10-Q: North Haven Private Income Fund Q2 2025 Results

North Haven Private Income Fund reported increased investment income for Q2 2025, driven by portfolio expansion and the SLIC Acquisition, but experienced a decline in net asset value per unit and significant unrealized depreciation.

Summary

• Total investment income increased to $164.338 million for the three months ended June 30, 2025, up from $121.052 million in the prior year period, primarily due to capital deployment and the SLIC Acquisition.
• Net investment income after taxes rose to $77.700 million for Q2 2025, compared to $70.053 million for Q2 2024.
• For the six months ended June 30, 2025, total investment income was $325.851 million, and net investment income after taxes was $155.795 million.
• Net increase in members' capital resulting from operations decreased to $70.566 million for Q2 2025, down from $72.915 million in Q2 2024.
• For the six months ended June 30, 2025, net increase in members' capital from operations was $120.572 million, a decrease from $126.646 million in the prior year period.
• Net asset value per unit declined to $18.77 as of June 30, 2025, from $18.96 as of December 31, 2024.
• Total investments at fair value grew to $6,584,885,000 as of June 30, 2025, from $6,079,019,000 as of December 31, 2024.
• Debt outstanding (net of unamortized debt issuance costs) increased to $3,118,463,000 as of June 30, 2025, from $2,861,892,000 as of December 31, 2024.
• The weighted average yield on debt and income producing investments decreased to 9.8% as of June 30, 2025, from 10.2% as of December 31, 2024, primarily due to a reduction in base rates and repricing on the existing portfolio.
• Net change in unrealized appreciation (depreciation) on investments was a depreciation of $(29,616,000) for the six months ended June 30, 2025, a significant shift from appreciation of $4,369,000 in the prior year period.
• Non-accrual investments increased to $73,050,000 (1.1% of total amortized cost) as of June 30, 2025, from $29,237,000 (0.5%) as of December 31, 2024.
• Investments classified as Risk Rating 3 (increased risk) and Risk Rating 4 (substantial loss anticipated) increased in fair value from $119,130,000 and $21,564,000 respectively, as of December 31, 2024, to $65,300,000 and $36,936,000 respectively, as of June 30, 2025.
• The company had $975,067,000 in unfunded commitments to fund delayed draw and revolving senior secured loans as of June 30, 2025.

Sentiment

Score: 4

Explanation: While the company achieved significant portfolio growth and increased investment income, the decline in Net Asset Value per unit, substantial unrealized depreciation, and a notable increase in non-accrual and higher-risk investments indicate deteriorating portfolio quality and overall financial performance compared to the prior period. The decrease in weighted average yield also points to less favorable investment conditions.

Positives

• Total investment income significantly increased to $164.338 million for the quarter and $325.851 million for the six months ended June 30, 2025, driven by capital deployment and the SLIC Acquisition.
• Net investment income after taxes grew to $77.700 million for the quarter and $155.795 million for the six months ended June 30, 2025.
• The investment portfolio size expanded substantially, with total investments at fair value increasing to $6.585 billion as of June 30, 2025, from $6.079 billion at year-end 2024.
• Maintained strong liquidity with $181.5 million in unrestricted cash and cash equivalents and short-term investments, alongside $2.183 billion in available credit facilities.
• Successfully completed the SLIC Acquisition on July 15, 2024, integrating its assets and liabilities.
• The company was in compliance with all covenants and other requirements of its various debt facilities as of June 30, 2025.
• Approximately 99.9% of the debt investments are at floating rates, which can provide a hedge against rising interest rates.

Negatives

• Net asset value per unit decreased to $18.77 as of June 30, 2025, from $18.96 as of December 31, 2024.
• Net increase in members' capital resulting from operations declined for both the three-month ($70.566 million vs $72.915 million) and six-month ($120.572 million vs $126.646 million) periods compared to the prior year.
• The weighted average yield on debt and income producing investments decreased to 9.8% as of June 30, 2025, from 10.2% as of December 31, 2024, primarily due to base rate reductions and repricing.
• Experienced significant net change in unrealized depreciation on investments of $(29,412,000) for the six months ended June 30, 2025, contrasting with appreciation of $4,332,000 in the prior year period.
• Non-accrual investments increased to $73,050,000 (1.1% of total amortized cost) as of June 30, 2025, from $29,237,000 (0.5%) as of December 31, 2024.
• The fair value of investments classified as Risk Rating 4 (indicating anticipated substantial loss) increased to $36,936,000 as of June 30, 2025, from $21,564,000 as of December 31, 2024.
• Interest and other financing expenses significantly increased to $121.084 million for the six months ended June 30, 2025, from $55.341 million in the prior year, driven by increased borrowings.

