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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
Form 10-Q
(Mark One)
 
 
þ
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
 
 
OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the quarterly period ended December 31, 2018
OR
 
 
¨

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
 
 
OF THE SECURITIES EXCHANGE ACT OF 1934
 
COMMISSION FILE NUMBER: 1-33901
Oaktree Specialty Lending Corporation

(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

 
DELAWARE
(State or jurisdiction of
incorporation or organization)
 
26-1219283
(I.R.S. Employer
Identification No.)
 
 
 
333 South Grand Avenue, 28th Floor
Los Angeles, CA
(Address of principal executive office)
 
90071
(Zip Code)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE:
(213) 830-6300
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    YES   þ     NO   ¨
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    YES   ¨   NO   ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company" and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer  ¨
 
Accelerated filer  þ
 
Non-accelerated filer  ¨
 
Smaller reporting company  ¨
 
 
 
 
 
 
 
Emerging growth company  ¨

 
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act)    YES  ¨     NO  þ
The registrant had 140,960,651 shares of common stock outstanding as of February 5, 2019.




OAKTREE SPECIALTY LENDING CORPORATION
FORM 10-Q FOR THE QUARTER ENDED DECEMBER 31, 2018

TABLE OF CONTENTS

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Item 3.
Item 4.
Item 5.



 




 


PART I — FINANCIAL INFORMATION
Item 1.
Consolidated Financial Statements.


Oaktree Specialty Lending Corporation
Consolidated Statements of Assets and Liabilities
(in thousands, except per share amounts)
 
 
December 31, 2018 (unaudited)
 
September 30, 2018
ASSETS
Investments at fair value:
 
 
 
 
Control investments (cost December 31, 2018: $212,583; cost September 30, 2018: $213,470)
 
$
190,167

 
$
196,874

Affiliate investments (cost December 31, 2018: $2,659; cost September 30, 2018: $1,080)
 
3,740

 
2,161

Non-control/Non-affiliate investments (cost December 31, 2018: $1,372,068; cost September 30, 2018: $1,392,383)
 
1,270,978

 
1,292,166

Total investments at fair value (cost December 31, 2018: $1,587,310; cost September 30, 2018: $1,606,933)
 
1,464,885

 
1,491,201

Cash and cash equivalents
 
56,186

 
13,380

Restricted cash
 
470

 
109

Interest, dividends and fees receivable
 
9,981

 
10,272

Due from portfolio companies
 
2,122

 
1,357

Receivables from unsettled transactions
 
—

 
26,760

Deferred financing costs
 
4,798

 
5,209

Derivative asset at fair value
 
—

 
162

Other assets
 
3,082

 
3,008

Total assets
 
$
1,541,524

 
$
1,551,458

LIABILITIES AND NET ASSETS
Liabilities:
 

 
 
Accounts payable, accrued expenses and other liabilities
 
$
2,362

 
$
3,581

Base management fee and incentive fee payable
 
8,370

 
8,223

Due to affiliate
 
3,553

 
3,274

Interest payable
 
6,233

 
3,365

Payable to syndication partners
 
379

 
109

Director fees payable
 
68

 
—

Payables from unsettled transactions
 
40,309

 
37,236

Derivative liability at fair value
 
190

 
—

Deferred tax liability
 
557

 
422

Credit facility payable
 
211,000

 
241,000

Unsecured notes payable (net of $3,196 and $3,483 of unamortized financing costs as of December 31, 2018 and September 30, 2018, respectively)
 
386,839

 
386,485

Secured borrowings at fair value (proceeds December 31, 2018: $11,869; proceeds September 30, 2018: $12,314)
 
9,302

 
9,728

Total liabilities
 
669,162

 
693,423

Commitments and contingencies (Note 16)
 

 
 
Net assets:
 
 
 
 
Common stock, $0.01 par value per share, 250,000 shares authorized; 140,961 shares issued and outstanding as of December 31, 2018 and September 30, 2018
 
1,409

 
1,409

Additional paid-in-capital
 
1,492,739

 
1,492,739

Accumulated overdistributed earnings
 
(621,786
)
 
(636,113
)
Total net assets (equivalent to $6.19 and $6.09 per common share as of December 31, 2018 and September 30, 2018, respectively) (Note 12)
 
872,362

 
858,035

Total liabilities and net assets
 
$
1,541,524

 
$
1,551,458

See notes to Consolidated Financial Statements.

1

Oaktree Specialty Lending Corporation
Consolidated Statements of Operations
(in thousands, except per share amounts)
(unaudited)
 
 
Three months ended
December 31, 2018
 
Three months ended
December 31, 2017
Interest income:
 
 
 
 
Control investments
 
$
3,339

 
$
3,203

Affiliate investments
 
13

 
949

Non-control/Non-affiliate investments
 
32,167

 
25,565

Interest on cash and cash equivalents
 
270

 
221

Total interest income
 
35,789

 
29,938

PIK interest income:
 
 
 
 
Control investments
 
67

 
1,191

Affiliate investments
 
—

 
176

Non-control/Non-affiliate investments
 
765

 
500

Total PIK interest income
 
832

 
1,867

Fee income:
 
 
 
 
Control investments
 
6

 
120

Affiliate investments
 
4

 
4

Non-control/Non-affiliate investments
 
1,192

 
907

Total fee income
 
1,202

 
1,031

Dividend and other income:
 
 
 
 
Control investments
 
453

 
1,040

Total dividend and other income
 
453

 
1,040

Total investment income
 
38,276

 
33,876

Expenses:
 
 
 
 
Base management fee
 
5,568

 
5,590

Part I incentive fee
 
3,728

 
830

Part II incentive fee
 
1,820

 
—

Professional fees
 
966

 
2,898

Directors fees
 
143

 
176

Interest expense
 
8,904

 
9,584

Administrator expense
 
763

 
494

General and administrative expenses
 
631

 
1,116

Total expenses
 
22,523

 
20,688

Fees waived
 
(1,564
)
 
(134
)
Net expenses
 
20,959

 
20,554

Net investment income
 
17,317

 
13,322

Unrealized appreciation (depreciation):
 
 
 
 
Control investments
 
(5,820
)
 
(1,326
)
Affiliate investments
 
—

 
(168
)
Non-control/Non-affiliate investments
 
(784
)
 
(43,633
)
Secured borrowings
 
(19
)
 
1,655

Foreign currency forward contracts
 
(352
)
 
—

Net unrealized appreciation (depreciation)
 
(6,975
)
 
(43,472
)
Realized gains (losses):
 
 
 
 
Non-control/Non-affiliate investments
 
16,761

 
(291
)
Foreign currency forward contracts
 
1,201

 
—

Net realized gains (losses)
 
17,962

 
(291
)
Provision for income taxes
 
(586
)
 
—

Net realized and unrealized gains (losses), net of taxes
 
10,401

 
(43,763
)
Net increase (decrease) in net assets resulting from operations
 
$
27,718

 
$
(30,441
)
Net investment income per common share — basic and diluted
 
$
0.12

 
$
0.09

Earnings (loss) per common share — basic and diluted (Note 5)
 
$
0.20

 
$
(0.22
)
Weighted average common shares outstanding — basic and diluted
 
140,961

 
140,961


See notes to Consolidated Financial Statements.


2


Oaktree Specialty Lending Corporation
Consolidated Statements of Changes in Net Assets
(in thousands, except per share amounts)
(unaudited)

 
 
Three months ended
December 31, 2018
 
Three months ended
December 31, 2017
Operations:
 
 
 
 
Net investment income
 
$
17,317

 
$
13,322

Net unrealized appreciation (depreciation)
 
(6,975
)
 
(43,472
)
Net realized gains (losses)
 
17,962

 
(291
)
Provision for income taxes
 
(586
)
 
—

Net increase (decrease) in net assets resulting from operations
 
27,718

 
(30,441
)
Stockholder transactions:
 
 
 
 
Distributions to stockholders
 
(13,391
)
 
(17,621
)
Net decrease in net assets from stockholder transactions
 
(13,391
)
 
(17,621
)
Capital share transactions:
 
 
 
 
Issuance of common stock under dividend reinvestment plan
 
384

 
294

Repurchases of common stock under dividend reinvestment program
 
(384
)
 
(294
)
Net increase (decrease) in net assets from capital share transactions
 
—

 
—

Total increase (decrease) in net assets
 
14,327

 
(48,062
)
Net assets at beginning of period
 
858,035

 
867,657

Net assets at end of period
 
$
872,362

 
$
819,595

Net asset value per common share
 
$
6.19

 
$
5.81

Common shares outstanding at end of period
 
140,961

 
140,961

See notes to Consolidated Financial Statements.

3
Oaktree Specialty Lending Corporation
Consolidated Statements of Cash Flows
(in thousands)
(unaudited)



 
 
Three months ended
December 31, 2018
 
Three months ended
December 31, 2017
Operating activities:
 
 
 
 
Net increase (decrease) in net assets resulting from operations
 
$
27,718

 
$
(30,441
)
Adjustments to reconcile net increase (decrease) in net assets resulting from operations to net cash provided by operating activities:
 
 
 
 
Net change in unrealized (appreciation) depreciation
 
6,975

 
43,472

Net realized (gains) losses
 
(17,962
)
 
291

PIK interest income, net of PIK interest income collected
 
(832
)
 
(764
)
Accretion of original issue discount on investments
 
(7,518
)
 
(2,997
)
Accretion of original issue discount on unsecured notes payable
 
66

 
66

Amortization of deferred financing costs
 
699

 
1,341

Deferred taxes
 
135

 
—

Purchases of investments and net revolver activity
 
(162,422
)
 
(200,166
)
Principal payments received on investments (scheduled payments)
 
5,701

 
14,149

Principal payments received on investments (payoffs)
 
98,842

 
196,415

Proceeds from the sale of investments
 
103,783

 
74,296

Changes in operating assets and liabilities:
 
 
 
 
(Increase) decrease in interest, dividends and fees receivable
 
291

 
(2,190
)
(Increase) decrease in due from portfolio companies
 
(765
)
 
302

(Increase) decrease in receivables from unsettled transactions
 
26,760

 
(8,869
)
(Increase) decrease in other assets
 
(74
)
 
(2,746
)
Increase (decrease) in accounts payable, accrued expenses and other liabilities
 
(1,219
)
 
1,073

Increase (decrease) in base management fee and incentive fee payable
 
147

 
(464
)
Increase (decrease) in due to affiliate
 
279

 
(281
)
Increase (decrease) in interest payable
 
2,868

 
3,380

Increase (decrease) in payables from unsettled transactions
 
3,073

 
(25,226
)
Increase (decrease) in director fees payable
 
68

 
(8
)
Increase (decrease) in amounts payable to syndication partners
 
270

 
(1
)
Net cash provided by operating activities
 
86,883

 
60,632

Financing activities:
 
 
 
 
Distributions paid in cash
 
(13,007
)
 
(17,327
)
Borrowings under credit facilities
 
—

 
35,000

Repayments of borrowings under credit facilities
 
(30,000
)
 
(85,995
)
Repayments of secured borrowings
 
(325
)
 
—

Repurchases of common stock under dividend reinvestment plan
 
(384
)
 
(294
)
Deferred financing costs paid
 
—

 
(6,175
)
Net cash used in financing activities
 
(43,716
)
 
(74,791
)
Net increase (decrease) in cash and cash equivalents and restricted cash
 
43,167

 
(14,159
)
Cash and cash equivalents and restricted cash, beginning of period
 
13,489

 
59,913

Cash and cash equivalents and restricted cash, end of period
 
$
56,656

 
$
45,754

Supplemental information:
 
 
 
 
Cash paid for interest
 
$
5,272

 
$
4,797

Non-cash financing activities:
 
 
 
 
Issuance of shares of common stock under dividend reinvestment plan
 
$
384

 
$
294

 
 
 
 
 
Reconciliation to the Consolidated Statements of Assets and Liabilities
 
December 31, 2018
 
September 30, 2018
Cash and cash equivalents
 
$
56,186

 
$
13,380

Restricted cash
 
470

 
109

Total cash and cash equivalents and restricted cash
 
$
56,656

 
$
13,489


See notes to Consolidated Financial Statements.

4
Oaktree Specialty Lending Corporation
Consolidated Schedule of Investments
December 31, 2018
(dollar amounts in thousands)
(unaudited)

Portfolio Company/Type of Investment (1)(2)(3)(4)(5)
 
 Cash Interest Rate (6)
 
Industry
 
Principal (7)

 
Cost
 
Fair Value
Control Investments (8)(9)
 
 
 
 
 
 
 
 
 
 
 First Star Speir Aviation Limited (10)
 
 
 
Airlines
 
 
 
 
 
 
 First Lien Term Loan, 9% cash due 12/15/2020 (11)
 
 
 
 
 
$
32,510

 
$
23,699

 
$
32,510

 100% equity interest (11)(12)
 
 
 
 
 
 
 
8,500

 
967

 
 
 
 
 
 
 
 
32,199

 
33,477

 Keypath Education, Inc.
 
 
 
Advertising
 
 
 
 
 
 
 First Lien Term Loan, LIBOR+7% (1% floor) cash due 4/3/2022 (6)
 
9.80
%
 
 
 
18,146

 
18,146

 
18,146

 First Lien Revolver, LIBOR+7.75% (1% floor) cash due 4/3/2022 (6)(19)
 


 
 
 
—

 
—

 
—

 9,073 Class A Units in FS AVI Holdco, LLC
 
 
 
 
 
 
 
10,648

 
7,984

 
 
 
 
 
 
 
 
28,794

 
26,130

 New IPT, Inc.
 
 
 
 Oil & gas equipment services
 
 
 
 
 
 
 First Lien Term Loan, LIBOR+5% (1% floor) cash due 3/17/2021 (6)
 
7.80
%
 
 
 
4,107

 
4,107

 
4,107

 Second Lien Term Loan, LIBOR+5.1% (1% floor) cash due 9/17/2021 (6)
 
7.90
%
 
 
 
902

 
902

 
903

 First Lien Revolver, LIBOR+5% (1% floor) cash due 3/17/2021 (6)(19)
 
7.80
%
 
 
 
1,009

 
1,009

 
1,009

 50.087 Class A Common Units in New IPT Holdings, LLC
 
 
 
 
 
 
 
—

 
2,291

 
 
 
 
 
 
 
 
6,018

 
8,310

 Senior Loan Fund JV I, LLC (14)(15)
 
 
 
Multi-sector holdings
 
 
 
 
 
 
 Subordinated Note, LIBOR+7% cash due 12/29/2028 (6)(11)
 
9.45
%
 
 
 
96,250

 
96,250

 
96,250

 87.5% LLC equity interest (11)(16)(19)
 
 
 
 
 
 
 
49,322

 
26,000

 
 
 
 
 
 
 
 
145,572

 
122,250

 Total Control Investments (21.8% of net assets)
 
 
 
 
 
 
 
$
212,583

 
$
190,167

 
 
 
 
 
 
 
 
 
 
 
 Affiliate Investments (17)
 
 
 
 
 
 
 
 
 
 
 Assembled Brands Capital LLC
 
 
 
 Specialized finance
 
 
 
 
 
 
 First Lien Delayed Draw Term Loan, LIBOR+6% cash due 10/17/2023 (6)(19)
 
8.80
%
 
 
 
$
815

 
$
815

 
$
815

 764,376.60 Class A Units
 
 
 
 
 
 
 
764

 
764

 583,190.81 Class B Units
 
 
 
 
 
 
 
—

 
—

 
 
 
 
 
 
 
 
1,579

 
1,579

 Caregiver Services, Inc.
 
 
 
Healthcare services
 
 
 
 
 
 
 1,080,399 shares of Series A Preferred Stock, 10%
 
 
 
 
 
 
 
1,080

 
2,161

 
 
 
 
 
 
 
 
1,080

 
2,161

 Total Affiliate Investments (0.4% of net assets)
 
 
 
 
 
 
 
$
2,659

 
$
3,740

 
 
 
 
 
 
 
 
 
 
 
 Non-Control/Non-Affiliate Investments (18)
 
 
 
 
 
 
 
 
 
 
 4 Over International, LLC
 
 
 
 Commercial printing
 
 
 
 
 
 
 First Lien Term Loan, LIBOR+6% (1% floor) cash due 6/7/2022 (6)
 
8.52
%
 
 
 
$
5,891

 
$
5,846

 
$
5,891

 First Lien Revolver, LIBOR+6% (1% floor) cash due 6/7/2021 (6)(19)
 
 
 
 
 
—

 
(17
)
 
—

 
 
 
 
 
 
 
 
5,829

 
5,891

 99 Cents Only Stores LLC
 
 
 
 General merchandise stores
 
 
 
 
 
 
 First Lien Term Loan, LIBOR+5% cash 1.5% PIK due 1/13/2022 (6)(20)
 
7.75
%
 
 
 
23,865

 
23,059

 
20,763

 
 
 
 
 
 
 
 
23,059

 
20,763

 Access CIG, LLC
 
 
 
Diversified support services
 
 
 
 
 
 
 First Lien Term Loan, LIBOR+3.75% cash due 2/27/2025 (6)(20)
 
6.46
%
 
 
 
5,873

 
5,880

 
5,722

 First Lien Delayed Draw Term Loan, LIBOR+3.75% cash due 2/27/2025 (6)(19)(20)
 


 
 
 
—

 
—

 
(13
)
 Second Lien Term Loan, LIBOR+7.75% cash due 2/27/2026 (6)(20)
 
10.46
%
 
 
 
15,000

 
14,879

 
14,863

 
 
 
 
 
 
 
 
20,759

 
20,572

 Aden & Anais Merger Sub, Inc.
 
 
 
Apparel, accessories & luxury goods
 
 
 
 
 
 
 51,645 Common Units in Aden & Anais Holdings, Inc.
 
 
 
 
 
 
 
5,165

 
—

 
 
 
 
 
 
 
 
5,165

 
—

 Advanced Pain Management
 
 
 
Healthcare services
 
 
 
 
 
 
 First Lien Term Loan, LIBOR+8.5% (1.25% floor) cash due 2/28/2019 (6)(21)
 


 
 
 
25,957

 
22,596

 
—

 
 
 
 
 
 
 
 
22,596

 
—

See notes to Consolidated Financial Statements.


5
Oaktree Specialty Lending Corporation
Consolidated Schedule of Investments
December 31, 2018
(dollar amounts in thousands)
(unaudited)

Portfolio Company/Type of Investment (1)(2)(3)(4)(5)
 
 Cash Interest Rate (6)
 
Industry
 
Principal (7)

 
Cost
 
Fair Value
 AdVenture Interactive, Corp.
 
 
 
Advertising
 
 
 
 
 
 
 9,073 shares of common stock
 
 
 
 
 
 
 
$
13,611

 
$
6,557

 
 
 
 
 
 
 
 
13,611

 
6,557

AI Ladder (Luxembourg) Subco S.a.r.l.
 
 
 
 Electrical components & equipment
 
 
 
 
 
 
 First Lien Term Loan B, LIBOR+4.5% cash due 7/9/2025 (6)(11)(20)
 
7.02
%
 
 
 
$
22,036

 
21,416

 
21,857

 
 
 
 
 
 
 
 
21,416

 
21,857

 AI Sirona (Luxembourg) Acquisition S.a.r.l.
 
 
 
 Pharmaceuticals
 
 
 
 
 
 
 Second Lien Term Loan, EURIBOR+7.25% (0% floor) cash due 7/10/2026 (6)(11)(20)
 
7.25
%
 
 
 
€
17,500

 
20,035

 
19,780

 
 
 
 
 
 
 
 
20,035

 
19,780

 Air Medical Group Holdings, Inc.
 
 
 
Healthcare services
 
 
 
 
 
 
 First Lien Term Loan B, LIBOR+4.25% (1% floor) cash due 3/14/2025 (6)(20)
 
6.75
%
 
 
 
$
6,369

 
6,221

 
5,950

 
 
 
 
 
 
 
 
6,221

 
5,950

 AirStrip Technologies, Inc.
 
 
 
 Application software
 
 
 
 
 
 
 22,858.71 Series C-1 Preferred Stock Warrants (exercise price $34.99757) expiration date 5/11/2025
 
 
 
 
 
 
 
90

 
—

 
 
 
 
 
 
 
 
90

 
—

 Airxcel, Inc.
 
 
 
 Household appliances
 
 
 
 
 
 
 First Lien Term Loan, LIBOR+4.5% cash due 4/28/2025 (6)(20)
 
7.02
%
 
 
 
7,960

 
7,888

 
7,522

 
 
 
 
 
 
 
 
7,888

 
7,522

 Algeco Scotsman Global Finance Plc
 
 
 
 Construction & engineering
 
 
 
 
 
 
 Fixed Rate Bond 10% cash due 8/15/2023 (11)(20)
 
 
 
 
 
2,561

 
2,602

 
2,388

 Fixed Rate Bond 8% cash due 2/15/2023 (11)(20)
 
 
 
 
 
23,915

 
23,356

 
22,420

 
 
 
 
 
 
 
 
25,958

 
24,808

 Allen Media, LLC
 
 
 
 Movies & entertainment
 
 
 
 
 
 
 First Lien Term Loan B, LIBOR+6.5% (1% floor) cash due 8/30/2023 (6)
 
9.21
%
 
 
 
20,000

 
19,529

 
19,426

 
 
 
 
 
 
 
 
19,529

 
19,426

 Allied Universal Holdco LLC
 
 
 
 Security & alarm services
 
 
 
 
 
 
 First Lien Term Loan, LIBOR+3.75% (1% floor) cash due 7/28/2022 (6)(20)
 
6.27
%
 
 
 
9,828

 
9,875

 
9,351

 Second Lien Term Loan, LIBOR+8.5% (1% floor) cash due 7/28/2023 (6)(20)
 
11.02
%
 
 
 
1,149

 
1,166

 
1,094

 
 
 
 
 
 
 
 
11,041

 
10,445

 Altice France S.A.
 
 
 
 Integrated telecommunication services
 
 
 
 
 
 
 Fixed Rate Bond 8.125% cash due 1/15/2024 (11)(20)
 
 
 
 
 
3,000

 
3,052

 
2,805

 Fixed Rate Bond 7.625% cash due 2/15/2025 (11)(20)
 
 
 
 
 
2,000

 
2,014

 
1,668

 
 
 
 
 
 
 
 
5,066

 
4,473

 Alvotech Holdings S.A.
 
 
 
 Biotechnology
 
 
 
 
 
 
 Fixed Rate Bond 15% PIK due 12/13/2023 (11)
 
 
 
 
 
30,000

 
29,404

 
29,404

 
 
 
 
 
 
 
 
29,404

 
29,404

 Ancile Solutions, Inc.
 
 
 
 Application software
 
 
 
 
 
 
 First Lien Term Loan, LIBOR+7% (1% floor) cash due 6/30/2021 (6)
 
9.80
%
 
 
 
9,456

 
9,320

 
9,399

 
 
 
 
 
 
 
 
9,320

 
9,399

 Asset International, Inc.
 
 
 
 Research & consulting services
 
 
 
 
 
 
 Second Lien Term Loan, LIBOR+9.25% (1% floor) cash due 6/29/2025 (6)
 
12.05
%
 
 
 
15,000

 
14,702

 
14,669

 
 
 
 
 
 
 
 
14,702

 
14,669

 Asurion, LLC
 
 
 
 Property & casualty insurance
 
 
 
 
 
 
 First Lien Term Loan B4, LIBOR+3% cash due 8/4/2022 (6)(20)
 
5.52
%
 
 
 
1,834

 
1,811

 
1,767

 Second Lien Term Loan B2, LIBOR+6.5% (1% floor) cash due 8/4/2025 (6)(20)
 
9.02
%
 
 
 
22,000

 
21,948

 
21,821

 
 
 
 
 
 
 
 
23,759

 
23,588

See notes to Consolidated Financial Statements.

6
Oaktree Specialty Lending Corporation
Consolidated Schedule of Investments
December 31, 2018
(dollar amounts in thousands)
(unaudited)

Portfolio Company/Type of Investment (1)(2)(3)(4)(5)
 
 Cash Interest Rate (6)
 
Industry
 
Principal (7)

 
Cost
 
Fair Value
 Avantor Inc.
 
 
 
 Healthcare distributors
 
 
 
 
 
 
 Fixed Rate Bond 9% cash due 10/1/2025 (20)
 
 
 
 
 
$
3,000

 
$
2,972

 
$
3,008

 
 
 
 
 
 
 
 
2,972

 
3,008

 Belk Inc.
 
 
 
 Department stores
 
 
 
 
 
 
 First Lien Term Loan B, LIBOR+4.75% (1% floor) cash due 12/12/2022 (6)(20)
 
7.36
%
 
 
 
660

 
574

 
535

 
 
 
 
 
 
 
 
574

 
535

 Blackhawk Network Holdings, Inc.
 
 
 
Data processing & outsourced services
 
 
 
 
 
 
 Second Lien Term Loan, LIBOR+7% (1% floor) cash due 6/15/2026 (6)(20)
 
9.50
%
 
 
 
26,250

 
25,987

 
25,900

 
 
 
 
 
 
 
 
25,987

 
25,900

 Boxer Parent Company Inc.
 
 
 
 Systems software
 
 
 
 
 
 
 First Lien Term Loan B, LIBOR+4.25% cash due 10/2/2025 (6)(20)
 
7.05
%
 
 
 
11,013

 
10,902

 
10,650

 
 
 
 
 
 
 
 
10,902

 
10,650

 California Pizza Kitchen, Inc.
 
 
 
Restaurants
 
 
 
 
 
 
 First Lien Term Loan, LIBOR+6% (1% floor) cash due 8/23/2022 (6)(20)
 
8.53
%
 
 
 
3,146

 
3,121

 
3,060

 
 
 
 
 
 
 
 
3,121

 
3,060

 Cenegenics, LLC
 
 
 
Healthcare services
 
 
 
 
 
 
 First Lien Term Loan, 9.75% cash 2% PIK due 9/30/2019 (21)
 


 
 
 
29,181

 
27,738

 
6,029

 First Lien Revolver, 15% cash due 9/30/2019 (19)(21)
 


 
 
 
2,203

 
2,203

 
219

 452,914.87 Common Units in Cenegenics, LLC
 
 
 
 
 
 
 
598

 
—

 345,380.141 Preferred Units in Cenegenics, LLC
 
 
 
 
 
 
 
300

 
—

 
 
 
 
 
 
 
 
30,839

 
6,248

 CITGO Holdings Inc.
 
 
 
 Oil & gas refining & marketing
 
 
 
 
 
 
 Fixed Rate Bond 10.75% cash due 2/15/2020 (20)
 
 
 
 
 
21,300

 
22,272

 
21,779

 
 
 
 
 
 
 
 
22,272

 
21,779

 Comprehensive Pharmacy Services LLC
 
 
 
Pharmaceuticals
 
 
 
 
 
 
 20,000 Common Shares in MCP CPS Group Holdings, Inc.
 
 
 
 
 
 
 
2,000

 
2,848

 
 
 
 
 
 
 
 
2,000

 
2,848

 Conviva Inc.
 
 
 
Application software
 
 
 
 
 
 
 417,851 Series D Preferred Stock Warrants (exercise price $1.1966) expiration date 2/28/2021
 
 
 
 
 
 
 
105

 
433

 
 
 
 
 
 
 
 
105

 
433

 Covia Holdings Corporation
 
 
 
 Oil & gas equipment & services
 
 
 
 
 
 
 First Lien Term Loan, LIBOR+3.75% (1% floor) cash due 6/1/2025 (6)(11)(20)
 
6.55
%
 
 
 
7,960

 
7,960

 
5,811

 
 
 
 
 
 
 
 
7,960

 
5,811

 DAE Aviation Holdings
 
 
 
Aerospace & defense
 
 
 
 
 
 
 Fixed Rate Bond 10% cash due 7/15/2023 (20)
 
 
 
 
 
1,500

 
1,611

 
1,605

 
 
 
 
 
 
 
 
1,611

 
1,605

 Datto Inc.
 
 
 
 Technology distributors
 
 
 
 
 
 
 First Lien Term Loan, LIBOR+8% (1% floor) cash due 12/7/2022 (6)
 
10.46
%
 
 
 
35,000

 
34,450

 
34,160

 First Lien Revolver, LIBOR+8% (1% floor) cash due 12/7/2022 (6)(19)
 


 
 
 
—

 
(37
)
 
(57
)
 
 
 
 
 
 
 
 
34,413

 
34,103

 DigiCert, Inc.
 
 
 
 Internet services & infrastructure
 
 
 
 
 
 
 First Lien Term Loan B, LIBOR+4% (1% floor) cash due 10/31/2024 (6)(20)
 
6.52
%
 
 
 
4,254

 
4,211

 
4,180

 
 
 
 
 
 
 
 
4,211

 
4,180

See notes to Consolidated Financial Statements.


7
Oaktree Specialty Lending Corporation
Consolidated Schedule of Investments
December 31, 2018
(dollar amounts in thousands)
(unaudited)

Portfolio Company/Type of Investment (1)(2)(3)(4)(5)
 
 Cash Interest Rate (6)
 
Industry
 
Principal (7)

 
Cost
 
Fair Value
 Dominion Diagnostics, LLC
 
 
 
Healthcare services
 
 
 
 
 
 
 Subordinated Term Loan, 11% cash 1% PIK due 10/18/2019 (21)
 
 
 
 
 
$
20,120

 
$
14,840

 
$
8,968

 First Lien Term Loan, LIBOR+5% (1% floor) cash due 4/8/2019 (6)
 
7.45
%
 
 
 
45,691

 
39,809

 
45,691

 First Lien Revolver, LIBOR+5% (1% floor) cash due 4/8/2019 (6)(19)
 
7.45
%
 
 
 
1,742

 
1,742

 
1,742

 
 
 
 
 
 
 
 
56,391

 
56,401

 Eagleview Technology Corporation
 
 
 
 Application software
 
 
 
 
 
 
 Second Lien Term Loan, LIBOR+7.5% (1% floor) cash due 8/14/2026 (6)
 
9.96
%
 
 
 
12,000

 
11,880

 
11,760

 
 
 
 
 
 
 
 
11,880

 
11,760

 EHR Canada, LLC
 
 
 
 Food retail
 
 
 
 
 
 
 First Lien Term Loan, LIBOR+8% (1% floor) cash due 9/28/2020 (6)
 
10.80
%
 
 
 
23,086

 
22,695

 
22,901

 
 
 
 
 
 
 
 
22,695

 
22,901

 EOS Fitness Opco Holdings, LLC
 
 
 
Leisure facilities
 
 
 
 
 
 
 First Lien Term Loan, LIBOR+8.25% (0.75% floor) cash due 12/30/2019 (6)
 
10.60
%
 
 
 
3,502

 
3,502

 
3,503

 First Lien Revolver, LIBOR+8.25% (0.75% floor) cash due 12/30/2019 (6)(19)
 
 
 
 
 
—

 
—

 
—

 487.5 Class A Preferred Units, 12%
 
 
 
 
 
 
 
488

 
782

 12,500 Class B Common Units
 
 
 
 
 
 
 
13

 
1,052

 
 
 
 
 
 
 
 
4,003

 
5,337

 Equitrans Midstream Corp.
 
 
 
 Oil & gas storage & transportation
 
 
 
 
 
 
 First Lien Term Loan B, LIBOR+4.5% cash due 1/31/2024 (6)(11)(20)
 
7.03
%
 
 
 
12,000

 
11,640

 
11,770

 
 
 
 
 
 
 
 
11,640

 
11,770

 Eton
 
 
 
 Research & consulting services
 
 
 
 
 
 
 Second Lien Term Loan, LIBOR+7.5% (0% floor) cash due 5/1/2026 (6)(20)
 
10.02
%
 
 
 
20,000

 
19,908

 
20,100

 
 
 
 
 
 
 
 
19,908

 
20,100

 ExamSoft Worldwide, Inc.
 
 
 
 Application software
 
 
 
 
 
 
 180,707 Class C Units in ExamSoft Investor LLC
 
 
 
 
 
 
 
181

 
—

 
 
 
 
 
 
 
 
181

 
—

 Gentiva Health Services, Inc.
 
 
 
 Healthcare services
 
 
 
 
 
 
 Second Lien Term Loan, LIBOR+7% cash due 7/2/2026 (6)(20)
 
9.56
%
 
 
 
14,500

 
14,404

 
14,500

 
 
 
 
 
 
 
 
14,404

 
14,500

 GI Chill Acquisition LLC
 
 
 
 Managed healthcare
 
 
 
 
 
 
 First Lien Term Loan, LIBOR+4% cash due 8/6/2025 (6)
 
6.80
%
 
 
 
17,955

 
17,865

 
17,955

 Second Lien Term Loan, LIBOR+7.5% cash due 8/6/2026 (6)
 
10.30
%
 
 
 
10,000

 
9,905

 
10,000

 
 
 
 
 
 
 
 
27,770

 
27,955

 GKD Index Partners, LLC
 
 
 
 Specialized finance
 
 
 
 
 
 
 First Lien Term Loan, LIBOR+7.25% (1% floor) cash due 6/29/2023 (6)
 
10.05
%
 
 
 
23,913

 
23,698

 
23,482

 First Lien Revolver, LIBOR+7.25% (1% floor) cash due 6/29/2023 (6)(19)
 
10.04
%
 
 
 
347

 
336

 
327

 
 
 
 
 
 
 
 
24,034

 
23,809

 GoodRx, Inc.
 
 
 
 Interactive media & services
 
 
 
 
 
 
 Second Lien Term Loan, LIBOR+7.5% cash due 10/12/2026 (6)
 
9.96
%
 
 
 
22,222

 
21,761

 
22,110

 
 
 
 
 
 
 
 
21,761

 
22,110

 HealthEdge Software, Inc.
 
 
 
Application software
 
 
 
 
 
 
 482,453 Series A-3 Preferred Stock Warrants (exercise price $1.450918) expiration date 9/30/2023
 
 
 
 
 
 
 
213

 
769

 
 
 
 
 
 
 
 
213

 
769

 I Drive Safely, LLC
 
 
 
Education services
 
 
 
 
 
 
125,079 Class A Common Units of IDS Investments, LLC
 
 
 
 
 
 
 
1,000

 
—

 
 
 
 
 
 
 
 
1,000

 
—

See notes to Consolidated Financial Statements.

8
Oaktree Specialty Lending Corporation
Consolidated Schedule of Investments
December 31, 2018
(dollar amounts in thousands)
(unaudited)

Portfolio Company/Type of Investment (1)(2)(3)(4)(5)
 
 Cash Interest Rate (6)
 
Industry
 
Principal (7)

 
Cost
 
Fair Value
 IBG Borrower LLC
 
 
 
 Apparel, accessories & luxury goods
 
 
 
 
 
 
 First Lien Term Loan, LIBOR+7% (1% floor) cash due 8/2/2022 (6)
 
9.81
%
 
 
 
$
14,734

 
$
13,187

 
$
13,187

 
 
 
 
 
 
 
 
13,187

 
13,187

 iCIMs, Inc.
 
 
 
Application software
 
 
 
 
 
 
 First Lien Term Loan, LIBOR+6.5% (1% floor) cash due 9/12/2024 (6)
 
8.94
%
 
 
 
14,118

 
13,850

 
13,850

 First Lien Revolver, LIBOR+6.5% (1% floor) cash due 9/12/2024 (6)(19)
 
 
 
 
 
—

 
(17
)
 
(17
)
 
 
 
 
 
 
 
 
13,833

 
13,833

 Integral Development Corporation
 
 
 
Other diversified financial services
 
 
 
 
 
 
1,078,284 Common Stock Warrants (exercise price $0.9274) expiration date 7/10/2024
 
 
 
 
 
 
 
113

 
—

 
 
 
 
 
 
 
 
113

 
—

 Intelsat Jackson Holdings S.A.
 
 
 
 Alternative carriers
 
 
 
 
 
 
 First Lien Term Loan B3, LIBOR+3.75% (1% floor) cash due 11/27/2023 (6)(11)(20)
 
6.26
%
 
 
 
2,000

 
1,985

 
1,945

 
 
 
 
 
 
 
 
1,985

 
1,945

 Internet Pipeline, Inc.
 
 
 
 Internet services & infrastructure
 
 
 
 
 
 
 Incremental First Lien Term Loan, LIBOR+4.75% (1% floor) cash due 8/4/2022 (6)
 
7.28
%
 
 
 
5,496

 
5,443

 
5,456

 
 
 
 
 
 
 
 
5,443

 
5,456

 Janrain, Inc.
 
 
 
 Application software
 
 
 
 
 
 
 218,008 Common Stock Warrants (exercise price $1.3761) expiration date 12/5/2024
 
 
 
 
 
 
 
45

 
—

 
 
 
 
 
 
 
 
45

 
—

 Kason Corporation
 
 
 
Industrial machinery
 
 
 
 
 
 
 Mezzanine Term Loan, 11.5% cash 1.75% PIK due 10/28/2019
 
 
 
 
 
6,141

 
6,141

 
5,925

 498.6 Class A Preferred Units in Kason Investment, LLC, 8%
 
 
 
 
 
 
 
499

 
249

 5,540 Class A Common Units in Kason Investment, LLC
 
 
 
 
 
 
 
55

 
—

 
 
 
 
 
 
 
 
6,695

 
6,174

 Kellermeyer Bergensons Services, LLC
 
 
 
 Environmental & facilities services
 
 
 
 
 
 
 Second Lien Term Loan, LIBOR+8.5% (1% floor) cash due 4/29/2022 (6)
 
11.02
%
 
 
 
6,105

 
5,927

 
6,159

 
 
 
 
 
 
 
 
5,927

 
6,159

 L Squared Capital Partners LLC
 
 
 
Multi-sector holdings
 
 
 
 
 
 
 2% limited partnership interest (11)(16)
 
 
 
 
 
 
 
1,502

 
3,284

 
 
 
 
 
 
 
 
1,502

 
3,284

 Lanai Holdings III, Inc.
 
