including our investments in private and middle-market portfolio companies may be risky as we may invest in distressed or highly leveraged companies and hold the debt securities of leveraged companies that may, due to the significant volatility of such companies, enter into bankruptcy proceedings and we could lose all or part of our investments.

• Subordinated 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.

• The lack of liquidity in our investments may adversely affect our business.

• Price 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.

• Because we generally do not hold controlling equity interests in our portfolio companies, we may not be able to exercise control over our portfolio companies.

• We can offer no assurance that portfolio company management will be able to operate their companies in accordance with our expectations.

• We may not realize gains from our equity investments.

Risks Relating to Our Common Stock

• There is no public market for shares of our Common Stock.

• There are restrictions on holders of our Common Stock.

• There is a risk that you may not receive distributions.

• Investing in our Common Stock may involve an above average degree of risk.

• Our stockholders may receive shares of our Common Stock as dividends, which could result in adverse tax consequences to them.

General Risk Factors

• We are operating in a period of capital markets disruption and economic uncertainty.

Regulation as a Business Development Company

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A BDC is a specialized investment vehicle that elects to be regulated under the 1940 Act as an investment company, but is generally subject to less onerous requirements than other registered investment companies under a regime designed to encourage lending to U.S.-based small and mid-sized businesses.

many similar types of investment vehicles that are restricted to being private entities, the stock of a BDC is permitted to trade in the public equity markets (although at least initially, we do not currently intend to list shares of our Common Stock to allow for such trading).

Unlike many similar types of investment vehicles that are restricted to being private entities, the stock of a BDC is permitted to trade in the public equity markets (although at least initially, we do not currently intend to list shares of our Common Stock to allow for such trading).

BDCs are also eligible to elect to be treated as a RIC under Subchapter M of the Code.

A RIC typically does not incur significant entity-level income taxes, because it is generally entitled to deduct distributions made to its stockholders.

We intend to elect to be treated, and intend to qualify annually, as a RIC, for our taxable year commencing on the initial Drawdown Date.

We have elected to be treated, and intend to qualify annually, as a RIC, beginning with our taxable year ended December 31, 2020.

See “ Item 1.

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From time to time, including at or near the end of each fiscal quarter, we may consider using various temporary investment strategies for our business, including taking proactive steps by utilizing cash equivalents as temporary assets with the objective of enhancing our investment flexibility pursuant to Section 55 of the 1940 Act.

More specifically, from time-to-time we may draw down our credit

facilities, as deemed appropriate, and repay such borrowings subsequent to quarter end.

More specifically, from time-to-time we may draw down our credit facilities, as deemed appropriate, and repay such borrowings subsequent to quarter end.

We may also purchase U.S.

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As a result of the stockholder approval, effective December 17, 2019, the asset coverage ratio under the 1940 Act applicable to us decreased to 150% from 200%, so long as we meet certain disclosure requirements.

As defined in the 1940 Act, asset coverage of 150% means that for every $100 of net assets we hold, we may raise $200 from borrowing and issuing senior securities as compared to $100 from borrowing and issuing senior securities for every $100 of net assets under 200% asset coverage.

In addition, while any senior securities remain outstanding, we will be required to make provisions to prohibit any dividend distribution to our stockholders or the repurchase of such securities or shares unless we meet the applicable asset coverage ratios at the time of the dividend distribution or repurchase.

senior securities for every $100 of net assets under 200% asset coverage.

We are also permitted to borrow amounts up to 5% of the value of our total assets for temporary or emergency purposes without regard to asset coverage, which borrowings would not be considered senior securities, provided that any such borrowings in excess of 5% of the value of our total assets would be subject to the asset coverage ratio requirements of the 1940 Act, even if for temporary or emergency purposes.

Regulations governing our operations as a BDC will affect our ability to raise, and the method of raising, additional capital, which may expose us to risks.

Code of Ethics

We and our Adviser have each adopted a code of ethics pursuant to Rule 17j-1 under the 1940 Act that establishes procedures for personal investments and restricts certain personal securities transactions.

Personnel subject to the codes of ethics may invest in securities for their personal investment accounts, including securities that may be purchased or held by us, so long as such investments are made in accordance with the codes of ethics' requirements.

