KBRA assigns a rating of BBB to North Haven Private Income Fund's (“North Haven” or “the company”) $100 million 6.84% senior unsecured notes due 2027 and $200 million 6.91% senior unsecured notes due 2029. The rating Outlook is Stable. The proceeds will be used for repayment of secured debt.

Key Credit Considerations

The rating reflects North Haven's strong ties to the ~$1.5 trillion in assets under management and/or supervision from Morgan Stanley Investment Management and the access to capital through the Morgan Stanley Wealth Management Division. As part of the Morgan Stanley ("MS") ecosystem, the company leverages the broad private credit platform, which includes about $15.6 billion of committed capital in direct lending and SEC exemptive relief to co-invest with affiliated business development companies and other affiliated investment vehicles. Further strengthening the company's scale is the completed merger of its affiliate business development company ("BDC"), SL Investment Corp. ("SLIC") with North Haven as the surviving entity on July 15, 2024. As of July 15, 2024, SLIC had an investment portfolio of about $1.2 billion at par value consisting of 148 portfolio companies in 29 industries with 98.4% first lien senior secured loans. SLIC had no non-accruals.

Morgan Stanley Private Credit has a strong track record of direct lending and opportunistic private credit investments investing across the capital structure with an emphasis on senior secured loans. As of March 31, 2024, the company had a diversified $3.8 billion investment portfolio at fair value, which, on a pro-forma basis post-merger, will increase to about $5 billion, comprised 99% of senior secured first lien loans to 269 portfolio companies. The company focuses on the upper middle market with an average 12-month EBITDA of $189 million across 43 industries largely focused on less cyclical, defensive sectors. The top three sectors are Software (21%), Insurance Services (14%), and Health Care Providers & Services (8%) with little change expected due to the merger. Furthermore, the company has only one portfolio company on non-accrual at only 0.2% and 0.6% of total investments at FV and cost, respectively. While the portfolio remains unseasoned due to its short operating history, 98.4% of the portfolio maintains an internal rating of 2 or higher, indicating that it is performing at or above expectations at underwriting. The company maintains low leverage of 0.41x at March 31, 2024, but on a pro-forma basis, increases to 0.84x, still appropriate in our view and well within the company's target leverage range of 1.0x to 1.25x, which is in line with peers and within regulatory asset coverage minimum of 150%. The company's senior unsecured debt to total debt is high at about 80% which provides greater financial flexibility and asset unencumbrance for the benefit of the unsecured noteholders. While the percentage of senior unsecured debt to total debt will decline on a pro-forma basis (March 31, 2024) including SLIC and the note issuance, it remains significant at about 52%.

The company's funding mix is solid with a corporate revolver, SPV asset based facilities, and senior unsecured notes. At March 31, 2024, the company's liquidity was solid with $1.69 billion of available credit and about $193.5 million of unrestricted cash set against $204 million of unsecured debt due within two years and $833.2 million of unfunded commitments. On July 15, 2024, the company amended its bank facilities, increasing the total bank committed lines by about $1.0 billion to $3.8 billion as well as extended the maturities to 2029, further strengthening its liquidity.

As a perpetual continuously offered BDC, the company raises capital though monthly private offerings of its units and offers quarterly liquidity at NAV to unit holders through redemptions. Redemptions are limited to 5% per quarter and are at the discretion of the board of directors. Capital raises have been solid since inception with minimal repurchases. The company raised about $3.1 billion and repurchased approximately $199 million through June 1, 2024, from inception. The company targets more liquid BSLs at 10% to 15% of the total portfolio to meet potential redemptions.

Counterbalancing the credit strengths are the company's limited operating history offset by the long tenure of its management in private credit, relatively illiquid investments, retained earnings constrains as a regulated investment company ("RIC"), and an uncertain economic environment with high base rates, inflation, and geopolitical risk.

North Haven Private Income Fund LLC is a New York based, externally managed, non-diversified private, perpetual life, closed-end investment management company regulated as a BDC under the Investment Company Act of 1940 and for tax purposes, the company has elected to be treated as an RIC. The company commenced operations on February 1, 2022. North Haven's adviser is MS Capital Partners Adviser Inc., a wholly owned subsidiary of Morgan Stanley, a leading global investment bank. Morgan Stanley has no obligation, contractual or otherwise, to financially support North Haven. North Haven's obligations are not MS' obligations nor are they guaranteed by MS, and MS has no history of financially supporting any MS BDC even during periods of financial distress.

Rating Sensitivities

A rating upgrade is not expected in the medium term. A rating downgrade and/or Outlook change to Negative could be considered if management alters its stated company strategy by increasing focus on riskier investments coupled with higher leverage metrics. A prolonged downturn in the U.S. economy with negative impact on North Haven's earnings performance, asset quality, and leverage or 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.

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