 
 
Healthcare distributors
 
 
 
 
 
 
 First Lien Term Loan B, LIBOR+4.75% (1% floor) cash due 8/29/2022 (6)(20)
 
7.28
%
 
 
 
20,047

 
19,659

 
18,519

 
 
 
 
 
 
 
 
19,659

 
18,519

 Lannett Company, Inc.
 
 
 
 Pharmaceuticals
 
 
 
 
 
 
 First Lien Term Loan A, LIBOR+5% (1% floor) cash due 11/25/2020 (6)(11)(20)
 
7.52
%
 
 
 
1,824

 
1,826

 
1,711

 
 
 
 
 
 
 
 
1,826

 
1,711

 Lift Brands Holdings, Inc.
 
 
 
Leisure facilities
 
 
 
 
 
 
 2,000,000 Class A Common Units in Snap Investments, LLC
 
 
 
 
 
 
 
1,399

 
3,020

 
 
 
 
 
 
 
 
1,399

 
3,020

 Long's Drugs Incorporated
 
 
 
Pharmaceuticals
 
 
 
 
 
 
 50 Series A Preferred Shares in Long's Drugs Incorporated
 
 
 
 
 
 
 
385

 
836

 25 Series B Preferred Shares in Long's Drugs Incorporated
 
 
 
 
 
 
 
210

 
519

 
 
 
 
 
 
 
 
595

 
1,355



See notes to Consolidated Financial Statements.

9
Oaktree Specialty Lending Corporation
Consolidated Schedule of Investments
December 31, 2018
(dollar amounts in thousands)
(unaudited)

Portfolio Company/Type of Investment (1)(2)(3)(4)(5)
 
 Cash Interest Rate (6)
 
Industry
 
Principal (7)

 
Cost
 
Fair Value
 LTI Holdings, Inc.
 
 
 
 Auto parts & equipment
 
 
 
 
 
 
 Second Lien Term Loan, LIBOR+6.75% cash due 9/6/2026 (6)(20)
 
9.27
%
 
 
 
$
9,000

 
$
9,000

 
$
8,404

 
 
 
 
 
 
 
 
9,000

 
8,404

 Lytx Holdings, LLC
 
 
 
Research & consulting services
 
 
 
 
 
 
3,500 Class B Units
 
 
 
 
 
 
 
—

 
1,468

 
 
 
 
 
 
 
 
—

 
1,468

 Maravai Intermediate Holdings, LLC
 
 
 
 Biotechnology
 
 
 
 
 
 
 First Lien Term Loan B, LIBOR+4.25% cash due 8/2/2025 (6)
 
6.81
%
 
 
 
11,970

 
11,850

 
11,551

 
 
 
 
 
 
 
 
11,850

 
11,551

 Maverick Healthcare Group, LLC (22)
 
 
 
Healthcare equipment
 
 
 
 
 
 
 First Lien Term Loan A, LIBOR+5.5% cash 2% PIK cash due 3/15/2019 (6)
 
8.02
%
 
 
 
10,488

 
7,766

 
10,488

 First Lien Term Loan B, LIBOR+11% PIK due 3/15/2019 (6)(23)
 
 
 
 
 
52,522

 
39,110

 
40,715

 CapEx Line, LIBOR+5.75% cash 2% PIK due 3/15/2019 (6)
 
8.27
%
 
 
 
818

 
580

 
818

 
 
 
 
 
 
 
 
47,456

 
52,021

 Mayfield Agency Borrower Inc.
 
 
 
 Property & casualty insurance
 
 
 
 
 
 
 First Lien Term Loan B, LIBOR+4% (1% floor) cash due 2/28/2025 (6)(20)
 
6.52
%
 
 
 
7,463

 
7,430

 
7,295

 Second Lien Term Loan, LIBOR+8.5% (1% floor) cash due 3/2/2026 (6)
 
11.02
%
 
 
 
37,500

 
36,995

 
37,125

 
 
 
 
 
 
 
 
44,425

 
44,420

 McAfee, LLC
 
 
 
 Systems software
 
 
 
 
 
 
 First Lien Term Loan B, LIBOR+3.75% (1% floor) cash due 9/30/2024 (6)(20)
 
6.27
%
 
 
 
11,040

 
10,956

 
10,777

 Second Lien Term Loan, LIBOR+8.5% (1% floor) cash due 9/29/2025 (6)(20)
 
11.01
%
 
 
 
7,333

 
7,373

 
7,303

 
 
 
 
 
 
 
 
18,329

 
18,080

 McDermott Technology (Americas), Inc.
 
 
 
 Oil & gas equipment services
 
 
 
 
 
 
 First Lien Term Loan B, LIBOR+5% (1% floor) cash due 5/12/2025 (6)(11)(20)
 
7.52
%
 
 
 
4,494

 
4,468

 
4,208

 
 
 
 
 
 
 
 
4,468

 
4,208

 MHE Intermediate Holdings, LLC
 
 
 
 Diversified support services
 
 
 
 
 
 
 First Lien Term Loan, LIBOR+5% (1% floor) cash due 3/8/2024 (6)
 
7.80
%
 
 
 
2,955

 
2,931

 
2,895

 
 
 
 
 
 
 
 
2,931

 
2,895

 Ministry Brands, LLC
 
 
 
 Application software
 
 
 
 
 
 
 Second Lien Term Loan, LIBOR+9.25% (1% floor) cash due 6/2/2023 (6)
 
11.77
%
 
 
 
7,056

 
6,984

 
7,054

 Second Lien Delayed Draw Term Loan, LIBOR+9.25% (1% floor) cash due 6/2/2023 (6)
 
11.77
%
 
 
 
1,944

 
1,924

 
1,943

 First Lien Revolver, LIBOR+5% (1% floor) cash due 12/2/2022 (6)(19)
 
 
 
 
 
—

 
(8
)
 
(4
)
 
 
 
 
 
 
 
 
8,900

 
8,993

 Morphe LLC
 
 
 
 Personal products
 
 
 
 
 
 
 First Lien Term Loan, LIBOR+6% (1% floor) cash due 2/10/2023 (6)
 
8.52
%
 
 
 
19,250

 
19,089

 
19,154

 
 
 
 
 
 
 
 
19,089

 
19,154

 Natural Resource Partners LP
 
 
 
 Coal & consumable fuels
 
 
 
 
 
 
 Fixed Rate Bond 10.5% cash due 3/15/2022 (11)(20)
 
 
 
 
 
7,000

 
7,294

 
7,245

 
 
 
 
 
 
 
 
7,294

 
7,245

 Navicure, Inc.
 
 
 
 Healthcare technology
 
 
 
 
 
 
 Second Lien Term Loan, LIBOR+7.5% (1% floor) cash due 10/31/2025 (6)
 
10.02
%
 
 
 
14,500

 
14,376

 
14,283

 
 
 
 
 
 
 
 
14,376

 
14,283

 Numericable SFR SA
 
 
 
 Integrated telecommunication services
 
 
 
 
 
 
 Fixed Rate Bond 7.375% cash due 5/1/2026 (11)(20)
 
 
 
 
 
5,000

 
5,113

 
4,600

 
 
 
 
 
 
 
 
5,113

 
4,600

See notes to Consolidated Financial Statements.

10
Oaktree Specialty Lending Corporation
Consolidated Schedule of Investments
December 31, 2018
(dollar amounts in thousands)
(unaudited)

Portfolio Company/Type of Investment (1)(2)(3)(4)(5)
 
 Cash Interest Rate (6)
 
Industry
 
Principal (7)

 
Cost
 
Fair Value
 OmniSYS Acquisition Corporation
 
 
 
Diversified support services
 
 
 
 
 
 
 100,000 Common Units in OSYS Holdings, LLC
 
 
 
 
 
 
 
$
1,000

 
$
1,072

 
 
 
 
 
 
 
 
1,000

 
1,072

 Onvoy, LLC
 
 
 
 Integrated telecommunication services
 
 
 
 
 
 
 Second Lien Term Loan, LIBOR+10.5% (1% floor) cash due 2/10/2025 (6)
 
13.30
%
 
 
 
$
16,750

 
16,750

 
13,188

 19,666.67 Class A Units in GTCR Onvoy Holdings, LLC
 
 
 
 
 
 
 
1,967

 
—

 13,664.73 Series 3 Class B Units in GTCR Onvoy Holdings, LLC
 
 
 
 
 
 
 
—

 
—

 
 
 
 
 
 
 
 
18,717

 
13,188

 P2 Upstream Acquisition Co.
 
 
 
 Application software
 
 
 
 
 
 
 First Lien Revolver, LIBOR+4% (1% floor) cash due 2/1/2020 (6)(19)(20)
 
6.39
%
 
 
 
 
 
1,333

 
1,035

 
 
 
 
 
 
 
 
1,333

 
1,035

 Pingora MSR Opportunity Fund I-A, LP
 
 
 
Thrift & mortgage finance
 
 
 
 
 
 
 1.86% limited partnership interest (11)(16)
 
 
 
 
 
 
 
4,842

 
4,334

 
 
 
 
 
 
 
 
4,842

 
4,334

 PLATO Learning Inc.
 
 
 
 Education services
 
 
 
 
 
 
 Unsecured Senior PIK Note, 8.5% PIK due 12/9/2021 (23)
 
 
 
 
 
2,707

 
2,434

 
—

 Unsecured Junior PIK Note, 10% PIK due 12/9/2021 (23)
 
 
 
 
 
12,812

 
10,227

 
—

 Unsecured Revolver, 5% cash due 12/9/2021 (19)(21)
 
 
 
 
 
603

 
493

 
(1,590
)
 126,127.80 Class A Common Units of Edmentum
 
 
 
 
 
 
 
126

 
—

 
 
 
 
 
 
 
 
13,280

 
(1,590
)
 ProFrac Services, LLC
 
 
 
 Industrial machinery
 
 
 
 
 
 
 First Lien Term Loan B, LIBOR+5.75% (1% floor) cash due 9/15/2023 (6)
 
8.52
%
 
 
 
18,254

 
18,082

 
17,889

 
 
 
 
 
 
 
 
18,082

 
17,889

 QuorumLabs, Inc.
 
 
 
 Application software
 
 
 
 
 
 
 64,887,669 Junior-2 Preferred Stock
 
 
 
 
 
 
 
375

 
—

 
 
 
 
 
 
 
 
375

 
—

 Refac Optical Group (13)
 
 
 
Specialty stores
 
 
 
 
 
 
 First Lien Term Loan A, LIBOR+8% cash due 1/9/2019 (6)(21)
 
 
 
 
 
1,849

 
1,692

 
1,849

 First Lien Term Loan B, LIBOR+9% cash 1.75% PIK due 1/9/2019 (6)(21)
 
 
 
 
 
35,932

 
32,947

 
33,091

 First Lien Term Loan C, 12.5% cash due 1/9/2019 (21)
 
 
 
 
 
3,521

 
3,232

 
3,128

 First Lien Revolver, LIBOR+8% cash due 1/9/2019 (6)(21)
 
 
 
 
 
3,604

 
3,360

 
3,604

 1,550.9435 Shares of Common Stock in Refac Holdings, Inc.
 
 
 
 
 
 
 
1

 
—

 550.9435 Shares of Series A-2 Preferred Stock in Refac Holdings, Inc., 10%
 
 
 
 
 
 
 
305

 
—

 1,000 Shares of Series A Preferred Stock Units in Refac Holdings, Inc., 10%
 
 
 
 
 
 
 
999

 
—

 
 
 
 
 
 
 
 
42,536

 
41,672

 Salient CRGT, Inc.
 
 
 
Aerospace & defense
 
 
 
 
 
 
 First Lien Term Loan, LIBOR+5.75% (1% floor) cash due 2/28/2022 (6)
 
8.27
%
 
 
 
3,152

 
3,111

 
3,105

 
 
 
 
 
 
 
 
3,111

 
3,105

 Scilex Pharmaceuticals Inc.
 
 
 
 Pharmaceuticals
 
 
 
 
 
 
 Fixed Rate Zero Coupon Bond due 8/15/2026
 
 
 
 
 
16,000

 
10,370

 
10,400

 
 
 
 
 
 
 
 
10,370

 
10,400

See notes to Consolidated Financial Statements.


11
Oaktree Specialty Lending Corporation
Consolidated Schedule of Investments
December 31, 2018
(dollar amounts in thousands)
(unaudited)

Portfolio Company/Type of Investment (1)(2)(3)(4)(5)
 
 Cash Interest Rate (6)
 
Industry
 
Principal (7)

 
Cost
 
Fair Value
 ShareThis, Inc.
 
 
 
 Application software
 
 
 
 
 
 
 345,452 Series C Preferred Stock Warrants (exercise price $3.0395) expiration date 3/4/2024
 
 
 
 
 
 
 
$
367

 
$
4

 
 
 
 
 
 
 
 
367

 
4

 Sorrento Therapeutics, Inc.
 
 
 
 Biotechnology
 
 
 
 
 
 
 First Lien Term Loan, LIBOR+7% (1% floor) cash due 11/7/2023 (6)(11)
 
9.81
%
 
 
 
$
25,000

 
23,061

 
23,061

 First Lien Delayed Draw Term Loan, LIBOR+7% (1% floor) cash due 11/7/2023 (6)(11)(19)
 


 
 
 
—

 
(121
)
 
(121
)
 Stock Warrants (exercise price $3.28) expiration date 5/7/2029 (11)
 
 
 
 
 
 
 
1,750

 
1,399

 
 
 
 
 
 
 
 
24,690

 
24,339

 StandardAero Aviation Holdings Inc.
 
 
 
 Aerospace & defense
 
 
 
 
 
 
 First Lien Term Loan, LIBOR+3.75% (1% floor) cash due 7/7/2022 (6)(20)
 
6.27
%
 
 
 
4,987

 
4,981

 
4,941

 
 
 
 
 
 
 
 
4,981

 
4,941

 Swordfish Merger Sub LLC
 
 
 
 Auto parts & equipment
 
 
 
 
 
 
 Second Lien Term Loan, LIBOR+6.75% (1% floor) cash due 2/2/2026 (6)(20)
 
9.13
%
 
 
 
12,500

 
12,444

 
11,875

 
 
 
 
 
 
 
 
12,444

 
11,875

 TerSera Therapeutics, LLC
 
 
 
 Pharmaceuticals
 
 
 
 
 
 
 Second Lien Term Loan, LIBOR+9.25% (1% floor) cash due 3/30/2024 (6)
 
12.05
%
 
 
 
15,000

 
14,667

 
14,813

 Second Lien Incremental Term loan, LIBOR+9.25% (1% floor) cash due 3/30/2024 (6)
 
12.05
%
 
 
 
3,281

 
3,206

 
3,240

 Second Lien Incremental Delayed Draw Term Loan, LIBOR+9.25% cash due 12/31/2018 (6)
 
12.06
%
 
 
 
3,281

 
3,281

 
3,240

 668,879 Common Units of TerSera Holdings LLC
 
 
 
 
 
 
 
1,731

 
2,629

 
 
 
 
 
 
 
 
22,885

 
23,922

 Thing5, LLC
 
 
 
Data processing & outsourced services
 
 
 
 
 
 
 First Lien Term Loan, LIBOR+7.5% (1% floor) cash 2% PIK due 10/11/2020 (6)(21)(24)
 
 
 
 
 
46,771

 
46,017

 
34,068

 First Lien Revolver, LIBOR+7.5% (1% floor) cash due 10/11/2020 (6)(19)(21)
 
 
 
 
 
2,274

 
2,175

 
2,274

 2,000,000 Units in T5 Investment Vehicle, LLC
 
 
 
 
 
 
 
2,000

 
—

 
 
 
 
 
 
 
 
50,192

 
36,342

 TigerText, Inc.
 
 
 
 Application software
 
 
 
 
 
 
 299,110 Series B Preferred Stock Warrants (exercise price $1.3373) expiration date 12/8/2024
 
 
 
 
 
 
 
60

 
568

 
 
 
 
 
 
 
 
60

 
568

 Tribe Buyer LLC
 
 
 
 Human resource & employment services
 
 
 
 
 
 
 First Lien Term Loan, LIBOR+4.5% (1% floor) cash due 2/16/2024 (6)(20)
 
7.02
%
 
 
 
845

 
845

 
811

 
 
 
 
 
 
 
 
845

 
811

 Truck Hero, Inc.
 
 
 
 Auto parts & equipment
 
 
 
 
 
 
 Second Lien Term Loan, LIBOR+8.25% (1% floor) cash due 4/21/2025 (6)
 
10.76
%
 
 
 
21,500

 
21,191

 
21,178

 
 
 
 
 
 
 
 
21,191

 
21,178

 Uber Technologies, Inc.
 
 
 
 Application software
 
 
 
 
 
 
 First Lien Term Loan, LIBOR +4% (1% floor) cash due 4/4/2025 (6)(20)
 
6.39
%
 
 
 
5,733

 
5,689

 
5,600

 
 
 
 
 
 
 
 
5,689

 
5,600

 UOS, LLC
 
 
 
 Trading companies & distributors
 
 
 
 
 
 
 First Lien Term Loan B, LIBOR+5.5% (1% floor) cash due 4/18/2023 (6)(20)
 
8.02
%
 
 
 
10,320

 
10,460

 
10,320

 
 
 
 
 
 
 
 
10,460

 
10,320

 U.S. Well Services, LLC
 
 
 
 Oil & gas drilling
 
 
 
 
 
 
 Second Lien Delayed Draw Term Loan, LIBOR+7.75% (1% floor) cash due 5/31/2020 (6)(11)
 
10.27
%
 
 
 
16,000

 
15,344

 
15,408

 Incremental Second Lien Delayed Draw Term Loan, LIBOR+7.75% (1% floor) cash due 5/31/2020 (6)(11)(19)
 
 
 
 
 
 
 
—

 
—

 
 
 
 
 
 
 
 
15,344

 
15,408

See notes to Consolidated Financial Statements.


12
Oaktree Specialty Lending Corporation
Consolidated Schedule of Investments
December 31, 2018
(dollar amounts in thousands)
(unaudited)


Portfolio Company/Type of Investment (1)(2)(3)(4)(5)
 
 Cash Interest Rate (6)
 
Industry
 
Principal (7)

 
Cost
 
Fair Value
 Veritas US Inc.
 
 
 
 Application software
 
 
 
 
 
 
 First Lien Term Loan B-1, LIBOR+4.5% (1% floor) cash due 1/27/2023 (6)(20)
 
7.09
%
 
 
 
$
34,463

 
$
34,793

 
$
29,626

 
 
 
 
 
 
 
 
34,793

 
29,626

 Verscend Holding Corp.
 
 
 
 Healthcare technology
 
 
 
 
 
 
 First Lien Term Loan B, LIBOR+4.5% (1% floor) cash due 8/27/2025 (6)(20)
 
7.02
%
 
 
 
24,938

 
24,824

 
24,189

 Fixed Rate Bond 9.75% cash due 8/15/2026 (20)
 


 
 
 
12,000

 
12,024

 
11,325

 
 
 
 
 
 
 
 
36,848

 
35,514

 Vertex Aerospace Services Corp.
 
 
 
 Aerospace & defense
 
 
 
 
 
 
 First Lien Term Loan B, LIBOR+4.75% cash due 6/29/2025 (6)(20)
 
7.27
%
 
 
 
15,920

 
15,846

 
15,801

 
 
 
 
 
 
 
 
15,846

 
15,801

 Vitalyst Holdings, Inc.
 
 
 
IT consulting & other services
 
 
 
 
 
 
 675 Series A Preferred Units of PCH Support Holdings, Inc., 10%
 
 
 
 
 
 
 
675

 
440

 7,500 Class A Common Stock Units of PCH Support Holdings, Inc.
 
 
 
 
 
 
 
75

 
—

 
 
 
 
 
 
 
 
750

 
440

 Weatherford International
 
 
 
 Oil & gas equipment services
 
 
 
 
 
 
 Fixed Rate Bond 9.875% cash due 2/15/2024 (11)(20)
 
 
 
 
 
12,000

 
11,498

 
7,440

 
 
 
 
 
 
 
 
11,498

 
7,440

 Windstream Services, LLC
 
 
 
 Integrated telecommunication services
 
 
 
 
 
 
 Fixed Rate Bond 8.625% cash due 10/31/2025 (11)(20)
 
 
 
 
 
5,000

 
4,871

 
4,475

 
 
 
 
 
 
 
 
4,871

 
4,475

 WP CPP Holdings, LLC
 
 
 
 Aerospace & defense
 
 
 
 
 
 
 Second Lien Term Loan, LIBOR+7.75% (1% floor) cash due 4/30/2026 (6)(20)
 
10.28
%
 
 
 
15,000

 
14,860

 
14,766

 
 
 
 
 
 
 
 
14,860

 
14,766

 xMatters, Inc.
 
 
 
 Application software
 
 
 
 
 
 
 600,000 Common Stock Warrants (exercise price $1.78) expiration date 2/26/2025
 
 
 
 
 
 
 
709

 
282

 
 
 
 
 
 
 
 
709

 
282

 Yeti Holdings, Inc.
 
 
 
Leisure products
 
 
 
 
 
 
 633,938 Common Shares
 
 
 
 
 
 
 
—

 
9,408

 
 
 
 
 
 
 
 
—

 
9,408

 Zep Inc.
 
 
 
 Specialty chemicals
 
 
 
 
 
 
 Second Lien Term Loan, LIBOR+8.25% (1% floor) cash due 8/11/2025 (6)
 
11.05
%
 
 
 
30,000

 
29,875

 
27,600

 First Lien Term Loan B, LIBOR+4% (1% floor) cash due 8/12/2024 (6)(20)
 
6.80
%
 
 
 
1,990

 
1,902

 
1,794

 
 
 
 
 
 
 
 
31,777

 
29,394

 Zephyr Bidco Limited
 
 
 
 Specialized finance
 
 
 
 
 
 
 Second Lien Term Loan, UK LIBOR+7.5% (0% floor) cash due 7/23/2026 (6)(11)(20)
 
8.23
%
 
 
 
£
18,000

 
23,587

 
22,778

 
 
 
 
 
 
 
 
23,587

 
22,778

 Total Non-Control/Non-Affiliate Investments (145.7% of net assets)
 
 
 
 
 
 
 
$
1,372,068

 
$
1,270,978

Total Portfolio Investments (167.9% of net assets)
 
 
 
 
 
 
 
$
1,587,310

 
$
1,464,885

Cash and Cash Equivalents and Restricted Cash
 
 
 
 
 
 
 
 
 
 
JP Morgan Prime Money Market Fund, Institutional Shares
 
 
 
 
 
 
 
$
51,241

 
$
51,241

Other cash accounts
 
 
 
 
 
 
 
5,415

 
5,415

Total Cash and Cash Equivalents and Restricted Cash (6.5% of net assets)
 
 
 
 
 
 
 
$
56,656

 
$
56,656

Total Portfolio Investments, Cash and Cash Equivalents and Restricted Cash (174.4% of net assets)
 
 
 
 
 
 
 
$
1,643,966

 
$
1,521,541

See notes to Consolidated Financial Statements.



13
Oaktree Specialty Lending Corporation
Consolidated Schedule of Investments
December 31, 2018
(dollar amounts in thousands)
(unaudited)

Derivative Instrument
 
Notional Amount to be Purchased
 
Notional Amount to be Sold
 
Maturity Date
 
Counterparty
 
Cumulative Unrealized Appreciation /(Depreciation)
Foreign currency forward contract
 
$
22,719

 
£
17,888

 
2/4/2019
 
JPMorgan Chase Bank, N.A.
 
$
(103
)
Foreign currency forward contract
 
$
19,747

 
€
17,325

 
1/17/2019
 
JPMorgan Chase Bank, N.A.
 
$
(87
)

See notes to Consolidated Financial Statements.


(1)
All debt investments are income producing unless otherwise noted. All equity investments are non-income producing unless otherwise noted.
(2)
See Note 3 in the accompanying notes to the Consolidated Financial Statements for portfolio composition by geographic region.
(3)
Equity ownership may be held in shares or units of companies related to the portfolio companies.
(4)
Interest rates may be adjusted from period to period on certain term loans and revolvers. These rate adjustments may be either temporary in nature due to tier pricing arrangements or financial or payment covenant violations in the original credit agreements or permanent in nature per loan amendment or waiver documents.
(5)
With the exception of investments held by the Company’s wholly-owned subsidiaries that each formerly held a license from the U.S. Small Business Administration (“SBA”) to operate as a small business investment company (“SBIC”), each of the Company's investments is pledged as collateral under the ING Facility (as defined in Note 6 to the accompanying notes to the Consolidated Financial Statements).
(6)
The interest rate on the principal balance outstanding for all floating rate loans is indexed to the London Interbank Offered Rate ("LIBOR") and/or an alternate base rate (e.g., prime rate), which typically resets semi-annually, quarterly, or monthly at the borrower's option. The borrower may also elect to have multiple interest reset periods for each loan. For each of these loans, the Company has provided the applicable margin over LIBOR or the alternate base rate based on each respective credit agreement and the cash interest rate as of period end. All LIBOR shown above is in U.S. dollars unless otherwise noted. As of December 31, 2018, the reference rates for our variable rate loans were the 30-day LIBOR at 2.52%, 60-day LIBOR at 2.62%, the 90-day LIBOR at 2.80%, the 180-day LIBOR at 2.88%, the PRIME at 5.50%, the 30-day UK LIBOR at 0.73% and the 30-day EURIBOR at (0.41)%.
(7)
Principal includes accumulated payment in kind ("PIK") interest and is net of repayments, if any. “£” signifies the investment is denominated in British Pounds. "€" signifies the investment is denominated in Euros. All other investments are denominated in U.S. dollars.
(8)
Control Investments generally are defined by the Investment Company Act of 1940, as amended ("Investment Company Act"), as investments in companies in which the Company owns more than 25% of the voting securities or maintains greater than 50% of the board representation.
(9)
As defined in the Investment Company Act, the Company is deemed to be both an "Affiliated Person" of and to "Control" this portfolio company as the Company owns more than 25% of the portfolio company's outstanding voting securities or has the power to exercise control over management or policies of such portfolio company (including through a management agreement). See Schedule 12-14 in the accompanying notes to the Consolidated Financial Statements for transactions during the three months ended December 31, 2018 in which the issuer was both an Affiliated Person and a portfolio company that the Company is deemed to control.
(10)
First Star Speir Aviation 1 Limited is a wholly-owned holding company formed by the Company in order to facilitate its investment strategy. In accordance with Accounting Standards Update ("ASU") 2013-08, the Company has deemed the holding company to be an investment company under accounting principles generally accepted in the United States ("GAAP") and therefore deemed it appropriate to consolidate the financial results and financial position of the holding company and to recognize dividend income versus a combination of interest income and dividend income. Accordingly, the debt and equity investments in the wholly-owned holding company are disregarded for accounting purposes since the economic substance of these instruments are equity investments in the operating entities.
(11)
Investment is not a "qualifying asset" as defined under Section 55(a) of the Investment Company Act. Under the Investment Company Act, the Company may not acquire any non-qualifying asset unless, at the time the acquisition is made, qualifying assets represent at least 70% of the Company's total assets. As of December 31, 2018, qualifying assets represented 74.6% of the Company's total assets and non-qualifying assets represented 25.4% of the Company's total assets.
(12)
Income producing through payment of dividends or distributions.
(13)
Payments on the Company's investment in Refac Optical Group are currently past due. In October 2018, the Company entered into a forbearance agreement with Refac Optical Group in which the Company has temporarily agreed not to take action against Refac Optical Group. The forbearance agreement extended to January 9, 2019.
(14)
See Note 3 in the accompanying notes to the Consolidated Financial Statements for portfolio composition.
(15)
On December 28, 2018, the mezzanine notes issued by SLF Repack Issuer 2016, LLC, a wholly-owned, special purpose issuer subsidiary of Senior Loan Fund JV I, LLC ("SLF JV I"), were redeemed and the Company purchased subordinated notes and LLC equity interests issued by SLF JV I. Prior to December 28, 2018, the mezzanine notes issued by SLF Repack Issuer 2016, LLC consisted of Class A mezzanine secured deferrable floating rate notes and Class B mezzanine secured deferrable fixed rate notes.

14
Oaktree Specialty Lending Corporation
Consolidated Schedule of Investments
December 31, 2018
(dollar amounts in thousands)
(unaudited)

(16)
This investment was valued using net asset value as a practical expedient for fair value. Consistent with Financial Accounting Standards Board ("FASB") guidance under Accounting Standards Codification ("ASC") Topic 820, Fair Value Measurements and Disclosures ("ASC 820"), these investments are excluded from the hierarchical levels.
(17)
Affiliate Investments generally are defined by the Investment Company Act as investments in companies in which the Company owns between 5% and 25% of the voting securities.
(18)
Non-Control/Non-Affiliate Investments are investments that are neither Control Investments nor Affiliate Investments.
(19)
Investment has undrawn commitments. Unamortized fees are classified as unearned income which reduces cost basis, which may result in a negative cost basis. A negative fair value may result from the unfunded commitment being valued below par.
(20)
As of December 31, 2018, these investments are categorized as Level 2 within the fair value hierarchy established by ASC 820. All other investments subject to leveling are categorized as Level 3 as of December 31, 2018 and were valued using significant unobservable inputs.
(21)
This investment was on cash non-accrual status as of December 31, 2018. Cash non-accrual status is inclusive of PIK and other non-cash income, where applicable.
(22)
Payments on the Company's investment in Maverick Healthcare Group, LLC ("Maverick Healthcare") are currently past due. In May 2017, the Company entered into a forbearance agreement with Maverick Healthcare in which the Company has temporarily agreed not to take action against Maverick Healthcare. The forbearance agreement, as amended in June 2018, currently extends to March 15, 2019.
(23)
This investment was on PIK non-accrual status as of December 31, 2018. PIK non-accrual status is inclusive of other non-cash income, where applicable.
(24)
The sale of a portion of this loan does not qualify for true sale accounting under ASC Topic 860 - Transfers and Servicing ("ASC 860"), and therefore, the entire debt investment remains in the Consolidated Schedule of Investments. Accordingly, the fair value of the Company's debt investments as of December 31, 2018 includes $9.3 million related to the Company's secured borrowings. (See Note 14 in the accompanying notes to the Consolidated Financial Statements.)


See notes to Consolidated Financial Statements.

15
Oaktree Specialty Lending Corporation
Consolidated Schedule of Investments
September 30, 2018
(dollar amounts in thousands)


Portfolio Company/Type of Investment (1)(2)(5)(9)(14)
 
 Cash Interest Rate (13)
 
Industry
 
Principal (8)

 
Cost
 
Fair Value
Control Investments (3)(15)
 
 
 
 
 
 
 
 
 
 
 First Star Speir Aviation Limited (16)
 
 
 
Airlines
 
 
 
 
 
 
 First Lien Term Loan, 9% cash due 12/15/2020 (11)
 
 
 
 
 
$
32,510

 
$
24,102

 
$
32,510

 100% equity interest (6)(11)
 
 
 
 
 
 
 
8,500

 
—

 
 
 
 
 
 
 
 
32,602

 
32,510

 Keypath Education, Inc. (25)
 
 
 
Advertising
 
 
 
 
 
 
 First Lien Term Loan, LIBOR+7% (1% floor) cash due 4/3/2022 (13)
 
9.39
%
 
 
 
18,146

 
18,146

 
18,146

 First Lien Revolver, LIBOR+7.75% (1% floor) cash due 4/3/2022 (13)
 
 
 
 
 
 
 
—

 
—

 9,073 Class A Units in FS AVI Holdco, LLC
 
 
 
 
 
 
 
10,648

 
7,984

 
 
 
 
 
 
 
 
28,794

 
26,130

 New IPT, Inc.
 
 
 
 Oil & gas equipment services
 
 
 
 
 
 
 First Lien Term Loan, LIBOR+5% (1% floor) cash due 3/17/2021 (13)
 
7.39
%
 
 
 
4,107

 
4,107

 
4,107

 Second Lien Term Loan, LIBOR+5.1% (1% floor) cash due 9/17/2021 (13)
 
7.49
%
 
 
 
1,453

 
1,453

 
1,453

 First Lien Revolver, LIBOR+5% (1% floor) cash due 3/17/2021 (13)
 
7.39
%
 
 
 
1,009

 
1,009

 
1,009

 50.087 Class A Common Units in New IPT Holdings, LLC
 
 
 
 
 
 
 
—

 
2,291

 
 
 
 
 
 
 
 
6,569

 
8,860

 Senior Loan Fund JV I, LLC (17)(18)
 
 
 
Multi-sector holdings
 
 
 
 
 
 
 Class A Mezzanine Secured Deferrable Floating Rate Notes due 2036 in SLF Repack Issuer 2016 LLC (11)(13)
 
8.33
%
 
 
 
99,813

 
99,813

 
99,813

 Class B Mezzanine Secured Deferrable Fixed Rate Notes, 10% cash due 2036 in SLF Repack Issuer 2016 LLC (11)
 
 
 
 
 
29,520

 
29,520

 
29,520

 87.5% LLC equity interest (6)(11)(24)
 
 
 
 
 
 
 
16,172

 
41

 
 
 
 
 
 
 
 
145,505

 
129,374

 Total Control Investments (22.9% of net assets)
 
 
 
 
 
 
 
$
213,470

 
$
196,874

 
 
 
 
 
 
 
 
 
 
 
 Affiliate Investments (4)
 
 
 
 
 
 
 
 
 
 
 Caregiver Services, Inc.
 
 
 
Healthcare services
 
 
 
 
 
 
 1,080,399 shares of Series A Preferred Stock, 10%
 
 
 
 
 
 
 
$
1,080

 
$
2,161

 
 
 
 
 
 
 
 
1,080

 
2,161

 Total Affiliate Investments (0.3% of net assets)
 
 
 
 
 
 
 
$
1,080

 
$
2,161

 
 
 
 
 
 
 
 
 
 
 
 Non-Control/Non-Affiliate Investments (7)
 
 
 
 
 
 
 
 
 
 
 4 Over International, LLC
 
 
 
 Commercial printing
 
 
 
 
 
 
 First Lien Term Loan, LIBOR+6% (1% floor) cash due 6/7/2022 (13)
 
8.24
%
 
 
 
$
5,922

 
$
5,873

 
$
5,922

 First Lien Revolver, LIBOR+6% (1% floor) cash due 6/7/2021 (10)(13)
 
 
 
 
 
 
 
(17
)
 
—

 
 
 
 
 
 
 
 
5,856

 
5,922

 99 Cents Only Stores LLC
 
 
 
 General merchandise stores
 
 
 
 
 
 
 First Lien Term Loan LIBOR+5% cash 1.5% PIK due 1/13/2022 (13)(21)
 
7.35
%
 
 
 
23,832

 
22,958

 
23,058

 
 
 
 
 
 
 
 
22,958

 
23,058

 Access CIG LLC
 
 
 
Diversified support services
 
 
 
 
 
 
 Second Lien Term Loan, LIBOR+7.75% cash due 2/27/2026 (13)(21)
 
9.99
%
 
 
 
14,235

 
14,118

 
14,316

 Second Lien Delayed Draw Term Loan, LIBOR+7.75% cash due 2/27/2026 (13)(21)
 
 
 
 
 
 
 
—

 
4

 
 
 
 
 
 
 
 
14,118

 
14,320

 Aden & Anais Merger Sub, Inc.
 
 
 
Apparel, accessories & luxury goods
 
 
 
 
 
 
 51,645 Common Units in Aden & Anais Holdings, Inc.
 
 
 
 
 
 
 
5,165

 
—

 
 
 
 
 
 
 
 
5,165

 
—

 Advanced Pain Management
 
 
 
Healthcare services
 
 
 
 
 
 
 First Lien Term Loan, LIBOR+8.5% (1.25% floor) cash due 11/30/2018 (13)(22)
 
 
 
 
 
25,267

 
22,596

 
—

 
 
 
 
 
 
 
 
22,596

 
—




See notes to Consolidated Financial Statements.


16
Oaktree Specialty Lending Corporation
Consolidated Schedule of Investments
September 30, 2018
(dollar amounts in thousands)


Portfolio Company/Type of Investment (1)(2)(5)(9)(14)
 
 Cash Interest Rate (13)
 
Industry
 
Principal (8)

 
Cost
 
Fair Value

 AdVenture Interactive, Corp. (25)
 
 
 
Advertising
 
 
 
 
 
 
 9,073 shares of common stock
 
 
 
 
 
 
 
$
13,611

 
$
6,557

 
 
 
 
 
 
 
 
13,611

 
6,557

AI Ladder (Luxembourg) Subco S.a.r.l
 
 
 
 Electrical components & equipment
 
 
 
 
 
 
 First Lien Term Loan B, LIBOR+4.5% cash due 7/9/2025 (11)(13)(21)
 
7.02
%
 
 
 
$
40,000

 
38,831

 
40,238

 
 
 
 
 
 
 
 
38,831

 
40,238

 AI Sirona (Luxembourg) Acquisition S.a.r.l
 
 
 
 Pharmaceuticals
 
 
 
 
 
 
 Second Lien Term Loan, EURIBOR+7.25% (0% Floor) cash due 7/10/2026 (11)(13)(21)
 
7.25
%
 
 
 
€
17,500

 
20,035

 
20,225

 
 
 
 
 
 
 
 
20,035

 
20,225

 AirStrip Technologies, Inc.
 
 
 
 Application software
 
 
 
 
 
 
 22,858.71 Series C-1 Preferred Stock Warrants (exercise price $34.99757) expiration date 5/11/2025
 
 
 
 
 
 
 
90

 
—

 
 
 
 
 
 
 
 
90

 
—

 Airxcel, Inc.
 