Risks

• Valuation risk due to investments primarily in illiquid debt and equity securities, where fair value determination relies on significant management judgment and unobservable inputs.
• Market risk from unpredictable fluctuations in security values caused by global economic, political, social, or industry-specific conditions, including health crises, natural disasters, war, terrorism, and trade policies.
• Interest rate risk, as net investment income is affected by the difference between investment rates and borrowing rates, despite a high percentage of floating-rate debt investments.
• Dependence on the general economy and its impact on the industries and financial health of portfolio companies.
• Uncertainty regarding the ability of portfolio companies to achieve their objectives, which could affect investment performance.
• Risks related to the adequacy of financing sources and working capital to meet operational needs and unfunded commitments.
• Reliance on the Investment Adviser to locate suitable investments and effectively monitor and administer existing investments.
• The ability to maintain qualification as a Business Development Company (BDC) and a Regulated Investment Company (RIC) under relevant tax and investment company acts.
• Potential adverse impact from changes in U.S. and international financial reform legislation, rules, and regulations.
• Exposure to currency fluctuations, particularly for payments denominated in foreign currencies, which could adversely affect investment results.
• Potential conflicts of interest with the Investment Adviser and its affiliates due to various contractual arrangements and relationships.

Future Outlook

The company expects to have sufficient financial resources, including unrestricted cash and available credit facilities, to satisfy its investing activities and conduct operations in the near term. It may also enter into new credit facilities, increase the size of existing facilities, or issue additional debt securities, subject to market conditions and regulatory restrictions.

Management Comments

• 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 in which private equity sponsors have a controlling equity stake in the portfolio company.

Industry Context

The company operates as a non-diversified, externally managed specialty finance company primarily focused on lending to U.S. middle-market companies, generally those with annual EBITDA between $15 million and $200 million. Its investment strategy centers on directly originated senior secured term loans, including unitranche and second lien loans, with a smaller portion in higher-yielding assets like mezzanine debt, unsecured debt, and equity. The company acknowledges the increasing interconnectedness of global economies and financial markets, which can impact its portfolio and operations.

Comparison to Industry Standards

• The company's target middle-market companies generally generate annual EBITDA in the range of approximately $15 million to $200 million, aligning with typical definitions of the U.S. middle-market segment.
• The primary investment focus on directly originated senior secured term loans (including unitranche loans) and second lien senior secured term loans is a common strategy within the private credit and direct lending industry.
• The company's debt investments typically bear interest at a floating rate based on benchmarks like SOFR, which is standard for senior loans in the current market environment.
• The company's participation in leveraged buyouts (LBOs), acquisitions, debt refinancings, and recapitalizations reflects common transaction types for middle-market senior loans.

Management Changes

Corporate Governance

Legal Proceedings

• The company, its Investment Adviser, and Administrator are not currently subject to any material legal proceedings, nor are any material legal proceedings threatened against them.

Related Party Transactions

• The company pays investment advisory fees (base management fees and incentive fees) to MS Capital Partners Adviser Inc., an indirect wholly owned subsidiary of Morgan Stanley.
• The company receives administrative services from MS Private Credit Administrative Services LLC, an indirect, wholly owned subsidiary of Morgan Stanley, and reimburses it for costs and allocable overhead.
• The company has placement agent agreements with Morgan Stanley Distribution Inc. and Morgan Stanley Smith Barney LLC for the placement of its Units, with payments made by the Investment Adviser or Paying Agent, not the company.
• The company pays servicing fees to Morgan Stanley Distribution Inc. based on the net asset values of eligible unit classes.
• An Expense Support and Conditional Reimbursement Agreement with the Investment Adviser allows the Adviser to pay expenses on the company's behalf, with potential for future repayment under certain conditions.
• MS Credit Partners Holdings, Inc., a wholly owned subsidiary of Morgan Stanley and an affiliate of the Investment Adviser, has made a $25,000,000 capital contribution for 1,256,051 Units.
• Morgan Stanley & Co. LLC, an indirect, wholly owned subsidiary of Morgan Stanley and an affiliate of the Investment Adviser, served as co-agent for the private placement of Series A and Series B Notes, receiving fees.

Stakeholder Impact

• Shareholders (Unitholders): Experienced a decrease in Net Asset Value per unit, but received regular and special distributions. The unit repurchase program offers some liquidity.
• Employees: Key management changes, including new CEO, CIO, and Co-Presidents, indicate a shift in leadership and strategic direction.
• Creditors (Lenders): The company increased its debt outstanding but maintained compliance with all debt covenants, indicating continued financial stability from a lending perspective.
• Portfolio Companies: Subject to the company's lending and monitoring, with an increase in non-accrual and higher-risk rated investments suggesting potential challenges for some portfolio companies.
• Investment Adviser and Administrator: Continue to receive fees and reimbursements under renewed agreements, maintaining their operational relationship with the company.

Next Steps

• Continue its continuous private offering of units to raise capital.
• Potentially enter into new credit facilities, increase the size of existing credit facilities, or issue additional debt securities.
• Continue to manage its quarterly unit repurchase program to provide liquidity to unitholders.

Key Dates

Recommendation

While the company demonstrated significant portfolio growth and increased investment income, the decline in Net Asset Value per unit, substantial unrealized depreciation, and a notable increase in non-accrual investments suggest underlying portfolio quality concerns and a challenging operating environment. The decrease in weighted average yield also points to less favorable new investment opportunities or repricing pressure. The management changes could bring new strategic direction, but the current financial trends warrant a cautious approach. An investor should hold to monitor if the new management can reverse the negative trends in portfolio quality and NAV, and if the yield compression stabilizes.

Keywords

Private credit, Business Development Company, BDC, Middle-market lending, Senior secured loans, Direct lending, Private equity, Debt investments, Portfolio management, Financial services, Investment fund, SEC filing, 10-Q