Our and our Adviser’s codes of ethics are available on the SEC's website at www.sec.gov and you may obtain copies of the codes of ethics, after paying a duplicating fee, by electronic request at the following email address:

We and our Adviser have adopted a code of ethics pursuant to Rule 17j-1 under the 1940 Act that establishes procedures for personal investments and restricts certain personal securities transactions.

Personnel subject to the code of ethics may invest in securities for their personal investment accounts, including securities that may be purchased or held by us, so long as such investments are made in accordance with the codes of ethics' requirements.

The codes of ethics for each of the Adviser and the Company are available on the SEC's website at www.sec.gov and you may obtain copies of the code of ethics, after paying a duplicating fee, by electronic request at the following email address:

publicinfo@sec.gov.

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An investment adviser registered under the Investment Advisers Act of 1940 (the “Advisers Act”) has a fiduciary duty to act solely in the best interests of its clients.

As part of this duty, we recognize that we must vote our securities in a timely manner free of conflicts of interest and in our best interests and the best interests of our stockholders.

As part of this duty, we recognize that we must vote the Company securities in a timely manner free of conflicts of interest and in our best interests and the best interests of our stockholders.

These policies and procedures for voting proxies for our investment advisory clients are intended to comply with Section 206 of, and Rule 206(4)-6 under, the Advisers Act.

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Furthermore, as a BDC, we are prohibited from protecting any director or officer against any liability to us or our stockholders arising from willful misfeasance, bad faith, gross negligence or reckless disregard of the duties involved in the conduct of such person's office.

We and our Adviser are each be required to adopt and implement written policies and procedures reasonably designed to prevent violation of the federal securities laws, review these policies and procedures annually for their adequacy and the effectiveness of their implementation, and designate a chief compliance officer to be responsible for administering the policies and procedures.

We and our Adviser are each required to adopt and implement written policies and procedures reasonably designed to prevent violation of the federal securities laws, review these policies and procedures annually for their adequacy and the effectiveness of their implementation, and designate a chief compliance officer to be responsible for administering the policies and procedures.

We currently are and expect to remain an “emerging growth company,” as defined in the Jumpstart Our Business Startups Act of 2012, as amended (the “JOBS Act”), until the earliest of:

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• the date on which we have, during the prior three-year period, issued more than $1.0 billion in non-convertible debt;

the last day of a fiscal year in which we (1) have an aggregate worldwide market value of shares of our Common Stock held by non-affiliates of $700 million or more, computed at the end of the last business day of the second fiscal quarter in such fiscal year and (2) have been an Exchange Act reporting company for at least one year (and filed at least one annual report under the Exchange Act).

• the last day of a fiscal year in which we (1) have an aggregate worldwide market value of shares of our Common Stock held by non-affiliates of $700 million or more, computed at the end of each fiscal year as of the last business day of our most recently completed second fiscal quarter and (2) have been an Exchange Act reporting company for at least one year (and filed at least one annual report under the Exchange Act).

Under the JOBS Act and the Dodd-Frank Wall Street Reform and Consumer Protection Act (“Dodd-Frank”), we are exempt from the provisions of Section 404(b) of the Sarbanes-Oxley Act, which would require that our independent registered public accounting firm provide an attestation report on the effectiveness of our internal control over financial reporting, until such time as we cease to be an emerging growth company and become an accelerated filer as defined in Rule 12b-2 under the Exchange Act.

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• pursuant to Item 307 under Regulation S-K under the Securities Act our periodic reports must disclose our conclusions about the effectiveness of our disclosure controls and procedures;

pursuant to Rule 13a-15 under the Exchange Act, beginning with our fiscal year ending December 31, [2019], our management must prepare an annual report regarding its assessment of our internal control over financial reporting, which must be audited by our independent registered public accounting firm;

• pursuant to Rule 13a-15 under the Exchange Act, our management must prepare an annual report regarding its assessment of our internal control over financial reporting, which must be audited by our independent registered public accounting firm;

• pursuant to Item 308 of Regulation S-K under the Securities Act and Rule 13a-15 under the Exchange Act, our periodic reports must disclose whether there were significant changes in our internal controls over financial reporting or in other factors that could significantly affect these controls subsequent to the date of their evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.