 
 
 Household appliances
 
 
 
 
 
 
 First Lien Term Loan, LIBOR+4.5% cash due 4/28/2025 (13)(21)
 
6.74
%
 
 
 
$
7,980

 
7,905

 
7,943

 
 
 
 
 
 
 
 
7,905

 
7,943

 Algeco Scotsman Global Finance Plc
 
 
 
 Construction & engineering
 
 
 
 
 
 
 Fixed Rate Bond 10% cash due 8/15/2023 (11)(21)
 
 
 
 
 
15,000

 
14,539

 
15,450

 Fixed Rate Bond 8% cash due 2/15/2023 (11)(21)
 
 
 
 
 
16,000

 
15,898

 
16,480

 
 
 
 
 
 
 
 
30,437

 
31,930

 Allen Media, LLC
 
 
 
 Movies & entertainment
 
 
 
 
 
 
 First Lien Term Loan B, LIBOR+6.5% (1% floor) cash due 8/30/2023 (13)
 
8.81
%
 
 
 
20,000

 
19,503

 
19,475

 
 
 
 
 
 
 
 
19,503

 
19,475

 Allied Universal Holdco LLC
 
 
 
 Security & alarm services
 
 
 
 
 
 
 First Lien Term Loan, LIBOR+3.75% (1% floor) cash due 7/28/2022 (13)(21)
 
6.14
%
 
 
 
9,853

 
9,904

 
9,724

 Second Lien Term Loan, LIBOR+8.5% (1% floor) cash due 7/28/2023 (13)(21)
 
10.79
%
 
 
 
1,149

 
1,167

 
1,142

 
 
 
 
 
 
 
 
11,071

 
10,866

 Altice France S.A.
 
 
 
 Integrated telecommunication services
 
 
 
 
 
 
 Fixed Rate Bond 8.125% cash due 1/15/2024 (11)(21)
 
 
 
 
 
3,000

 
3,054

 
3,056

 Fixed Rate Bond 7.625% cash due 2/15/2025 (11)(21)
 
 
 
 
 
2,000

 
2,014

 
1,808

 
 
 
 
 
 
 
 
5,068

 
4,864

 Ancile Solutions, Inc.
 
 
 
 Application software
 
 
 
 
 
 
 First Lien Term Loan, LIBOR+7% (1% floor) cash due 6/30/2021 (13)
 
9.39
%
 
 
 
9,585

 
9,433

 
9,528

 
 
 
 
 
 
 
 
9,433

 
9,528

 Aretec Group, Inc.
 
 
 
 Investment banking & brokerage
 
 
 
 
 
 
 Second Lien Exit Term Loan, PRIME+2% cash due 5/23/2021 (13)(21)
 
7.25
%
 
 
 
12,679

 
12,539

 
12,759

 
 
 
 
 
 
 
 
12,539

 
12,759

 Asset International, Inc.
 
 
 
 Research & consulting services
 
 
 
 
 
 
 Second Lien Term Loan, LIBOR+9.25% (1% floor) cash due 6/29/2025 (13)
 
11.64
%
 
 
 
15,000

 
14,691

 
14,836

 
 
 
 
 
 
 
 
14,691

 
14,836

 Asurion, LLC
 
 
 
 Property & casualty insurance
 
 
 
 
 
 
 First Lien Term Loan B2, LIBOR+6.5% (1% floor) cash due 8/4/2025 (13)(21)
 
8.74
%
 
 
 
22,000

 
21,946

 
22,653

 
 
 
 
 
 
 
 
21,946

 
22,653


See notes to Consolidated Financial Statements.


17
Oaktree Specialty Lending Corporation
Consolidated Schedule of Investments
September 30, 2018
(dollar amounts in thousands)


Portfolio Company/Type of Investment (1)(2)(5)(9)(14)
 
 Cash Interest Rate (13)
 
Industry
 
Principal (8)

 
Cost
 
Fair Value

 Avantor Inc.
 
 
 
 Commodity chemicals
 
 
 
 
 
 
 Fixed Rate Bond 9% cash due 10/1/2025 (21)
 
 
 
 
 
$
3,000

 
$
2,972

 
$
3,100

 
 
 
 
 
 
 
 
2,972

 
3,100

 Belk Inc.
 
 
 
 Department stores
 
 
 
 
 
 
 First Lien Term Loan B, LIBOR+4.75% (1% Floor) cash due 12/12/2022 (13)(21)
 
6.88
%
 
 
 
662

 
573

 
581

 
 
 
 
 
 
 
 
573

 
581

 BeyondTrust Holdings LLC
 
 
 
Application software
 
 
 
 
 
 
 3.01% Class A membership interests
 
 
 
 
 
 
 
4,500

 
15,831

 
 
 
 
 
 
 
 
4,500

 
15,831

 Blackhawk Network Holdings, Inc.
 
 
 
Data processing & outsourced services
 
 
 
 
 
 
 Second Lien Term Loan, LIBOR+7% (1% Floor) cash due 6/15/2026 (13)(21)
 
9.38
%
 
 
 
26,250

 
25,978

 
26,545

 
 
 
 
 
 
 
 
25,978

 
26,545

 Blueline Rental Finance Corp
 
 
 
 Industrial machinery
 
 
 
 
 
 
 Fixed Rate Bond 9.25% cash due 3/15/2024 (21)
 
 
 
 
 
5,000

 
5,342

 
5,259

 
 
 
 
 
 
 
 
5,342

 
5,259

 California Pizza Kitchen, Inc.
 
 
 
Restaurants
 
 
 
 
 
 
 First Lien Term Loan, LIBOR+6% (1% floor) cash due 8/23/2022 (13)(21)
 
8.39
%
 
 
 
3,154

 
3,129

 
3,076

 
 
 
 
 
 
 
 
3,129

 
3,076

 Cenegenics, LLC
 
 
 
Healthcare services
 
 
 
 
 
 
 First Lien Term Loan, 9.75% cash 2% PIK due 9/30/2019 (22)
 
 
 
 
 
29,134

 
27,738

 
8,464

 First Lien Revolver, 15% cash due 9/30/2019 (22)
 
 
 
 
 
2,203

 
2,203

 
429

 452,914.87 Common Units in Cenegenics, LLC
 
 
 
 
 
 
 
598

 
—

 345,380.141 Preferred Units in Cenegenics, LLC
 
 
 
 
 
 
 
300

 
—

 
 
 
 
 
 
 
 
30,839

 
8,893

 CITGO Holdings Inc.
 
 
 
 Oil & gas refining & marketing
 
 
 
 
 
 
 Fixed Rate Bond 10.75% cash due 2/15/2020 (21)
 
 
 
 
 
21,300

 
22,494

 
22,685

 
 
 
 
 
 
 
 
22,494

 
22,685

 Comprehensive Pharmacy Services LLC
 
 
 
Pharmaceuticals
 
 
 
 
 
 
 20,000 Common Shares in MCP CPS Group Holdings, Inc.
 
 
 
 
 
 
 
2,000

 
2,848

 
 
 
 
 
 
 
 
2,000

 
2,848

 Conviva Inc.
 
 
 
Application software
 
 
 
 
 
 
 417,851 Series D Preferred Stock Warrants (exercise price $1.1966) expiration date 2/28/2021
 
 
 
 
 
 
 
105

 
442

 
 
 
 
 
 
 
 
105

 
442

 Covia Holdings Corporation
 
 
 
 Oil & gas equipment & services
 
 
 
 
 
 
 First Lien Term Loan, LIBOR+3.75% (1% Floor) cash due 6/1/2025 (11)(13)(21)
 
6.14
%
 
 
 
7,980

 
7,980

 
7,568

 
 
 
 
 
 
 
 
7,980

 
7,568

 DAE Aviation Holdings
 
 
 
Aerospace & defense
 
 
 
 
 
 
 Fixed Rate Bond 10% cash due 7/15/2023 (21)
 
 
 
 
 
1,500

 
1,616

 
1,622

 
 
 
 
 
 
 
 
1,616

 
1,622

 Datto Inc.
 
 
 
 Technology distributors
 
 
 
 
 
 
 First Lien Term Loan, LIBOR+8% (1% floor) cash due 12/7/2022 (13)
 
10.15
%
 
 
 
35,000

 
34,414

 
34,622

 First Lien Revolver, LIBOR+8% (1% floor) cash due 12/7/2022 (10)(13)
 
10.15
%
 
 
 
 
 
(39
)
 
(25
)
 
 
 
 
 
 
 
 
34,375

 
34,597



See notes to Consolidated Financial Statements.



18
Oaktree Specialty Lending Corporation
Consolidated Schedule of Investments
September 30, 2018
(dollar amounts in thousands)


Portfolio Company/Type of Investment (1)(2)(5)(9)(14)
 
 Cash Interest Rate (13)
 
Industry
 
Principal (8)

 
Cost
 
Fair Value

 Dodge Data & Analytics LLC
 
 
 
Data processing & outsourced services
 
 
 
 
 
 
 500,000 Class A Common Units in Skyline Data, News and Analytics LLC
 
 
 
 
 
 
 
$
500

 
$
258

 
 
 
 
 
 
 
 
500

 
258

 Dominion Diagnostics, LLC
 
 
 
Healthcare services
 
 
 
 
 
 
 Subordinated Term Loan, 11% cash 1% PIK due 10/18/2019 (22)
 
 
 
 
 
$
20,052

 
15,589

 
1,043

 First Lien Term Loan, LIBOR+5% (1% floor) cash due 4/8/2019 (13)
 
7.34
%
 
 
 
46,435

 
34,964

 
40,538

 First Lien Revolver, LIBOR+5% (1% floor) cash due 4/8/2019 (10)(13)
 
 
 
 
 
 
 
—

 
(531
)
 
 
 
 
 
 
 
 
50,553

 
41,050

 Eagleview Technology Corporation
 
 
 
 Application software
 
 
 
 
 
 
 Second Lien Term Loan, LIBOR+7.5% (1% Floor) cash due 8/14/2026 (13)
 
9.63
%
 
 
 
12,000

 
11,880

 
12,240

 
 
 
 
 
 
 
 
11,880

 
12,240

 EHR Canada, LLC
 
 
 
 Food retail
 
 
 
 
 
 
 First Lien Term Loan, LIBOR+8% (1% Floor) cash due 9/28/2020 (13)
 
10.30
%
 
 
 
22,500

 
22,052

 
22,050

 
 
 
 
 
 
 
 
22,052

 
22,050

 EOS Fitness Opco Holdings, LLC
 
 
 
Leisure facilities
 
 
 
 
 
 
 First Lien Term Loan, LIBOR+8.25% (0.75% floor) cash due 12/30/2019 (13)
 
10.36
%
 
 
 
3,502

 
3,502

 
3,502

 First Lien Revolver, LIBOR+8.25% (0.75% floor) cash due 12/30/2019 (13)
 
 
 
 
 
 
 
—

 
—

 487.5 Class A Preferred Units, 12%
 
 
 
 
 
 
 
488

 
760

 12,500 Class B Common Units
 
 
 
 
 
 
 
13

 
872

 
 
 
 
 
 
 
 
4,003

 
5,134

 Eton
 
 
 
 Research & consulting services
 
 
 
 
 
 
 Second Lien Term Loan, LIBOR+7.5% (0% floor) cash due 5/1/2026 (13)(21)
 
9.74
%
 
 
 
20,000

 
19,904

 
20,100

 
 
 
 
 
 
 
 
19,904

 
20,100

 ExamSoft Worldwide, Inc.
 
 
 
 Application software
 
 
 
 
 
 
 180,707 Class C Units in ExamSoft Investor LLC
 
 
 
 
 
 
 
181

 
—

 
 
 
 
 
 
 
 
181

 
—

 Garretson Firm Resolution Group, Inc.
 
 
 
Diversified support services
 
 
 
 
 
 
 First Lien Revolver, PRIME+5.5% cash due 5/22/2020 (13)(22)
 
 
 
 
 
711

 
711

 
142

 4,950,000 Preferred Units in GRG Holdings, LP, 8%
 
 
 
 
 
 
 
495

 
—

 50,000 Common Units in GRG Holdings, LP
 
 
 
 
 
 
 
5

 
—

 
 
 
 
 
 
 
 
1,211

 
142

 Gentiva Health Services, Inc.
 
 
 
 Healthcare services
 
 
 
 
 
 
 Second Lien Term Loan, LIBOR+7% cash due 7/2/2026 (13)(21)
 
9.34
%
 
 
 
14,500

 
14,401

 
14,935

 
 
 
 
 
 
 
 
14,401

 
14,935

 GI Chill Acquisition LLC
 
 
 
 Managed healthcare
 
 
 
 
 
 
 First Lien Term Loan, LIBOR+4% cash due 8/6/2025 (13)
 
6.39
%
 
 
 
18,000

 
17,910

 
18,113

 Second Lien Term Loan, LIBOR+7.5% cash due 8/6/2026 (13)
 
9.68
%
 
 
 
10,000

 
9,902

 
9,900

 
 
 
 
 
 
 
 
27,812

 
28,013

 GKD Index Partners, LLC
 
 
 
 Specialized finance
 
 
 
 
 
 
 First Lien Term Loan, LIBOR+7.25% (1% Floor) cash due 6/29/2023 (13)
 
9.64
%
 
 
 
24,379

 
24,147

 
24,135

 First Lien Revolver, LIBOR+7.25% (1% Floor) cash due 6/29/2023 (13)
 
9.60
%
 
 
 
867

 
856

 
855

 
 
 
 
 
 
 
 
25,003

 
24,990

 GOBP Holdings Inc.
 
 
 
 Hypermarkets & super centers
 
 
 
 
 
 
 Second Lien Term Loan, LIBOR+8.25% (1% floor) cash due 10/21/2022 (13)(21)
 
10.49
%
 
 
 
2,071

 
2,057

 
2,082

 
 
 
 
 
 
 
 
2,057

 
2,082


See notes to Consolidated Financial Statements.







19
Oaktree Specialty Lending Corporation
Consolidated Schedule of Investments
September 30, 2018
(dollar amounts in thousands)



Portfolio Company/Type of Investment (1)(2)(5)(9)(14)
 
 Cash Interest Rate (13)
 
Industry
 
Principal (8)

 
Cost
 
Fair Value

 Golden State Medical Supply, Inc.
 
 
 
Pharmaceuticals
 
 
 
 
 
 
 Mezzanine Term Loan, 10% cash 2.5% PIK due 4/24/2021
 
 
 
 
 
$
15,000

 
$
15,000

 
$
15,001

 
 
 
 
 
 
 
 
15,000

 
15,001

 HC2 Holdings Inc.
 
 
 
 Multi-sector holdings
 
 
 
 
 
 
 Fixed Rate Bond 11% cash due 12/1/2019 (11)(21)
 
 
 
 
 
10,500

 
10,555

 
10,605

 
 
 
 
 
 
 
 
10,555

 
10,605

 HealthEdge Software, Inc.
 
 
 
Application software
 
 
 
 
 
 
 482,453 Series A-3 Preferred Stock Warrants (exercise price $1.450918) expiration date 9/30/2023
 
 
 
 
 
 
 
213

 
773

 
 
 
 
 
 
 
 
213

 
773

 I Drive Safely, LLC
 
 
 
Education services
 
 
 
 
 
 
125,079 Class A Common Units of IDS Investments, LLC
 
 
 
 
 
 
 
1,000

 
—

 
 
 
 
 
 
 
 
1,000

 
—

 IBG Borrower LLC
 
 
 
 Apparel, accessories & luxury goods
 
 
 
 
 
 
 First Lien Term Loan, LIBOR+7% (1% floor) cash due 8/2/2022 (13)
 
9.44
%
 
 
 
14,809

 
13,143

 
13,624

 
 
 
 
 
 
 
 
13,143

 
13,624

 iCIMs, Inc.
 
 
 
Application software
 
 
 
 
 
 
 First Lien Term Loan, LIBOR+6.5% (1% Floor) cash due 9/12/2024 (13)
 
8.64
%
 
 
 
14,118

 
13,838

 
13,835

 First Lien Revolver, LIBOR+6.5% (1% Floor) cash due 9/12/2024 (10)(13)
 
 
 
 
 
 
 
(17
)
 
(18
)
 
 
 
 
 
 
 
 
13,821

 
13,817

 InMotion Entertainment Group, LLC
 
 
 
Consumer electronics
 
 
 
 
 
 
 First Lien Term Loan A, LIBOR+7.25% (1.25% floor) cash due 10/1/2021 (13)
 
9.65
%
 
 
 
11,568

 
11,529

 
11,568

 First Lien Term Loan B, LIBOR+7.25% (1.25% floor) cash due 10/1/2021 (13)
 
9.65
%
 
 
 
5,043

 
4,955

 
5,043

 Letter of Credit 6.25% cash due 10/1/2021
 
 
 
 
 
3,904

 
3,897

 
3,904

 First Lien Revolver, LIBOR+6.75% (1.25% floor) cash due 10/1/2021 (13)
 
 
 
 
 
 
 
—

 
—

 CapEx Line, LIBOR+7.75% (1.25% floor) cash due 10/1/2021 (13)
 
10.15
%
 
 
 
755

 
747

 
755

 1,000,000 Class A Units in InMotion Entertainment Holdings, LLC
 
 
 
 
 
 
 
1,000

 
2,167

 
 
 
 
 
 
 
 
22,128

 
23,437

 Integral Development Corporation
 
 
 
Other diversified financial services
 
 
 
 
 
 
1,078,284 Common Stock Warrants (exercise price $0.9274) expiration date 7/10/2024
 
 
 
 
 
 
 
113

 
—

 
 
 
 
 
 
 
 
113

 
—

 Internet Pipeline, Inc.
 
 
 
 Internet services & infrastructure
 
 
 
 
 
 
 Incremental First Lien Term Loan, LIBOR+4.75% (1% floor) cash due 8/4/2022 (13)
 
7.00
%
 
 
 
5,510

 
5,454

 
5,509

 
 
 
 
 
 
 
 
5,454

 
5,509

 Janrain, Inc.
 
 
 
 Application software
 
 
 
 
 
 
 218,008 Common Stock Warrants (exercise price $1.3761) expiration date 12/5/2024
 
 
 
 
 
 
 
45

 
—

 
 
 
 
 
 
 
 
45

 
—

 Jones Energy, Inc.
 
 
 
 Oil & gas exploration & production
 
 
 
 
 
 
 Fixed Rate Bond 9.25% cash due 3/15/2023 (21)
 
 
 
 
 
12,000

 
11,808

 
12,390

 
 
 
 
 
 
 
 
11,808

 
12,390

 Kason Corporation
 
 
 
Industrial machinery
 
 
 
 
 
 
 Mezzanine Term Loan, 11.5% cash 1.75% PIK due 10/28/2019
 
 
 
 
 
6,113

 
6,113

 
5,606

 498.6 Class A Preferred Units in Kason Investment, LLC, 8%
 
 
 
 
 
 
 
499

 
249

 5,540 Class A Common Units in Kason Investment, LLC
 
 
 
 
 
 
 
55

 
—

 
 
 
 
 
 
 
 
6,667

 
5,855


See notes to Consolidated Financial Statements.

20
Oaktree Specialty Lending Corporation
Consolidated Schedule of Investments
September 30, 2018
(dollar amounts in thousands)


Portfolio Company/Type of Investment (1)(2)(5)(9)(14)
 
 Cash Interest Rate (13)
 
Industry
 
Principal (8)

 
Cost
 
Fair Value

 Kellermeyer Bergensons Services, LLC
 
 
 
 Environmental & facilities services
 
 
 
 
 
 
 Second Lien Term Loan, LIBOR+8.5% (1% floor) cash due 4/29/2022 (13)
 
10.84
%
 
 
 
$
6,105

 
$
5,923

 
$
6,189

 
 
 
 
 
 
 
 
5,923

 
6,189

 L Squared Capital Partners LLC
 
 
 
Multi-sector holdings
 
 
 
 
 
 
 2% limited partnership interest (11)(24)
 
 
 
 
 
 
 
1,824

 
3,058

 
 
 
 
 
 
 
 
1,824

 
3,058

 Lanai Holdings III, Inc.
 
 
 
Healthcare distributors
 
 
 
 
 
 
 First Lien Term Loan B, LIBOR+4.75% (1% floor) cash due 8/29/2022 (13)(21)
 
7.09
%
 
 
 
20,099

 
19,683

 
19,395

 
 
 
 
 
 
 
 
19,683

 
19,395

 Lannett Company, Inc.
 
 
 
 Pharmaceuticals
 
 
 
 
 
 
 First Lien Term Loan A, LIBOR+4.75% (1% Floor) cash due 11/25/2020 (11)(13)(21)
 
6.99
%
 
 
 
1,883

 
1,885

 
1,792

 
 
 
 
 
 
 
 
1,885

 
1,792

 Lift Brands Holdings, Inc.
 
 
 
Leisure facilities
 
 
 
 
 
 
 2,000,000 Class A Common Units in Snap Investments, LLC
 
 
 
 
 
 
 
1,398

 
3,020

 
 
 
 
 
 
 
 
1,398

 
3,020

 Long's Drugs Incorporated
 
 
 
Pharmaceuticals
 
 
 
 
 
 
 50 Series A Preferred Shares in Long's Drugs Incorporated
 
 
 
 
 
 
 
385

 
761

 25 Series B Preferred Shares in Long's Drugs Incorporated
 
 
 
 
 
 
 
210

 
491

 
 
 
 
 
 
 
 
595

 
1,252

 LTI Holdings, Inc.
 
 
 
 Auto parts & equipment
 
 
 
 
 
 
 Second Lien Term Loan, LIBOR+6.75% cash due 9/6/2026 (13)(21)
 
8.99
%
 
 
 
9,000

 
9,000

 
9,024

 
 
 
 
 
 
 
 
9,000

 
9,024

 Lytx Holdings, LLC
 
 
 
Research & consulting services
 
 
 
 
 
 
3,500 Class B Units
 
 
 
 
 
 
 
—

 
1,423

 
 
 
 
 
 
 
 
—

 
1,423

 Maravai Intermediate Holdings, LLC
 
 
 
 Biotechnology
 
 
 
 
 
 
 First Lien Term Loan, LIBOR+4.25% cash due 8/2/2025 (13)
 
6.38
%
 
 
 
12,000

 
11,880

 
11,963

 
 
 
 
 
 
 
 
11,880

 
11,963

 Maverick Healthcare Group, LLC (20)
 
 
 
Healthcare equipment
 
 
 
 
 
 
 First Lien Term Loan A, LIBOR+7.5% cash (1.75% floor) cash due 3/15/2019 (13)(22)
 
 
 
 
 
11,068

 
8,181

 
9,102

 First Lien Term Loan B, LIBOR+11% cash (1.75% floor) cash due 3/15/2019 (13)(22)
 
 
 
 
 
50,740

 
39,110

 
—

 CapEx Line, LIBOR+7.75% (1.75% floor) cash due 3/15/2019 (13)(22)
 
 
 
 
 
863

 
611

 
710

 
 
 
 
 
 
 
 
47,902

 
9,812

 Mayfield Agency Borrower Inc.
 
 
 
 Property & casualty insurance
 
 
 
 
 
 
 First Lien Term Loan, LIBOR+4.5% (1% floor) cash due 2/28/2025 (13)(21)
 
6.74
%
 
 
 
7,481

 
7,447

 
7,537

 Second Lien Term Loan, LIBOR+8.5% (1% floor) cash due 3/2/2026 (13)
 
10.74
%
 
 
 
37,500

 
36,977

 
37,219

 
 
 
 
 
 
 
 
44,424

 
44,756

 McAfee, LLC
 
 
 
 Systems software
 
 
 
 
 
 
 First Lien Term Loan B, LIBOR+4.5% (1% floor) cash due 9/30/2024 (13)(21)
 
6.74
%
 
 
 
7,920

 
7,853

 
7,995

 Second Lien Term Loan LIBOR+8.5% (1% floor) cash due 9/29/2025 (13)(21)
 
10.74
%
 
 
 
8,000

 
8,045

 
8,180

 
 
 
 
 
 
 
 
15,898

 
16,175


See notes to Consolidated Financial Statements.



21
Oaktree Specialty Lending Corporation
Consolidated Schedule of Investments
September 30, 2018
(dollar amounts in thousands)


Portfolio Company/Type of Investment (1)(2)(5)(9)(14)
 
 Cash Interest Rate (13)
 
Industry
 
Principal (8)
 
Cost
 
Fair Value
 McDermott Technology (Americas), Inc.
 
 
 
 Oil & gas equipment services
 
 
 
 
 
 
 First Lien Term Loan B, LIBOR+5% (1% floor) cash due 5/12/2025 (11)(13)(21)
 
7.24
%
 
 
 
$
31,144

 
$
30,725

 
$
31,604

 
 
 
 
 
 
 
 
30,725

 
31,604

 MHE Intermediate Holdings, LLC
 
 
 
 Diversified support services
 
 
 
 
 
 
 First Lien Term Loan, LIBOR+5% (1% floor) cash due 3/8/2024 (13)
 
7.39
%
 
 
 
2,963

 
2,938

 
2,935

 
 
 
 
 
 
 
 
2,938

 
2,935

 Ministry Brands, LLC
 
 
 
 Application software
 
 
 
 
 
 
 Second Lien Term Loan, LIBOR+9.25% (1% floor) cash due 6/2/2023 (13)
 
11.75
%
 
 
 
7,056

 
6,980

 
7,090

 Second Lien Delayed Draw Term Loan, LIBOR+9.25% (1% floor) cash due 6/2/2023 (13)
 
11.75
%
 
 
 
1,944

 
1,923

 
1,953

 First Lien Revolver PRIME+4% (1% floor) cash due 12/2/2022 (13)
 
9.25
%
 
 
 
300

 
291

 
300

 
 
 
 
 
 
 
 
9,194

 
9,343

 Morphe LLC
 
 
 
 Personal products
 
 
 
 
 
 
 First Lien Term Loan, LIBOR+6% (1% floor) cash due 2/10/2023 (13)
 
8.40
%
 
 
 
19,500

 
19,327

 
19,500

 
 
 
 
 
 
 
 
19,327

 
19,500

 Natural Resource Partners LP
 
 
 
 Coal & consumable fuels
 
 
 
 
 
 
 Fixed Rate Bond 10.5% cash due 3/15/2022 (11)(21)
 
 
 
 
 
7,000

 
7,329

 
7,525

 
 
 
 
 
 
 
 
7,329

 
7,525

 Navicure, Inc.
 
 
 
 Healthcare technology
 
 
 
 
 
 
 Second Lien Term Loan, LIBOR+7.5% (1% floor) cash due 10/31/2025 (13)
 
9.74
%
 
 
 
14,500

 
14,371

 
14,500

 
 
 
 
 
 
 
 
14,371

 
14,500

 Numericable SFR SA
 
 
 
 Integrated telecommunication services
 
 
 
 
 
 
 Fixed Rate Bond 7.375% cash due 5/1/2026 (11)(21)
 
 
 
 
 
5,000

 
5,116

 
5,024

 
 
 
 
 
 
 
 
5,116

 
5,024

 OmniSYS Acquisition Corporation
 
 
 
Diversified support services
 
 
 
 
 
 
 100,000 Common Units in OSYS Holdings, LLC
 
 
 
 
 
 
 
1,000

 
898

 
 
 
 
 
 
 
 
1,000

 
898

 Onvoy, LLC
 
 
 
 Integrated telecommunication services
 
 
 
 
 
 
 Second Lien Term Loan, LIBOR+10.5% (1% floor) cash due 2/10/2025 (13)
 
12.89
%
 
 
 
16,750

 
16,750

 
13,479

 19,666.67 Class A Units in GTCR Onvoy Holdings, LLC
 
 
 
 
 
 
 
1,967

 
166

 13,664.73 Series 3 Class B Units in GTCR Onvoy Holdings, LLC
 
 
 
 
 
 
 
—

 
—

 
 
 
 
 
 
 
 
18,717

 
13,645

 P2 Upstream Acquisition Co.
 
 
 
 Application software
 
 
 
 
 
 
 First Lien Revolver, LIBOR+4% (1% floor) cash due 11/1/2018 (10)(13)(21)
 
 
 
 
 
 
 
—

 
(94
)
 
 
 
 
 
 
 
 
—

 
(94
)
 Pingora MSR Opportunity Fund I-A, LP
 
 
 
Thrift & mortgage finance
 
 
 
 
 
 
 1.86% limited partnership interest (11)(24)
 
 
 
 
 
 
 
5,343

 
4,759

 
 
 
 
 
 
 
 
5,343

 
4,759

 PLATO Learning Inc. (27)
 
 
 
 Education services
 
 
 
 
 
 
 Unsecured Senior PIK Note, 8.5% PIK due 12/9/2021 (23)
 
 
 
 
 
2,649

 
2,434

 
—

 Unsecured Junior PIK Note, 10% PIK due 12/9/2021 (23)
 
 
 
 
 
12,490

 
10,227

 
—

 Unsecured Revolver, 5% cash due 12/9/2021 (22)
 
 
 
 
 
60

 
(40
)
 
(2,124
)
 126,127.80 Class A Common Units of Edmentum
 
 
 
 
 
 
 
126

 
—

 
 
 
 
 
 
 
 
12,747

 
(2,124
)

See notes to Consolidated Financial Statements.




22
Oaktree Specialty Lending Corporation
Consolidated Schedule of Investments
September 30, 2018
(dollar amounts in thousands)


Portfolio Company/Type of Investment (1)(2)(5)(9)(14)
 
 Cash Interest Rate (13)
 
Industry
 
Principal (8)
 
Cost
 
Fair Value
 ProFrac Services, LLC
 
 
 
 Industrial machinery
 
 
 
 
 
 
 First Lien Term Loan B, LIBOR+5.75% (1% Floor) cash due 9/15/2023 (13)
 
8.07
%
 
 
 
$
18,300

 
$
18,118

 
$
18,209

 
 
 
 
 
 
 
 
18,118

 
18,209

 QuorumLabs, Inc.
 
 
 
 Application software
 
 
 
 
 
 
 64,887,669 Junior-2 Preferred Stock
 
 
 
 
 
 
 
375

 
—

 
 
 
 
 
 
 
 
375

 
—

 Refac Optical Group (26)
 
 
 
Specialty stores
 
 
 
 
 
 
 First Lien Term Loan A, LIBOR+8% cash due 1/9/2019 (13)(22)
 
 
 
 
 
2,242

 
2,149

 
2,241

 First Lien Term Loan B, LIBOR+9% cash 1.75% PIK due 1/9/2019 (13)(22)
 
 
 
 
 
34,994

 
33,700

 
34,994

 First Lien Term Loan C, 12.5% cash due 1/9/2019 (22)
 
 
 
 
 
3,416

 
3,308

 
3,245

 First Lien Revolver, LIBOR+8% cash due 1/9/2019 (13)(22)
 
 
 
 
 
3,520

 
3,424

 
3,520

 1,550.9435 Shares of Common Stock in Refac Holdings, Inc.
 
 
 
 
 
 
 
1

 
—

 550.9435 Shares of Series A-2 Preferred Stock in Refac Holdings, Inc., 10%
 
 
 
 
 
 
 
305

 
—

 1,000 Shares of Series A Preferred Stock Units in Refac Holdings, Inc., 10%
 
 
 
 
 
 
 
999

 
—

 
 
 
 
 
 
 
 
43,886

 
44,000

 Salient CRGT, Inc.
 
 
 
Aerospace & defense
 
 
 
 
 
 
 First Lien Term Loan, LIBOR+5.75% (1% floor) cash due 2/28/2022 (13)(21)
 
7.99
%
 
 
 
3,174

 
3,129

 
3,222

 
 
 
 
 
 
 
 
3,129

 
3,222

 Scilex Pharmaceuticals Inc.
 
 
 
 Pharmaceuticals
 
 
 
 
 
 
 Fixed Rate Zero Coupon Bond due 8/15/2026
 
 
 
 
 
16,000

 
10,000

 
10,000

 
 
 
 
 
 
 
 
10,000

 
10,000

 Sequa Mezzanine Holdings, LLC
 
 
 
 Aerospace & defense
 
 
 
 
 
 
 First Lien Term Loan B, LIBOR+5% (1% Floor) cash due 11/28/2021 (13)(21)
 
7.19
%
 
 
 
8,479

 
8,411

 
8,355

 Second Lien Term Loan, LIBOR+9% (1% Floor) cash due 4/28/2022 (13)(21)
 
11.20
%
 
 
 
2,000

 
2,023

 
1,973

 
 
 
 
 
 
 
 
10,434

 
10,328

 ShareThis, Inc.
 
 
 
 Application software
 
 
 
 
 
 
 345,452 Series C Preferred Stock Warrants (exercise price $3.0395) expiration date 3/4/2024
 
 
 
 
 
 
 
367

 
4

 
 
 
 
 
 
 
 
367

 
4

 Swordfish Merger Sub LLC
 
 
 
 Auto parts & equipment
 
 
 
 
 
 
 Second Lien Term Loan, LIBOR+6.75% (1% floor) cash due 2/2/2026 (13)(21)
 
8.86
%
 
 
 
12,500

 
12,442

 
12,406

 
 
 
 
 
 
 
 
12,442

 
12,406

 TerSera Therapeutics, LLC
 
 
 
 Pharmaceuticals
 
 
 
 
 
 
 Second Lien Term Loan, LIBOR+9.25% (1% floor) cash due 3/30/2024 (13)
 
11.64
%
 
 
 
15,000

 
14,651

 
14,945

 Second Lien Incremental Term loan, LIBOR+9.25% cash due 3/30/2024 (13)
 
11.59
%
 
 
 
3,281

 
3,202

 
3,269

 Second Lien Incremental Delayed Draw Term Loan, LIBOR+9.25% cash due 12/31/2018 (10)(13)
 
11.59
%
 
 
 
 
 
—

 
(12
)
 668,879 Common Units of TerSera Holdings LLC
 
 
 
 
 
 
 
1,731

 
2,626

 
 
 
 
 
 
 
 
19,584

 
20,828



See notes to Consolidated Financial Statements.


23
Oaktree Specialty Lending Corporation
Consolidated Schedule of Investments
September 30, 2018
(dollar amounts in thousands)


Portfolio Company/Type of Investment (1)(2)(5)(9)(14)
 
 Cash Interest Rate (13)
 
Industry
 
Principal (8)
 
Cost
 
Fair Value
 Thing5, LLC
 
 
 
Data processing & outsourced services
 
 
 
 
 
 
 First Lien Term Loan, LIBOR+7.5% (1% floor) cash 2% PIK due 10/11/2020 (12)(13)(22)
 
 
 
 
 
$
46,906

 
$
46,462

 
$
34,292

 First Lien Revolver, LIBOR+7.5% (1% floor) cash due 10/11/2020 (13)(22)
 
 
 
 
 
2,702

 
2,603

 
2,702

 2,000,000 Units in T5 Investment Vehicle, LLC
 
 
 
 
 
 
 
2,000

 
—

 
 
 
 
 
 
 
 
51,065

 
36,994

 TigerText, Inc.
 
 
 
 Application software
 
 
 
 
 
 
 299,110 Series B Preferred Stock Warrants (exercise price $1.3373) expiration date 12/8/2024
 
 
 
 
 
 
 
60

 
544

 
 
 
 
 
 
 
 
60

 
544

 TravelCLICK, Inc.
 
 
 
 Data processing & outsourced services
 
 
 
 
 
 
 Second Lien Term Loan, LIBOR+7.75% (1% floor) cash due 11/6/2021 (13)
 
9.99
%
 
 
 
1,510

 
1,376

 
1,510

 
 
 
 
 
 
 
 
1,376

 
1,510

 Tribe Buyer LLC
 
 
 
 Human resource & employment services
 
 
 
 
 
 
 First Lien Term Loan, LIBOR+4.5% (1% floor) cash due 2/16/2024 (13)(21)
 
6.74
%
 
 
 
1,581

 
1,581

 
1,593

 
 
 
 
 
 
 
 
1,581

 
1,593

 Truck Hero, Inc.
 
 
 
 Auto parts & equipment
 
 
 
 
 
 
 Second Lien Term Loan, LIBOR+8.25% (1% floor) cash due 4/21/2025 (13)
 
10.46
%
 
 
 
21,500

 
21,191

 
21,715

 
 
 
 
 
 
 
 
21,191

 
21,715

 UOS, LLC
 
 
 
 Trading companies & distributors
 
 
 
 
 
 
 First Lien Term Loan B, LIBOR+5.5% (1% floor) cash due 4/18/2023 (13)(21)
 
7.74
%
 
 
 
6,847

 
6,981

 
7,009

 
 
 
 
 
 
 
 
6,981

 
7,009

 Veritas US Inc.
 
 
 
 Application software
 
 
 
 
 
 
 First Lien Term Loan B-1, LIBOR+4.5% (1% floor) cash due 1/27/2023 (13)(21)
 
6.81
%
 
 
 
34,551

 
34,902

 
33,741

 
 
 
 
 
 
 
 
34,902

 
33,741

 Verra Mobility, Corp.
 
 
 
 Data processing & outsourced services
 
 
 
 
 
 
 Second Lien Term Loan, LIBOR+7.75% cash due 2/27/2026 (13)
 
9.99
%
 
 
 
8,750

 
8,698

 
8,958

 
 
 
 
 
 
 
 
8,698

 
8,958

 Verscend Holding Corp.
 
 
 
 Healthcare technology
 
 
 
 
 
 
 First Lien Term Loan B, LIBOR+4.50% cash due 8/27/2025 (13)(21)
 
6.74
%
 
 
 
25,000

 
24,887

 
25,255

 Fixed Rate Bond 9.75% cash due 8/15/2026 (21)
 
 
 
 
 
12,000

 
12,025

 
12,405

 
 
 
 
 
 
 
 
36,912

 
37,660

 Vertex Aerospace Services Corp.
 
