SecProbe.io

1

     October 23, 2019  Via Email
 Matthew J. Carter Dechert LLP 1900 K Street, NW Washington, DC  20006 matthew.carter@dechert.com
Re: Morgan Stanley Direct Lending Fund LLC
Registration Statement on Form 10  File No. 000-56098
 Dear Mr. Carter:
On October 18, 2017, you filed a registration statement on Form 10 on behalf of
 Morgan
Stanley Direct Lending Fund LLC (the “Company ”).  We have reviewed the registration
statement and have provided our comments below.  Where a comment is made in one location, it
is applicable to all similar disclosure appeari ng elsewhere in the registration statement.  All
capitalized terms not otherwise defined herein have  the meaning given to them in the registration
statement.
Please respond to this letter within ten ( 10) business days by either amending the filing,
providing the requested information, or advi sing us when you will provide the requested
information.  We may have additional comments after reviewing your resp onses to the following
comments, or any amendment to the filing.   We note that the Company is voluntarily registering shares of its common stock under
Section 12(g) of the Secu rities Exchange Act of 1934 (“Exchange  Act”).  Please note that a filing
on Form 10 goes effective automatically by lapse of  time 60 days after the original filing date,
pursuant to Exchange Act Section 12(g)(1).  If  our comments are not satisfactorily addressed
within this 60-day time period, you should cons ider withdrawing the Company’s Form 10 prior
to its effectiveness, and re-fil ing a revised Form 10 that incl udes changes responsive to our
comments.  If the Company chooses not to withdraw  its Form 10 registration statement, it will be
subject to the reporting requirements of Exchange Act Section 13(a).  Additionally, we will continue to review the filing unt il all of our comments have b een satisfactorily addressed.

2
 Page 1 – Explanatory Note

1. Please add the following:

a. The Company is an “emerging growth comp any,” as defined in the Jumpstart Our
Business Startups Act of 2012.  As a result, the Company is eligible to take advantage of
certain reduced disclosure and other requirement s that are otherwise applicable to public
companies including, but not limited to, not being subject to the auditor attestation
requirements of Section 404(b) of the Sarban es-Oxley Act of 2002.  See “Item 1A. Risk
Factors — Risks Related to Our Business and Structure — We are an “emerging growth
company,” and we do not know if such status  will make our shares less attractive to
investors.”
 b. The Commission maintains an Internet Webs ite (http://www.sec.gov) that contains the
reports mentioned in this section.

Page 2 – Item 1. Business

2. You state, “Prior to the Effective Date and pr ior to our election to be regulated as a BDC,
we will complete a conversion under which Morgan Stanley Direct Lending Fund will succeed to
the business of Morgan Stanley Direct Lending Fund LLC, and the member of Morgan Stanley
Direct Lending Fund LLC will become the stoc kholder of Morgan Stanley Direct Lending
Fund.”  Please tell us whethe r this conversion is a rou tine or non-routine matter.
 3. The first paragraph of this section states th at the Company intends to invest in senior
secured or unsecured loans, subordinated loans and mezzanine loans.  We  are aware that rating
agencies as well as the financial media have rece ntly reported that traditi onal lender protections
are being eroded and that so-called “covenant-lite  loans” are increasing ly common.  See, e.g.,
“Leveraged Loans Not as Safe as They Once Were,” Wall Street Journal (August 16, 2018).  If
the Company intends to invest in covenant-lite loans, please describe such loans and the extent to
which the Company may invest in such loans; als o, consider enhancing the disclosure of the risks
of such loans.  4. Please disclose in this section the expected credit quality and maturity of the Company’s
investments.  Please include the term “junk bonds” in describing debt instruments that will be
rated below investment grade or which, if unrat ed, would be rated below investment grade if
they were rated.
Page 5 – Competitive Advantages

5. In footnote 1, you refer to an exemptive or der regarding co-invest ments with certain
accounts managed by the Company’s advi ser and its affiliates.  Please advise us of the status of
the exemptive application.  If the application is pending, revise  the disclosure throughout the
registration statement to cl arify that such relief has not yet be en granted and may not be granted.

3
 Page 8 – Large and Growing U.S. Middle Market with Favorable Market Trends

6. In plain English, please describe Refini tiv LPC and Prequin, Lt d. and explain what
relevance they have to this section.

