Phillip Street Lending Fund Doubles Net Investment Income

TL;DR

**Phillip Street is crushing it with soaring investment income, but watch that debt pile.**

AI Summary

Phillip Street Middle Market Lending Fund LLC reported a significant increase in total assets to $750,229 thousand as of June 30, 2025, up from $637,726 thousand at December 31, 2024, primarily driven by an increase in investments at fair value to $710,053 thousand from $604,419 thousand. The company's net investment income for the six months ended June 30, 2025, more than doubled to $19,337 thousand, compared to $8,037 thousand for the same period in 2024. This was largely due to a substantial rise in interest income from non-controlled/non-affiliated investments, reaching $33,897 thousand for the six months ended June 30, 2025, up from $13,655 thousand in the prior year. Total expenses also increased significantly to $16,034 thousand from $6,299 thousand, with interest and other debt expenses rising to $10,639 thousand from $3,792 thousand. Despite a net change in unrealized depreciation of $888 thousand for the six months ended June 30, 2025, compared to an appreciation of $1,051 thousand in 2024, the net increase in members' capital from operations grew to $18,475 thousand from $9,087 thousand. The company's debt increased to $312,100 thousand from $220,100 thousand, reflecting increased leverage to fund investments. Net asset value per unit rose to $20.25 from $19.84.

Why It Matters

This strong performance indicates robust demand for middle-market lending and effective capital deployment by Phillip Street Middle Market Lending Fund LLC, which could attract more investors seeking exposure to private credit. The significant increase in net investment income and assets suggests a healthy competitive position within the BDC space, especially given the rising interest rate environment benefiting lenders. For employees, this growth could signal stability and potential expansion. Customers, primarily middle-market companies, are accessing crucial financing, supporting their own growth. However, the increased debt levels and unrealized depreciation warrant careful monitoring by investors, as they introduce additional risk in a potentially volatile market.

Risk Assessment

Risk Level: medium — The company's debt increased significantly to $312,100 thousand as of June 30, 2025, from $220,100 thousand at December 31, 2024, representing a 41.8% increase. This higher leverage, coupled with a net change in unrealized depreciation of $888 thousand for the six months ended June 30, 2025, compared to an appreciation of $1,051 thousand in the prior year, indicates increased exposure to market fluctuations and potential credit risk within its investment portfolio.

Analyst Insight

Investors should consider the strong net investment income growth and rising NAV per unit as positive indicators of the fund's operational efficiency. However, they should also scrutinize the increased debt and unrealized depreciation, evaluating the quality of the underlying loan portfolio and the fund's ability to manage interest rate risk in a dynamic economic environment.

Financial Highlights

debt To Equity

0.73

revenue

$35,371 thousand

operating Margin

54.7%

total Assets

$750,229 thousand

total Debt

$312,100 thousand

net Income

$19,337 thousand

eps

$0.91

gross Margin

N/A

cash Position

$16,858 thousand

revenue Growth

146.7%

Revenue Breakdown

Key Numbers

• $750.2M — Total Assets (Increased from $637.7M at Dec 31, 2024, indicating significant growth.)
• $19.3M — Net Investment Income (6 months) (More than doubled from $8.0M in the prior year, showing strong operational performance.)
• $33.9M — Interest Income (Non-controlled/Non-affiliated, 6 months) (Increased from $13.7M, a key driver of revenue growth.)
• $16.0M — Total Expenses (6 months) (Increased from $6.3M, primarily due to higher interest and debt expenses.)
• $312.1M — Debt (Increased from $220.1M, reflecting higher leverage.)
• $20.25 — Net Asset Value per Unit (Increased from $19.84, indicating value appreciation for unit holders.)
• 21,699,483 — Common Units Outstanding (As of August 12, 2025, showing increased investor participation.)
• $888 thousand — Net Change in Unrealized Depreciation (6 months) (Compared to $1,051 thousand appreciation in prior year, indicating some portfolio valuation challenges.)
• $10,639 thousand — Interest and Other Debt Expenses (6 months) (Increased from $3,792 thousand, reflecting higher debt and interest rates.)
• $18,475 thousand — Net Increase in Members' Capital from Operations (6 months) (Increased from $9,087 thousand, demonstrating strong capital generation.)