 
 
 Aerospace & defense
 
 
 
 
 
 
 First Lien Term Loan B, LIBOR+4.75% cash due 6/29/2025 (13)(21)
 
6.99
%
 
 
 
15,960

 
15,883

 
16,135

 
 
 
 
 
 
 
 
15,883

 
16,135

 Vine Oil & Gas LP
 
 
 
 Oil & gas exploration & production
 
 
 
 
 
 
 First Lien Term Loan B, LIBOR+6.875% (1% floor) cash due 11/25/2021 (13)(21)
 
9.12
%
 
 
 
23,000

 
22,919

 
23,173

 
 
 
 
 
 
 
 
22,919

 
23,173

 Vitalyst Holdings, Inc.
 
 
 
IT consulting & other services
 
 
 
 
 
 
 675 Series A Preferred Units of PCH Support Holdings, Inc., 10%
 
 
 
 
 
 
 
675

 
497

 7,500 Class A Common Stock Units of PCH Support Holdings, Inc.
 
 
 
 
 
 
 
75

 
—

 
 
 
 
 
 
 
 
750

 
497





See notes to Consolidated Financial Statements.



24
Oaktree Specialty Lending Corporation
Consolidated Schedule of Investments
September 30, 2018
(dollar amounts in thousands)


Portfolio Company/Type of Investment (1)(2)(5)(9)(14)
 
 Cash Interest Rate (13)
 
Industry
 
Principal (8)
 
Cost
 
Fair Value
 Weatherford International
 
 
 
 Oil & gas equipment services
 
 
 
 
 
 
 Fixed Rate Bond 9.875% cash due 2/15/2024 (11)(21)
 
 
 
 
 
$
12,000

 
$
11,479

 
$
11,790

 
 
 
 
 
 
 
 
11,479

 
11,790

 WeddingWire, Inc.
 
 
 
 Internet services & infrastructure
 
 
 
 
 
 
 Earn-out (19)
 
 
 
 
 
 
 
—

 
70

 
 
 
 
 
 
 
 
—

 
70

 Windstream Services, LLC
 
 
 
 Integrated telecommunication services
 
 
 
 
 
 
 Fixed Rate Bond 8.625% cash due 10/31/2025 (11)(21)
 
 
 
 
 
5,000

 
4,867

 
4,825

 
 
 
 
 
 
 
 
4,867

 
4,825

 WP CPP Holdings, LLC
 
 
 
 Aerospace & defense
 
 
 
 
 
 
 Second Lien Term Loan, LIBOR+7.75% (1% floor) cash due 4/30/2026 (13)(21)
 
10.15
%
 
 
 
15,000

 
14,855

 
15,033

 
 
 
 
 
 
 
 
14,855

 
15,033

 xMatters, Inc.
 
 
 
 Application software
 
 
 
 
 
 
 600,000 Common Stock Warrants (exercise price $0.593333) expiration date 2/26/2025
 
 
 
 
 
 
 
709

 
287

 
 
 
 
 
 
 
 
709

 
287

 Yeti Acquisition, LLC
 
 
 
Leisure products
 
 
 
 
 
 
 2,000,000 Common Stock Units of Yeti Holdings, Inc. (28)
 
 
 
 
 
 
 
—

 
12,073

 
 
 
 
 
 
 
 
—

 
12,073

 Zep Inc.
 
 
 
 Specialty chemicals
 
 
 
 
 
 
 Second Lien Term Loan, LIBOR+8.25% (1% floor) cash due 8/11/2025 (13)
 
10.64
%
 
 
 
30,000

 
29,870

 
28,800

 First Lien Term Loan B, LIBOR+4.00% (1% floor) cash due 8/12/2024 (13)(21)
 
6.39
%
 
 
 
1,995

 
1,903

 
1,904

 
 
 
 
 
 
 
 
31,773

 
30,704

 Zephyr Bidco Limited
 
 
 
 Specialized finance
 
 
 
 
 
 
 Second Lien Term Loan, UK LIBOR+7.50% (0% floor) cash due 7/23/2026 (11)(13)(21)
 
8.22
%
 
 
 
£
18,000

 
23,568

 
23,258

 
 
 
 
 
 
 
 
23,568

 
23,258

 Total Non-Control/Non-Affiliate Investments (150.6% of net assets)
 
 
 
 
 
 
 
$
1,392,383

 
$
1,292,166

Total Portfolio Investments (173.8% of net assets)
 
 
 
 
 
 
 
$
1,606,933

 
$
1,491,201

Cash and Cash Equivalents and Restricted Cash
 
 
 
 
 
 
 
 
 
 
JP Morgan Prime Money Market Fund, Institutional Shares
 
 
 
 
 
 
 
$
9,108

 
$
9,108

Other cash accounts
 
 
 
 
 
 
 
4,381

 
4,381

Total Cash and Cash Equivalents and Restricted Cash (1.6% of net assets)
 
 
 
 
 
 
 
$
13,489

 
$
13,489

Total Portfolio Investments, Cash and Cash Equivalents and Restricted Cash (175.4% of net assets)
 
 
 
 
 
 
 
$
1,620,422

 
$
1,504,690

Derivative Instrument
 
Notional Amount to be Purchased
 
Notional Amount to be Sold
 
Maturity Date
 
Counterparty
 
Cumulative Unrealized Appreciation /(Depreciation)
Foreign currency forward contract
 
$
23,113

 
£
17,579

 
10/26/2018
 
JPMorgan Chase Bank, N.A.
 
$
162


See notes to Consolidated Financial Statements.

(1)
All debt investments are income producing unless otherwise noted. All equity investments are non-income producing unless otherwise noted.
(2)
See Note 3 in the accompanying notes to the Consolidated Financial Statements for portfolio composition by geographic region.
(3)
Control Investments generally are defined by the Investment Company Act, as investments in companies in which the Company owns more than 25% of the voting securities or maintains greater than 50% of the board representation.
(4)
Affiliate Investments generally are defined by the Investment Company Act as investments in companies in which the Company owns between 5% and 25% of the voting securities.
(5)
Equity ownership may be held in shares or units of companies related to the portfolio companies.
(6)
Income producing through payment of dividends or distributions.

25
Oaktree Specialty Lending Corporation
Consolidated Schedule of Investments
September 30, 2018
(dollar amounts in thousands)


(7)
Non-Control/Non-Affiliate Investments are investments that are neither Control Investments nor Affiliate Investments.
(8)
Principal includes accumulated PIK interest and is net of repayments. “£” signifies the investment is denominated in British Pounds. "€" signifies the investment is denominated in Euros. All other investments are denominated in U.S. dollars.
(9)
Interest rates may be adjusted from period to period on certain term loans and revolvers. These rate adjustments may be either temporary in nature due to tier pricing arrangements or financial or payment covenant violations in the original credit agreements or permanent in nature per loan amendment or waiver documents.
(10)
Investment has undrawn commitments. Unamortized fees are classified as unearned income which reduces cost basis, which may result in a negative cost basis. A negative fair value may result from the unfunded commitment being valued below par.
(11)
Investment is not a "qualifying asset" as defined under Section 55(a) of the Investment Company Act. Under the Investment Company Act, the Company may not acquire any non-qualifying asset unless, at the time the acquisition is made, qualifying assets represent at least 70% of the Company's total assets. As of September 30, 2018, qualifying assets represented 73.4% of the Company's total assets and non-qualifying assets represented 26.6% of the Company's total assets.
(12)
The sale of a portion of this loan does not qualify for true sale accounting under ASC 860, and therefore, the entire debt investment remains in the Consolidated Schedule of Investments. Accordingly, the fair value of the Company's debt investments as of September 30, 2018 includes $9.7 million related to the Company's secured borrowings. (See Note 14 in the accompanying notes to the Consolidated Financial Statements.)
(13)
The interest rate on the principal balance outstanding for all floating rate loans is indexed to LIBOR and/or an alternate base rate (e.g., prime rate), which typically resets semi-annually, quarterly, or monthly at the borrower's option. The borrower may also elect to have multiple interest reset periods for each loan. For each of these loans, the Company has provided the applicable margin over LIBOR or the alternate base rate based on each respective credit agreement and the cash interest rate as of period end. All LIBOR shown above is in U.S. dollars unless otherwise noted. As of September 30, 2018, the reference rates for our variable rate loans were the 30-day LIBOR at 2.24%, 60-day LIBOR at 2.29%, the 90-day LIBOR at 2.39%, the 180-day LIBOR at 2.59%, the PRIME at 5.25%, the 30-day UK LIBOR at 0.72% and the 30-day EURIBOR at (0.40)%.
(14)
With the exception of investments held by the Company’s wholly-owned subsidiaries that each formerly held a license from the SBA to operate as a SBIC, each of the Company's investments is pledged as collateral under its credit facility.
(15)
As defined in the Investment Company Act, the Company is deemed to be both an "Affiliated Person" of and to "Control" this portfolio company as the Company owns more than 25% of the portfolio company's outstanding voting securities or has the power to exercise control over management or policies of such portfolio company (including through a management agreement). See Schedule 12-14 in the Company's annual report on Form 10-K for the year ended September 30, 2018 for transactions in which the issuer was both an Affiliated Person and a portfolio company that the Company is deemed to control.
(16)
First Star Speir Aviation 1 Limited is a wholly-owned holding company formed by the Company in order to facilitate its investment strategy. In accordance with ASU 2013-08, the Company has deemed the holding company to be an investment company under GAAP and therefore deemed it appropriate to consolidate the financial results and financial position of the holding company and to recognize dividend income versus a combination of interest income and dividend income. Accordingly, the debt and equity investments in the wholly-owned holding company are disregarded for accounting purposes since the economic substance of these instruments are equity investments in the operating entities.
(17)
See Note 3 in the accompanying notes to the Consolidated Financial Statements for portfolio composition.
(18)
The Class A Mezzanine Secured Deferrable Floating Rate Notes bear interest at a rate of LIBOR plus the applicable margin as defined in the indenture. The Class A Mezzanine Secured Deferrable Floating Rate Notes and Class B Mezzanine Secured Deferrable Fixed Rate Notes are collectively referred to as the "mezzanine notes".
(19)
During the year ended September 30, 2018, the Company exited its investments in WeddingWire, Inc. ("WeddingWire") in exchange for cash and the right to receive contingent payments in the future based on the performance of WeddingWire, which is referred to as an "earn-out" in the consolidated schedule of investments.
(20)
Payments on the Company's investment in Maverick Healthcare are currently past due. In May 2017, the Company entered into a forbearance agreement with Maverick Healthcare in which the Company has temporarily agreed not to take action against Maverick Healthcare. As of September 30, 2018, the forbearance agreement, as amended in June 2018, extended to March 15, 2019.
(21)
As of September 30, 2018, these investments are categorized as Level 2 within the fair value hierarchy established by FASB ASC Topic 820, Fair Value Measurements and Disclosures ("ASC 820"). All other investments are categorized as Level 3 as of September 30, 2018 and were valued using significant unobservable inputs.
(22)
This investment was on cash non-accrual status as of September 30, 2018. Cash non-accrual status is inclusive of PIK and other non-cash income, where applicable.
(23)
This investment was on PIK non-accrual status as of September 30, 2018. PIK non-accrual status is inclusive of other non-cash income, where applicable.
(24)
This investment was valued using net asset value as a practical expedient for fair value. Consistent with FASB guidance under ASC 820, these investments are excluded from the hierarchical levels.
(25)
AdVenture Interactive, Corp. completed a reorganization in which it separated its marketing services business from its online program management business. In connection with the reorganization, FS AVI Holdco LLC was formed as a separate entity and is the parent company to Keypath Education, Inc., which represents the former marketing services business, and the Company's first lien term loan and revolver with AdVenture Interactive, Corp. were assigned to Keypath Education, Inc. Subsequent to the reorganization, AdVenture Interactive, Corp. holds

26
Oaktree Specialty Lending Corporation
Consolidated Schedule of Investments
September 30, 2018
(dollar amounts in thousands)


preferred units in Keypath Education Holdings, LLC, which conducts the online program management business. Subsequent to the reorganization, the Company is not deemed to control Keypath Education Holdings, LLC under the Investment Company Act. This investment was reclassified from Control investments to Non-Control/Non-Affiliate Investments during the year ended September 30, 2018.
(26)
Payments on the Company's investment in Refac Optical Group are currently past due. In October 2018, the Company entered into a forbearance agreement with Refac Optical Group in which the Company has temporarily agreed not to take action against Refac Optical Group. As of September 30, 2018, the forbearance agreement extended to January 9, 2019.
(27)
This investment was renamed PLATO Learning Inc. as of September 30, 2018. Prior to September 30, 2018, this investment was previously named Edmentum, Inc.
(28)
During the three months ended December 31, 2018, the Company's shares in Yeti Holdings, Inc. were subject to a 0.397 reverse share split. Subsequent to the reverse split, the Company held 794,000 shares in Yeti Holdings, Inc.


See notes to Consolidated Financial Statements.




27
OAKTREE SPECIALTY LENDING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share and per share amounts, percentages and as otherwise indicated)





Note 1. Organization
Oaktree Specialty Lending Corporation (together with its consolidated subsidiaries, the "Company") is a specialty finance company that looks to provide customized, one-stop credit solutions to companies with limited access to public or syndicated capital markets. The Company was formed in late 2007 and operates as a closed-end, externally managed, non-diversified management investment company that has elected to be regulated as a Business Development Company under the Investment Company Act. The Company has qualified and elected to be treated as a regulated investment company ("RIC") under the Internal Revenue Code of 1986, as amended (the "Code"), for tax purposes.
The Company seeks to generate current income and capital appreciation by providing companies with flexible and innovative financing solutions, including first and second lien loans, unsecured and mezzanine loans and preferred equity. The Company may also seek to generate capital appreciation and income through secondary investments at discounts to par in either private or syndicated transactions.
As of October 17, 2017, the Company is externally managed by Oaktree Capital Management, L.P. (“Oaktree”), a subsidiary of Oaktree Capital Group, LLC (“OCG”), a publicly traded Delaware limited liability company listed on the New York Stock Exchange under the ticker "OAK", pursuant to an investment advisory agreement between the Company and Oaktree (the “Investment Advisory Agreement”). Oaktree Fund Administration, LLC (“Oaktree Administrator”), a subsidiary of Oaktree, provides certain administrative and other services necessary for the Company to operate pursuant to an administration agreement between the Company and Oaktree Administrator (the “Administration Agreement”). See Note 11.
Prior to October 17, 2017, the Company was externally managed by Fifth Street Management LLC (the "Former Adviser”), an indirect, partially-owned subsidiary of Fifth Street Asset Management Inc. (“FSAM”), and was named Fifth Street Finance Corp. FSC CT LLC (the "Former Administrator"), a subsidiary of the Former Adviser, also provided certain administrative and other services necessary for the Company to operate pursuant to an administration agreement (the "Former Administration Agreement").
On September 7, 2017, stockholders of the Company approved the Investment Advisory Agreement to take effect upon the closing of the transactions contemplated by the Asset Purchase Agreement (the “Purchase Agreement”), by and among Oaktree, the Former Adviser, and, for certain limited purposes, FSAM, and Fifth Street Holdings L.P., the direct, partial owner of the Former Adviser (the “Transaction”). Upon the closing of the Transaction on October 17, 2017, Oaktree became the investment adviser to each of Oaktree Strategic Income Corporation (“OCSI”) and the Company. The closing of the Transaction resulted in an assignment for purposes of the Investment Company Act of the fourth amended and restated investment advisory agreement between the Former Adviser and the Company (the "Former Investment Advisory Agreement") and, as a result, its immediate termination.

Note 2. Significant Accounting Policies
Basis of Presentation:
The Consolidated Financial Statements of the Company have been prepared in accordance with accounting principles generally accepted in the United States of America ("GAAP") and pursuant to the requirements for reporting on Form 10-Q and Regulation S-X. In the opinion of management, all adjustments of a normal recurring nature considered necessary for the fair presentation of the Consolidated Financial Statements have been made. All intercompany balances and transactions have been eliminated. Certain prior-period financial information has been reclassified to conform to current period presentation. The Company is an investment company following the accounting and reporting guidance in FASB ASC Topic 946, Financial Services - Investment Companies ("ASC 946").
Use of Estimates:
The preparation of the financial statements in conformity with GAAP requires management to make certain estimates and assumptions affecting amounts reported in the financial statements and accompanying notes. These estimates are based on the information that is currently available to the Company and on various other assumptions that the Company believes to be reasonable under the circumstances. Changes in the economic and political environments, financial markets and any other parameters used in determining these estimates could cause actual results to differ and such differences could be material. Significant estimates include the valuation of investments and revenue recognition.
Consolidation:
The accompanying Consolidated Financial Statements include the accounts of Oaktree Specialty Lending Corporation and its consolidated subsidiaries. Each consolidated subsidiary is wholly-owned and, as such, consolidated into the Consolidated Financial Statements. Certain subsidiaries that hold investments are treated as pass through entities for tax purposes. The assets of certain of the consolidated subsidiaries are not directly available to satisfy the claims of the creditors of Oaktree Specialty Lending Corporation or any of its other subsidiaries. As of December 31, 2018, the consolidated subsidiaries were Fifth Street Fund of Funds LLC ("Fund of

28
OAKTREE SPECIALTY LENDING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share and per share amounts, percentages and as otherwise indicated)





Funds"), Fifth Street Mezzanine Partners IV, L.P. ("FSMP IV"), Fifth Street Mezzanine Partners V, L.P. ("FSMP V" and together with FSMP IV, the "Excluded Subsidiaries"), FSMP IV GP, LLC, FSMP V GP, LLC, OCSL SRNE, LLC, OCSL AB Blocker, LLC and FSFC Holdings, Inc. ("Holdings"). In addition, the Company consolidates various holding companies held in connection with its equity investments in certain portfolio investments.
As an investment company, portfolio investments held by the Company are not consolidated into the Consolidated Financial Statements but rather are included on the Statements of Assets and Liabilities as investments at fair value.

Fair Value Measurements:
The Company values its investments in accordance with ASC 820, which defines fair value as the amount 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. The Company is required to report its investments for which current market values are not readily available at fair value. A liability's fair value is defined as the amount that would be paid to transfer the liability to a new obligor, not the amount that would be paid to settle the liability with the creditor. ASC 820 prioritizes the use of observable market prices over entity-specific inputs. Where observable prices or inputs are not available or reliable, valuation techniques are applied. These valuation techniques involve some level of management estimation and judgment, the degree of which is dependent on the price transparency for the investments or market and the investments' complexity.
Hierarchical levels, defined by ASC 820 and directly related to the amount of subjectivity associated with the inputs to fair valuation of these assets and liabilities, are as follows:
 
•
Level 1 — Unadjusted, quoted prices in active markets for identical assets or liabilities as of the measurement date.
•
Level 2 — Observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data at the measurement date for substantially the full term of the assets or liabilities.
•
Level 3 — Unobservable inputs that reflect management's best estimate of what market participants would use in pricing the asset or liability at the measurement date. Consideration is given to the risk inherent in the valuation technique and the risk inherent in the inputs to the model.
If inputs used to measure fair value fall into different levels of the fair value hierarchy, an investment's level is based on the lowest level of input that is significant to the fair value measurement. The Company's assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment, and considers factors specific to the investment. This includes investment securities that are valued using "bid" and "ask" prices obtained from independent third party pricing services or directly from brokers. These investments may be classified as Level 3 because the quoted prices may be indicative in nature for securities that are in an inactive market, may be for similar securities or may require adjustments for investment-specific factors or restrictions.
Financial instruments with readily available quoted prices generally will have a higher degree of market price observability and a lesser degree of judgment inherent in measuring fair value. As such, Oaktree obtains and analyzes readily available market quotations provided by pricing vendors and brokers for all of the Company's investments for which quotations are available. In determining the fair value of a particular investment, pricing vendors and brokers use observable market information, including both binding and non-binding indicative quotations.
The Company seeks to obtain at least two quotations for the subject or similar securities, typically from pricing vendors. If the Company is unable to obtain two quotes from pricing vendors, or if the prices obtained from pricing vendors are not within the Company's set threshold, the Company seeks to obtain a quote directly from a broker making a market for the asset. Oaktree evaluates the quotations provided by pricing vendors and brokers based on available market information, including trading activity of the subject or similar securities, or by performing a comparable security analysis to ensure that fair values are reasonably estimated. Oaktree also performs back-testing of valuation information obtained from pricing vendors and brokers against actual prices received in transactions. In addition to ongoing monitoring and back-testing, Oaktree performs due diligence procedures over pricing vendors to understand their methodology and controls to support their use in the valuation process. Generally, the Company does not adjust any of the prices received from these sources.
If the quotations obtained from pricing vendors or brokers are determined to not be reliable or are not readily available, the Company values such investments using any of three different valuation techniques. The first valuation technique is the transaction precedent technique, which utilizes recent or expected future transactions of the investment to determine fair value, to the extent applicable. The second valuation technique is an analysis of the enterprise value ("EV") of the portfolio company. EV means the entire value of the portfolio company to a market participant, including the sum of the values of debt and equity securities used to capitalize the enterprise at a point in time. The EV analysis is typically performed to determine (i) the value of equity investments, (ii) whether there is credit impairment for debt investments and (iii) the value for debt investments that the Company is deemed to control under the

29
OAKTREE SPECIALTY LENDING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share and per share amounts, percentages and as otherwise indicated)





Investment Company Act. To estimate the EV of a portfolio company, Oaktree analyzes various factors, including the portfolio company’s historical and projected financial results, macroeconomic impacts on the company, and competitive dynamics in the company’s industry. Oaktree also utilizes some or all of the following information based on the individual circumstances of the portfolio company: (i) valuations of comparable public companies, (ii) recent sales of private and public comparable companies in similar industries or having similar business or earnings characteristics, (iii) purchase price multiples as a multiple of their earnings or cash flow, (iv) the portfolio company’s ability to meet its forecasts and its business prospects, (v) a discounted cash flow analysis, (vi) estimated liquidation or collateral value of the portfolio company's assets and (vii) offers from third parties to buy the portfolio company. The Company may probability weight potential sale outcomes with respect to a portfolio company when uncertainty exists as of the valuation date. The third valuation technique is a market yield technique, which is typically performed for non-credit impaired debt investments. In the market yield technique, a current price is imputed for the investment based upon an assessment of the expected market yield for a similarly structured investment with a similar level of risk, and the Company considers the current contractual interest rate, the capital structure and other terms of the investment relative to risk of the company and the specific investment. A key determinant of risk, among other things, is the leverage through the investment relative to the EV of the portfolio company. As debt investments held by the Company are substantially illiquid with no active transaction market, the Company depends on primary market data, including newly funded transactions and industry specific market movements, as well as secondary market data with respect to high yield debt instruments and syndicated loans, as inputs in determining the appropriate market yield, as applicable.
In accordance with ASC 820-10, certain investments that qualify as investment companies in accordance with ASC 946 may be valued using net asset value as a practical expedient for fair value. Consistent with FASB guidance under ASC 820, these investments are excluded from the hierarchical levels.
The Company estimates the fair value of privately held warrants using a Black Scholes pricing model, which includes an analysis of various factors and subjective assumptions, including the current stock price (by using an EV analysis as described above), the expected period until exercise, expected volatility of the underlying stock price, expected dividends and the risk free rate. Changes in the subjective input assumptions can materially affect the fair value estimates.
The Company's Board of Directors undertakes a multi-step valuation process each quarter in connection with determining the fair value of the Company's investments:
•
The quarterly valuation process begins with each portfolio company or investment being initially valued by Oaktree's valuation team in conjunction with Oaktree's portfolio management team and investment professionals responsible for each portfolio investment;
•Preliminary valuations are then reviewed and discussed with management of Oaktree;
•
Separately, independent valuation firms engaged by the Board of Directors prepare valuations of the Company's investments, on a selected basis, for which market quotations are not readily available or are readily available but deemed not reflective of the fair value of the investment, and submit the reports to the Company and provide such reports to Oaktree and the Audit Committee of the Board of Directors;
•
Oaktree compares and contrasts its preliminary valuations to the valuations of the independent valuation firms and prepares a valuation report for the Audit Committee;
•
The Audit Committee reviews the preliminary valuations with Oaktree, and Oaktree responds and supplements the preliminary valuations to reflect any discussions between Oaktree and the Audit Committee;
•
The Audit Committee makes a recommendation to the full Board of Directors regarding the fair value of the investments in the Company's portfolio; and
•
The Board of Directors discusses valuations and determines the fair value of each investment in the Company's portfolio.
The fair value of the Company's investments as of December 31, 2018 and September 30, 2018 was determined in good faith by the Board of Directors. The Board of Directors has and will continue to engage independent valuation firms to provide assistance regarding the determination of the fair value of a portion of the Company's portfolio securities for which market quotations are not readily available or are readily available but deemed not reflective of the fair value of the investment each quarter, and the Board of Directors may reasonably rely on that assistance. However, the Board of Directors is responsible for the ultimate valuation of the portfolio investments at fair value as determined in good faith pursuant to the Company's valuation policy and a consistently applied valuation process.
With the exception of the line items entitled "deferred financing costs," "other assets," "deferred tax liability," "credit facility payable" and "unsecured notes payable," which are reported at amortized cost, all assets and liabilities approximate fair value on the Consolidated Statements of Assets and Liabilities. The carrying value of the line items titled "interest, dividends and fees receivable," "due from portfolio companies," "receivables from unsettled transactions," "accounts payable, accrued expenses and other liabilities,"

30
OAKTREE SPECIALTY LENDING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share and per share amounts, percentages and as otherwise indicated)





"base management fee and incentive fee payable," "due to affiliate," "interest payable," "payable to syndication partners," "director fees payable" and "payables from unsettled transactions" approximate fair value due to their short maturities.
Foreign Currency Translation
The accounting records of the Company are maintained in U.S. dollars. All assets and liabilities denominated in foreign currencies are translated into U.S. dollars based on the prevailing foreign exchange rate on the reporting date. The Company does not isolate that portion of the results of operations resulting from changes in foreign exchange rates on investments from the fluctuations arising from changes in market prices of securities held. The Company’s investments in foreign securities may involve certain risks, including foreign exchange restrictions, expropriation, taxation or other political, social or economic risks, all of which could affect the market and/or credit risk of the investment. In addition, changes in the relationship of foreign currencies to the U.S. dollar can significantly affect the value of these investments and therefore the earnings of the Company.
Derivative Instruments
The Company does not utilize hedge accounting and as such values its derivative instruments at fair value with the unrealized gains or losses recorded in “net unrealized appreciation (depreciation)” in the Company’s Consolidated Statements of Operations.
Investment Income:
Interest Income
Interest income, adjusted for accretion of original issue discount ("OID"), is recorded on an accrual basis to the extent that such amounts are expected to be collected. The Company stops accruing interest on investments when it is determined that interest is no longer collectible. Investments that are expected to pay regularly scheduled interest in cash are generally placed on non-accrual status when there is reasonable doubt that principal or interest cash payments will be collected. Cash interest payments received on investments may be recognized as income or a return of capital depending upon management’s judgment. A non-accrual investment is restored to accrual status if past due principal and interest are paid in cash and the portfolio company, in management’s judgment, is likely to continue timely payment of its remaining obligations.
In connection with its investment in a portfolio company, the Company sometimes receives nominal cost equity that is valued as part of the negotiation process with the portfolio company. When the Company receives nominal cost equity, the Company allocates its cost basis in the investment between debt securities and the nominal cost equity at the time of origination. Any resulting discount from recording the loan, or otherwise purchasing a security at a discount, is accreted into interest income over the life of the loan.
For the Company's secured borrowings, the interest earned on the entire loan balance is recorded within interest income and the interest earned by the buyer from the partial loan sales is recorded within interest expense in the Consolidated Statements of Operations.
PIK Interest Income
The Company's investments in debt securities may contain PIK interest provisions. PIK interest, which represents contractually deferred interest added to the loan balance that is generally due at the end of the loan term, is generally recorded on the accrual basis to the extent such amounts are expected to be collected. The Company generally ceases accruing PIK interest if there is insufficient value to support the accrual or if the Company does not expect the portfolio company to be able to pay all principal and interest due. The Company's decision to cease accruing PIK interest involves subjective judgments and determinations based on available information about a particular portfolio company, including whether the portfolio company is current with respect to its payment of principal and interest on its loans and debt securities; financial statements and financial projections for the portfolio company; the Company's assessment of the portfolio company's business development success; information obtained by the Company in connection with periodic formal update interviews with the portfolio company's management and, if appropriate, the private equity sponsor; and information about the general economic and market conditions in which the portfolio company operates. Based on this and other information, the Company determines whether to cease accruing PIK interest on a loan or debt security. The Company's determination to cease accruing PIK interest is generally made well before the Company's full write-down of a loan or debt security. In addition, if it is subsequently determined that the Company will not be able to collect any previously accrued PIK interest, the fair value of the loans or debt securities would be reduced by the amount of such previously accrued, but uncollectible, PIK interest. The accrual of PIK interest on the Company’s debt investments increases the recorded cost bases of these investments in the Consolidated Financial Statements and, as a result, increases the cost bases of these investments for purposes of computing the capital gain incentive fee payable by the Company to Oaktree beginning in the fiscal year ending September 30, 2019. To maintain its status as a RIC, certain

31
OAKTREE SPECIALTY LENDING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share and per share amounts, percentages and as otherwise indicated)





income from PIK interest may be required to be distributed to the Company’s stockholders, even though the Company has not yet collected the cash and may never do so.
Fee Income
Oaktree may provide financial advisory services to portfolio companies and in return the Company may receive fees for capital structuring services. These fees are generally nonrecurring and are recognized by the Company upon the investment closing date. The Company may also receive additional fees in the ordinary course of business, including servicing, amendment and prepayment fees, which are classified as fee income and recognized as they are earned or services are rendered.
The Company may structure exit fees across certain of its portfolio investments to be received upon the future exit of those investments. These fees are typically paid to the Company upon the earliest to occur of (i) a sale of the borrower or substantially all of its assets of the borrower, (ii) the maturity date of the loan or (iii) the date when full prepayment of the loan occurs. The receipt of such fees is contingent upon the occurrence of one of the events listed above for each of the investments. A percentage of these fees is included in net investment income over the life of the loan.
Dividend Income
The Company generally recognizes dividend income on the ex-dividend date. Distributions received from equity investments are evaluated to determine if the distribution should be recorded as dividend income or a return of capital. Generally, the Company will not record distributions from equity investments as dividend income unless there are sufficient earnings at the portfolio company prior to the distribution. Distributions that are classified as a return of capital are recorded as a reduction in the cost basis of the investment.
Cash and Cash Equivalents and Restricted Cash:
Cash and cash equivalents and restricted cash consist of demand deposits and highly liquid investments with maturities of three months or less when acquired. The Company places its cash and cash equivalents and restricted cash with financial institutions and, at times, cash held in bank accounts may exceed the Federal Deposit Insurance Corporation ("FDIC") insurance limit. Cash and cash equivalents are classified as Level 1 assets and are included on the Company's Consolidated Schedule of Investments.
Restricted cash primarily includes payments received on certain loans that are payable to syndication partners as of the reporting date in connection with the Company's role as administrative agent.
Due from Portfolio Companies:
Due from portfolio companies consists of amounts payable to the Company from its portfolio companies, including proceeds from the sale of portfolio companies not yet received or being held in escrow, and excluding those amounts attributable to interest, dividends or fees receivable. These amounts are recognized as they become payable to the Company (e.g., principal payments on the scheduled amortization payment date).
Receivables/Payables From Unsettled Transactions:
Receivables/payables from unsettled transactions consist of amounts receivable to or payable by the Company for transactions that have not settled at the reporting date.
Deferred Financing Costs:
Deferred financing costs consist of fees and expenses paid in connection with the closing or amending of credit facilities and debt offerings. Deferred financing costs in connection with credit facilities are capitalized as an asset at the time of payment. Deferred financing costs in connection with all other debt arrangements are a direct deduction from the related debt liability at the time of payment. Deferred financing costs are amortized using the effective interest method over the terms of the respective debt arrangement. This amortization expense is included in interest expense in the Company's Consolidated Statements of Operations. Upon early termination or modification of a credit facility, all or a portion of unamortized fees related to such facility may be accelerated into interest expense.
Income Taxes:
The Company has elected to be subject to tax as a RIC under Subchapter M of the Code and operates in a manner so as to qualify for the tax treatment applicable to RICs. In order to be subject to tax as a RIC, among other things, the Company is required to meet

32
OAKTREE SPECIALTY LENDING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share and per share amounts, percentages and as otherwise indicated)





certain source of income and asset diversification requirements and timely distribute dividends to its stockholders of an amount generally at least equal to 90% of investment company taxable income, as defined by the Code and determined without regard to any deduction for dividends paid, for each taxable year. As a RIC, the Company is not subject to federal income tax on the portion of its taxable income and gains distributed currently to stockholders as a dividend. Depending on the level of taxable income earned during a taxable year, the Company may choose to retain taxable income in excess of current year dividend distributions and would distribute such taxable income in the next taxable year. The Company would then incur a 4% excise tax on such income, as required. To the extent that the Company determines that its estimated current year annual taxable income, determined on a calendar year basis, could exceed estimated current calendar year dividend distributions, the Company accrues excise tax, if any, on estimated excess taxable income as taxable income is earned. The Company anticipates timely distribution of its taxable income within the tax rules under Subchapter M of the Code. The Company did not incur a U.S. federal excise tax for calendar years 2017 and 2018 and does not expect to incur a U.S. federal excise tax for calendar year 2019.
The Company holds certain portfolio investments through taxable subsidiaries, including Fund of Funds and Holdings. The purpose of the Company's taxable subsidiaries is to permit the Company to hold equity investments in portfolio companies which are "pass through" entities for U.S. federal income tax purposes in order to comply with the RIC tax requirements. The taxable subsidiaries are consolidated for financial reporting purposes, and portfolio investments held by them are included in the Company’s Consolidated Financial Statements as portfolio investments and recorded at fair value. The taxable subsidiaries are not consolidated with the Company for U.S. federal income tax purposes and may generate income tax expense, or benefit, and the related tax assets and liabilities, as a result of their ownership of certain portfolio investments. This income tax expense, if any, would be reflected in the Company's Consolidated Statements of Operations. The Company uses the liability method to account for its taxable subsidiaries' income taxes. Using this method, the Company recognizes deferred tax assets and liabilities for the estimated future tax effects attributable to temporary differences between financial reporting and tax bases of assets and liabilities. In addition, the Company recognizes deferred tax benefits associated with net operating loss carry forwards that it may use to offset future tax obligations. The Company measures deferred tax assets and liabilities using the enacted tax rates expected to apply to taxable income in the years in which it expects to recover or settle those temporary differences.
FASB ASC Topic 740, Accounting for Uncertainty in Income Taxes ("ASC 740"), provides guidance for how uncertain tax positions should be recognized, measured, presented, and disclosed in the Company's Consolidated Financial Statements. ASC 740 requires the evaluation of tax positions taken or expected to be taken in the course of preparing the Company's tax returns to determine whether the tax positions are "more-likely-than-not" of being sustained by the applicable tax authority. Tax positions not deemed to meet the more-likely-than-not threshold are recorded as a tax benefit or expense in the current year. Management's determinations regarding ASC 740 may be subject to review and adjustment at a later date based upon factors including an ongoing analysis of tax laws, regulations and interpretations thereof. The Company recognizes the tax benefits of uncertain tax positions only where the position is "more-likely-than-not" to be sustained assuming examination by tax authorities. Management has analyzed the Company's tax positions and has concluded that no liability for unrecognized tax benefits should be recorded related to uncertain tax positions taken on returns filed for open tax years 2015, 2016 or 2017. The Company identifies its major tax jurisdictions as U.S. Federal and California, and the Company is not aware of any tax positions for which it is reasonably possible that the total amounts of unrecognized tax benefits will change materially in the next 12 months.    
Secured Borrowings:
The Company follows the guidance in ASC 860 when accounting for loan participations and other partial loan sales. Such guidance provides accounting and reporting standards for transfers and servicing of financial assets and requires a participation or other partial loan sales to meet the definition of a "participating interest," as defined in the guidance, in order for sale treatment to be allowed. Participations or other partial loan sales which do not meet the definition of a participating interest or which are not eligible for sale accounting remain on the Company's Consolidated Statements of Assets and Liabilities and the proceeds are recorded as a secured borrowing until the definition is met. Secured borrowings are carried at fair value to correspond with the related investments, which are carried at fair value. See Note 14 for additional information.
Amounts Payable to Syndication Partners:
The Company acts as administrative agent for certain loans it originates and then syndicates. As administrative agent, the Company receives interest, principal and/or other payments from borrowers that is redistributed to syndication partners. If not redistributed by the reporting date, such amounts are classified in restricted cash and a payable is recorded to syndication partners on the Consolidated Statements of Assets and Liabilities.



33
OAKTREE SPECIALTY LENDING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share and per share amounts, percentages and as otherwise indicated)





Fair Value Option:
The Company adopted certain principles under FASB ASC Topic 825, Financial Instruments – Fair Value Option ("ASC 825"), and elected the fair value option for its secured borrowings, which had a cost basis of $11.9 million and $12.3 million in the aggregate as of December 31, 2018 and September 30, 2018, respectively. The Company believes that by electing the fair value option for these financial instruments, it provides consistent measurement of the assets and liabilities which relate to the partial loan sales mentioned above.
Recent Accounting Pronouncements:
In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers ("ASU 2014-09"), which requires an entity to recognize the amount of revenue to which it expects to be entitled for the transfer of promised goods or services to customers. The amendments in ASU No. 2014-09 were adopted using the modified retrospective approach by the Company beginning on October 1, 2018. The adoption and application of this guidance did not have a material impact on the Company’s Consolidated Financial Statements, and the Company did not recognize a cumulative effect adjustment on net assets in connection with the adoption of the new revenue recognition guidance.