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Bank Holding Company Act

As a bank holding company ("BHC") that has elected Financial Holding Company ("FHC") status under the Bank Holding Company Act of 1956, as amended (the "BHCA"), Morgan Stanley and its affiliates are subject to comprehensive, consolidated supervision and regulation by the U.S.

Federal Reserve Board (the "Federal Reserve").

As of December 31, 2019, the Adviser and the company are a subsidiary of Morgan Stanley, the Federal Reserve will treat the Adviser as an affiliate of Morgan Stanley and controlled by Morgan Stanley.

As a result, the Adviser and the Company are subject to the BHCA and the Federal Reserve's implementing regulations and interpretations.

As a BHC that has elected Financial Holding Company (“FHC”) status under the Bank Holding Company Act of 1956, as amended (the “BHCA”), Morgan Stanley and its affiliates are subject to comprehensive, consolidated supervision and regulation by the U.S.

Board of Governors of the Federal Reserve System (the “Federal Reserve”).

Since the Adviser is a subsidiary of Morgan Stanley, the Federal Reserve will treat the Adviser as an affiliate of Morgan Stanley and controlled by Morgan Stanley.

As a result, the Adviser is subject to the BHCA and the Federal Reserve’s implementing regulations and interpretations.

These regulations are subject to change, including with respect to possible limitations on the Adviser’s day-to-day control over the activities of portfolio companies.

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Each investor should carefully review and familiarize itself with these rules and regulations and consult with its own counsel on how the Volcker Rule (as defined herein), Dodd-Frank and the BHCA may impact the investor.

Dodd-Frank Act and Volcker Rule Disclosure

Dodd-Frank and Volcker Rule Disclosure

Section 619 of Dodd-Frank, commonly known as the “Volcker Rule,” and regulations to implement the Volcker Rule issued by the U.S.

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We can offer no assurances that, at the conclusion of this seeding period, Morgan Stanley and its affiliates will not be deemed to control us for purposes of the Volcker Rule.

To the extent that we are deemed a banking entity under the Volcker Rule and the Implementing Regulations, our operations may be restricted, although, given the anticipated nature of the investments we intend to make, we do not anticipate that these restrictions, if they were to apply, would impose material limitations on our operations, but can provide no assurances that they would not.

To the extent that we are deemed a banking entity under

the Volcker Rule and the Implementing Regulations, our operations may be restricted, although, given the anticipated nature of the investments we intend to make, we do not anticipate that these restrictions, if they were to apply, would impose material limitations on our operations, but can provide no assurances that they would not.

Furthermore, we can offer no assurances that the rules and regulations enacted under the Volcker Rule, the BHCA and other statutes will not change in a future in a manner that would limit our operations and investments.

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Engaging in commodity interest transactions such as swap transactions or futures contracts for us may cause the Adviser to fall within the definition of “commodity pool operator” under the Commodity Exchange Act (the “CEA”) and related Commodity Futures Trading Commission (the “CFTC”) regulations.

On January 24, 2020, the Adviser claimed an exclusion from the definition of the term “commodity pool operator” under the CEA and the CFTC regulations in connection with its management of us and, therefore, is not subject to CFTC registration or regulation under the CEA as a commodity pool operator with respect to its management of us.

On January 24, 2020, the Adviser claimed an exclusion from the definition of the term “commodity pool operator” under the CEA and the CFTC regulations in connection with its management of us (the “Exclusion”) and, therefore, the Adviser is not subject to CFTC registration or regulation under the CEA as a commodity pool operator with respect to its management of us.

The Adviser intends to affirm the Exclusion on an annual basis, and as of the date of this report, has affirmed the Exclusion through the fiscal year ending December 31, 2021.

Reporting Obligations and Available Information

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The SEC also maintains a website that contains annual reports, quarterly reports, current reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC, including us, which can be accessed at www.sec.gov.

Anti-Money Laundering, U.S.

Department of the Treasury’s Office of Foreign Assets Control, and Foreign Corrupt Practices Act Requirements.

The Adviser and the Company comply with policies and procedures consistent with the requirements of Title III of the Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act of 2001 (including the implementing regulations thereunder, the “USA PATRIOT Act”), and may become subject to the requirements of the USA PATRIOT Act.