Key Players & Entities

• Phillip Street Middle Market Lending Fund LLC (company) — Registrant
• Goldman Sachs Asset Management, L.P. (company) — Investment Adviser
• $750,229 thousand (dollar_amount) — Total assets as of June 30, 2025
• $637,726 thousand (dollar_amount) — Total assets as of December 31, 2024
• $19,337 thousand (dollar_amount) — Net investment income for six months ended June 30, 2025
• $8,037 thousand (dollar_amount) — Net investment income for six months ended June 30, 2024
• $312,100 thousand (dollar_amount) — Debt as of June 30, 2025
• $220,100 thousand (dollar_amount) — Debt as of December 31, 2024
• $20.25 (dollar_amount) — Net asset value per unit as of June 30, 2025
• $19.84 (dollar_amount) — Net asset value per unit as of December 31, 2024

FAQ

Risk Factors

• Increased Leverage and Debt Expenses [high — financial]: The fund has significantly increased its debt to $312,100 thousand from $220,100 thousand to finance its growing investment portfolio. This increased leverage directly correlates with a substantial rise in interest and other debt expenses, which more than doubled to $10,639 thousand for the six months ended June 30, 2025, impacting profitability.
• Unrealized Depreciation in Investments [medium — market]: The fund experienced a net change in unrealized depreciation of $888 thousand for the six months ended June 30, 2025. This contrasts with an appreciation of $1,051 thousand in the prior year, indicating potential valuation challenges or market volatility affecting the fair value of its investment portfolio.
• Growth in Operating Expenses [medium — operational]: Total expenses have more than doubled to $16,034 thousand from $6,299 thousand for the six months ended June 30, 2025. This increase is driven by higher interest expenses, management fees ($2,712 thousand from $1,262 thousand), and incentive fees ($1,557 thousand from $488 thousand), which could pressure future net investment income.
• Compliance with Lending Regulations [medium — regulatory]: As a middle market lending fund, the company is subject to various regulations governing lending practices, capital requirements, and investor protection. Non-compliance could lead to fines, sanctions, or reputational damage, impacting its ability to operate and attract capital.

Industry Context

The middle market lending sector is characterized by providing debt financing to mid-sized companies, often acting as an alternative to traditional bank loans. This segment has seen increased activity as banks have tightened lending standards. Funds like Phillip Street compete by offering flexible capital solutions, but face risks related to credit quality, interest rate sensitivity, and regulatory oversight.

Regulatory Implications

As a lending fund, Phillip Street is subject to financial regulations that govern its operations, capital adequacy, and disclosure requirements. Changes in interest rate policies by central banks and evolving credit market regulations could impact its profitability and investment strategies.

What Investors Should Do

1. Monitor Debt Levels and Interest Expense
2. Analyze Unrealized Gains/Losses Trend
3. Evaluate Expense Management
4. Assess NAV Per Unit Growth Sustainability

Key Dates

• 2025-06-30: End of Second Quarter — Reporting period for the unaudited consolidated financial statements, showing significant asset growth and increased net investment income.
• 2025-06-30: Six Months Ended — Period over which key performance metrics like net investment income and interest income are reported, demonstrating substantial year-over-year growth.
• 2024-12-31: End of Fiscal Year — Prior period financial data used for comparison, showing total assets of $637,726 thousand and debt of $220,100 thousand.
• 2024-06-30: Six Months Ended — Prior year period for comparison, with net investment income of $8,037 thousand and interest income of $13,655 thousand.

Glossary

Middle Market Lending

Providing debt financing to companies that are too large to be served by small business loans but too small to access public debt markets or traditional bank loans. (This is the core business of Phillip Street Middle Market Lending Fund LLC, defining its investment strategy and target market.)

Fair Value

The price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. (Investments are reported at fair value, meaning their reported value can fluctuate with market conditions, impacting the fund's net asset value.)

Net Investment Income

The income generated from a fund's investments after deducting operating expenses, but before accounting for any unrealized gains or losses. (A key measure of the fund's profitability from its core lending activities, which has more than doubled year-over-year.)

Unrealized Depreciation

A decrease in the fair value of an asset that has not yet been sold. It represents a paper loss. (Indicates a decline in the market value of the fund's investments, impacting its overall financial performance and net asset value.)

Leverage

The use of borrowed money to increase the potential return of an investment. In this case, the fund uses debt to finance its investments. (The fund has increased its leverage significantly, amplifying both potential gains and losses.)

Distributable Earnings

The cumulative net investment income earned by the fund that has not yet been distributed to members. (Represents retained earnings available for distribution, showing a significant increase from $403 thousand to $8,927 thousand.)

Year-Over-Year Comparison

Phillip Street Middle Market Lending Fund LLC has demonstrated robust growth since its last filing. Total assets have surged by approximately 17.6% to $750.2M, primarily due to a significant increase in investments. Net investment income for the six-month period more than doubled to $19.3M, driven by a substantial increase in interest income from non-controlled/non-affiliated investments. However, this growth has been accompanied by a near doubling of total expenses, largely due to higher interest and debt expenses, reflecting increased leverage. The fund's net asset value per unit has seen a modest increase to $20.25, but the shift from unrealized appreciation to depreciation in the portfolio presents a new risk factor.