In November 2016, the FASB issued ASU 2016-18, Statement of Cash Flows (Topic 230), which requires that a statement of cash flows explain the change during the period in the total of cash, cash equivalents, and amounts generally described as restricted cash or restricted cash equivalents. Therefore, amounts generally described as restricted cash and restricted cash equivalents should be included within cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shown on the statement of cash flows. The new guidance is effective for fiscal years beginning after December 15, 2017, including interim periods therein, and early adoption is permitted. The Company adopted the new guidance during the three months ended December 31, 2018. The new guidance did not have a material effect on the Company's Consolidated Financial Statements.

In August 2018, the FASB issued ASU 2018-13, Disclosure Framework – Changes to the Disclosure Requirements for Fair Value Measurement, which changes the fair value disclosure requirements. The new guidance includes new, eliminated and modified fair value disclosures. Among other requirements, the guidance requires disclosure of the range and weighted average of the significant unobservable inputs for Level 3 fair value measurements and the way it is calculated. The guidance also eliminated the following disclosures: (i) amount and reason for transfers between Level 1 and Level 2, (ii) policy for timing of transfers between levels of the fair value hierarchy and (iii) valuation processes for Level 3 fair value measurement. The guidance is effective for all entities for interim and annual periods beginning after December 15, 2019. Early adoption is permitted upon issuance of the guidance. The adoption of this guidance is not expected to have a material effect on the Company’s Consolidated Financial Statements.

Note 3. Portfolio Investments
As of December 31, 2018, 167.9% of net assets at fair value, or $1.5 billion, was invested in 110 portfolio companies, including the Company's investment in subordinated notes and limited liability company ("LLC") equity interests in Senior Loan Fund JV I, LLC (together with its consolidated subsidiaries, "SLF JV I"), which had a fair value of $96.3 million and $26.0 million, respectively. As of December 31, 2018, 6.5% of net assets at fair value, or $56.7 million, was invested in cash and cash equivalents (including restricted cash). In comparison, as of September 30, 2018, 173.8% of net assets at fair value, or $1.5 billion, was invested in 113 portfolio investments, including the Company's investment in Class A mezzanine secured deferrable floating rate notes, Class B mezzanine secured deferrable fixed rate notes and LLC equity interests in SLF JV I, which had a fair value of $99.8 million, $29.5 million and $0.0 million, respectively, and 1.6% of net assets at fair value, or $13.5 million, was invested in cash and cash equivalents (including restricted cash). As of December 31, 2018, 80.0% of the Company's portfolio at fair value consisted of senior secured debt investments and 14.4% consisted of subordinated notes, including debt investments in SLF JV I. As of September 30, 2018, 75.4% of the Company's portfolio at fair value consisted of senior secured debt investments and 19.6% consisted of subordinated notes, including debt investments in SLF JV I.
The Company also held equity investments in certain of its portfolio companies consisting of common stock, preferred stock, warrants, limited partnership interests or LLC equity interests. These instruments generally do not produce a current return but are held for potential investment appreciation and capital gain.
During the three months ended December 31, 2018 and 2017, the Company recorded net realized gains (losses) of $18.0 million and $(0.3) million, respectively. During the three months ended December 31, 2018 and 2017, the Company recorded net unrealized depreciation of $7.0 million and $43.5 million, respectively.

34
OAKTREE SPECIALTY LENDING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share and per share amounts, percentages and as otherwise indicated)





The composition of the Company's investments as of December 31, 2018 and September 30, 2018 at cost and fair value was as follows:
 
 
December 31, 2018
 
September 30, 2018
 
 
Cost
 
Fair Value
 
Cost
 
Fair Value
Investments in debt securities
 
$
1,375,792

 
$
1,286,514

 
$
1,390,672

 
$
1,287,958

Investments in equity securities
 
65,946

 
56,121

 
70,756

 
73,869

Debt investments in SLF JV I
 
96,250

 
96,250

 
129,333

 
129,333

Equity investment in SLF JV I
 
49,322

 
26,000

 
16,172

 
41

Total
 
$
1,587,310

 
$
1,464,885

 
$
1,606,933

 
$
1,491,201

The composition of the Company's debt investments as of December 31, 2018 and September 30, 2018 at fixed rates and floating rates was as follows:
 
 
 
December 31, 2018
 
September 30, 2018
 
 
Fair Value
 
% of Debt
Portfolio
 
Fair Value
 
% of Debt
Portfolio
Fixed rate debt securities, including debt investments in SLF JV I
 
$
185,751

 
13.43
%
 
$
237,718

 
16.77
%
Floating rate debt securities, including debt investments in SLF JV I
 
1,197,013

 
86.57

 
1,179,573

 
83.23

Total
 
$
1,382,764

 
100.00
%
 
$
1,417,291

 
100.00
%
The following table presents the financial instruments carried at fair value as of December 31, 2018 on the Company's Consolidated Statement of Assets and Liabilities for each of the three levels of hierarchy established by ASC 820:
 
 
Level 1
 
Level 2
 
Level 3
 
Measured at Net Asset Value (a)
 
Total
Investments in debt securities (senior secured)
 
$
—

 
$
430,682

 
$
741,372

 
$
—

 
$
1,172,054

Investments in debt securities (subordinated, including debt investments in SLF JV I)
 
—

 
90,757

 
119,953

 
—

 
210,710

Investments in equity securities (preferred)
 
—

 
—

 
4,988

 
—

 
4,988

Investments in equity securities (common and warrants, including LLC equity interests of SLF JV I)
 
9,408

 
—

 
34,107

 
33,618

 
77,133

Total investments at fair value
 
9,408

 
521,439

 
900,420

 
33,618

 
1,464,885

Cash equivalents
 
51,241

 
—

 
—

 
—

 
51,241

Total assets at fair value
 
$
60,649

 
$
521,439

 
$
900,420

 
$
33,618

 
$
1,516,126

Derivative liability
 
—

 
190

 
—

 
—

 
190

Secured borrowings
 
—

 
—

 
9,302

 
—

 
9,302

Total liabilities at fair value
 
$
—

 
$
190

 
$
9,302

 
$
—

 
$
9,492

__________ 
(a)
In accordance with ASC 820-10, certain investments that are measured using the net asset value per share (or its equivalent) as a practical expedient for fair value have not been classified in the fair value hierarchy. These investments are generally not redeemable. The fair value amounts presented in this table are intended to permit reconciliation of the fair value hierarchy to the amounts presented in the Consolidated Statements of Assets and Liabilities.

35
OAKTREE SPECIALTY LENDING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share and per share amounts, percentages and as otherwise indicated)





The following table presents the financial instruments carried at fair value as of September 30, 2018 on the Company's Consolidated Statement of Assets and Liabilities for each of the three levels of hierarchy established by ASC 820:
 
 
Level 1
 
Level 2
 
Level 3
 
Measured at Net Asset Value (a)
 
Total
Investments in debt securities (senior secured)
 
$
—

 
$
485,436

 
$
638,971

 
$
—

 
$
1,124,407

Investments in debt securities (subordinated, including debt investments in SLF JV I)
 
—

 
134,025

 
158,859

 
—

 
292,884

Investments in equity securities (preferred)
 
—

 
—

 
4,918

 
—

 
4,918

Investments in equity securities (common and warrants, including LLC equity interests of SLF JV I)
 
—

 
—

 
61,134

 
7,858

 
68,992

Total investments at fair value
 
—

 
619,461

 
863,882

 
7,858

 
1,491,201

Cash equivalents
 
9,108

 
—

 
—

 
—

 
9,108

Derivative asset
 
—

 
162

 
—

 
—

 
162

Total assets at fair value
 
$
9,108

 
$
619,623

 
$
863,882

 
$
7,858

 
$
1,500,471

Secured borrowings
 
—

 
—

 
9,728

 
—

 
9,728

Total liabilities at fair value
 
$
—

 
$
—

 
$
9,728

 
$
—

 
$
9,728

__________ 
(a)
In accordance with ASC 820-10, certain investments that are measured using the net asset value per share (or its equivalent) as a practical expedient for fair value have not been classified in the fair value hierarchy. These investments are generally not redeemable. The fair value amounts presented in this table are intended to permit reconciliation of the fair value hierarchy to the amounts presented in the Consolidated Statements of Assets and Liabilities.
When a determination is made to classify a financial instrument within Level 3 of the valuation hierarchy, the determination is based upon the fact that the unobservable factors are significant to the overall fair value measurement. However, Level 3 financial instruments typically include, in addition to the unobservable or Level 3 components, observable components (i.e. components that are actively quoted and can be validated by external sources). Accordingly, the appreciation (depreciation) in the tables below includes changes in fair value due in part to observable factors that are part of the valuation methodology. Transfers between levels are recognized at the beginning of the reporting period.
The following table provides a roll-forward in the changes in fair value from September 30, 2018 to December 31, 2018 for all investments and secured borrowings for which the Company determined fair value using unobservable (Level 3) factors:
 
 
Investments
 
Liabilities
 
 
Senior Secured Debt
 
Subordinated
Debt (including debt investments in SLF JV I)
 
Preferred
Equity
 
Common
Equity and Warrants
 
Total
 
Secured Borrowings
Fair value as of September 30, 2018
 
$
638,971

 
$
158,859

 
$
4,918

 
$
61,134

 
$
863,882

 
$
9,728

New investments & net revolver activity
 
89,999

 
533

 
—

 
2,514

 
93,046

 
—

Redemptions/repayments/sales
 
(33,022
)
 
(15,749
)
 
—

 
(21,291
)
 
(70,062
)
 
(445
)
Transfers in (a)
 
3,222

 
—

 
—

 
—

 
3,222

 
—

Transfers out (b)
 
—

 
(33,150
)
 
—

 
(12,073
)
 
(45,223
)
 
 
Net accrual of PIK interest income
 
645

 
95

 
—

 
—

 
740

 
—

Accretion of OID
 
6,594

 
370

 
—

 
—

 
6,964

 
—

Net unrealized appreciation (depreciation)
 
35,541

 
8,995

 
565

 
(11,463
)
 
33,638

 
19

Net realized gains (losses)
 
(578
)
 
—

 
(495
)
 
15,286

 
14,213

 
—

Fair value as of December 31, 2018
 
$
741,372

 
$
119,953

 
$
4,988

 
$
34,107

 
$
900,420

 
$
9,302

Net unrealized appreciation (depreciation) relating to Level 3 assets & liabilities still held as of December 31, 2018 and reported within net unrealized appreciation (depreciation) in the Consolidated Statement of Operations for the three months ended December 31, 2018
 
$
35,508

 
$
8,995

 
$
70

 
$
857

 
$
45,430

 
$
19

__________
(a) There were transfers into Level 3 from Level 2 for certain investments during the three months ended December 31, 2018 as a result of a decreased number of market quotes available and/or decreased market liquidity.

36
OAKTREE SPECIALTY LENDING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share and per share amounts, percentages and as otherwise indicated)






(b) There was one transfer from Level 3 to Level 1 during the three months ended December 31, 2018 as a result of an initial public offering of a portfolio company. There was one transfer out of Level 3 during the three months ended December 31, 2018 as a result of an investment restructuring in which debt investments were exchanged for equity investments that are valued using net asset value as a practical expedient.

The following table provides a roll-forward in the changes in fair value from September 30, 2017 to December 31, 2017 for all investments and secured borrowings for which the Company determined fair value using unobservable (Level 3) factors:
 
 
Investments
 
Liabilities
 
 
Senior Secured Debt
 
Subordinated
Debt (including debt investments in SLF JV I)
 
Preferred
Equity
 
Common
Equity
 
Total
 
Secured Borrowings
Fair value as of September 30, 2017
 
$
1,060,442

 
$
180,331

 
$
16,445

 
$
69,164

 
$
1,326,382

 
$
13,256

New investments & net revolver activity
 
58,869

 
1,730

 
—

 
2,500

 
63,099

 
—

Redemptions/repayments/sales
 
(239,894
)
 
(812
)
 
—

 
9

 
(240,697
)
 
—

Transfers out (a)
 
(37,368
)
 
—

 
—

 
—

 
(37,368
)
 
—

Net accrual of PIK interest income
 
683

 
75

 
—

 
—

 
758

 
—

Accretion of OID
 
186

 
—

 
—

 
—

 
186

 
—

Net unrealized depreciation
 
(27,566
)
 
(11,372
)
 
(95
)
 
(3,230
)
 
(42,263
)
 
(1,655
)
Net realized losses
 
—

 
(1
)
 
—

 
(9
)
 
(10
)
 
—

Fair value as of December 31, 2017
 
$
815,352

 
$
169,951

 
$
16,350

 
$
68,434

 
$
1,070,087

 
$
11,601

Net unrealized depreciation relating to Level 3 assets & liabilities still held as of December 31, 2017 and reported within net unrealized appreciation (depreciation) in the Consolidated Statement of Operations for the three months ended December 31, 2017
 
$
(27,539
)
 
$
(11,441
)
 
$
(94
)
 
$
(4,243
)
 
$
(43,317
)
 
$
(1,655
)
__________
(a) There were transfers out of Level 3 to Level 2 for certain investments during the three months ended December 31, 2017 as a result of an increased number of market quotes available and/or increased market liquidity.



37
OAKTREE SPECIALTY LENDING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share and per share amounts, percentages and as otherwise indicated)





Significant Unobservable Inputs for Level 3 Investments
The following table provides quantitative information related to the significant unobservable inputs for Level 3 investments and secured borrowings, which are carried at fair value, as of December 31, 2018:
Asset
 
Fair Value
 
Valuation Technique
 
Unobservable Input
 
Range
 
Weighted
Average (a)
Senior secured debt
 
$
322,808

 
Market yield technique
 
Market yield
 
(b)
7.5%
-
23.2%
 
14.2%
 
 
143,573

 
Enterprise value technique
 
EBITDA multiple
 
(c)
1.9x
-
8.5x
 
6.3x
 
 
32,510

 
Transactions precedent technique
 
Transaction price
 
(d)
N/A
-
N/A
 
N/A
 
 
242,481

 
Market quotations
 
Broker quoted price
 
(e)
N/A
-
N/A
 
N/A
Subordinated debt
 
16,325

 
Market yield technique
 
Market yield
 
(b)
14.5%
-
19.4%
 
16.3%
 
 
7,378

 
Enterprise value technique
 
EBITDA multiple
 
(c)
5.5x
-
7.2x
 
5.8x
SLF JV I debt investments
 
96,250

 
Enterprise value technique
 
N/A
 
(f)
N/A
-
N/A
 
N/A
Preferred & common equity
 
2,056

 
Enterprise value technique
 
Revenue multiple
 
(c)
0.9x
-
10.9x
 
6.4x
 
 
36,072

 
Enterprise value technique
 
EBITDA multiple
 
(c)
0.3x
-
18.0x
 
6.0x
 
 
967

 
Transactions precedent technique
 
Transaction price
 
(d)
N/A
-
N/A
 
N/A
Total
 
$
900,420

 
 
 
 
 
 
 
 
 
 
 
Secured borrowings
 
9,302

 
Enterprise value technique
 
EBITDA multiple
 
(c)
5.3x
-
5.5x
 
5.4x
Total
 
$
9,302

 
 
 
 
 
 
 
 
 
 
 
__________ 
(a)
Weighted averages are calculated based on fair value of investments or secured borrowings.
(b)
Used when market participant would take into account market yield when pricing the investment.
(c)
Used when market participant would use such multiples when pricing the investment or secured borrowings.
(d)
Used when there is an observable transaction or pending event for the investment.
(e)
The Company generally uses prices provided by an independent pricing service which are non-binding indicative prices on or near the valuation date as the primary basis for the fair value determinations for quoted senior secured debt investments. Since these prices are non-binding, they may not be indicative of fair value. The Company evaluates the quotations provided by pricing vendors and brokers based on available market information, including trading activity of the subject or similar securities, or by performing a comparable security analysis to ensure that fair values are reasonably estimated. Each quoted price is evaluated by the Audit Committee of the Company's Board of Directors in conjunction with additional information compiled by Oaktree.
(f)
The Company determined the value of its subordinated notes of SLF JV I based on the total assets less the total liabilities senior to the subordinated notes held at SLF JV I in an amount not exceeding par under the enterprise value technique.

38
OAKTREE SPECIALTY LENDING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share and per share amounts, percentages and as otherwise indicated)





The following table provides quantitative information related to the significant unobservable inputs for Level 3 investments and secured borrowings, which are carried at fair value, as of September 30, 2018:
Asset
 
Fair Value
 
Valuation Technique
 
Unobservable Input
 
Range
 
Weighted
Average (a)
Senior secured debt
 
$
241,522

 
Market yield technique
 
Market yield
 
(b)
7.4%
-
20.0%
 
12.1%
 
 
97,057

 
Enterprise value technique
 
EBITDA multiple
 
(c)
2.8x
-
7.6x
 
5.1x
 
 
32,510

 
Enterprise value technique
 
Asset multiple
 
(c)
0.9x
-
1.1x
 
1.0x
 
 
55,343

 
Transactions precedent technique
 
Transaction price
 
(d)
N/A
-
N/A
 
N/A
 
 
212,539

 
Market quotations
 
Broker quoted price
 
(e)
N/A
-
N/A
 
N/A
Subordinated debt
 
30,608

 
Market yield technique
 
Market yield
 
(b)
10.4%
-
24.2%
 
14.2%
 
 
(1,082
)
 
Enterprise value technique
 
EBITDA multiple
 
(c)
4.8x
-
7.2x
 
6.4x
SLF JV I debt investments
 
129,333

 
Enterprise value technique
 
N/A
 
(f)
N/A
-
N/A
 
N/A
Preferred & common equity
 
24,654

 
Enterprise value technique
 
Revenue multiple
 
(c)
0.4x
-
10.9x
 
4.8x
 
 
41,286

 
Enterprise value technique
 
EBITDA multiple
 
(c)
2.8x
-
18.0x
 
8.7x
 
 
112

 
Enterprise value technique
 
Asset multiple
 
(c)
0.9x
-
1.1x
 
1.0x
Total
 
$
863,882

 
 
 
 
 
 
 
 
 
 
 
Secured borrowings
 
9,728

 
Enterprise value technique
 
EBITDA multiple
 
(c)
5.8x
-
6.0x
 
5.9x
Total
 
$
9,728

 
 
 
 
 
 
 
 
 
 
 
__________ 
(a)
Weighted averages are calculated based on fair value of investments or secured borrowings.
(b)
Used when market participant would take into account market yield when pricing the investment.
(c)
Used when market participant would use such multiples when pricing the investment or secured borrowings.
(d)
Used when there is an observable transaction or pending event for the investment.
(e)
The Company generally uses prices provided by an independent pricing service which are non-binding indicative prices on or near the valuation date as the primary basis for the fair value determinations for quoted senior secured debt investments. Since these prices are non-binding, they may not be indicative of fair value. The Company evaluates the quotations provided by pricing vendors and brokers based on available market information, including trading activity of the subject or similar securities, or by performing a comparable security analysis to ensure that fair values are reasonably estimated. Each quoted price is evaluated by the Audit Committee of the Company's Board of Directors in conjunction with additional information compiled by Oaktree.
(f)
The Company determined the value of its mezzanine notes of SLF JV I based on the total assets less the total liabilities senior to the mezzanine notes held at SLF JV I in an amount not exceeding par under the enterprise value technique.
Under the market yield technique, the significant unobservable input used in the fair value measurement of the Company's investments in debt securities is the market yield. Increases or decreases in the market yield may result in a lower or higher fair value measurement, respectively.
Under the enterprise value technique, the significant unobservable input used in the fair value measurement of the Company's investments in debt or equity securities and secured borrowings is the earnings before interest, taxes, depreciation and amortization ("EBITDA"), revenue or asset multiple, as applicable. Increases or decreases in the valuation multiples in isolation may result in a higher or lower fair value measurement, respectively.

 

39
OAKTREE SPECIALTY LENDING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share and per share amounts, percentages and as otherwise indicated)





Financial Instruments Disclosed, But Not Carried, At Fair Value
The following table presents the carrying value and fair value of the Company's financial liabilities disclosed, but not carried, at fair value as of December 31, 2018 and the level of each financial liability within the fair value hierarchy:
 
 
 
Carrying
Value
 
Fair Value
 
Level 1
 
Level 2
 
Level 3
Credit facility payable
 
$
211,000

 
$
211,000

 
$
—

 
$
—

 
$
211,000

Unsecured notes payable (net of unamortized financing costs)
 
386,839

 
382,485

 
—

 
155,948

 
226,537

Total
 
$
597,839

 
$
593,485

 
$
—

 
$
155,948

 
$
437,537

The following table presents the carrying value and fair value of the Company's financial liabilities disclosed, but not carried, at fair value as of September 30, 2018 and the level of each financial liability within the fair value hierarchy:
 
 
Carrying
Value
 
Fair Value
 
Level 1
 
Level 2
 
Level 3
Credit facility payable
 
$
241,000

 
$
241,000

 
$
—

 
$
—

 
$
241,000

Unsecured notes payable (net of unamortized financing costs)
 
386,485

 
393,144

 
—

 
162,626

 
230,518

Total
 
$
627,485

 
$
634,144

 
$
—

 
$
162,626

 
$
471,518

The principal value of the credit facility payable approximates fair value due to its variable interest rate and is included in Level 3 of the hierarchy.
The Company uses the non-binding indicative quoted price as of the valuation date to estimate the fair value of its 4.875% unsecured notes due 2019 ("2019 Notes"), which are included in Level 3 of the hierarchy.
The Company uses the unadjusted quoted price as of the valuation date to calculate the fair value of its 5.875% unsecured notes due 2024 ("2024 Notes") and its 6.125% unsecured notes due 2028 ("2028 Notes"), which currently trade under the symbol "OSLE" on the New York Stock Exchange and the symbol "OCSLL" on the Nasdaq Global Select Market, respectively. Although these securities are publicly traded, the market is relatively inactive, and accordingly, these securities are included in Level 2 of the hierarchy.

Portfolio Composition
Summaries of the composition of the Company's investment portfolio at cost as a percentage of total investments and at fair value as a percentage of total investments and net assets are shown in the following tables:
 
 
December 31, 2018
 
September 30, 2018
Cost:
 
 
 
 % of Total Investments
 
 
 
 % of Total Investments
Senior secured debt
 
$
1,232,608

 
77.65
%
 
$
1,200,242

 
74.69
%
Subordinated debt
 
143,184

 
9.02

 
190,430

 
11.85

Debt investments in SLF JV I
 
96,250

 
6.06

 
129,333

 
8.05

LLC equity interests of SLF JV I
 
49,322

 
3.11

 
16,172

 
1.01

Purchased equity
 
53,788

 
3.39

 
59,524

 
3.70

Equity grants
 
5,814

 
0.37

 
4,064

 
0.25

Limited partnership interests
 
6,344

 
0.40

 
7,168

 
0.45

Total
 
$
1,587,310

 
100.00
%
 
$
1,606,933

 
100.00
%

40
OAKTREE SPECIALTY LENDING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share and per share amounts, percentages and as otherwise indicated)





 
 
December 31, 2018
 
September 30, 2018
Fair Value:
 
 
 
 % of Total Investments
 
% of Net Assets
 
 
 
 % of Total Investments
 
% of Net Assets
Senior secured debt
 
$
1,172,054

 
80.01
%
 
134.36
%
 
$
1,124,408

 
75.40
%
 
131.05
%
Subordinated debt
 
114,460

 
7.81
%
 
13.12
%
 
163,550

 
10.97
%
 
19.06
%
Debt investments in SLF JV I
 
96,250

 
6.57
%
 
11.03
%
 
129,333

 
8.67
%
 
15.07
%
LLC equity interests of SLF JV I
 
26,000

 
1.77
%
 
2.98
%
 
41

 
0.00
%
 
0.00
%
Purchased equity
 
40,596

 
2.77
%
 
4.65
%
 
59,550

 
3.99
%
 
6.94
%
Equity grants
 
7,907

 
0.54
%
 
0.91
%
 
6,502

 
0.44
%
 
0.76
%
Limited partnership interests
 
7,618

 
0.53
%
 
0.87
%
 
7,817

 
0.53
%
 
0.91
%
Total
 
$
1,464,885

 
100.00
%
 
167.92
%
 
$
1,491,201

 
100.00
%
 
173.79
%

The geographic composition is determined by the location of the corporate headquarters of the portfolio company, which may not be indicative of the primary source of the portfolio company's business. The following tables show the portfolio composition by geographic region at cost as a percentage of total investments and at fair value as a percentage of total investments and net assets:
 
 
December 31, 2018
 
September 30, 2018
Cost:
 
 
 
 % of Total Investments
 
 
 
 % of Total Investments
Northeast
 
$
531,622

 
33.49
%
 
$
539,568

 
33.58
%
West
 
295,888

 
18.64
%
 
247,831

 
15.42
%
Midwest
 
284,606

 
17.93
%
 
278,632

 
17.34
%
International
 
164,760

 
10.38
%
 
155,657

 
9.69
%
Southeast
 
141,383

 
8.91
%
 
172,461

 
10.73
%
Southwest
 
130,925

 
8.25
%
 
200,904

 
12.50
%
South
 
26,246

 
1.65
%
 
—

 
—

Northwest
 
11,880

 
0.75
%
 
11,880

 
0.74
%
Total
 
$
1,587,310

 
100.00
%
 
$
1,606,933

 
100.00
%
 
 
December 31, 2018
 
September 30, 2018
Fair Value:
 
 
 
 % of Total Investments
 
% of Net Assets
 
 
 
 % of Total Investments
 
% of Net Assets
Northeast
 
$
483,838

 
33.03
%
 
55.45
%
 
$
495,942

 
33.26
%
 
57.80
%
West
 
266,899

 
18.22
%
 
30.60
%
 
230,117

 
15.43
%
 
26.82
%
Midwest
 
232,591

 
15.88
%
 
26.66
%
 
229,222

 
15.37
%
 
26.71
%
International
 
163,122

 
11.14
%
 
18.70
%
 
158,048

 
10.60
%
 
18.42
%
Southeast
 
141,139

 
9.63
%
 
16.18
%
 
177,024

 
11.87
%
 
20.63
%
Southwest
 
139,478

 
9.52
%
 
15.99
%
 
188,608

 
12.65
%
 
21.98
%
South
 
26,058

 
1.78
%
 
2.99
%
 
—

 
—

 
—

Northwest
 
11,760

 
0.80
%
 
1.35
%
 
12,240

 
0.82
%
 
1.43
%
Total
 
$
1,464,885

 
100.00
%
 
167.92
%
 
$
1,491,201

 
100.00
%
 
173.79
%
 
The composition of the Company's portfolio by industry at cost as a percentage of total investments and at fair value as a percentage of total investments and net assets as of December 31, 2018 and September 30, 2018 was as follows:

41
OAKTREE SPECIALTY LENDING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share and per share amounts, percentages and as otherwise indicated)





 
 
December 31, 2018
 
September 30, 2018
Cost:
 
 
 
 % of Total Investments
 
 
 
 % of Total Investments
Multi-sector holdings (1)
 
$
147,074

 
9.26
%
 
$
157,883

 
9.85
%
Healthcare services
 
131,532

 
8.29

 
119,468

 
7.43

Application software
 
87,894

 
5.54

 
85,875

 
5.34

Data processing & outsourced services
 
76,179

 
4.80

 
87,617

 
5.45

Property & casualty insurance
 
68,185

 
4.29

 
66,370

 
4.13

Biotechnology
 
65,944

 
4.15

 
11,880

 
0.74

Pharmaceuticals
 
57,711

 
3.63

 
69,098

 
4.30

Healthcare technology
 
51,223

 
3.23

 
51,283

 
3.19

Specialized finance
 
49,199

 
3.10

 
48,571

 
3.02

Healthcare equipment
 
47,456

 
2.99

 
47,901

 
2.98

Auto parts & equipment
 
42,635

 
2.69

 
42,633

 
2.65

Specialty stores
 
42,536

 
2.68

 
43,887

 
2.73

Advertising
 
42,405

 
2.67

 
42,405

 
2.64

Aerospace & defense
 
40,409

 
2.54

 
45,918

 
2.86

Research & consulting services
 
34,610

 
2.18

 
34,595

 
2.15

Technology distributors
 
34,413

 
2.17

 
34,375

 
2.14

Integrated telecommunication services
 
33,766

 
2.13

 
33,768

 
2.10

Airlines
 
32,199

 
2.03

 
32,602

 
2.03

Specialty chemicals
 
31,777

 
2.00

 
31,773

 
1.98

Oil & gas equipment & services
 
29,944

 
1.89

 
56,753

 
3.53

Systems software
 
29,230

 
1.84

 
15,898

 
0.99

Managed healthcare
 
27,770

 
1.75

 
27,812

 
1.73

Construction & engineering
 
25,958

 
1.63

 
30,437

 
1.89

Industrial machinery
 
24,777

 
1.56

 
30,127

 
1.87

Diversified support services
 
24,691

 
1.55

 
19,266

 
1.20

General merchandise stores
 
23,059

 
1.45

 
22,959

 
1.43

Food retail
 
22,695

 
1.43

 
22,052

 
1.37

Healthcare distributors
 
22,632

 
1.42

 
19,683

 
1.22

Oil & gas refining & marketing
 
22,272

 
1.40

 
22,493

 
1.40

Interactive media & services
 
21,761

 
1.37

 
—

 
—

Electrical components & equipment
 
21,416

 
1.35

 
38,831

 
2.42

Movies & entertainment
 
19,529

 
1.23

 
19,504

 
1.21

Personal products
 
19,089

 
1.20

 
19,327

 
1.20

Apparel, accessories & luxury goods
 
18,351

 
1.16

 
18,308

 
1.14

Oil & gas drilling
 
15,344

 
0.97

 
—

 
—

Education services
 
14,280

 
0.90

 
13,748

 
0.86

Oil & gas storage & transportation
 
11,640

 
0.73

 
—

 
—

Security & alarm services
 
11,041

 
0.70

 
11,071

 
0.69

Trading companies & distributors
 
10,460

 
0.66

 
6,981

 
0.43

Internet services & infrastructure
 
9,654

 
0.61

 
5,454

 
0.34

Household appliances
 
7,888

 
0.50

 
7,905

 
0.49

Coal & consumable fuels
 
7,294

 
0.46

 
7,329

 
0.46

Environmental & facilities services
 
5,927

 
0.37

 
5,923

 
0.37

Commercial printing
 
5,829

 
0.37

 
5,856

 
0.36

Leisure facilities
 
5,401

 
0.34

 
5,401

 
0.34

Thrifts & mortgage finance
 
4,842

 
0.31

 
5,344

 
0.33

Restaurants
 
3,121

 
0.20

 
3,129

 
0.19

Alternative carriers
 
1,985

 
0.13

 
—

 
—

Human resource & employment services
 
845

 
0.05

 
1,581

 
0.10

IT consulting & other services
 
750

 
0.05

 
750

 
0.05

Department stores
 
575

 
0.04

 
573

 
0.04

Other diversified financial services
 
113

 
0.01

 
113

 
0.01

Commodity chemicals
 
—

 
—

 
2,972

 
0.18

Consumer electronics
 
—

 
—

 
22,128

 
1.38

Hypermarkets & super centers
 
—

 
—

 
2,057

 
0.13

Investment banking & brokerage
 
—

 
—

 
12,539

 
0.78

Oil & gas exploration & production
 
—

 
—

 
34,727

 
2.16

Total
 
$
1,587,310

 
100.00
%
 
$
1,606,933

 
100.00
%

42
OAKTREE SPECIALTY LENDING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share and per share amounts, percentages and as otherwise indicated)





 
 
December 31, 2018
 
September 30, 2018
Fair Value:
 
 
 
 % of Total Investments
 
% of Net Assets
 
 
 
 % of Total Investments
 
% of Net Assets
Multi-sector holdings (1)
 
$
125,535

 
8.56
 %
 
14.40
 %
 
$
143,037

 
9.57
 %
 
16.66
 %
Healthcare services
 
85,260

 
5.82

 
9.77

 
67,039

 
4.50

 
7.81

Application software
 
82,302

 
5.62

 
9.43

 
96,457

 
6.47

 
11.24

Property & casualty insurance
 
68,008

 
4.64

 
7.80

 
67,409

 
4.52

 
7.86

Biotechnology
 
65,294

 
4.46

 
7.48

 
11,963

 
0.80

 
1.39

Data processing & outsourced services
 
62,242

 
4.25

 
7.13

 
74,266

 
4.98

 
8.66

Pharmaceuticals
 
60,017

 
4.10

 
6.88

 
71,946

 
4.82

 
8.39

Healthcare equipment
 
52,021

 
3.55

 
5.96

 
9,812

 
0.66

 
1.14

Healthcare technology
 
49,797

 
3.40

 
5.71

 
52,160

 
3.50

 
6.08

Specialized finance
 
48,167

 
3.29

 
5.52

 
48,248

 
3.24

 
5.62

Specialty stores
 
41,672

 
2.84

 
4.78

 
44,001

 
2.95

 
5.13

Auto parts & equipment
 
41,456

 
2.83

 
4.75

 
43,146

 
2.89

 
5.03

Aerospace & defense
 
40,217

 
2.75

 
4.61

 
46,338

 
3.11

 
5.40

Research & consulting services
 
36,237

 
2.47

 
4.15

 
36,359

 
2.44

 
4.24

Technology distributors
 
34,103

 
2.33

 
3.91

 
34,597

 
2.32

 
4.03

Airlines
 
33,477

 
2.29

 
3.84

 
32,510

 
2.18

 
3.79

Advertising
 
32,687

 
2.23

 
3.75

 
32,687

 
2.19

 
3.81

Specialty chemicals
 
29,394

 
2.01

 
3.37

 
30,704

 
2.06

 
3.58

Systems software
 
28,730

 
1.96

 
3.29

 
16,175

 
1.08

 
1.89

Managed healthcare
 
27,955

 
1.91

 
3.20

 
28,012

 
1.88

 
3.26

Integrated telecommunication services
 
26,736

 
1.83

 
3.06

 
28,358

 
1.90

 
3.30

Oil & gas equipment & services
 
25,768

 
1.76

 
2.95

 
59,822

 
4.01

 
6.97

Construction & engineering
 
24,808

 
1.69

 
2.84

 
31,930

 
2.14

 
3.72

Diversified support services
 
24,539

 
1.68

 
2.81

 
18,295

 
1.23

 
2.13

Industrial machinery
 
24,064

 
1.64

 
2.76

 
29,323

 
1.97

 
3.42

Food retail
 
22,901

 
1.56

 
2.63

 
22,050

 
1.48

 
2.57

Interactive media & services
 
22,111

 
1.51

 
2.53

 
—

 
—

 
—

Electrical components & equipment
 
21,857

 
1.49

 
2.51

 
40,238

 
2.70

 
4.69

Oil & gas refining & marketing
 
21,779

 
1.49

 
2.50

 
22,684

 
1.52

 
2.64

Healthcare distributors
 
21,526

 
1.47

 
2.47

 
19,395

 
1.30

 
2.26

General merchandise stores
 
20,762

 
1.42

 
2.38

 
23,058

 
1.55

 
2.69

Movies & entertainment
 
19,426

 
1.33

 
2.23

 
19,475

 
1.31

 
2.27

Personal products
 
19,154

 
1.31

 
2.20

 
19,500

 
1.31

 
2.27

Oil & gas drilling
 
15,408

 
1.05

 
1.77

 
—

 
—

 
—

Apparel, accessories & luxury goods
 
13,187

 
0.90

 
1.51

 
13,624

 
0.91

 
1.59

Oil & gas storage & transportation
 
11,770

 
0.80

 
1.35

 
—

 
—

 
—

Security & alarm services
 
10,446

 
0.71

 
1.20

 
10,865

 
0.73

 
1.27

Trading companies & distributors
 
10,320

 
0.70

 
1.18

 
7,009

 
0.47

 
0.82

Internet services & infrastructure
 
9,636

 
0.66

 
1.10

 
5,580

 
0.37

 
0.65

Leisure products
 
9,408

 
0.64

 
1.08

 
12,073

 
0.81

 
1.41

Leisure facilities
 
8,357

 
0.57

 
0.96

 
8,154

 
0.55

 
0.95

Household appliances
 
7,522

 
0.51

 
0.86

 
7,943

 
0.53

 
0.93

Coal & consumable fuels
 
7,245

 
0.49

 
0.83

 
7,525

 
0.50

 
0.88

Environmental & facilities services
 
6,158

 
0.42

 
0.71

 
6,189

 
0.42

 
0.72

Commercial printing
 
5,891

 
0.40

 
0.68

 
5,922

 
0.40

 
0.69

Thrifts & mortgage finance
 
4,334

 
0.30

 
0.50

 
4,759

 
0.32

 
0.55

Restaurants
 
3,060

 
0.21

 
0.35

 
3,076

 
0.21

 
0.36

Alternative carriers
 
1,945

 
0.13

 
0.22

 
—

 
—

 
—

Human resource & employment services
 
811

 
0.06

 
0.09

 
1,593

 
0.11

 
0.19

Department stores
 
535

 
0.04

 
0.06

 
581

 
0.04

 
0.07

IT consulting & other services
 
440

 
0.03

 
0.05

 
497

 
0.03

 
0.06

Education services
 
(1,590
)
 
(0.11
)
 
(0.18
)
 
(2,125
)
 
(0.14
)
 
(0.25
)
Commodity chemicals
 
—

 
—

 
—

 
3,101

 
0.21

 
0.36

Consumer electronics
 
—

 
—

 
—

 
23,438

 
1.57

 
2.73

Hypermarkets & super centers
 
—

 
—

 
—

 
2,082

 
0.14

 
0.24

Investment banking & brokerage
 
—

 
—

 
—

 
12,759

 
0.86

 
1.49

Oil & gas exploration & production
 
—

 
—

 
—

 
35,562

 
2.38

 
4.14

Total
 
$
1,464,885

 
100.00
 %
 
167.92
 %
 
$
1,491,201

 
100.00
 %
 
173.79
 %
___________________

(1)
This industry includes the Company's investment in SLF JV I.