Accordingly, to allow the Adviser and the Company to comply with such policies and procedures and any applicable U.S.

and other anti-money laundering laws and regulations (including rules of the Financial Crimes Enforcement Network of the U.S.

Department of the Treasury), the Adviser and the Company may require investors to provide information regarding their identity, the identity of any of their beneficial owners, the sources of funds used to subscribe for shares in the Company and other information.

The Company may decline to accept a subscription if this information is not provided or on the basis of such information that is provided.

The Adviser and the Company also reserve the right to refuse to make any dividend or other payment to a stockholder if they suspect or are advised that payment of such proceeds may be non-compliant with applicable laws or regulations, or if such refusal is considered necessary or appropriate to ensure the compliance by the Adviser and/or the Company with any applicable laws or regulations.

The Adviser and the Company may request such additional information from prospective investors as the Adviser and the Company deem necessary in order to comply with Morgan Stanley policies and procedures, the USA PATRIOT Act, or other relevant U.S.

or other anti-money laundering legislation or regulations, and may provide such information to a government regulatory authority if the Adviser deems it necessary in order to comply with Morgan Stanley policies and procedures, the USA PATRIOT Act or other relevant U.S.

or other anti-money laundering legislation or regulations administered or enforced by such government regulatory authority.

Requests for documentation and additional information may be made at any time during which a stockholder holds shares in the Company.

Economic sanction laws in the United States and other jurisdictions may prohibit Morgan Stanley, the Adviser, their affiliates and the Company from transacting with certain countries, individuals and companies.

In the United States, the U.S.

Department of the Treasury’s Office of Foreign Assets Control administers and enforces laws, Executive Orders and regulations establishing U.S.

economic and trade sanctions, which prohibit, among other things, transactions with, and the provision of services to, certain foreign countries, territories, entities and individuals.

These types of sanctions may significantly restrict or completely prohibit investment activities in certain jurisdictions.

Morgan Stanley, the Adviser, their affiliates, and the Company are subject to various anti-corruption and anti-boycott laws, rules and regulations, such as the U.S.

Foreign Corrupt Practices Act, in the jurisdictions in which they operate.

Violations of these laws, rules and regulations may result in significant legal, regulatory, and monetary penalties, as well as reputational harm.

Authorities including the U.S.

Department of Justice and the SEC enforce the anti-corruption and anti-boycott laws, and there is risk that Morgan Stanley, the Adviser, their affiliates, or the Company could become the subject of such actual or threatened enforcement, as well as other claims or proceedings.

Federal Income Tax Considerations

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person prior to that date, and has made a valid election to be treated as a U.S.

stockholder” is a beneficial owner of shares of our Common Stock that is not a U.S.

If a partnership (including an entity treated as a partnership for U.S.

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To qualify as a RIC, we must, among other things, meet certain source-of-income and asset diversification requirements (as described below).

In addition, we must distribute to our stockholders, for each taxable year, dividends of an amount at least equal to 90% of our "investment company taxable income," which is generally our net ordinary income plus the excess of realized net short-term capital gains over realized net long-term capital losses and determined without regard to any deduction for dividends paid (the "Annual Distribution Requirement").

In addition, we must distribute to our stockholders, for each taxable year, dividends of an amount at least equal to

90% of our investment company taxable income (“ICTI”), as defined by the code, which is generally our net ordinary income plus the excess of realized net short-term capital gains over realized net long-term capital losses and determined without regard to any deduction for dividends paid (the “Annual Distribution Requirement”).

Although not required for us to maintain our RIC tax status, in order to preclude the imposition of a 4% nondeductible federal excise tax imposed on RICs, we must distribute to our stockholders in respect of each calendar year dividends of an amount at least equal to the sum of (1) 98% of our net ordinary income (taking into account certain deferrals and elections) for the calendar year, (2) 98.2% of the excess (if any) of our realized capital gains over our realized capital losses, or capital gain net income (adjusted for certain ordinary losses), generally for the one-year period ending on October 31 of the calendar year and (3) the sum of any net ordinary income plus capital gains net income for preceding years that were not distributed during such years and on which we paid no federal income tax (the “Excise Tax Avoidance Requirement”).