Page 16 – Examples of Quarte rly Incentive Fee Calculation

7. You state, “For the purpose of computi ng the incentive fee on capital gains, the
calculation methodology will look through derivative fi nancial instruments or swaps as if we
owned the reference assets directly.”  Based on th e disclosure in the registration statement, it is
unclear what kind of derivati ves the Company will use and, sp ecifically, whether the Company
will engage in total return swaps.

a. Please add disclosure clarifying the Company’s use of derivatives.  If the Company will
engage in total return swaps, please tell us  whether the Company’s investment advisory
agreement addresses the treatment of tota l return swaps for purposes of the base
management fee and the incen tive fee calculations.
b. Please tell us whether the Company will l ook through the swap and count the reference
assets as investments of the Company for purposes of computing the incentive fee on
income.
c. Please tell us whether, for purposes of the a sset coverage ratio test of section 61(a) under
the Investment Company Act, the Company w ill treat the notional amount of the swap,
reduced by the amount of cash collateral re quired to be posted by the Company, as a
senior security for the life of the swap.
d. Please tell us whether, for purposes of s ection 55(a) under the Investment Company Act,
the Company will treat each loan underlying the swap as a qualifying asset only if the
obligor on the loan is an elig ible portfolio company and as  a non-qualifying asset if the
obligor is not an eligib le portfolio company.

8. Please add, adjacent to this section, a fee table that conforms to requirements of Item 3 of
Form N-2.  Such disclosure will be helpful to investors.

9. Please add an example that conforms to the re quirements of Instructi on 11 to Item 3.1 of
Form N-2.  We further request that you include , in the explanatory paragraph following the
example, a second example where the five percent re turn results entirely fr om net realized capital
gains and which uses language substantially th e same as the following: “You would pay the
following expenses on a $1,000 investment, assumi ng a 5.0% annual return resulting entirely
from net realized capital gains (all of which is  subject to our incentive fee on capital gains): $
___ $ ___ $ ___ $ ___.”  Such disclosure will be helpful to investors.

4
 Page 19 – Administration Agreement

10. Please disclose how the board of directors,  including the indepe ndent directors, will
review the compensation that the Company pays to the administrator and determine that such
payments are reasonable in lig ht of the services provided.

Page 25 – Senior Securities

11. Please clarify that the Company’s borro wings, whether for “emergency purposes” or
otherwise, are subject to the a sset coverage requirements of sec tion 61(a)(1) of the Investment
Company Act.

Page 51 – We may have difficulty paying our required distributions if we recognize income
before, or without, receiving ca sh representing such income.

12. Please disclose that, to the extent original  issue discount instrume nts, such as zero coupon
bonds and PIK loans, constitute a significant port ion of the Company’s income, investors will be
exposed to typical risks associated  with such income being require d to be included in taxable and
accounting income prior to receip t of cash, including the following:

a. The higher interest rates of PIK loans reflect  the payment deferral and increased credit
risk associated with these instruments, and PIK instruments generally represent a
significantly higher credit ri sk than coupon loans;

b. PIK loans may have unreliable valuations because their continuing accruals require
continuing judgments about the collectability of the deferred paymen ts and the value of
any associated collateral;
c. Market prices of zero-coupon or PIK securities are affected to a greater extent by interest
rate changes and may be more volatile than se curities that pay intere st periodically and in
cash. PIKs are usually less volatile than zer o-coupon bonds, but more volatile than cash
pay securities;
d. Because original issue discount income is accr ued without any cash being received by the
Company, required cash distributions may have to be paid from offering proceeds or the
sale of Company assets without investor s being given any notice of this fact;
e. The deferral of PIK interest increases the loan-to-value ratio, which is a measure of the
riskiness of a loan;
f. Even if the accounting conditions for income  accrual are met, the borrower could still
default when the Company’s actual payment is  due at the maturity of the loan; and
g. Original issue discount creates risk of non-refundable cash payments to the adviser based
on non-cash accruals that ma y never be realized.

5
 Page 79 – We may in the future determine to issue preferred stock, which could adversely
affect the value of shares of Common Stock.

13. Please confirm that the Company does not inte nd to issue debt secu rities or preferred
stock within a year of the eff ective date of the registration statement, or add appropriate
disclosure.

Page 84 – Contractual Obligations and Off-Balance Sheet Arrangements

14. You state, “We intend to enter into certain contracts under which we have material future
commitments.”  Please e xplain to us whether the Company will make capital commitments that
may be unfunded for some period of time.  If s o, please explain to us whether the Company will
treat its unfunded commitments as senior securi ties under section 18(g) of the Investment
Company Act.  If the Company will have unfunded commitments that it will not treat as senior
securities, please provide us with a representation  that the Company reasonably believes that its
assets will provide adequate cover to allow it to satisfy its future unfunded investment
commitments, and include an explanation as to why the Company believes it will be able to
cover its future unfunded investment commitments.
*     *     *     *     *     *
  We remind you that the Company and its ma nagement are responsible for the accuracy
and adequacy of their disclosures, notwithstandi ng any review, comments, action or absence of
action by the staff.  Should you have any questions  regarding this letter, please contact me at
(202) 551-5166.
Sincerely, /s/ Lisa N. Larkin Lisa N. Larkin  Senior Counsel