43
OAKTREE SPECIALTY LENDING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share and per share amounts, percentages and as otherwise indicated)





As of December 31, 2018 and September 30, 2018, the Company had no single investment that represented greater than 10% of the total investment portfolio at fair value. Income, consisting of interest, dividends, fees, other investment income and realization of gains or losses, can fluctuate upon repayment or sale of an investment and in any given period can be highly concentrated among several investments. For the three months ended December 31, 2018 and 2017, no individual investment produced investment income that exceeded 10% of total investment income.

Senior Loan Fund JV I, LLC
In May 2014, the Company entered into an LLC agreement with Trinity Universal Insurance Company, a subsidiary of Kemper Corporation ("Kemper"), to form SLF JV I. On July 1, 2014, SLF JV I began investing in senior secured loans of middle-market companies and other corporate debt securities. The Company co-invests in these securities with Kemper through its investment in SLF JV I. SLF JV I is managed by a four person Board of Directors, two of whom are selected by the Company and two of whom are selected by Kemper. All portfolio decisions and investment decisions in respect of SLF JV I must be approved by the SLF JV I investment committee, which consists of one representative selected by the Company and one representative selected by Kemper (with approval from a representative of each required). Since the Company does not have a controlling financial interest in SLF JV I, the Company does not consolidate SLF JV I.
SLF JV I is capitalized pro rata with LLC equity interests as transactions are completed and may be capitalized with additional subordinated notes issued to the Company and Kemper by SLF JV I. On December 28, 2018, the Company and Kemper directed the redemption of their holdings of mezzanine notes issued by SLF Repack Issuer 2016, LLC, a wholly-owned, special purpose issuer subsidiary of SLF JV I. Upon such redemption, the assets collateralizing the mezzanine notes, which consisted of equity interests of SLF JV I Funding LLC (the "Equity Interests"), were distributed in-kind to each of the Company and Kemper, based upon their respective holdings of mezzanine notes. Upon such distribution, the Company and Kemper each then directed that a portion of their respective Equity Interests holdings be contributed to SLF JV I in exchange for LLC equity interests of SLF JV I and the remainder be applied as payment for the subordinated notes of SLF JV I.  SLF Repack Issuer 2016, LLC was dissolved following the foregoing redemption and liquidation. The subordinated notes issued by SLF JV I (the "SLF JV 1 Subordinated Notes") and the mezzanine notes issued by SLF Repack Issuer 2016, LLC (the "SLF Repack Notes") collectively are referred to as the SLF JV I Notes. Prior to the redemption on December 28, 2018, the SLF Repack Notes consisted of Class A mezzanine secured deferrable floating rate notes and Class B mezzanine secured deferrable fixed rate notes. The SLF JV I Subordinated Notes are (and the SLF Repack Notes were, prior to their redemption) senior in right of payment to SLF JV I LLC equity interests and subordinated in right of payment to SLF JV I’s secured debt. As of December 31, 2018, the Company and Kemper owned, in the aggregate, 87.5% and 12.5%, respectively, of the LLC equity interests of SLF JV I and the outstanding SLF JV I Subordinated Notes and as of September 30, 2018, the Company and Kemper owned in the aggregate, 87.5% and 12.5%, respectively, of the LLC equity interest in SLF JV I and the outstanding SLF Repack Notes.
SLF JV I has a senior revolving credit facility with Deutsche Bank AG, New York Branch (as amended, the "Deutsche Bank I Facility"), which permitted up to $200.0 million of borrowings as of December 31, 2018 and September 30, 2018. Borrowings under the Deutsche Bank I Facility are secured by all of the assets of SLF JV I Funding LLC, a special purpose financing subsidiary of SLF JV I. As of December 31, 2018, the reinvestment period of the Deutsche Bank I Facility was scheduled to expire June 28, 2021 and the maturity date for the Deutsche Bank I Facility was June 28, 2026. As of December 31, 2018, borrowings under the Deutsche Bank I Facility accrued interest at a rate equal to 3-month LIBOR plus 1.85% per annum during the reinvestment period and 3-month LIBOR plus 2.00% per annum during the amortization period. Under the Deutsche Bank I Facility, $143.0 million and $153.0 million of borrowings were outstanding as of December 31, 2018 and September 30, 2018, respectively.
As of December 31, 2018 and September 30, 2018, SLF JV I had total assets of $309.6 million and $314.2 million, respectively. SLF JV I's portfolio primarily consisted of senior secured loans to 42 and 40 portfolio companies as of December 31, 2018 and September 30, 2018, respectively. The portfolio companies in SLF JV I are in industries similar to those in which the Company may invest directly. As of December 31, 2018, the Company's investment in SLF JV I consisted of LLC equity interests of $26.0 million, at fair value, and SLF JV I Subordinated Notes of $96.3 million, at fair value. As of September 30, 2018, the Company's investment in SLF JV I consisted of LLC equity interests of $0.0 million, at fair value, and Class A mezzanine secured deferrable floating rate notes and Class B mezzanine secured deferrable fixed rate notes of $99.8 million and $29.5 million, at fair value, respectively.
As of each of December 31, 2018 and September 30, 2018, the Company and Kemper had funded approximately $165.5 million to SLF JV I, of which $144.8 million was from the Company. As of December 31, 2018 and September 30, 2018, the Company and Kemper had the option to fund additional SLF JV I Subordinated Notes, subject to additional equity funding to SLF JV I. As of each of December 31, 2018 and September 30, 2018, the Company had commitments to fund LLC equity interests in SLF JV I of $17.5 million, of which $1.3 million was unfunded.

44
OAKTREE SPECIALTY LENDING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share and per share amounts, percentages and as otherwise indicated)





Below is a summary of SLF JV I's portfolio, followed by a listing of the individual loans in SLF JV I's portfolio as of December 31, 2018 and September 30, 2018:
 
 
December 31, 2018
 
September 30, 2018
Senior secured loans (1)
 
$290,872
 
$297,053
Weighted average interest rate on senior secured loans (2)
 
7.20%
 
7.20%
Number of borrowers in SLF JV I
 
42
 
40
Largest exposure to a single borrower (1)
 
$17,512
 
$17,512
Total of five largest loan exposures to borrowers (1)
 
$58,329
 
$66,507
__________
(1) At principal amount.
(2) Computed using the weighted average annual interest rate on accruing senior secured loans at fair value.


45
OAKTREE SPECIALTY LENDING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share and per share amounts, percentages and as otherwise indicated)





SLF JV I Portfolio as of December 31, 2018
Portfolio Company
 
Industry
 
Investment Type
 
Maturity Date
 
Current Interest Rate(1)(2)
 
 Cash Interest Rate
 
Principal
 
Cost
 
Fair Value (3)
 Accudyne Industries, LLC
 
Industrial machinery
 
First Lien Term Loan B
 
8/18/2024
 
LIBOR+3% (1% floor)
 
5.52
%
 
$
8,906

 
$
8,906

 
$
8,474

AdVenture Interactive, Corp. (4)
 
Advertising
 
927 Common Stock Shares
 

 

 
 
 

 
1,390

 
670

AI Ladder (Luxembourg) Subco S.a.r.l.
(4)
 
 Electrical components & equipment
 
First Lien Term Loan B
 
7/9/2025
 
LIBOR+4.5%
 
7.02
%
 
6,225

 
6,050

 
6,174

 Air Newco LP
 
 IT consulting & other services
 
First Lien Term Loan B
 
5/31/2024
 
LIBOR+4.75%
 
7.14
%
 
9,975

 
9,950

 
9,900

 AL Midcoast Holdings LLC
 
 Oil & gas storage & transportation
 
First Lien Term Loan B
 
8/1/2025
 
LIBOR+5.5%
 
8.30
%
 
9,975

 
9,875

 
9,710

Allied Universal Holdco LLC (4)
 
Security & alarm services
 
First Lien Term Loan
 
7/28/2022
 
LIBOR+3.75% (1% floor)
 
6.27
%
 
6,894

 
6,936

 
6,559

 Altice France S.A.
 
 Integrated telecommunication services
 
First Lien Term Loan B13
 
8/14/2026
 
LIBOR+4%
 
6.46
%
 
7,500

 
7,319

 
7,105

 Alvogen Pharma US, Inc.
 
 Pharmaceuticals
 
First Lien Term Loan B
 
4/1/2022
 
LIBOR+4.75% (1% floor)
 
7.27
%
 
9,750

 
9,750

 
9,576

 Asset International, Inc.
 
 Research & consulting services
 
First Lien Term Loan
 
12/30/2024
 
LIBOR+4.5% (1% floor)
 
7.02
%
 
6,930

 
6,811

 
6,815

 Blackhawk Network Holdings, Inc.
 
 Data processing & outsourced services
 
First Lien Term Loan
 
6/15/2025
 
LIBOR+3%
 
5.52
%
 
9,950

 
9,927

 
9,502

Brazos Delaware II, LLC
 
 Oil & gas equipment & services
 
First Lien Term Loan B
 
5/21/2025
 
LIBOR+4%
 
6.47
%
 
7,463

 
7,429

 
6,872

Clearent Newco, LLC
 
Application software
 
First Lien Term Loan
 
3/20/2024
 
LIBOR+4% (1% floor)
 
6.52
%
 
6,877

 
6,788

 
6,704

 
 
 
 
Delayed Draw Term Loan
 
3/20/2024
 
LIBOR+4% (1% floor)
 
6.52
%
 
336

 
310

 
286

 
 
 
 
First Lien Revolver
 
3/20/2023
 
PRIME+4% (1% floor)
 
8.50
%
 
480

 
466

 
453

 Total Clearent Newco, LLC
 
 
 
 
 
 
 
 
 
 
 
7,693

 
7,564

 
7,443

DigiCert, Inc.
 
 Internet services & infrastructure
 
First Lien Term Loan
 
10/31/2024
 
LIBOR+4% (1% floor)
 
6.52
%
 
4,313

 
4,210

 
4,237

EOS Fitness Opco Holdings, LLC (4)
 
Leisure facilities
 
First Lien Term Loan
 
12/30/2019
 
LIBOR+8.25% (0.75% floor)
 
10.60
%
 
17,512

 
17,416

 
17,513

Eton (4)
 
 Research & consulting services
 
Second Lien Term Loan
 
5/1/2026
 
LIBOR+7.5% (0% floor)
 
10.02
%
 
6,000

 
5,972

 
6,030

Everi Payments Inc.
 
Casinos & gaming
 
First Lien Term Loan B
 
5/9/2024
 
LIBOR+3% (1% floor)
 
5.52
%
 
4,925

 
4,902

 
4,792

Falmouth Group Holdings Corp.
 
Specialty chemicals
 
First Lien Term Loan B
 
12/14/2021
 
LIBOR+6.75% (1% floor)
 
9.27
%
 
4,121

 
4,092

 
4,093

Gentiva Health Services Inc.
 
 Healthcare services
 
First Lien Term Loan
 
7/2/2025
 
LIBOR+3.75%
 
6.31
%
 
7,980

 
7,845

 
7,761

Gigamon Inc.
 
 Systems software
 
First Lien Term Loan
 
12/27/2024
 
LIBOR+4.25% (1% floor)
 
7.05
%
 
7,920

 
7,852

 
7,821

 GoodRx, Inc.
 
 Interactive media & services
 
First Lien Term Loan
 
10/10/2025
 
LIBOR+3%
 
5.43
%
 
8,000

 
7,981

 
7,740

 Intelsat Jackson Holdings S.A. (4)
 
 Alternative carriers
 
First Lien Term Loan B3
 
11/27/2023
 
LIBOR+3.75% (1% floor)
 
6.26
%
 
5,000

 
4,878

 
4,863

Keypath Education, Inc. (4)
 
 Advertising
 
First Lien Term Loan
 
4/3/2022
 
LIBOR+7% (1% floor) cash
 
9.80
%
 
1,854

 
1,852

 
1,854

 
 
 
 
927 shares Common Stock
 
 
 
 
 
 
 
 
 
1,088

 
816

 Total Keypath Education, Inc.
 
 
 
 
 
 
 
 
 
 
 
1,854

 
2,940

 
2,670


46
OAKTREE SPECIALTY LENDING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share and per share amounts, percentages and as otherwise indicated)





Portfolio Company
 
Industry
 
Investment Type
 
Maturity Date
 
Current Interest Rate(1)(2)
 
 Cash Interest Rate
 
Principal
 
Cost
 
Fair Value (3)
 KIK Custom Products Inc.
 
Household products
 
First Lien Term Loan B
 
5/15/2023
 
LIBOR+4% (1% floor) cash
 
6.52
%
 
$
8,000

 
$
7,966

 
$
7,570

 McDermott Technology (Americas), Inc. (4)
 
 Oil & gas equipment & services
 
First Lien Term Loan B
 
5/12/2025
 
LIBOR+5% (1% floor) cash
 
7.52
%
 
9,925

 
9,743

 
9,292

Morphe LLC (4)
 
Personal products
 
First Lien Term Loan
 
2/10/2023
 
LIBOR+6% (1% floor) cash
 
8.52
%
 
4,331

 
4,295

 
4,310

New IPT, Inc. (4)
 
 Oil & gas equipment & services
 
First Lien Term Loan
 
3/17/2021
 
LIBOR+5% (1% floor) cash
 
7.80
%
 
1,794

 
1,794

 
1,794

 
 
 
 
Second Lien Term Loan
 
9/17/2021
 
LIBOR+5.1% (1% floor) cash
 
7.90
%
 
394

 
394

 
394

 
 
 
 
21.876 Class A Common Units
 
 
 
 
 
 
 
—

 
—

 
1,001

Total New IPT, Inc.
 
 
 
 
 
 
 
 
 
 
 
2,188

 
2,188

 
3,189

Northern Star Industries Inc.
 
Electrical components & equipment
 
First Lien Term Loan B
 
3/31/2025
 
LIBOR+4.75% (1% floor) cash
 
7.55
%
 
6,948

 
6,916

 
6,939

Novetta Solutions, LLC
 
Application software
 
First Lien Term Loan
 
10/17/2022
 
LIBOR+5% (1% floor) cash
 
7.53
%
 
6,040

 
6,000

 
5,889

OCI Beaumont LLC
 
Commodity chemicals
 
First Lien Term Loan B
 
3/13/2025
 
LIBOR+4% (1% floor) cash
 
6.80
%
 
7,940

 
7,931

 
7,806

Refac Optical Group (4)(5)
 
Specialty stores
 
First Lien Term Loan A
 
1/9/2019
 
LIBOR+8% cash
 


 
2,123

 
1,940

 
2,123

Salient CRGT, Inc. (4)
 
Aerospace & defense
 
First Lien Term Loan
 
2/28/2022
 
LIBOR+5.75% (1% floor) cash
 
8.27
%
 
2,251

 
2,222

 
2,218

Scientific Games International, Inc.
 
Casinos & gaming
 
First Lien Term Loan B-5
 
8/14/2024
 
LIBOR+2.75% (1% floor) cash
 
5.25
%
 
6,565

 
6,537

 
6,183

Sequa Corp.
 
Aerospace & defense
 
First Lien Term Loan B
 
11/28/2021
 
LIBOR+5% (1% floor) cash
 
7.41
%
 
4,987

 
4,813

 
4,782

SHO Holding I Corporation
 
Footwear
 
First Lien Term Loan
 
11/18/2022
 
LIBOR+5% (1% floor) cash
 
7.53
%
 
8,485

 
8,464

 
8,050

Signify Health, LLC
 
 Healthcare services
 
First Lien Term Loan
 
12/23/2024
 
LIBOR+4.5% (1% floor) cash
 
7.30
%
 
9,925

 
9,838

 
9,975

Sirva Worldwide, Inc.
 
Diversified support services
 
First Lien Term Loan
 
8/4/2025
 
LIBOR+5.5% cash
 
8.06
%
 
5,000

 
4,925

 
4,913

Triple Royalty Sub LLC
 
 Pharmaceuticals
 
 Fixed Rate Bond 144A
 
4/15/2033
 
9% PIK
 


 
5,000

 
5,000

 
5,000

TV Borrower US, LLC
 
Integrated telecommunications services
 
First Lien Term Loan
 
2/22/2024
 
LIBOR+4.75% (1% floor) cash
 
7.55
%
 
2,013

 
2,006

 
2,003

Uber Technologies, Inc.
 
Application software
 
First Lien Term Loan
 
4/4/2025
 
LIBOR+4% (1% floor) cash
 
6.39
%
 
9,950

 
9,905

 
9,720

Uniti Group LP
 
Specialized REITs
 
First Lien Term Loan B
 
10/24/2022
 
LIBOR+3% (1% floor) cash
 
5.52
%
 
6,451

 
6,225

 
5,859

Veritas US Inc. (4)
 
Application software
 
First Lien Term Loan B-1
 
1/27/2023
 
LIBOR+4.5% (1% floor) cash
 
7.09
%
 
6,947

 
6,900

 
5,972

Verra Mobility, Corp.
 
Data processing & outsourced services
 
First Lien Term Loan B
 
2/28/2025
 
LIBOR+3.75% (1% floor) cash
 
6.27
%
 
10,917

 
10,933

 
10,672

WP CPP Holdings, LLC (4)
 
Aerospace & defense
 
Second Lien Term Loan
 
4/30/2026
 
LIBOR+7.75% (1% floor) cash
 
10.28
%
 
6,000

 
5,944

 
5,905

 
 
 
 
 
 
 
 
 
 
 
 
$
290,872


$
290,686

 
$
284,690

__________
(1) Represents the interest rate as of December 31, 2018. All interest rates are payable in cash, unless otherwise noted.
(2) The interest rate on the principal balance outstanding for all floating rate loans is indexed to LIBOR and/or an alternate base rate (e.g., prime rate), which typically resets semi-annually, quarterly, or monthly at the borrower's option. The borrower may also elect to have multiple interest reset periods for each loan. For each of these loans, the Company has provided the applicable margin over LIBOR or the alternate base rate based on each respective credit agreement and the cash interest rate as of period end. All LIBOR shown above is in U.S. dollars. As of December 31, 2018, the reference rates for SLF JV I's variable rate loans were the 30-day LIBOR at 2.52%, 60-day LIBOR at 2.62%, the 90-day LIBOR at 2.80%, the 180-day LIBOR at 2.88%, and the PRIME at 5.50%.
(3) Represents the current determination of fair value as of December 31, 2018 utilizing a similar technique as the Company in accordance with ASC 820. However, the determination of such fair value is not included in the Company's Board of Directors' valuation process described elsewhere herein.
(4) This investment is held by both the Company and SLF JV I as of December 31, 2018.


47
OAKTREE SPECIALTY LENDING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share and per share amounts, percentages and as otherwise indicated)





(5) This investment was on cash non-accrual status as of December 31, 2018. Cash non-accrual status is inclusive of PIK and other non-cash income, where applicable.

SLF JV I Portfolio as of September 30, 2018
Portfolio Company
 
Industry
 
Investment Type
 
Maturity Date
 
Current Interest Rate(1)(2)
 
 Cash Interest Rate
 
Principal
 
Cost
 
Fair Value (3)
 Accudyne Industries, LLC
 
Industrial machinery
 
First Lien Term Loan B
 
8/18/2024
 
LIBOR+3% (1% floor)
 
5.24
%
 
$
9,088

 
$
9,088

 
$
9,134

AdVenture Interactive, Corp. (4)
 
Advertising
 
927 Common Stock Shares
 
 
 
 
 
 
 
 
 
1,390

 
670

AI Ladder (Luxembourg) Subco S.a.r.l
 (4)
 
 Electrical components & equipment
 
First Lien Term Loan B
 
7/9/2025
 
LIBOR+4.5%
 
7.02
%
 
11,300

 
10,970

 
11,367

 Air Newco LP
 
 IT consulting & other services
 
First Lien Term Loan B
 
5/31/2024
 
LIBOR+4.75%
 
6.88
%
 
10,000

 
9,975

 
10,100

 AL Midcoast Holdings LLC
 
 Oil & gas storage & transportation
 
First Lien Term Loan B
 
8/1/2025
 
LIBOR+5.5%
 
7.84
%
 
10,000

 
9,900

 
10,041

Allied Universal Holdco LLC (4)
 
Security & alarm services
 
First Lien Term Loan
 
7/28/2022
 
LIBOR+3.75% (1% floor)
 
6.14
%
 
6,912

 
6,956

 
6,821

 Altice France S.A.
 
 Integrated telecommunication services
 
First Lien Term Loan B13
 
8/14/2026
 
LIBOR+4%
 
6.16
%
 
7,500

 
7,313

 
7,457

 Alvogen Pharma US, Inc.
 
 Pharmaceuticals
 
First Lien Term Loan B
 
4/1/2022
 
LIBOR+4.75% (1% floor)
 
6.99
%
 
9,822

 
9,822

 
9,918

 Asset International, Inc.
 
 Research & consulting services
 
First Lien Term Loan
 
12/30/2024
 
LIBOR+4.5% (1% floor)
 
6.89
%
 
6,948

 
6,824

 
6,917

 Blackhawk Network Holdings, Inc.
 
 
 Data processing & outsourced services
 
First Lien Term Loan
 
6/15/2025
 
LIBOR+3%
 
5.39
%
 
9,975

 
9,951

 
10,049

Brazos Delaware II, LLC
 
 Oil & gas equipment & services
 
First Lien Term Loan B
 
5/21/2025
 
LIBOR+4%
 
6.17
%
 
7,481

 
7,446

 
7,458

Chloe Ox Parent LLC
 
 Healthcare services
 
First Lien Term Loan
 
12/23/2024
 
LIBOR+4.5% (1% floor)
 
6.89
%
 
9,950

 
9,860

 
9,987

Clearent Newco, LLC
 
Application software
 
First Lien Term Loan
 
3/20/2024
 
LIBOR+4% (1% floor)
 
6.24
%
 
6,894

 
6,800

 
6,796

 
 
 
 
Delayed Draw Term Loan
 
3/20/2024
 
LIBOR+4% (1% floor)
 
6.19
%
 
337

 
310

 
309

 
 
 
 
First Lien Revolver
 
3/20/2023
 
PRIME+3% (1% floor)
 
8.00
%
 
852

 
837

 
836

 Total Clearent Newco, LLC
 
 
 
 
 
 
 
 
 
 
 
8,083

 
7,947

 
7,941

EOS Fitness Opco Holdings, LLC (4)
 
Leisure facilities
 
First Lien Term Loan
 
12/30/2019
 
LIBOR+8.25% (0.75% floor)
 
10.36
%
 
17,512

 
17,399

 
17,512

Eton (4)
 
 Research & consulting services
 
Second Lien Term Loan
 
5/1/2026
 
LIBOR+7.5%
 
9.74
%
 
6,000

 
5,971

 
6,030

Everi Payments Inc.
 
Casinos & gaming
 
First Lien Term Loan B
 
5/9/2024
 
LIBOR+3% (1% floor)
 
5.24
%
 
4,938

 
4,914

 
4,973

Falmouth Group Holdings Corp.
 
Specialty chemicals
 
First Lien Term Loan B
 
12/14/2021
 
LIBOR+6.75% (1% floor)
 
8.99
%
 
4,330

 
4,300

 
4,330

Garretson Resolution Group, Inc. (5)
 
Diversified support services
 
First Lien Term Loan
 
5/22/2021
 
LIBOR+6.5% (1% floor)
 
 
 
5,797

 
5,772

 
1,159

Gigamon Inc.
 
 Systems software
 
First Lien Term Loan
 
12/27/2024
 
LIBOR+4.5% (1% floor)
 
6.89
%
 
7,940

 
7,869

 
8,000

IBC Capital Ltd.
 
 Metal & glass containers
 
First Lien Term Loan B
 
9/11/2023
 
LIBOR+3.75%
 
6.09
%
 
8,955

 
8,933

 
9,028

InMotion Entertainment Group, LLC (4)
 
Consumer electronics
 
First Lien Term Loan A
 
10/1/2021
 
LIBOR+7.25% (1.25% floor)
 
9.65
%
 
8,375

 
8,389

 
8,375

 
 
 
 
First Lien Term Loan B
 
10/1/2021
 
LIBOR+7.25% (1.25% floor)
 
9.65
%
 
8,375

 
8,306

 
8,375

Total InMotion Entertainment Group, LLC
 
 
 
 
 
 
 
 
 
 
 
16,750

 
16,695

 
16,750


48
OAKTREE SPECIALTY LENDING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share and per share amounts, percentages and as otherwise indicated)





Portfolio Company
 
Industry
 
Investment Type
 
Maturity Date
 
Current Interest Rate(1)(2)
 
 Cash Interest Rate
 
Principal
 
Cost
 
Fair Value (3)
Keypath Education, Inc. (4)
 
 Advertising
 
First Lien Term Loan
 
4/3/2022
 
LIBOR+7% (1.00% floor) cash
 
9.39
%
 
$
1,855

 
$
1,853

 
$
1,854

 
 
 
 
927 shares Common Stock
 
 
 
 
 
 
 
 
 
1,088

 
816

 Total Keypath Education, Inc.
 
 
 
 
 
 
 
 
 
 
 
1,855

 
2,941

 
2,670

 KIK Custom Products Inc.
 
Household products
 
First Lien Term Loan B
 
5/15/2023
 
LIBOR+4% (1% floor) cash
 
6.24
%
 
8,000

 
7,965

 
7,975

 McDermott Technology (Americas) Inc. (4)
 
 Oil & gas equipment & services
 
First Lien Term Loan B
 
5/12/2025
 
LIBOR+5% (1% floor) cash
 
7.24
%
 
9,950

 
9,760

 
10,097

Morphe LLC (4)
 
Personal products
 
First Lien Term Loan
 
2/10/2023
 
LIBOR+6% (1% floor) cash
 
8.40
%
 
4,388

 
4,348

 
4,388

New IPT, Inc. (4)
 
 Oil & gas equipment & services
 
First Lien Term Loan
 
3/17/2021
 
LIBOR+5% (1% floor) cash
 
7.39
%
 
1,794

 
1,794

 
1,794

 
 
 
 
Second Lien Term Loan
 
9/17/2021
 
LIBOR+5.1% (1% floor) cash
 
7.49
%
 
634

 
634

 
634

 
 
 
 
21.876 Class A Common Units
 
 
 
 
 
 
 
—

 
—

 
1,001

Total New IPT, Inc.
 
 
 
 
 
 
 
 
 
 
 
2,428

 
2,428

 
3,429

Northern Star Industries Inc.
 
Electrical components & equipment
 
First Lien Term Loan B
 
3/31/2025
 
LIBOR+4.75% (1% floor) cash
 
7.08
%
 
6,965

 
6,933

 
6,974

Novetta Solutions, LLC
 
Application software
 
First Lien Term Loan B
 
10/17/2022
 
LIBOR+5% (1% floor) cash
 
7.25
%
 
6,055

 
6,012

 
5,881

OCI Beaumont LLC
 
Commodity chemicals
 
First Lien Term Loan B
 
3/13/2025
 
LIBOR+4% (1% floor) cash
 
6.39
%
 
7,960

 
7,951

 
8,089

Refac Optical Group (4)(5)
 
Specialty stores
 
First Lien Term Loan A
 
1/9/2019
 
LIBOR+8% cash
 
10.26
%
 
2,573

 
2,476

 
2,573

Salient CRGT, Inc. (4)
 
Aerospace & defense
 
First Lien Term Loan
 
2/28/2022
 
LIBOR+5.75% (1% floor) cash
 
7.99
%
 
2,267

 
2,235

 
2,301

Scientific Games International, Inc.
 
Casinos & gaming
 
First Lien Term Loan B-5
 
8/14/2024
 
LIBOR+2.75% (1% floor) cash
 
5.03
%
 
6,582

 
6,552

 
6,579

SHO Holding I Corporation
 
Footwear
 
First Lien Term Loan
 
11/18/2022
 
LIBOR+5% (1% floor) cash
 
7.34
%
 
8,507

 
8,484

 
8,082

 Sirva Worldwide, Inc.
 
Diversified support services
 
First Lien Term Loan
 
8/4/2025
 
LIBOR+5.5% cash
 
7.75
%
 
5,000

 
4,925

 
5,019

TravelCLICK, Inc. (4)
 
Data Processing & outsourced services
 
Second Lien Term Loan
 
11/6/2021
 
LIBOR+7.75% (1% floor) cash
 
9.99
%
 
2,871

 
2,871

 
2,871

TV Borrower US, LLC
 
Integrated telecommunications services
 
First Lien Term Loan
 
2/22/2024
 
LIBOR+4.75% (1% floor) cash
 
7.14
%
 
2,019

 
2,011

 
2,026

Uber Technologies Inc.
 
Application software
 
First Lien Term Loan
 
4/4/2025
 
LIBOR+4% (1% floor) cash
 
6.12
%
 
9,975

 
9,928

 
10,055

Uniti Group LP
 
Specialized REITs
 
First Lien Term Loan B
 
10/24/2022
 
LIBOR+3% (1% floor) cash
 
5.24
%
 
6,467

 
6,225

 
6,198

 Veritas US Inc.
 
Application software
 
First Lien Term Loan B-1
 
1/27/2023
 
LIBOR+4.5% (1% floor) cash
 
6.78
%
 
6,965

 
6,915

 
6,801

 Verra Mobility, Corp. (4)
 
Data processing & outsourced services
 
First Lien Term Loan B
 
2/28/2025
 
LIBOR+3.75% (1% floor) cash
 
5.99
%
 
10,945

 
10,961

 
11,013

 WP CPP Holdings, LLC
 
Aerospace & defense
 
Second Lien Term Loan
 
4/30/2026
 
LIBOR+7.75% cash
 
10.15
%
 
6,000

 
5,942

 
6,013

 
 
 
 
 
 
 
 
 
 
 
 
$
297,053

 
$
297,158

 
$
294,676

__________
(1) Represents the interest rate as of September 30, 2018. All interest rates are payable in cash, unless otherwise noted.
(2) The interest rate on the principal balance outstanding for all floating rate loans is indexed to LIBOR and/or an alternate base rate (e.g., prime rate), which typically resets semi-annually, quarterly, or monthly at the borrower's option. The borrower may also elect to have multiple interest reset periods for each loan. For each of these loans, the Company has provided the applicable margin over LIBOR or the alternate base rate based on each respective credit agreement and the cash interest rate as of period end. All LIBOR shown above is in U.S. dollars. As of September 30, 2018, the reference rates for SLF JV I's variable rate loans were the 30-day LIBOR at 2.24%, 60-day LIBOR at 2.29%, the 90-day LIBOR at 2.39%, the 180-day LIBOR at 2.59% and the PRIME at 5.25%.
(3) Represents the current determination of fair value as of September 30, 2018 utilizing a similar technique as the Company in accordance with ASC 820. However, the determination of such fair value is not included in the Company's Board of Directors' valuation process described elsewhere herein.
(4) This investment is held by both the Company and SLF JV I as of September 30, 2018.


49
OAKTREE SPECIALTY LENDING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share and per share amounts, percentages and as otherwise indicated)





(5) This investment was on cash non-accrual status as of September 30, 2018. Cash non-accrual status is inclusive of PIK and other non-cash income, where applicable.

Both the cost and fair value of the subordinated notes of SLF JV I held by the Company were $96.3 million as of December 31, 2018. Both the cost and fair value of the mezzanine notes held by the Company were $129.3 million as of September 30, 2018. The Company earned cash interest of $2.8 million on our investments in the SLF JV I Notes for the three months ended December 31, 2018. The Company earned interest of $2.8 million, including $1.0 million of PIK interest, on its investments in the mezzanine notes for the three months ended December 31, 2017. The subordinated notes bear interest at a rate of one-month LIBOR plus 7.0% per annum and mature on December 29, 2028. On June 28, 2018, the Class B mezzanine secured deferrable fixed rate notes were amended to bear interest at a fixed cash rate of 10% per annum. Prior to such amendment, these notes bore interest at a fixed PIK rate of 15% per annum.
The cost and fair value of the LLC equity interests in SLF JV I held by the Company was $49.3 million and $26.0 million, respectively, as of December 31, 2018, and $16.2 million and $0.0 million, respectively, as of September 30, 2018. The Company did not earn dividend income for each of the three months ended December 31, 2018 and 2017 with respect to its investment in the LLC equity interests of SLF JV I. The LLC equity interests of SLF JV I are dividend producing to the extent SLF JV I has residual cash to be distributed on a quarterly basis.
Below is certain summarized financial information for SLF JV I as of December 31, 2018 and September 30, 2018 and for the three months ended December 31, 2018 and 2017:
 
 
December 31, 2018
 
September 30, 2018
Selected Balance Sheet Information:
 
 
 
 
Investments in loans at fair value (cost December 31, 2018: $290,686; cost September 30, 2018: $297,158)
 
$
284,690

 
$
294,676

Receivables from secured financing arrangements at fair value (cost December 31, 2018: $9,801; cost September 30, 2018: $9,801)
 
7,127

 
7,069

Cash and cash equivalents
 
8,512

 
3,226

Restricted cash
 
4,826

 
4,808

Other assets
 
4,460

 
4,418

Total assets
 
$
309,615

 
$
314,197

 
 
 
 
 
Senior credit facility payable
 
$
143,010

 
$
153,010

Debt securities payable at fair value (proceeds December 31, 2018: $110,000; proceeds September 30, 2018: $147,808)
 
110,000

 
147,808

Other liabilities
 
26,891

 
13,331

Total liabilities
 
$
279,901

 
$
314,149

Members' equity
 
29,714

 
48

Total liabilities and members' equity
 
$
309,615

 
$
314,197



50
OAKTREE SPECIALTY LENDING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share and per share amounts, percentages and as otherwise indicated)





 
 
Three months ended December 31, 2018
 
Three months ended December 31, 2017
Selected Statements of Operations Information:
 
 
 
 
Interest income
 
$
5,438

 
$
4,728

Other income
 
9

 
—

Total investment income
 
5,447

 
4,728

Interest expense
 
5,154

 
5,145

Other expenses
 
50

 
161

Total expenses (1)
 
5,204

 
5,306

Net unrealized depreciation
 
(3,456
)
 
(226
)
Net realized loss
 
(5,005
)
 
(4
)
Net loss
 
$
(8,218
)
 
$
(808
)
 __________
(1) There are no management fees or incentive fees charged at SLF JV I.
SLF JV I has elected to fair value the debt securities issued to the Company and Kemper under ASC 825. The debt securities are valued based on the total assets less the total liabilities senior to the mezzanine notes of SLF JV I in an amount not exceeding par under the enterprise value technique.
During the three months ended December 31, 2018 and 2017, the Company did not sell any debt investments to SLF JV I.

Note 4. Fee Income
For the three months ended December 31, 2018 and 2017, the Company recorded total fee income of $1.2 million and $1.0 million, respectively, of which $0.1 million and $0.1 million, respectively, was recurring in nature. Recurring fee income primarily consisted of servicing fees and exit fees.

Note 5. Share Data and Distributions
Earnings per Share

The following table sets forth the computation of basic and diluted earnings per share, pursuant to FASB ASC Topic 260-10, Earnings per Share, for the three months ended December 31, 2018 and 2017:
(Share amounts in thousands)
 
Three months ended
December 31, 2018
 
Three months ended
December 31, 2017
Earnings (loss) per common share — basic and diluted:
 
 
 
 
Net increase (decrease) in net assets resulting from operations
 
$
27,718

 
$
(30,441
)
Weighted average common shares outstanding — basic
 
140,961

 
140,961

Earnings (loss) per common share — basic and diluted
 
$
0.20

 
$
(0.22
)

Distributions
Distributions to common stockholders are recorded on the ex-dividend date. The Company is required to distribute dividends each taxable year to its stockholders of an amount generally at least equal to 90% of its investment company taxable income, determined without regard to any deduction for dividends paid, in order to be eligible for tax benefits allowed to a RIC under Subchapter M of the Code. The Company anticipates paying out as a distribution all or substantially all of those amounts. The amount to be paid out as a dividend is determined by the Board of Directors and is based on management’s estimate of the Company’s annual taxable income. Net realized capital gains, if any, are generally distributed, although the Company may decide to retain such net realized capital gains for investment.
The Company has adopted a dividend reinvestment plan (“DRIP”) that provides for reinvestment of any distributions the Company declares in cash on behalf of its stockholders, unless a stockholder elects to receive cash. As a result, if the Company’s Board

51
OAKTREE SPECIALTY LENDING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share and per share amounts, percentages and as otherwise indicated)





of Directors declares a cash distribution, then the Company’s stockholders who have not “opted out” of the Company’s DRIP will have their cash distribution automatically reinvested in additional shares of the Company’s common stock, rather than receiving the cash distribution. If the Company’s shares are trading at a premium to net asset value, the Company typically issues new shares to implement the DRIP with such shares issued at the greater of the most recently computed net asset value per share of common stock or 95% of the current market price per share of common stock on the payment date for such distribution. If the Company’s shares are trading at a discount to net asset value, the Company typically purchases shares in the open market in connection with the Company’s obligations under the DRIP.
For income tax purposes, the Company has reported its distributions for the 2018 calendar year as primarily ordinary income. The character of such distributions is appropriately reported to the Internal Revenue Service and stockholders for the 2018 calendar year. To the extent the Company’s taxable earnings for a fiscal and taxable year fall below the amount of distributions paid for the fiscal and taxable year, a portion of the total amount of the Company’s distributions for the fiscal and taxable year is deemed a return of capital rather than dividend income for tax purposes to the Company’s stockholders.
The following table reflects the distributions per share that the Company has paid, including shares issued under the DRIP, on its common stock during the three months ended December 31, 2018 and 2017:
Date Declared
 
Record Date
 
Payment Date
 
Amount
per Share
 
Cash
Distribution
 
DRIP Shares
Issued (1)
 
DRIP Shares
Value
November 19, 2018
 
December 17, 2018
 
December 28, 2018
 
$
0.095

 
$ 13.0 million
 
87,429

 
$ 0.4 million
Total for the three months ended December 31, 2018
 
$
0.095

 
$ 13.0 million
 
87,429

 
$ 0.4 million
 
 
 
 
 
 
 
 
 
 
 
 
 
Date Declared
 
Record Date
 
Payment Date
 
Amount
per Share
 
Cash
Distribution
 
DRIP Shares
Issued (1)
 
DRIP Shares
Value
August 7, 2017
 
December 15, 2017
 
December 29, 2017
 
$
0.125

 
$ 17.3 million
 
58,456

 
$ 0.3 million
Total for the three months ended December 31, 2017
 
$
0.125

 
$ 17.3 million
 
58,456

 
$ 0.3 million
 __________
(1) Shares were purchased on the open market and distributed.

