KBRA Affirms Ratings for MSD Investment Corp.

KBRA affirms the issuer and senior unsecured debt ratings of BBB for MSD Investment Corp. ("MSD" or "the company"). The rating Outlook is Stable.

Key Credit Considerations

The ratings and Outlook are supported by MSD's diversified $4.9 billion investment portfolio with a high percentage of senior secured first lien loans (96.9%) to 86 portfolio companies in 23 sectors. MSD Partners L.P. ("Adviser"), a Delaware limited partnership, is MSD's adviser. The Adviser is an affiliate of BDT & MSD Partners ("BDT & MSD"), a merchant bank with an advisory and investment platform servicing the distinct needs of business owners. The company maintains SEC exemptive relief to co-invest with other funds managed by the Adviser and its affiliates, and BDT & MSD's $15+ billion credit platform, which includes private corporate, liquid, private real estate, and opportunistic credit as well as the BDC. The company's management team has a long track record of working within the private debt markets, with the company's senior management team having an average of 29 years of experience investing across credit cycles, reinforced by strong alignment with employees and affiliates, and DFO Management, LLC (the family office of Michael Dell).

The diversified investment portfolio's top three sectors include Business Services (16.3%), Hotel, Gaming & Leisure (10.3%), and Services - Consumer (9.9%). The weighted average EBITDA and median EBITDA were $179.8 million and $142.4 million, respectively, as of 1Q25. Credit quality remains sound with only one portfolio company on non-accrual status, comprising 0.2% and 0.1% of total investments at cost and FV, respectively.

KBRA considers MSD's funding mix largely diversified with two SPV asset facilities, a revolving credit facility, a CLO, repurchase agreements, and senior unsecured notes. Over the past year, the company enhanced its funding sources with the addition of a bank revolving credit facility and senior unsecured note issuances. Unsecured debt to total debt remains low at 23% while the company's leverage also remains relatively low at 1.07x (target 0.90x to 1.10x), and MSD has substantial committed uncalled capital for increased financial flexibility. At 1Q25, liquidity was comfortable with $763.7 million of committed uncalled capital and ~$100 million of cash ($89 million) and available committed credit lines ($11 million) set against $516 million of unfunded investment commitments and no short term senior unsecured debt maturities.

Counterbalancing these strengths are MSD's limited operating history, which is somewhat offset by the long tenure of its management in private credit, and the company's requirement to distribute 90% of net investment income, negating the ability to retain earnings, illiquid assets, and the potential for increased non-accruals with a more uncertain economic environment with high base rates, inflation, and geopolitical risk.

MSD Investment Corp. is an externally managed, private business development company operating under the Investment Company Act of 1940 and has elected to be treated as a regulated investment company ("RIC") for federal tax purposes. Formed in February 2021 as a Delaware limited liability company, MSD converted to a Maryland limited liability company, MSD Investment, LLC (January 1, 2022), and then converted to a Maryland corporation, at which time it changed to its current name, MSD Investment Corp.

Rating Sensitivities

A rating upgrade is not expected in the medium term. A rating downgrade and/or an Outlook change to Negative could be considered if there is a significant downturn in the U.S. economy with negative impact on MSD's earnings performance, asset quality, and/or leverage. A significant change in senior management and/or risk management policies could also lead to negative rating action.

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