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

Key Credit Considerations

The ratings and Outlook are supported by the company’s $2.5 billion diversified investment portfolio comprised primarily (89.9%) of senior secured first lien loans to upper middle market portfolio companies, SEC exemptive relief to co-invest with other funds managed by the Adviser and its affiliates, and the $14+ billion credit platform which includes private corporate, liquid, private real estate, and opportunistic credit, as well as the business development company (BDC). The 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 27 years of experience investing through the credit cycles, reinforced by the strong insider alignment with employees and the Dell Family Office having capital commitments in aggregate of about $1.0 billion, or 50%, of the equity raised since inception through March 31, 2024. The company had its first capital closing of $800 million and closed on its first investment in December 2021.

As the portfolio remains unseasoned, the company had just one portfolio company on non-accrual status as of March 31, 2024, with an FV of $1.95 million or 0.10% of total investment at FV and $11.07 million or 0.40% of total investments at cost. While gross leverage of 1.26x, as of March 31, 2024, is on the high side of the company’s target range (0.90 to 1.25x), KBRA believes it is appropriate when considering the company’s asset mix of 89.9% senior secured first lien loans, including a high proportion of liquid credit (~34%) along with significant uncalled capital and no off balance sheet leverage through joint ventures. Additionally, net leverage was more in line with peers at 1.15x. The company’s funding sources are somewhat limited with two SPV asset facilities and a CLO. However, it is anticipated that MSD will establish a bank revolving credit line as well as issue senior unsecured debt when markets allow to increase financial flexibility. As of March 31, 2024, liquidity was solid with $140 million in cash, $107 million of available bank lines, and $955 million of undrawn capital commitments set against unfunded investment commitments of $353 million and no near-term maturities.

Counterbalancing these strengths are MSD Investment Corp.'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 NII negating the ability to retain earnings and illiquid assets. The company has a fully secured funding profile but intends to issue senior unsecured debt as the market allows.

Formed in February 2021 as a Delaware limited liability company, MSD converted to a Maryland limited liability company, MSD Investment, LLC (Jan. 1, 2022) and then converted to a Maryland corporation, at which time it changed to its current name, MSD Investment Corp. The company is an externally managed, private, business development company (BDC) operating under the Investment Company Act of 1940 that has elected to be treated as an RIC for tax purposes. The “Adviser” is MSD Partners L.P., a Delaware limited partnership. It is an affiliate of BDT & MSD Partners, a merchant bank with an advisory and investment platform serving family business owners, founders, and strategic, long-term investors.

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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Methodologies

• Financial Institutions: Finance Company Global Rating Methodology
• ESG Global Rating Methodology

Disclosures

A description of all substantially material sources that were used to prepare the credit rating and information on the methodology(ies) (inclusive of any material models and sensitivity analyses of the relevant key rating assumptions, as applicable) used in determining the credit rating is available in the Information Disclosure Form(s) located here.

Information on the meaning of each rating category can be located here.

Further disclosures relating to this rating action are available in the Information Disclosure Form(s) referenced above. Additional information regarding KBRA policies, methodologies, rating scales and disclosures are available at www.kbra.com.

About KBRA

Kroll Bond Rating Agency, LLC (KBRA) is a full-service credit rating agency registered with the U.S. Securities and Exchange Commission as an NRSRO. Kroll Bond Rating Agency Europe Limited is registered as a CRA with the European Securities and Markets Authority. Kroll Bond Rating Agency UK Limited is registered as a CRA with the UK Financial Conduct Authority. In addition, KBRA is designated as a designated rating organization by the Ontario Securities Commission for issuers of asset-backed securities to file a short form prospectus or shelf prospectus. KBRA is also recognized by the National Association of Insurance Commissioners as a Credit Rating Provider.

Doc ID: 1004675

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