Common Stock Offering
There were no common stock offerings during the three months ended December 31, 2018 and 2017.

Note 6. Borrowings
ING Facility
On November 30, 2017, the Company entered into a senior secured revolving credit facility (as amended, the “ING Facility”) pursuant to a Senior Secured Revolving Credit Agreement (as amended, the “ING Credit Agreement”) with the lenders party thereto, ING Capital LLC, as administrative agent, ING Capital LLC, JPMorgan Chase Bank, N.A. and Merrill Lynch, Pierce, Fenner & Smith Incorporated as joint lead arrangers and joint bookrunners, and JPMorgan Chase Bank, N.A. and Bank of America, N.A., as syndication agents. The ING Facility provides that the Company may use the proceeds of the loans and issuances of letters of credit under the ING Facility for general corporate purposes, including acquiring and funding leveraged loans, mezzanine loans, high-yield securities, convertible securities, preferred stock, common stock and other investments. The ING Credit Agreement further allows the Company to request letters of credit from ING Capital LLC, as the issuing bank.
The ING Facility permits up to $600 million of borrowings and includes an “accordion” feature that permits the Company, under certain circumstances, to increase the size of the ING Facility up to $800 million. Borrowings under the ING Credit Agreement bear interest at a rate equal to, at the Company’s election, either (a) LIBOR (1-, 2-, 3- or 6-month, at the Company’s option) plus a margin of 2.25%, 2.50% or 2.75% per annum depending on the Company’s senior debt coverage ratio as calculated under the ING Credit Agreement, with no LIBOR floor or (b) an alternate base rate plus a margin of 1.25%, 1.50% or 1.75% per annum depending on the Company’s senior debt coverage ratio as calculated under the ING Credit Agreement. The period during which the Company may make drawings under the ING Facility expires on November 29, 2020 (the “Revolving Termination Date”) and the final maturity date of the ING Facility will occur one year following the Revolving Termination Date.
The ING Facility is secured by substantially all of the Company’s assets (excluding, among other things, investments held in and by certain subsidiaries of the Company or investments in certain portfolio companies of the Company) and guaranteed by certain subsidiaries of the Company pursuant to a Guarantee, Pledge and Security Agreement (“ING Security Agreement”) entered into in connection with the ING Credit Agreement, among the Company, the other obligors party thereto, and ING Capital LLC, as collateral agent to the secured parties. The Company pledged its entire equity interest in certain subsidiaries to the collateral agent pursuant to the

52
OAKTREE SPECIALTY LENDING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share and per share amounts, percentages and as otherwise indicated)





terms of the ING Security Agreement. As of December 31, 2018, except for assets that were held by the Excluded Subsidiaries and certain other immaterial subsidiaries, substantially all of the Company's assets are pledged as collateral under the ING Facility.
The ING Credit Agreement and related agreements governing the ING Facility require the Company to, among other things, (i) make representations and warranties regarding the collateral as well as each of the Company’s portfolio companies’ businesses, (ii) agree to certain indemnification obligations, and (iii) comply with various affirmative and negative covenants, reporting requirements and other customary requirements for similar revolving credit facilities, including covenants related to: (A) limitations on the incurrence of additional indebtedness and liens, (B) limitations on certain investments, (C) limitations on certain asset transfers and restricted payments, (D) maintaining a certain minimum stockholders’ equity, (E) maintaining a ratio of total assets (less total liabilities) to total indebtedness, of the Company and its subsidiaries (subject to certain exceptions), of not less than 2.0 to 1.0, (F) maintaining a ratio of consolidated EBITDA to consolidated interest expense, of the Company and its subsidiaries (subject to certain exceptions), of not less than (1) 2.0 to 1.0 until November 30, 2018 and (2) 2.25 to 1.00 thereafter, (G) maintaining a minimum liquidity and net worth, and (H) limitations on the creation or existence of agreements that prohibit liens on certain properties of the Company and certain of its subsidiaries. The ING Facility also includes usual and customary default provisions such as the failure to make timely payments under the ING Facility, the occurrence of a change in control, and the failure by the Company to materially perform under the ING Credit Agreement and related agreements governing the ING Facility, which, if not complied with, could accelerate repayment under the ING Facility. As of December 31, 2018, the Company was in compliance with all financial covenants under the ING Facility.
Each loan or letter of credit originated under the ING Facility is subject to the satisfaction of certain conditions. The Company cannot be assured that it will be able to borrow funds under the ING Facility at any particular time or at all.
From May 27, 2010 through November 30, 2017, the Company was party to a secured syndicated revolving credit facility with certain lenders party thereto from time to time and ING Capital LLC, as administrative agent (as amended, the “Prior ING Facility”). In connection with the entry into the ING Credit Agreement, the Company repaid all outstanding borrowings under the Prior ING Facility following which the Prior ING Facility was terminated. Obligations under the Prior ING Facility would have otherwise matured on August 6, 2018. During the three months ended December 31, 2017, the Company expensed $0.2 million of unamortized deferred financing costs related to the Prior ING Facility.
As of December 31, 2018, the Company had $211.0 million of borrowings outstanding under the ING Facility, which had a fair value of $211.0 million. The Company's borrowings under the ING Facility bore interest at a weighted average interest rate of 4.677% for the three months ended December 31, 2018. As of September 30, 2018, the Company had $241.0 million of borrowings outstanding under the ING Facility. The Company’s borrowings under the Prior ING Facility bore interest at a weighted average interest rate of 3.705% for the period from October 1, 2017 to November 30, 2017 and the Company’s borrowings under the ING Facility bore interest at a weighted average interest rate of 3.961% for the period from November 30, 2017 to December 31, 2017. For the three months ended December 31, 2018 and 2017, the Company recorded interest expense of $3.3 million and $2.7 million in the aggregate, related to the ING Facility and the Prior ING Facility.
Sumitomo Facility
On September 16, 2011, a consolidated wholly-owned bankruptcy remote, special purpose subsidiary of the Company entered into a Loan and Servicing Agreement (as subsequently amended, the "Sumitomo Agreement") with respect to a credit facility (as amended, "Sumitomo Facility") with Sumitomo Mitsui Banking Corporation, an affiliate of Sumitomo Mitsui Financial Group, Inc., as administrative agent, and each of the lenders from time to time party thereto.
Prior to its termination on November 24, 2017, the Sumitomo Facility permitted up to $125 million of borrowings (subject to collateral requirements). Borrowings under the Sumitomo Facility bore interest at a rate of either (i) LIBOR (1-month) plus 2.00% per annum, with no LIBOR floor, if the borrowings under the Sumitomo Facility were greater than 35% of the aggregate available borrowings under the Sumitomo Facility or (ii) LIBOR (1-month) plus 2.25% per annum, if the borrowings under the Sumitomo Facility were less than or equal to 35% of the aggregate available borrowings under the Sumitomo Facility. The period during which the Company could have made and reinvested borrowings under the Sumitomo Facility expired on September 16, 2017. On November 24, 2017, the borrower under the Sumitomo Facility, repaid all outstanding borrowings thereunder, following which the Sumitomo Facility was terminated. Obligations under the Sumitomo Facility would have otherwise matured on the earlier of August 6, 2018 or the date on which the Prior ING Facility was repaid, refinanced or terminated.
As of December 31, 2018 and September 30, 2018, there were no borrowings outstanding under the Sumitomo Facility. The Company's borrowings under the Sumitomo Facility bore interest at a weighted average interest rate of 3.501% for the period from October 1, 2017 through termination on November 24, 2017. For the period from October 1, 2017 through termination on November 24, 2017, the Company recorded interest expense of $0.7 million, including $0.6 million of debt issuance costs that were expensed, related to the Sumitomo Facility.

53
OAKTREE SPECIALTY LENDING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share and per share amounts, percentages and as otherwise indicated)





See Notes 13 through 14 for discussion of additional debt obligations of the Company.

Note 7. Interest and Dividend Income
See Note 2 for a description of the Company's accounting treatment of investment income.
 
As of December 31, 2018 and September 30, 2018, there were seven and eight investments, respectively, on which the Company had stopped accruing cash and/or PIK interest or OID income. The percentages of the Company's debt investments at cost and fair value by accrual status as of December 31, 2018 and September 30, 2018 were as follows: 
 
 
December 31, 2018
 
September 30, 2018
 
 
Cost
 
% of Debt
Portfolio
 
Fair
Value
 
% of Debt
Portfolio
 
Cost
 
% of Debt
Portfolio
 
Fair
Value
 
% of Debt
Portfolio
Accrual
 
$
1,262,978

 
85.79
%
 
$
1,250,409

 
90.43
%
 
$
1,298,999

 
85.46
%
 
$
1,318,531

 
93.03
%
PIK non-accrual (1)
 
51,771

 
3.52

 
40,715

 
2.94

 
12,661

 
0.83

 
—

 
—

Cash non-accrual (2)
 
157,293

 
10.69

 
91,640

 
6.63

 
208,345

 
13.71

 
98,760

 
6.97

Total
 
$
1,472,042

 
100.00
%
 
$
1,382,764

 
100.00
%
 
$
1,520,005

 
100.00
%
 
$
1,417,291

 
100.00
%
 ___________________
(1)
PIK non-accrual status is inclusive of other non-cash income, where applicable.
(2)
Cash non-accrual status is inclusive of PIK and other non-cash income, where applicable.

 Note 8. Taxable/Distributable Income and Dividend Distributions
Taxable income differs from net increase (decrease) in net assets resulting from operations primarily due to: (1) unrealized appreciation (depreciation) on investments, secured borrowings and foreign currency, as gains and losses are not included in taxable income until they are realized; (2) origination and exit fees received in connection with investments in portfolio companies; (3) organizational costs; (4) income or loss recognition on exited investments; (5) recognition of interest income on certain loans and (6) related to investments in controlled foreign corporations.
As of September 30, 2018, the Company had net capital loss carryforwards of $535.1 million to offset net capital gains, to the extent available and permitted by U.S. federal income tax law. Of the capital loss carryforwards, $10.3 million will expire on September 30, 2019 and $524.8 million will not expire, of which $135.1 million are available to offset future short-term capital gains and $389.7 million are available to offset future long-term capital gains.
Listed below is a reconciliation of "net increase (decrease) in net assets resulting from operations" to taxable income for the three months ended December 31, 2018 and 2017.
 
 
Three months ended
December 31,
2018
 
Three months ended
December 31,
2017
Net increase (decrease) in net assets resulting from operations
 
$
27,718

 
$
(30,441
)
Net unrealized appreciation (depreciation)
 
6,975

 
43,472

Book/tax difference due to loan fees
 
—

 
264

Book/tax difference due to organizational costs
 
(10
)
 
(22
)
Book/tax difference due to interest income on certain loans
 
878

 
—

Book/tax difference due to capital losses not recognized / (recognized)
 
(17,702
)
 
591

Other book/tax differences
 
586

 
(1,206
)
Taxable/Distributable Income (1)
 
$
18,445

 
$
12,658

(1) The Company's taxable income for the three months ended December 31, 2018 is an estimate and will not be finally determined until the Company files its tax return for the fiscal year ending September 30, 2019. Therefore, the final taxable income may be different than the estimate.
The Company uses the liability method to account for its taxable subsidiaries' income taxes. Using this method, the Company recognizes deferred tax assets and liabilities for the estimated future tax effects attributable to temporary differences between financial reporting and tax bases of assets and liabilities. In addition, the Company recognizes deferred tax benefits associated with net loss carry

54
OAKTREE SPECIALTY LENDING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share and per share amounts, percentages and as otherwise indicated)





forwards that it may use to offset future tax obligations. The Company measures deferred tax assets and liabilities using the enacted tax rates expected to apply to taxable income in the years in which it expects to recover or settle those temporary differences.
For the three months ended December 31, 2018, the Company recognized a total provision for income taxes of $0.6 million which was comprised of (i) current income taxes of approximately $0.5 million, as a result of realized gains on investments held by the Company's wholly-owned taxable subsidiaries, and (ii) deferred income taxes of approximately $0.1 million, which was the net effect of a deferred tax liability of $0.2 million resulting from unrealized appreciation on investments held by the Company’s wholly-owned taxable subsidiaries and a deferred tax asset of $0.1 million resulting from unrealized depreciation on investments and capital losses of the Company’s wholly-owned taxable subsidiaries.
As a RIC, the Company is also subject to a U.S. federal excise tax based on distribution requirements of its taxable income on a calendar year basis. The Company anticipates timely distribution of its taxable income in accordance with tax rules. The Company did not incur a U.S. federal excise tax for calendar years 2017 and 2018 and does not expect to incur a U.S. federal excise tax for calendar year 2019.
As of September 30, 2018, the Company's last tax year end, the components of accumulated overdistributed earnings on a tax basis were as follows:
Undistributed ordinary income, net
$
—

Net realized capital losses
(535,102
)
Unrealized losses, net
(101,011
)
The aggregate cost of investments for income tax purposes was $1.6 billion as of September 30, 2018. As of September 30, 2018, the aggregate gross unrealized appreciation for all investments in which there was an excess of value over cost for income tax purposes was $77.8 million. As of September 30, 2018, the aggregate gross unrealized depreciation for all investments in which there was an excess of cost for income tax purposes over value was $178.8 million. Net unrealized depreciation based on the aggregate cost of investments for income tax purposes was $101.0 million.

55
OAKTREE SPECIALTY LENDING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share and per share amounts, percentages and as otherwise indicated)






Note 9. Realized Gains or Losses and Net Unrealized Appreciation or Depreciation
Realized Gains or Losses
Realized gains or losses are measured by the difference between the net proceeds from the sale or redemption and the cost basis of the investment without regard to unrealized appreciation or depreciation previously recognized, and include investments written-off during the period, net of recoveries. Realized losses may also be recorded in connection with the Company's determination that certain investments are considered worthless securities and/or meet the conditions for loss recognition per the applicable tax rules.
During the three months ended December 31, 2018, the Company recorded net realized gains of $18.0 million, which consisted of the following:
($ in millions)
 
Portfolio Company
Net Realized Gains
 BeyondTrust Holdings LLC
$
12.4

 InMotion Entertainment Group, LLC
2.7

 YETI Holdings, Inc.
2.7

 Other, net
0.2

Total, net
$
18.0

During the three months ended December 31, 2017, the Company recorded net realized losses of $0.3 million in connection with the sale of various debt investments in the open market.
Net Unrealized Appreciation or Depreciation
Net unrealized appreciation or depreciation reflects the net change in the valuation of the portfolio pursuant to the Company's valuation guidelines and the reclassification of any prior period unrealized appreciation or depreciation.
During the three months ended December 31, 2018 and 2017, the Company recorded net unrealized depreciation of $7.0 million and $43.5 million, respectively. For the three months ended December 31, 2018, this consisted of $15.5 million of net reclassifications to realized gains (resulting in unrealized depreciation), $5.6 million of net unrealized depreciation on equity investments and $0.4 million of net unrealized depreciation of foreign currency forward contracts, partially offset by $14.5 million of net unrealized appreciation on debt investments. For the three months ended December 31, 2017, this consisted of $39.0 million of net unrealized depreciation on debt investments, $3.8 million of net unrealized depreciation on equity investments and $2.3 million of net reclassifications to realized gains (resulting in unrealized depreciation), offset by $1.6 million of net unrealized depreciation of secured borrowings.
Note 10. Concentration of Credit Risks
The Company deposits its cash with financial institutions and at times such balances may be in excess of the FDIC insurance limit. The Company limits its exposure to credit loss by depositing its cash with high credit quality financial institutions and monitoring their financial stability.
Note 11. Related Party Transactions

As of December 31, 2018 and September 30, 2018, the Company had a liability on its Consolidated Statements of Assets and Liabilities in the amount of $8.4 million and $8.2 million, respectively, reflecting the unpaid portion of the base management fees and incentive fees payable to Oaktree.
Investment Advisory Agreement
Effective October 17, 2017 and as of December 31, 2018, the Company is party to the Investment Advisory Agreement with Oaktree. Under the Investment Advisory Agreement, the Company pays Oaktree a fee for its services under the Investment Advisory Agreement consisting of two components: a base management fee and an incentive fee. The cost of both the base management fee payable to Oaktree and any incentive fees earned by Oaktree is ultimately borne by common stockholders of the Company.
Unless earlier terminated as described below, the Investment Advisory Agreement will remain in effect until October 17, 2019 and thereafter from year-to-year if approved annually by the Board of Directors of the Company or by the affirmative vote of the holders of a majority of the Company’s outstanding voting securities, including, in either case, approval by a majority of the

56
OAKTREE SPECIALTY LENDING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share and per share amounts, percentages and as otherwise indicated)





directors of the Company who are not interested persons. The Investment Advisory Agreement will automatically terminate in the event of its assignment. The Investment Advisory Agreement may be terminated by either party without penalty upon 60 days’ written notice to the other. The Investment Advisory Agreement may also be terminated, without penalty, upon the vote of a majority of the outstanding voting securities of the Company.
Base Management Fee

Under the Investment Advisory Agreement, the base management fee is calculated at an annual rate of 1.50% of total gross assets, including any investment made with borrowings, but excluding cash and cash equivalents. The base management fee is payable quarterly in arrears and the fee for any partial month or quarter is appropriately prorated.
For the three months ended December 31, 2018, the base management fee (net of waivers) incurred under the Investment Advisory Agreement was $5.5 million, which was payable to Oaktree. For the period from October 17, 2017 to December 31, 2017, the base management fee (net of waivers) incurred under the Investment Advisory Agreement was $4.4 million, which was payable to Oaktree.
Incentive Fee

The incentive fee consists of two parts. Under the Investment Advisory Agreement, the first part of the incentive fee (the “incentive fee on income” or "Part I incentive fee") is calculated and payable quarterly in arrears based upon the “pre-incentive fee net investment income” of the Company for the immediately preceding quarter. The payment of the incentive fee on income is subject to payment of a preferred return to investors each quarter (i.e., a “hurdle rate”), expressed as a rate of return on the value of the Company’s net assets at the end of the most recently completed quarter, of 1.50%, subject to a “catch up” feature.

For this purpose, “pre-incentive fee net investment income” means interest income, dividend income and any other income (including any other fees such as commitment, origination, structuring, diligence and consulting fees or other fees that the Company receives from portfolio companies, other than fees for providing managerial assistance) accrued during the fiscal quarter, minus the Company’s operating expenses for the quarter (including the base management fee, expenses payable under the Administration Agreement and any interest expense and dividends paid on any issued and outstanding preferred stock, but excluding the incentive fee). Pre-incentive fee net investment income includes, in the case of investments with a deferred interest feature (such as OID debt, instruments with PIK interest and zero coupon securities), accrued income that the Company has not yet received in cash. Pre-incentive fee net investment income does not include any realized capital gains, realized capital losses or unrealized capital appreciation or depreciation.

Under the Investment Advisory Agreement, the calculation of the incentive fee on income for each quarter is as follows:

•
No incentive fee is payable to Oaktree in any quarter in which the Company’s pre-incentive fee net investment income does not exceed the preferred return rate of 1.50% (the “preferred return”) on net assets;
•
100% of the Company’s pre-incentive fee net investment income, if any, that exceeds the preferred return but is less than or equal to 1.8182% in any fiscal quarter is payable to Oaktree. This portion of the incentive fee on income is referred to as the “catch-up” provision, and it is intended to provide Oaktree with an incentive fee of 17.5% on all of the Company’s pre-incentive fee net investment income when the Company’s pre-incentive fee net investment income exceeds 1.8182% on net assets in any fiscal quarter; and
•
For any quarter in which the Company’s pre-incentive fee net investment income exceeds 1.8182% on net assets, the incentive fee on income is equal to 17.5% of the amount of the Company’s pre-incentive fee net investment income, as the preferred return and catch-up will have been achieved.

There is no accumulation of amounts on the hurdle rate from quarter to quarter and accordingly there is no clawback of amounts previously paid if subsequent quarters are below the quarterly hurdle.

For the three months ended December 31, 2018, the first part of the incentive fee (incentive fee on income) incurred under the Investment Advisory Agreement was $3.7 million (prior to waivers). For the period from October 17, 2017 to December 31, 2017, the first part of the incentive fee incurred under the Investment Advisory Agreement was $0.8 million (prior to waivers).

Under the Investment Advisory Agreement, the second part of the incentive fee (capital gains incentive fee) is determined and payable in arrears as of the end of each fiscal year (or upon termination of the Investment Advisory Agreement, as of the termination date) commencing with the fiscal year ending September 30, 2019 and equals 17.5% of the Company’s realized capital gains, if any, on a cumulative basis from the beginning of the fiscal year ending September 30, 2019 through the end of each fiscal year, computed net

57
OAKTREE SPECIALTY LENDING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share and per share amounts, percentages and as otherwise indicated)





of all realized capital losses and unrealized capital depreciation on a cumulative basis, less the aggregate amount of any previously paid capital gain incentive fees under the Investment Advisory Agreement. Any realized capital gains or losses and unrealized capital depreciation with respect to the Company’s portfolio as of the end of the fiscal year ending September 30, 2018 will be excluded from the calculations of the second part of the incentive fee. As of December 31, 2018, the Company has not paid any capital gains incentive fees, and no amount is currently payable under the terms of the Investment Advisory Agreement.

GAAP requires that the capital gains incentive fee accrual consider the cumulative aggregate unrealized capital appreciation in the calculation, as a capital gains incentive fee would be payable if such unrealized capital appreciation were realized on a theoretical "liquidation basis." A fee so calculated and accrued would not be payable under applicable law and may never be paid based upon the computation of capital gain incentive fees in subsequent periods. Amounts ultimately paid under the Investment Advisory Agreement will be consistent with the formula reflected in the Investment Advisory Agreement. This GAAP accrual is calculated using the aggregate cumulative realized capital gains and losses and aggregate cumulative unrealized capital depreciation included in the calculation of the capital gains incentive fee plus the aggregate cumulative unrealized capital appreciation. Any realized capital gains and losses and cumulative unrealized capital appreciation and depreciation with respect to the Company’s portfolio as of the end of the fiscal year ending September 30, 2018 will be excluded from the GAAP accrual. If such amount is positive at the end of a period, then GAAP requires the Company to record a capital gains incentive fee equal to 17.5% of such cumulative amount, less the aggregate amount of actual capital gains incentive fees paid or capital gains incentive fees accrued under GAAP in all prior periods. The resulting accrual for any capital gains incentive fee under GAAP in a given period may result in an additional expense if such cumulative amount is greater than in the prior period or a reversal of previously recorded expense if such cumulative amount is less than in the prior period. If such cumulative amount is negative, then there is no accrual. There can be no assurance that such unrealized capital appreciation will be realized in the future or any accrued capital gains incentive fee will become payable under the Investment Advisory Agreement. For the three months ended December 31, 2018 the Company recorded a $1.8 million capital gains incentive fee accrual (prior to waivers).

To ensure compliance of the transactions contemplated by the Purchase Agreement with Section 15(f) of the Investment Company Act, Oaktree entered into a two-year contractual fee waiver with the Company pursuant to which Oaktree will waive, to the extent necessary, any management or incentive fees payable under the Investment Advisory Agreement that exceed what would have been paid to the Former Adviser in the aggregate under the Former Investment Advisory Agreement. Amounts potentially subject to waiver are accrued quarterly on a cumulative basis and, to the extent required, any actual fee waiver will be reimbursed as soon as practicable after the end of the two-year period. For the three months ended December 31, 2018, the Company accrued $1.5 million potentially subject to waiver, which included a full $1.8 million waiver of the capital gains incentive fee accrued during the three months ended December 31, 2018 and a $0.3 million reversal of waiver previously accrued related to the incentive fee on income. The accrued waiver associated with the capital gains incentive is based on a theoretical "liquidation basis" and may differ materially from the amounts that are actually waived, if any, pursuant to the contractual fee waiver at the end of the two-year period. For the three months ended December 31, 2017, the Company accrued $0.1 million potentially subject to waiver. As of December 31, 2018, the Company accrued $2.7 million of cumulative potential waiver, which was included in base management fee and incentive fee payable.
Indemnification

The Investment Advisory Agreement provides that, absent willful misfeasance, bad faith or gross negligence in the performance of their respective duties or by reason of the reckless disregard of their respective duties and obligations, Oaktree and its officers, managers, partners, members (and their members, including the owners of their members), agents, employees, controlling persons and any other person or entity affiliated with it, are entitled to indemnification from the Company for any damages, liabilities, costs and expenses (including reasonable attorneys' fees and amounts reasonably paid in settlement) arising from the rendering of Oaktree's services under the Investment Advisory Agreement or otherwise as investment adviser.
Collection and Disbursement of Fees Owed to the Former Adviser

Under the Former Investment Advisory Agreement described below, both the base management fee and incentive fee on income were calculated and paid to the Former Adviser at the end of each quarter. In order to ensure that the Former Adviser received the compensation earned during the quarter ended December 31, 2017, the initial payment of the base management fee and incentive fee on income under the Investment Advisory Agreement covered the entire quarter in which the Investment Advisory Agreement became effective, and was calculated at a blended rate that reflected fee rates under the respective investment advisory agreements for the portion of the quarter in which the Former Adviser and Oaktree were serving as investment adviser. This structure allowed Oaktree to pay the Former Adviser in early 2018, the pro rata portion of the fees that were earned by, but not paid to, the Former Adviser for services rendered to the Company prior to October 17, 2017.


58
OAKTREE SPECIALTY LENDING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share and per share amounts, percentages and as otherwise indicated)





Former Investment Advisory Agreement

The following is a description of the Former Investment Advisory Agreement, which was terminated on October 17, 2017. The Former Investment Advisory Agreement, dated March 20, 2017, was effective January 1, 2017 through its termination on October 17, 2017. The Former Investment Advisory Agreement amended and restated the Company’s third amended and restated investment advisory agreement with the Former Adviser, which was effective as of January 1, 2016, to impose a total return hurdle provision and reduce the “preferred return.”

Through October 17, 2017, the Company paid the Former Adviser a fee for its services under the Former Investment Advisory Agreement consisting of two components: a base management fee and an incentive fee. The cost of both the base management fee paid to the Former Adviser and any incentive fees earned by the Former Adviser were ultimately borne by common stockholders of the Company.
Base Management Fee

From October 1, 2017 to October 17, 2017, the base management fee was calculated at an annual rate of 1.75% of the Company’s gross assets, including any borrowings for investment purposes but excluding cash and cash equivalents. The base management fee was payable quarterly in arrears and the fee for any partial month or quarter was appropriately prorated.

For the period from October 1, 2017 to October 17, 2017, the base management fee (net of waivers) incurred under the Former Investment Advisory Agreement with the Former Adviser was $1.1 million, which was payable to the Former Adviser.
Incentive Fee

The incentive fee paid to the Former Adviser had two parts. The first part was calculated and payable quarterly in arrears at a rate of 20% based on the Company’s pre-incentive fee net investment income for the immediately preceding fiscal quarter subject to a “hurdle rate” of 1.75% per quarter and a “catch-up” provision. The Company’s net investment income used to calculate this part of the incentive fee was also included in the amount of its gross assets used to calculate the 1.75% base management fee.
 
In the event the cumulative incentive fee on income accrued from January 1, 2017 (after giving effect to any reduction(s) pursuant to this paragraph for any prior fiscal quarters but not the quarter of calculation) exceeded 20.0% of the cumulative net increase in net assets resulting from operations since January 1, 2017, then the incentive fee on income for the quarter was reduced by an amount equal to (1) 25% of the incentive fee on income calculated for such quarter (prior to giving effect to any reduction pursuant to this paragraph) less (2) any base management fees waived by the Former Adviser for such fiscal quarter. For this purpose, the “cumulative net increase in net assets resulting from operations” was an amount, if positive, equal to the sum of pre-incentive fee net investment income, base management fees, realized gains and losses and unrealized capital appreciation and depreciation of the Company from January 1, 2017.
There was no accumulation of amounts on the hurdle rate from quarter to quarter and accordingly there was no clawback of amounts previously paid if subsequent quarters were below the quarterly hurdle and there was no delay of payment if prior quarters were below the quarterly hurdle.
The second part of the incentive fee was determined and payable in arrears as of the end of each fiscal year (or upon termination of the Former Investment Advisory Agreement, as of the termination date) and equaled 20% of the Company’s realized capital gains, if any, on a cumulative basis from inception through the end of each fiscal year, computed net of all realized capital losses and unrealized capital depreciation on a cumulative basis, less the aggregate amount of any previously paid capital gain incentive fees.
For the period from October 1, 2017 to October 17, 2017, no incentive fee was incurred under the Former Investment Advisory Agreement.
Administrative Services
The Company entered into the Administration Agreement with Oaktree Administrator on October 17, 2017. Pursuant to the Administration Agreement, Oaktree Administrator provides administrative services to the Company necessary for the operations of the Company, which include providing office facilities, equipment, clerical, bookkeeping and record keeping services at such facilities and such other services as Oaktree Administrator, subject to review by the Company’s Board of Directors, shall from time to time deem to be necessary or useful to perform its obligations under the Administration Agreement. Oaktree Administrator may, on behalf of the Company, conduct relations and negotiate agreements with custodians, trustees, depositories, attorneys, underwriters, brokers and

59
OAKTREE SPECIALTY LENDING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share and per share amounts, percentages and as otherwise indicated)





dealers, corporate fiduciaries, insurers, banks and such other persons in any such other capacity deemed to be necessary or desirable. Oaktree Administrator makes reports to the Company’s Board of Directors of its performance of obligations under the Administration Agreement and furnishes advice and recommendations with respect to such other aspects of the Company’s business and affairs, in each case, as it shall determine to be desirable or as reasonably required by the Company’s Board of Directors; provided that Oaktree Administrator shall not provide any investment advice or recommendation.
Oaktree Administrator also provides portfolio collection functions for interest income, fees and warrants and is responsible for the financial and other records that the Company is required to maintain and prepares, prints and disseminates reports to the Company’s stockholders and all other materials filed with the SEC. In addition, Oaktree Administrator assists the Company in determining and publishing the Company’s net asset value, overseeing the preparation and filing of the Company’s tax returns, and generally overseeing the payment of the Company’s expenses and the performance of administrative and professional services rendered to the Company by others. Oaktree Administrator may also offer to provide, on the Company’s behalf, managerial assistance to the Company’s portfolio companies.
For providing these services, facilities and personnel, the Company reimburses Oaktree Administrator the allocable portion of overhead and other expenses incurred by Oaktree Administrator in performing its obligations under the Administration Agreement, including the Company’s allocable portion of the rent of the Company’s principal executive offices at market rates and the Company’s allocable portion of the costs of compensation and related expenses of its Chief Financial Officer, Chief Compliance Officer, their staffs and other non-investment professionals at Oaktree that perform duties for the Company. Such reimbursement is at cost, with no profit to, or markup by, Oaktree Administrator. The Administration Agreement may be terminated by either party without penalty upon 60 days’ written notice to the other. The Administration Agreement may also be terminated, without penalty, upon the vote of a majority of the Company’s outstanding voting securities.
Prior to its termination by its terms on October 17, 2017, the Company was party to the Former Administration Agreement with the Former Administrator. The Former Administrator was a wholly-owned subsidiary of the Former Adviser. Pursuant to the Former Administration Agreement, the Former Administrator provided services substantially similar to those provided by Oaktree Administrator as described above. For providing these services, facilities and personnel, the Company reimbursed the Former Administrator the allocable portion of overhead and other expenses incurred by it in performing its obligations under the Former Administration Agreement.
For the three months ended December 31, 2018, the Company accrued administrative expenses of $0.9 million, including $0.1 million of general and administrative expenses. For the three months ended December 31, 2017, the Company accrued administrative expenses of $0.7 million, including $0.2 million of general and administrative expenses. Of these amounts, $0.2 million was due to the Former Administrator for administrative expenses incurred prior to October 17, 2017 and $0.5 million was due to Oaktree Administrator.
As of December 31, 2018 and September 30, 2018, $3.6 million and $3.3 million was included in “Due to affiliate” in the Consolidated Statements of Assets and Liabilities, respectively, reflecting the unpaid portion of administrative expenses and other reimbursable expenses payable to Oaktree Administrator.


60
OAKTREE SPECIALTY LENDING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share and per share amounts, percentages and as otherwise indicated)





Note 12. Financial Highlights
(Share amounts in thousands)
 
Three months ended
December 31, 2018
 
Three months ended
December 31, 2017 (1)
Net asset value per share at beginning of period
 
$6.09
 
$6.16
Net investment income (2)
 
0.12
 
0.09
Net unrealized appreciation (depreciation) (2)
 
(0.05)
 
(0.31)
Net realized gains (losses) (2)
 
0.13
 
—
Distributions to stockholders (2)
 
(0.10)
 
(0.13)
Net asset value per share at end of period
 
$6.19
 
$5.81
Per share market value at beginning of period
 
$4.96
 
$5.47
Per share market value at end of period
 
$4.23
 
$4.89
Total return (3)
 
(12.87)%
 
(8.37)%
Common shares outstanding at beginning of period
 
140,961
 
140,961
Common shares outstanding at end of period
 
140,961
 
140,961
Net assets at beginning of period
 
$858,035
 
$867,657
Net assets at end of period
 
$872,362
 
$819,595
Average net assets (4)
 
$869,855
 
$849,181
Ratio of net investment income to average net assets
 
7.90%
 
6.22%
Ratio of total expenses to average net assets
 
10.27%
 
9.67%
Ratio of net expenses to average net assets
 
9.56%
 
9.61%
Ratio of portfolio turnover to average investments at fair value
 
10.99%
 
12.76%
Weighted average outstanding debt (5)
 
$614,369
 
$651,826
Average debt per share (2)
 
$4.36
 
$4.62
Asset coverage ratio (6)
 
241.91%
 
230.61%
 __________
(1)
Beginning on October 17, 2017, the Company is externally managed by Oaktree. Prior to October 17, 2017, the Company was externally managed by the Former Adviser.

(2)
Calculated based upon weighted average shares outstanding for the period.
(3)
Total return equals the increase or decrease of ending market value over beginning market value, plus distributions, divided by the beginning market value, assuming dividend reinvestment prices obtained under the Company's DRIP.
(4)
Calculated based upon the weighted average net assets for the period.
(5)
Calculated based upon the weighted average of loans payable for the period.
(6)
Based on outstanding senior securities of $612.9 million and $627.5 million as of December 31, 2018 and 2017, respectively.

Note 13. Unsecured Notes
2019 Notes
On February 26, 2014, the Company issued $250.0 million in aggregate principal amount of its 4.875% unsecured 2019 Notes for net proceeds of $244.4 million after deducting OID of $1.4 million, underwriting commissions and discounts of $3.7 million and offering costs of $0.5 million.  The OID on the 2019 Notes is amortized based on the effective interest method over the term of the notes.
The 2019 Notes were issued pursuant to an indenture, dated April 30, 2012, as supplemented by the supplemental indenture, dated February 26, 2014 (collectively, the "2019 Notes Indenture"), between the Company and Deutsche Bank Trust Company Americas (the "Trustee"). The 2019 Notes are the Company's general unsecured obligations that rank senior in right of payment to all of the Company's existing and future indebtedness that is expressly subordinated in right of payment to the 2019 Notes. The 2019 Notes rank equally in right of payment with all of the Company's existing and future liabilities that are not so subordinated. The 2019 Notes effectively rank junior to any of the Company's secured indebtedness (including unsecured indebtedness that the Company later secures) to the extent of the value of the assets securing such indebtedness. The 2019 Notes rank structurally junior to all existing and future indebtedness (including trade payables) incurred by the Company's subsidiaries, financing vehicles or similar facilities. 