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then we will not be subject to U.S.

federal income tax on the portion of our investment company taxable income and net capital gain, defined as net long-term capital gains in excess of net short-term capital losses, we distribute to stockholders.

federal income tax on the portion of our ICTI and net capital gain, defined as net long-term capital gains in excess of net short-term capital losses, we distribute to stockholders.

As a RIC, we will be subject to U.S.

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In addition, as a RIC we are subject to ordinary income and capital gain distribution requirements under U.S.

federal excise tax rules for each calendar year, or the Excise Tax Avoidance Requirement.

federal excise tax rules for each calendar year (the “Excise Tax Avoidance Requirement”).

If we do not meet the required distributions we will be subject to a 4% nondeductible federal excise tax on the undistributed amount.

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We may then be required to pay a 4% excise tax on such income or capital gains.

A RIC is limited in its ability to deduct expenses in excess of its investment company taxable income.

If our deductible expenses in a given taxable year exceed our investment company taxable income, we may incur a net operating loss for that taxable year.

A RIC is limited in its ability to deduct expenses in excess of its ICTI.

If our deductible expenses in a given taxable year exceed our ICTI, we may incur a net operating loss for that taxable year.

However, a RIC is not permitted to carry forward net operating losses to subsequent taxable years and such net operating losses do not pass through to its stockholders.

In addition, deductible expenses can be used only to offset investment company taxable income, not net capital gain.

A RIC may not use any net capital losses (that is, the excess of realized capital losses over realized capital gains) to offset its investment company taxable income, but may carry forward such net capital losses, and use them to offset future capital gains, indefinitely.

In addition, deductible expenses can be used only to offset ICTI, not net capital gain.

A RIC may not use any net capital losses (that is, the excess of realized capital losses over realized capital gains) to offset its ICTI, but may carry forward such net capital losses, and use them to

offset future capital gains, indefinitely.

Due to these limits on deductibility of expenses and net capital losses, we may for tax purposes have aggregate taxable income for several taxable years that we are required to distribute and that is taxable to our stockholders even if such taxable income is greater than the net income we actually earn during those taxable years.

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For example, if we hold debt obligations that are treated under applicable tax rules as having OID (such as debt instruments with PIK interest or, in certain cases, with increasing interest rates or issued with warrants), we must include in income each year a portion of the OID that accrues over the life of the obligation, regardless of whether cash representing such income is received by us in the same taxable year.

Because any OID accrued will be included in our investment company taxable income for the taxable year of accrual, we may be required to make a distribution to our stockholders in order to satisfy the Annual Distribution Requirement, even though we will not have received any corresponding cash amount.

Because any OID accrued will be included in our ICTI for the taxable year of accrual, we may be required to make a distribution to our stockholders in order to satisfy the Annual Distribution Requirement, even though we will not have received any corresponding cash amount.

Furthermore, a portfolio company in which we hold equity or debt instruments may face financial difficulty that requires us to work out, modify, or otherwise restructure such equity or debt instruments.

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Similarly, on disposition of some investments, including debt securities and certain forward contracts denominated in a foreign currency, gains or losses attributable to fluctuations in the value of foreign currency between the date of acquisition of the security or contract and the date of disposition also are treated as ordinary gain or loss.

These gains and losses, referred to under the Code as "section 988" gains

and losses, may increase or decrease the amount of our investment company taxable income to be distributed to stockholders as ordinary income.

These gains and losses, referred to under the Code as “section 988” gains and losses, may increase or decrease the amount of our ICTI to be distributed to stockholders as ordinary income.

For example, fluctuations in exchange rates may increase the amount of income that we must distribute in order to qualify for treatment as a RIC and to prevent application of an excise tax on undistributed income.

Alternatively, fluctuations in exchange rates may decrease or eliminate income available for distribution.

If section 988 losses exceed other investment company taxable income during a taxable year, we would not be able to make ordinary distributions, or distributions made before the losses were realized would be re-characterized as a return of capital to stockholders for U.S.

If section 988 losses exceed other ICTI during a taxable year, we would not be able to make ordinary distributions, or distributions made before the losses were realized would be re-characterized as a return of capital to stockholders for U.S.

federal income tax purposes, rather than as ordinary dividend income, and would reduce each stockholder's basis in Shares.

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 1. Business