Filing Documents

• ck0001948368-20250630.htm (10-Q) — 7331KB
• ck0001948368-ex31_1.htm (EX-31.1) — 26KB
• ck0001948368-ex31_2.htm (EX-31.2) — 26KB
• ck0001948368-ex31_3.htm (EX-31.3) — 26KB
• ck0001948368-ex32_1.htm (EX-32.1) — 9KB
• ck0001948368-ex32_2.htm (EX-32.2) — 9KB
• ck0001948368-ex32_3.htm (EX-32.3) — 9KB
• 0000950170-25-107350.txt ( ) — 28685KB
• ck0001948368-20250630.xsd (EX-101.SCH) — 1566KB
• ck0001948368-20250630_htm.xml (XML) — 7265KB

Financial Statements (Unaudited)

Financial Statements (Unaudited) 4 Consolidated Statements of Financial Condition 4 Consolidated Statements of Operations 5 Consolidated Statements of Changes in Members' Capital 6 Consolidated Statements of Cash Flows 7 Consolidated Schedules of Investments 8 Notes to the Consolidated Financial Statements 19 ITEM 2.

Management's Discussion and Analysis of Financial Condition and Results of Operations

Management's Discussion and Analysis of Financial Condition and Results of Operations 36 ITEM 3.

Quantitative and Qualitative Disclosures About Market Risk

Quantitative and Qualitative Disclosures About Market Risk 48 ITEM 4.

Controls and Procedures

Controls and Procedures 48 PART II OTHER INFORMATION 49 ITEM 1.

Legal Proceedings

Legal Proceedings 49 ITEM 1A.

Risk Factors

Risk Factors 49 ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds 49 ITEM 3. Defaults Upon Senior Securities 49 ITEM 4. Mine Safety Disclosures 49 ITEM 5 Other Information 49 ITEM 6. Exhibits 50

SIGNATURES

SIGNATURES 52 2 Table of Contents CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS This report contains forward-looking statements that involve substantial risks and uncertainties. You can identify these statements by the use of forward-looking terminology such as "may," "will," "should," "expect," "anticipate," "project," "target," "estimate," "intend," "continue" or "believe" or the negatives of, or other variations on, these terms or comparable terminology. You should read statements that contain these words carefully because they discuss our plans, strategies, prospects and expectations concerning our business, operating results, financial condition and other similar matters. We believe that it is important to communicate our future expectations to our investors. Our forward-looking statements include information in this report regarding general domestic and global economic conditions, our future financing plans, our ability to operate as a business development company ("BDC") and the expected performance of, and the yield on, our portfolio companies. There may be events in the future, however, that we are not able to predict accurately or control. The factors listed under "Risk Factors" in our annual report on Form 10-K for the year ended December 31, 2024, as well as any cautionary language in this report, provide examples of risks, uncertainties and events that may cause our actual results to differ materially from the expectations we describe in our forward-looking statements. The occurrence of the events described in these risk factors and elsewhere in this report could have a material adverse effect on our business, results of operations and financial position. Any forward-looking statement made by us in this report speaks only as of the date of this report. Factors or events that could cause our actual results to differ from our forward-looking statements may emerge from time to time, and it is not possible for us to predict all of them

FINANCIAL INFORMATION

PART I. FINANCIAL INFORMATION

FINANCIAL STATEMENTS

ITEM 1. FINANCIAL STATEMENTS Phillip Street Middle Market Lending Fund LLC Consolidated Statements of Financial Condition (in thousands, except unit and per unit amounts) June 30, December 31, 2025 (Unaudited) 2024 Assets Investments, at fair value Non-controlled/non-affiliated investments (cost of $ 699,825 and $ 593,640 ) $ 699,327 $ 593,545 Non-controlled affiliated investments (cost of $ 11,275 and $ 10,902 ) 10,726 10,874 Total investments, at fair value (cost of $ 711,100 and $ 604,542 ) $ 710,053 $ 604,419 Investments in affiliated money market fund (cost of $ 13,923 and $ 9,229 ) 13,923 9,229 Cash 16,858 11,353 Interest and dividends receivable 3,921 4,261 Deferred financing costs 5,312 5,816 Other assets 162 2,648 Total assets $ 750,229 $ 637,726 Liabilities Debt $ 312,100 $ 220,100 Interest and other debt expenses payable 5,483 3,737 Management fees payable 1,379 1,245 Incentive fees payable 834 676 Distribution payable — 9,123 Professional fees payable 152 192 Accrued expenses and other liabilities 550 419 Total liabilities $ 320,498 $ 235,492 Commitments and contingencies (Note 7) Members' capital Preferred units ( no units issued and outstanding) $ — $ — Common units ( 21,218,251 and 20,272,339 units issued and outstanding as of June 30, 2025 and December 31, 2024) 420,804 401,831 Distributable earnings (loss) 8,927 403 Total members' capital $ 429,731 $ 402,234 Total liabilities and members' capital $ 750,229 $ 637,726 Net asset value per unit $ 20.25 $ 19.84 The accompanying notes are an integral part of these unaudited consolidated financial statements. 4 Table of Contents Phillip Street Middle Market Lending Fund LLC Consolidated Statements of Operations (in thousands, except unit and per unit amounts) (Unaudited) For the Three Months Ende

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