61
OAKTREE SPECIALTY LENDING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share and per share amounts, percentages and as otherwise indicated)





Interest on the 2019 Notes is paid semi-annually on March 1 and September 1 at a rate of 4.875% per annum. The 2019 Notes mature on March 1, 2019 and may be redeemed in whole or in part at any time or from time to time at the Company's option prior to maturity.
The 2019 Notes Indenture contains certain covenants, including covenants requiring the Company's compliance with (regardless of whether the Company is subject to) the asset coverage requirements set forth in Section 18(a)(1)(A) as modified by Section 61(a)(1) of the Investment Company Act or any successor provisions, as well as covenants requiring the Company to provide financial information to the holders of the 2019 Notes and the Trustee if the Company ceases to be subject to the reporting requirements of the Securities Exchange Act of 1934, as amended (the "Exchange Act"). These covenants are subject to limitations and exceptions that are described in the 2019 Notes Indenture. The Company may repurchase the 2019 Notes in accordance with the Investment Company Act and the rules promulgated thereunder. In addition, holders of the 2019 Notes can require the Company to repurchase the 2019 Notes at 100% of their principal amount upon the occurrence of certain change of control events as described in the 2019 Notes Indenture. The 2019 Notes were issued in minimum denominations of $2,000 and integral multiples of $1,000 in excess thereof. During the three months ended December 31, 2018 and 2017, the Company did not repurchase any of the 2019 Notes in the open market.
For the three months ended December 31, 2018 and 2017, the Company recorded interest expense of $3.0 million and $3.3 million, respectively, related to the 2019 Notes.
As of December 31, 2018, there were $228.8 million of 2019 Notes outstanding, which had a carrying value and fair value of $228.6 million and $226.5 million, respectively. As of September 30, 2018, there were $228.8 million of 2019 Notes outstanding, which had a carrying value and fair value of $228.3 million and $230.5 million, respectively.
2024 Notes
On October 18, 2012, the Company issued $75.0 million in aggregate principal amount of its 5.875% unsecured 2024 Notes for net proceeds of $72.5 million after deducting underwriting commissions of $2.2 million and offering costs of $0.3 million.
The 2024 Notes were issued pursuant to an indenture, dated April 30, 2012, as supplemented by the first supplemental indenture, dated October 18, 2012 (collectively, the "2024 Notes Indenture"), between the Company and the Trustee. The 2024 Notes are the Company's unsecured obligations and rank senior in right of payment to the Company's existing and future indebtedness that is expressly subordinated in right of payment to the 2024 Notes; equal in right of payment to the Company's existing and future unsecured indebtedness that is not so subordinated; effectively junior in right of payment to any of the Company's secured indebtedness (including existing unsecured indebtedness that the Company later secures) to the extent of the value of the assets securing such indebtedness; and structurally junior to all existing and future indebtedness (including trade payables) incurred by the Company's subsidiaries or financing vehicles.
Interest on the 2024 Notes is paid quarterly in arrears on January 30, April 30, July 30 and October 30 at a rate of 5.875% per annum. The 2024 Notes mature on October 30, 2024 and may be redeemed in whole or in part at any time or from time to time at the Company's option on or after October 30, 2017. The 2024 Notes currently trade on the New York Stock Exchange under the symbol “OSLE” with a par value of $25.00 per note.
The 2024 Notes Indenture contains certain covenants, including covenants requiring the Company's compliance with (regardless of whether the Company is subject to) the asset coverage requirements set forth in Section 18(a)(1)(A) as modified by Section 61(a)(1) of the Investment Company Act or any successor provisions and with the restrictions on dividends, distributions and purchase of capital stock set forth in Section 18(a)(1)(B) as modified by Section 61(a)(1) of the Investment Company Act, as well as covenants requiring the Company to provide financial information to the holders of the 2024 Notes and the Trustee if the Company ceases to be subject to the reporting requirements of the Exchange Act. These covenants are subject to limitations and exceptions that are described in the 2024 Notes Indenture. The Company may repurchase the 2024 Notes in accordance with the Investment Company Act and the rules promulgated thereunder. Any 2024 Notes repurchased by the Company may, at the Company's option, be surrendered to the Trustee for cancellation, but may not be reissued or resold by the Company. Any 2024 Notes surrendered for cancellation will be promptly canceled and no longer outstanding under the 2024 Notes Indenture. During the three months ended December 31, 2018 and 2017, the Company did not repurchase any of the 2024 Notes in the open market.
For each of the three months ended December 31, 2018 and 2017, the Company recorded interest expense of $1.2 million related to the 2024 Notes.
As of December 31, 2018, there were $75.0 million of 2024 Notes outstanding, which had a carrying value and fair value of $73.8 million and $74.7 million, respectively. As of September 30, 2018, there were $75.0 million of 2024 Notes outstanding, which had a carrying value and fair value of $73.7 million and $75.7 million, respectively.

62
OAKTREE SPECIALTY LENDING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share and per share amounts, percentages and as otherwise indicated)





2028 Notes
In April and May 2013, the Company issued $86.3 million in aggregate principal amount of its 6.125% unsecured 2028 Notes for net proceeds of $83.4 million after deducting underwriting commissions of $2.6 million and offering costs of $0.3 million.
The 2028 Notes were issued pursuant to an indenture, dated April 30, 2012, as supplemented by the second supplemental indenture, dated April 4, 2013 (collectively, the "2028 Notes Indenture"), between the Company and the Trustee. The 2028 Notes are the Company's unsecured obligations and rank senior in right of payment to the Company's existing and future indebtedness that is expressly subordinated in right of payment to the 2028 Notes; equal in right of payment to the Company's existing and future unsecured indebtedness that is not so subordinated; effectively junior in right of payment to any of the Company's secured indebtedness (including existing unsecured indebtedness that it later secures) to the extent of the value of the assets securing such indebtedness; and structurally junior to all existing and future indebtedness (including trade payables) incurred by the Company's subsidiaries or financing vehicles.
Interest on the 2028 Notes is paid quarterly in arrears on January 30, April 30, July 30 and October 30 at a rate of 6.125% per annum. The 2028 Notes mature on April 30, 2028 and may be redeemed in whole or in part at any time or from time to time at the Company's option on or after April 30, 2018. The 2028 Notes currently trade on the Nasdaq Global Select Market under the symbol "OCSLL" with a par value of $25.00 per note.
The 2028 Notes Indenture contains certain covenants, including covenants requiring the Company's compliance with (regardless of whether it is subject to) the asset coverage requirements set forth in Section 18(a)(1)(A) as modified by Section 61(a)(1) of the Investment Company Act or any successor provisions, as well as covenants requiring the Company to provide financial information to the holders of the 2028 Notes and the Trustee if it ceases to be subject to the reporting requirements of the Exchange Act. These covenants are subject to limitations and exceptions that are described in the 2028 Notes Indenture. The Company may repurchase the 2028 Notes in accordance with the Investment Company Act and the rules promulgated thereunder. Any 2028 Notes repurchased by the Company may, at its option, be surrendered to the Trustee for cancellation, but may not be reissued or resold by the Company. Any 2028 Notes surrendered for cancellation will be promptly canceled and no longer outstanding under the 2028 Notes Indenture. During the three months ended December 31, 2018 and 2017, the Company did not repurchase any of the 2028 Notes in the open market.
For each of the three months ended December 31, 2018 and 2017, the Company recorded interest expense of $1.4 million related to the 2028 Notes.
As of December 31, 2018, there were $86.3 million of 2028 Notes outstanding, which had a carrying value and fair value of $84.5 million and $81.2 million, respectively. As of September 30, 2018, there were $86.3 million of 2028 Notes outstanding, which had a carrying value and fair value of $84.4 million and $86.9 million, respectively.
Note 14. Secured Borrowings
See Note 2 for a description of the Company's accounting treatment of secured borrowings.
As of December 31, 2018, there were $11.9 million of secured borrowings outstanding. As of December 31, 2018, secured borrowings at fair value totaled $9.3 million and the fair value of the investment that is associated with these secured borrowings was $34.1 million. These secured borrowings were the result of the Company's completion of partial loan sales totaling $22.8 million of a senior secured debt investment during the fiscal year ended September 30, 2014 that did not meet the definition of a participating interest. As a result, sale treatment was not allowed and these partial loan sales were treated as secured borrowings. The Company receives loan servicing fees as it continues to serve as administrative agent for this investment. As a result, the Company earns servicing fees in connection with the loans that were partially sold. During the three months ended December 31, 2018, there were $0.3 million of net repayments on secured borrowings. During the three months ended December 31, 2017, there were no net repayments on secured borrowings.
For the three months ended December 31, 2018 and 2017, the Company recorded interest expense of $0.1 million and $0.3 million, respectively, related to the secured borrowings. For the three months ended December 31, 2018 and 2017, the Company recorded unrealized (appreciation) depreciation on secured borrowings of $0.0 million and $1.7 million, respectively.
Note 15. Derivative Instruments
The Company enters into forward currency contracts from time to time to help mitigate the impact that an adverse change in foreign exchange rates would have on the value of the Company’s investments denominated in foreign currencies. As of December 31, 2018, the counterparty to these forward currency contracts was JPMorgan Chase Bank, N.A. Net unrealized gains or losses on foreign currency contracts are included in “net unrealized appreciation (depreciation)” and net realized gains or losses on forward currency

63

contracts are included in “net realized gains (losses)” in the accompanying Consolidated Statements of Operations. Forward currency contracts are considered undesignated derivative instruments.
Certain information related to the Company’s foreign currency forward contracts is presented below as of December 31, 2018.
Description
 
Notional Amount to be Purchased
 
Notional Amount to be Sold
 
Maturity Date
 
Gross Amount of Recognized Assets
 
Gross Amount of Recognized Liabilities
 
Balance Sheet Location of Net Amounts
Foreign currency forward contract
 
$
22,719

 
£
17,888

 
2/4/2019
 
$
—

 
$
103

 
Derivative liability
Foreign currency forward contract
 
$
19,747

 
€
17,325

 
1/17/2019
 
$
—

 
$
87

 
Derivative liability
Certain information related to the Company’s foreign currency forward contracts is presented below as of September 30, 2018.
Description
 
Notional Amount to be Purchased
 
Notional Amount to be Sold
 
Maturity Date
 
Gross Amount of Recognized Assets
 
Gross Amount of Recognized Liabilities
 
Balance Sheet Location of Net Amounts
Foreign currency forward contract
 
$
23,113

 
£
17,579

 
10/26/2018
 
$
162

 
$
—

 
Derivative asset


Note 16. Commitments and Contingencies
SEC Examination and Investigation
On March 23, 2016, the Division of Enforcement of the SEC sent document subpoenas and document preservation notices to the Company, FSAM, FSCO GP LLC - General Partner of Fifth Street Opportunities Fund, L.P. ("FSOF") and OCSI. The subpoenas sought production of documents relating to a variety of issues principally related to the activities of the Former Adviser, including those raised in an ordinary-course examination of the Former Adviser by the SEC’s Office of Compliance Inspections and Examinations that began in October 2015, and in the previously disclosed securities class actions and other previously disclosed litigation. The subpoenas were issued pursuant to a formal order of private investigation captioned In the Matter of the Fifth Street Group of Companies, No. HO-12925, dated March 23, 2016, which addresses (among other things) (i) the valuation of the Company's portfolio companies and investments, (ii) the expenses allocated or charged to the Company and OCSI, (iii) FSOF’s trading in the securities of publicly traded Business Development Companies, (iv) statements to the Board of Directors, other representatives of pooled investment vehicles, investors, or prospective investors concerning the fair value of the Company's portfolio companies or investments as well as expenses allocated or charged to the Company and OCSI, (v) various issues relating to adoption and implementation of policies and procedures under the Investment Advisers Act of 1940, as amended (the “Advisers Act”), (vi) statements and/or potential omissions in the entities’ SEC filings, (vii) the entities’ books, records, and accounts and whether they fairly and accurately reflected the entities’ transactions and dispositions of assets, and (viii) several other issues relating to corporate books and records. The formal order cites various provisions of the Securities Act of 1933, as amended, the Exchange Act and the Advisers Act, as well as rules promulgated under those Acts, as the bases of the investigation. The Company has received termination notices from the Enforcement Division Staff and the Company's obligations with respect to the matter are concluded. On December 3, 2018, the SEC announced a settlement in this matter with Fifth Street Management LLC. 
Off-Balance Sheet Arrangements
The Company may be a party to financial instruments with off-balance sheet risk in the normal course of business to meet the financial needs of its companies. As of December 31, 2018, the Company's only off-balance sheet arrangements consisted of $104.7 million of unfunded commitments, which was comprised of $98.7 million to provide debt financing to certain of its portfolio companies, $1.3 million to provide equity financing to SLF JV I and $4.7 million related to unfunded limited partnership interests. As of September 30, 2018, the Company's only off-balance sheet arrangements consisted of $52.7 million of unfunded commitments, which was comprised of $46.7 million to provide debt financing to certain of its portfolio companies, $1.3 million to provide equity financing to SLF JV I and $4.7 million related to unfunded limited partnership interests. Such commitments are subject to its portfolio companies' satisfaction of certain financial and nonfinancial covenants and may involve, to varying degrees, elements of credit risk in excess of the amount recognized in the Company's Consolidated Statements of Assets and Liabilities.
A list of unfunded commitments by investment (consisting of revolvers, term loans with delayed draw components, SLF JV I LLC equity interests, and limited partnership interests) as of December 31, 2018 and September 30, 2018 is shown in the table below:

64
OAKTREE SPECIALTY LENDING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share and per share amounts, percentages and as otherwise indicated)





 
 
December 31, 2018
 
September 30, 2018
Assembled Brands Capital LLC
 
$
39,951

 
$
—

U.S. Well Services, LLC
 
14,000

 
—

 Sorrento Therapeutics, Inc.
 
12,500

 
—

 P2 Upstream Acquisition Co.
 
7,667

 
10,000

 EOS Fitness Opco Holdings, LLC
 
5,000

 
5,000

 Pingora MSR Opportunity Fund I-A, LP
 
4,656

 
4,656

 Keypath Education, Inc.
 
3,000

 
3,000

 Dominion Diagnostics, LLC (1)
 
2,439

 
4,180

 Datto Inc.
 
2,356

 
2,356

 4 Over International, LLC
 
2,232

 
2,232

 New IPT, Inc.
 
2,229

 
2,229

 PLATO Learning Inc. (1)
 
2,138

 
2,671

 Thing5, LLC (1)(2)
 
1,726

 
1,298

 Senior Loan Fund JV I, LLC
 
1,328

 
1,328

Ministry Brands, LLC
 
1,000

 
700

 iCIMs, Inc.
 
882

 
882

 GKD Index Partners, LLC
 
809

 
289

 Access CIG LLC
 
497

 
765

 Cenegenics, LLC (1)(2)
 
297

 
297

 InMotion Entertainment Group, LLC
 
—

 
7,534

 TerSera Therapeutics, LLC
 
—

 
3,281

Total
 
$
104,707

 
$
52,698

 ___________ 
(1) This investment was on cash or PIK non-accrual status as of December 31, 2018.
(2) This portfolio company does not have the ability to draw on this unfunded commitment as of December 31, 2018.


65
OAKTREE SPECIALTY LENDING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share and per share amounts, percentages and as otherwise indicated)





Note 17. Subsequent Events
The Company’s management evaluated subsequent events through the date of issuance of the Consolidated Financial Statements. There have been no subsequent events that occurred during such period that would require disclosure in, or would be required to be recognized in the Consolidated Financial Statements as of and for the three months ended December 31, 2018, except as discussed below:
Distribution Declaration
On February 1, 2019, the Company’s Board of Directors declared a quarterly distribution of $0.095 per share, payable on March 29, 2019 to stockholders of record on March 15, 2019.
Reduced Asset Coverage Requirements

At a meeting held on February 1, 2019, the Company’s Board of Directors, including a “required majority” of the directors, as defined in Section 57(o) of the Investment Company Act, approved the application of the reduced asset coverage requirements in Section 61(a)(2) of the Investment Company Act as being in the best interests of the Company and its stockholders. As a result of such approval, provided such approval is not later rescinded and the Company’s compliance with certain disclosure requirements, the asset coverage required for the Company’s senior securities will be 150% rather than 200% effective as of February 1, 2020. Upon effectiveness of the modified asset coverage requirements to the Company, Oaktree intends to reduce the base management fee to 1.0% on all assets financed using leverage above 1.0x debt-equity (without giving effect to any debentures issued by a small business investment company subsidiary).




66

Schedule 12-14
Oaktree Specialty Lending Corporation
Schedule of Investments in and Advances to Affiliates
(in thousands, except share and per share amounts, percentages and as otherwise indicated)
Three months ended December 31, 2018
Portfolio Company/Type of Investment (1)
 
 Cash Interest Rate
 
Industry
 
Principal
 
Net Realized Gain (Loss)
 
Amount of
Interest,
Fees or
Dividends
Credited in
Income (2)
 
Fair Value
at October 1,
2018
 
Gross
Additions (3)
 
Gross
Reductions (4)
 
Fair Value
at December 31, 2018
 
% of Total Net Assets
Control Investments
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 First Star Speir Aviation Limited (5)
 
 
 
 Airlines
 
 
 
 
 
 
 
 
 
 
 
 
 


 


 First Lien Term Loan, 9% cash due 12/15/2020
 
 
 
 
 
$
32,510

 
$
—

 
$
453

 
$
32,510

 
$
403

 
$
(403
)
 
$
32,510

 
3.7
%
 100% equity interest
 
 
 
 
 
—

 
—

 
—

 
—

 
967

 
—

 
967

 
0.1
%
 Keypath Education, Inc.
 
 
 
 Advertising
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 


 First Lien Term Loan, LIBOR+7% (1% floor) cash due 4/3/2022
 
9.80
%
 
 
 
18,146

 
—

 
436

 
18,146

 
—

 
—

 
18,146

 
2.1
%
 First Lien Revolver, LIBOR+7.75% (1% floor) cash due 4/3/2022
 
 
 
 
 
—

 
—

 
4

 
—

 
—

 
—

 
—

 
—
%
 9,073 Class A Units in FS AVI Holdco, LLC
 
 
 
 
 
—

 
—

 
—

 
7,984

 
—

 
—

 
7,984

 
0.9
%
 New IPT, Inc.
 
 
 
 Oil & gas equipment services
 
 
 
 
 
 
 
 
 
 
 
 
 


 


 First Lien Term Loan, LIBOR+5% (1% floor) cash due 3/17/2021
 
7.80
%
 
 
 
4,107

 
—

 
84

 
4,107

 
—

 
—

 
4,107

 
0.5
%
 Second Lien Term Loan, LIBOR+5.1% (1% floor) cash due 9/17/2021
 
7.90
%
 
 
 
902

 
—

 
23

 
1,453

 
—

 
(550
)
 
903

 
0.1
%
 First Lien Revolver, LIBOR+5% (1% floor) cash due 3/17/2021
 
7.80
%
 
 
 
1,009

 
—

 
21

 
1,009

 
—

 
—

 
1,009

 
0.1
%
 50.087 Class A Common Units in New IPT Holdings, LLC
 
 
 
 
 
—

 
—

 
—

 
2,291

 
—

 
—

 
2,291

 
0.3
%
 Senior Loan Fund JV I, LLC (6)
 
 
 
 Multi-sector holdings
 
 
 
 
 
 
 
 
 
 
 
 
 


 


 Class A Mezzanine Secured Deferrable Floating Rate Notes due 2036 in SLF Repack Issuer 2016 LLC
 
 
 
 
 
—

 
—

 
2,036

 
99,813

 
—

 
(99,813
)
 
—

 
—
%
 Class B Mezzanine Secured Deferrable Fixed Rate Notes, 10% cash due 2036 in SLF Repack Issuer 2016 LLC
 
 
 
 
 
—

 
—

 
707

 
29,520

 
67

 
(29,587
)
 
—

 
—
%
 Subordinated Note, LIBOR+7% cash due 12/29/2028
 
9.45
%
 
 
 
96,250

 
—

 
101

 
—

 
96,250

 
—

 
96,250

 
11.0
%
 87.5% equity interest
 
 
 
 
 
—

 
—

 
—

 
41

 
33,150

 
(7,191
)
 
26,000

 
3.0
%
Total Control Investments
 
 
 
 
 
$
152,924

 
$
—

 
$
3,865

 
$
196,874

 
$
130,837

 
$
(137,544
)
 
$
190,167

 
21.8
%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Affiliate Investments
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 Assembled Brands Capital LLC
 
 
 
 Specialized finance
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 First Lien Delayed Draw Term Loan LIBOR+6% cash due 10/17/2023
 
8.80
%
 
 
 
$
815

 
$
—

 
$
17

 
$
—

 
$
815

 
$
—

 
$
815

 
0.1
%
 764,376.60 Class A Units
 
 
 
 
 
—

 
—

 
—

 
—

 
764

 
—

 
764

 
0.1
%
 583,190.81 Class B Units
 
 
 
 
 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—
%
Caregiver Services, Inc.
 
 
 
 Healthcare services
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 


 1,080,399 shares of Series A Preferred Stock, 10%
 
 
 
 
 
—

 
—

 
—

 
2,161

 
—

 
—

 
2,161

 
0.2
%
Total Affiliate Investments
 
 
 
 
 
$
815

 
$
—

 
$
17

 
$
2,161

 
$
1,579

 
$
—

 
$
3,740

 
0.4
%
Total Control & Affiliate Investments
 
 
 
 
 
$
153,739

 
$
—

 
$
3,882

 
$
199,035

 
$
132,416

 
$
(137,544
)
 
$
193,907

 
22.2
%

This schedule should be read in connection with the Company's Consolidated Financial Statements, including the Consolidated Schedules of Investments and Notes to the Consolidated Financial Statements.
______________________
(1)
The principal amount and ownership detail are shown in the Company's Consolidated Schedules of Investments.
(2)
Represents the total amount of interest (net of non-accrual amounts), fees and dividends credited to income for the portion of the period an investment was included in the Control or Affiliate categories.
(3)
Gross additions include increases in the cost basis of investments resulting from new portfolio investments, follow-on investments, accrued PIK interest (net of non-accrual amounts) and the exchange of one or more existing securities for one or more new securities. Gross additions also include net increases in unrealized appreciation or net decreases in unrealized depreciation as well as the movement of an existing portfolio company into this category or out of a different category.

67

(4)
Gross reductions include decreases in the cost basis of investment resulting from principal payments or sales and exchanges of one or more existing securities for one or more new securities. Gross reductions also include net increases in unrealized depreciation or net decreases in unrealized appreciation as well as the movement of an existing portfolio company out of this category and into a different category.
(5)
First Star Speir Aviation Limited is a wholly-owned holding company formed by the Company in order to facilitate its investment strategy. In accordance with ASU 2013-08, the Company has deemed the holding company to be investment companies under GAAP and therefore deemed it appropriate to consolidate the financial results and financial position of the holding company and to recognize dividend income versus a combination of interest income and dividend income. Accordingly, the debt and equity investments in the wholly-owned holding companies are disregarded for accounting purposes since the economic substance of these instruments are equity investments in the operating entity.
(6)
Together with Kemper, the Company co-invests through SLF JV I. SLF JV I is capitalized as transactions are completed and all portfolio and investment decisions in respect to SLF JV I must be approved by the SLF JV I investment committee consisting of representatives of the Company and Kemper (with approval from a representative of each required).



68

Schedule 12-14
Oaktree Specialty Lending Corporation
Schedule of Investments in and Advances to Affiliates
(in thousands, except share and per share amounts, percentages and as otherwise indicated)
Three months ended December 31, 2017
Portfolio Company/Type of Investment
 
 Cash Interest Rate
 
Industry
 
Principal
 
Net Realized Gain (Loss)
 
Amount of
Interest,
Fees or
Dividends
Credited in
Income (1)
 
Fair Value
at October 1,
2017
 
Gross
Additions (2)
 
Gross
Reductions (3)
 
Fair Value
at December 31, 2017
 
% of Total Net Assets
Control Investments
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Traffic Solutions Holdings, Inc.
 
 
 
 Construction & engineering
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 First Lien Term Loan, LIBOR+7% (1% floor) cash 2% PIK due 4/1/2021
 
8.70
%
 
 
 
$
36,661

 
$
—

 
$
1,088

 
$
36,568

 
$
186

 
$
(92
)
 
$
36,662

 
4.5
%
 First Lien Revolver, LIBOR+6% (1% floor) cash due 4/1/2021
 
7.70
%
 
 
 
2,000

 
—

 
37

 
1,250

 
750

 
—

 
2,000

 
0.2
%
 LC Facility, 6% cash due 4/1/2021
 
 
 
 
 
4,752

 
—

 
64

 
4,752

 
—

 
—

 
4,752

 
0.6
%
 746,114 Series A Preferred Units, 10%
 
 
 
 
 
—

 
—

 
—

 
7,700

 
—

 
—

 
7,700

 
0.9
%
 746,114 Common Stock Units
 
 
 
 
 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—
%
TransTrade Operators, Inc. (6)
 
 
 
 Air freight and logistics
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 First Lien Term Loan, 5% cash due 12/31/2017
 
 
 
 
 
15,973

 
—

 
—

 
1,810

 
—

 
—

 
1,810

 
0.2
%
 First Lien Revolver, 8% cash due 12/31/2017
 
 
 
 
 
7,757

 
—

 
—

 
—

 
—

 
—

 
—

 
—
%
 596.67 Series A Common Units
 
 
 
 
 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—
%
 4,000 Series A Preferred Units in TransTrade Holdings LLC
 
 
 
 
 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—
%
 5,200,000 Series B Preferred Units in TransTrade Holdings LLC
 
 
 
 
 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—
%
First Star Speir Aviation Limited (5)
 
 
 
 Airlines
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 First Lien Term Loan, 9% cash due 12/15/2020
 
 
 
 
 
32,510

 
—

 
634

 
41,395

 
464

 
(9,348
)
 
32,511

 
4.0
%
 100% equity interest
 
 
 
 
 
—

 
—

 
—

 
3,926

 
3,011

 
—

 
6,937

 
0.8
%
First Star Bermuda Aviation Limited (5)
 
 
 
 Airlines
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 First Lien Term Loan, 9% cash 3% PIK due 8/19/2018
 
 
 
 
 
11,868

 
—

 
406

 
11,868

 
—

 
—

 
11,868

 
1.4
%
 100% equity interest
 
 
 
 
 
—

 
—

 
—

 
2,323

 
4,993

 
—

 
7,316

 
0.9
%
 Eagle Hospital Physicians, LLC
 
 
 
 Healthcare services
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 Earn-out
 
 
 
 
 
—

 
—

 
—

 
4,986

 
97

 
—

 
5,083

 
0.6
%
Senior Loan Fund JV I, LLC (4)
 
 
 
 Multi-sector holdings
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 Class A Mezzanine Secured Deferrable Floating Rate Notes due 2036 in SLF Repack Issuer 2016 LLC
 
6.52
%
 
 
 
100,804

 
—

 
1,754

 
101,030

 
—

 
(226
)
 
100,804

 
12.3
%
 Class B Mezzanine Secured Deferrable Fixed Rate Notes, 15% PIK due 2036 in SLF Repack Issuer 2016 LLC
 
 
 
 
 
27,463

 
—

 
1,006

 
27,641

 
—

 
(178
)
 
27,463

 
3.4
%
 87.5% LLC equity interest
 
 
 
 
 
—

 
—

 
—

 
5,525

 
—

 
(645
)
 
4,880

 
0.6
%
 Ameritox Ltd. (6)
 
 
 
 Healthcare services
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 First Lien Term Loan, LIBOR+5% (1% floor) cash 3% PIK due 4/11/2021
 
6.69
%
 
 
 
39,438

 
—

 
—

 
4,445

 
361

 
(6
)
 
4,800

 
0.6
%
 14,090,126.4 Class A Preferred A Units in Ameritox Holdings II, LLC
 
 
 
 
 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—
%
 1,602,260.83 Class B Preferred A Units in Ameritox Holdings II, LLC
 
 
 
 
 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—
%
 4,930.03 Common Units in Ameritox Holdings II, LLC
 
 
 
 
 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—
%

69

Portfolio Company/Type of Investment
 
 Cash Interest Rate
 
Industry
 
Principal
 
Net Realized Gain (Loss)
 
Amount of
Interest,
Fees or
Dividends
Credited in
Income (1)
 
Fair Value
at October 1,
2017
 
Gross
Additions (2)
 
Gross
Reductions (3)
 
Fair Value
at December 31, 2017
 
% of Total Net Assets
 New IPT, Inc.
 
 
 
 Oil & gas equipment services
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 First Lien Term Loan, LIBOR+5% (1% floor) cash due 3/17/2021
 
6.69
%
 
 
 
$
4,107

 
$
—

 
$
67

 
$
4,107

 
$
—

 
$
—

 
$
4,107

 
0.5
%
 Second Lien Term Loan, LIBOR+5.1% (1% floor) cash due 9/17/2021
 
6.79
%
 
 
 
2,504

 
—

 
41

 
2,504

 
—

 
—

 
2,504

 
0.3
%
 First Lien Revolver, LIBOR+5% (1% floor) cash due 3/17/2021
 
6.69
%
 
 
 
1,009

 
—

 
18

 
1,009

 
—

 
—

 
1,009

 
0.1
%
 50.087 Class A Common Units in New IPT Holdings, LLC
 
 
 
 
 
—

 
—

 
—

 
736

 
227

 
—

 
963

 
0.1
%
 AdVenture Interactive, Corp.
 
 
 
 Advertising
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 9,073 shares of common stock
 
 
 
 
 
—

 
—

 
—

 
13,818

 
—

 
(7,397
)
 
6,421

 
0.8
%
 Keypath Education, Inc.
 
 
 
 Advertising
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 First Lien Term Loan, LIBOR+7% (1% floor) cash due 4/3/2022
 
8.69
%
 
 
 
19,960

 
—

 
435

 
19,960

 
—

 
—

 
19,960

 
2.4
%
 First Lien Revolver, LIBOR+7% (1% floor) cash due 4/3/2022
 
8.69
%
 
 
 
—

 
—

 
4

 
—

 
—

 
—

 
—

 
—
%
 9,073 Class A Units in FS AVI Holdco, LLC
 
 
 
 
 
—

 
—

 
—

 
7,918

 
66

 
—

 
7,984

 
1.0
%
Total Control Investments
 
 
 
 
 
$
306,806

 
$
—

 
$
5,554

 
$
305,271

 
$
10,155

 
$
(17,892
)
 
$
297,534

 
36.3
%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Affiliate Investments
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Caregiver Services, Inc.
 
 
 
 Healthcare services
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 Second Lien Term Loan, 10% cash 2% PIK due 6/30/2019
 
 
 
 
 
$
9,752

 
$
—

 
$
265

 
$
9,665

 
$
43

 
$
—

 
$
9,708

 
1.2
%
 1,080,399 shares of Series A Preferred Stock, 10%
 
 
 
 
 
—

 
—

 
—

 
2,534

 
—

 
(373
)
 
2,161

 
0.3
%
AmBath/ReBath Holdings, Inc.
 
 
 
 Home improvement retail
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 First Lien Term Loan B, 12.5% cash 2.5% PIK due 8/31/2018
 
 
 
 
 
22,552

 
—

 
864

 
22,957

 
169

 
(574
)
 
22,552

 
2.8
%
 4,668,788 shares of Preferred Stock
 
 
 
 
 
—

 
—

 
—

 
1,827

 
221

 
—

 
2,048

 
0.2
%
Total Affiliate Investments
 
 
 
 
 
$
32,304

 
$
—

 
$
1,129

 
$
36,983

 
$
433

 
$
(947
)
 
$
36,469

 
4.4
%
Total Control & Affiliate Investments
 
 
 
 
 
$
339,110

 
$
—

 
$
6,683

 
$
342,254

 
$
10,588

 
$
(18,839
)
 
$
334,003

 
40.8
%

This schedule should be read in connection with the Company's Consolidated Financial Statements, including the Consolidated Schedules of Investments and Notes to the Consolidated Financial Statements.
______________________
(1)
Represents the total amount of interest, fees and dividends credited to income for the portion of the period an investment was included in the Control or Affiliate categories.
(2)
Gross additions include increases in the cost basis of investments resulting from new portfolio investments, follow-on investments, accrued PIK interest (net of non-accrual amounts) and the exchange of one or more existing securities for one or more new securities. Gross additions also include net increases in unrealized appreciation or net decreases in unrealized depreciation as well as the movement of an existing portfolio company into this category or out of a different category.
(3)
Gross reductions include decreases in the cost basis of investment resulting from principal payments or sales and exchanges of one or more existing securities for one or more new securities. Gross reductions also include net increases in unrealized depreciation or net decreases in unrealized appreciation as well as the movement of an existing portfolio company out of this category and into a different category.
(4)
Together with Kemper, the Company co-invests through SLF JV I. SLF JV I is capitalized as transactions are completed and all portfolio and investment decisions in respect to SLF JV I must be approved by the SLF JV I investment committee consisting of representatives of the Company and Kemper (with approval from a representative of each required).
(5)
First Star Bermuda Aviation Limited and First Star Speir Aviation Limited are wholly-owned holding companies formed by the Company in order to facilitate its investment strategy. In accordance with ASU 2013-08, the Company has deemed the holding companies to be investment companies under GAAP and therefore deemed it appropriate to consolidate the financial results and financial position of the holding companies and to recognize dividend income versus a combination of interest income and dividend income. Accordingly, the debt and equity investments in the wholly-owned holding companies are disregarded for accounting purposes since the economic substance of these instruments are equity investments in the operating entities.
(6)
This investment was on cash non-accrual status as of December 31, 2017 and September 30, 2017.



70


Item 2.     Management's Discussion and Analysis of Financial Condition and Results of Operations
The following discussion should be read in connection with our Consolidated Financial Statements and the notes thereto included elsewhere in this quarterly report on Form 10-Q.
Some of the statements in this quarterly report on Form 10-Q constitute forward-looking statements because they relate to future events or our future performance or financial condition. The forward-looking statements contained in this quarterly report on Form 10-Q may include statements as to:

•
our future operating results and distribution projections;
•
the ability of Oaktree Capital Management, L.P., or Oaktree, our investment adviser to find lower-risk investments to reposition our portfolio and to implement Oaktree's future plans with respect to our business;
•
our business prospects and the prospects of our portfolio companies;
•
the impact of the investments that we expect to make;
•
the ability of our portfolio companies to achieve their objectives;
•
our expected financings and investments and additional leverage we may seek to incur in the future;
•
the adequacy of our cash resources and working capital;
•
the timing of cash flows, if any, from the operations of our portfolio companies; and
•
the cost or potential outcome of any litigation to which we may be a party.
In addition, words such as “anticipate,” “believe,” “expect,” “seek,” “plan,” “should,” “estimate,” “project” and “intend” indicate forward-looking statements, although not all forward-looking statements include these words. The forward-looking statements contained in this quarterly report on Form 10-Q involve risks and uncertainties. Our actual results could differ materially from those implied or expressed in the forward-looking statements for any reason, including the factors set forth in “Item 1A. Risk Factors” in our annual report on Form 10-K for the year ended September 30, 2018 and elsewhere in this quarterly report on Form 10-Q.
Other factors that could cause actual results to differ materially include:
 
•
changes in the economy, financial markets and political environment;
•
risks associated with possible disruption in our operations or the economy generally due to terrorism or natural disasters;
•
future changes in laws or regulations (including the interpretation of these laws and regulations by regulatory authorities) and conditions in our operating areas, particularly with respect to Business Development Companies or regulated investment companies, or RICs; and
•
other considerations that may be disclosed from time to time in our publicly disseminated documents and filings.
We have based the forward-looking statements included in this quarterly report on Form 10-Q on information available to us on the date of this quarterly report, and we assume no obligation to update any such forward-looking statements. Although we undertake no obligation to revise or update any forward-looking statements, whether as a result of new information, future events or otherwise, you are advised to consult any additional disclosures that we may make directly to you or through reports that we in the future may file with the SEC, including annual reports on Form 10-K, quarterly reports on Form 10-Q and current reports on Form 8-K.
All dollar amounts in tables are in thousands, except share and per share amounts, percentages and as otherwise indicated.
Business Overview
We are a specialty finance company that looks to provide customized, one-stop credit solutions to companies with limited access to public or syndicated capital markets. We are a closed-end, externally managed, non-diversified management investment company that has elected to be regulated as a Business Development Company under the Investment Company Act of 1940, as amended, or the Investment Company Act. In addition, we have qualified and elected to be treated as a RIC under Internal Revenue Code of 1986, as amended, or the Code, for tax purposes.
As of October 17, 2017, we are externally managed by Oaktree, a subsidiary of Oaktree Capital Group, LLC, or OCG, a publicly traded Delaware limited liability company listed on the New York Stock Exchange under the ticker “OAK”, pursuant to an investment advisory agreement between us and Oaktree, or the Investment Advisory Agreement. Oaktree Fund Administration, LLC, or Oaktree Administrator, a subsidiary of Oaktree, provides certain administrative and other services necessary for us to operate pursuant to an administration agreement, or the Administration Agreement.
 

71


We seek to generate current income and capital appreciation by providing companies with flexible and innovative financing solutions, including first and second lien loans, unsecured and mezzanine loans and preferred equity. We may also seek to generate capital appreciation and income through secondary investments at discounts to par in either private or syndicated transactions. We invest in companies that typically possess business models we expect to be resilient in the future with underlying fundamentals that will provide strength in future downturns. We intend to deploy capital across credit and economic cycles with a focus on long-term results, which we believe will enable us to build lasting partnerships with financial sponsors and management teams, and we may seek to opportunistically take advantage of dislocations in the financial markets and other situations that may benefit from Oaktree’s credit and structuring expertise. Sponsors may include financial sponsors, such as an institutional investor or a private equity firm, or a strategic entity seeking to invest in a portfolio company.
Oaktree intends to continue to reposition our portfolio into investments that are better aligned with Oaktree's overall approach to credit investing and that it believes have the potential to generate attractive returns across market cycles. Oaktree is generally focused on middle-market companies, which we define as companies with enterprise values of between $100 million and $750 million. Going forward, we expect our portfolio to include a mix of approximately 40% to 60% of first lien loans and 35% to 55% of second lien loans, including asset backed loans, unitranche loans, mezzanine loans, approximately 5% to 15% of unsecured loans and 0% to 10% of preferred equity and certain equity co-investments. Our portfolio may also include certain structured finance and other non-traditional structures. We generally invest in securities that are rated below investment grade by rating agencies or that would be rated below investment grade if they were rated. Below investment grade securities, which are often referred to as “high yield” and “junk,” have predominantly speculative characteristics with respect to the issuer’s capacity to pay interest and repay principal.
Since becoming our investment adviser, Oaktree has performed a comprehensive review of our portfolio and categorized our portfolio into core investments, non-core performing investments and underperforming investments. Certain additional information on such categorization and our portfolio composition is included in investor presentations that we file with the SEC.
Since becoming our investment adviser, Oaktree has reduced the investments it has identified as non-core by over $500 million at fair value. Over time, Oaktree intends to rotate us out of the approximately $347 million of non-core investments at fair value that remain as of December 31, 2018.
Business Environment and Developments
We believe that the shift of commercial banks away from lending to middle-market companies following the 2008 financial crisis, including as a result of the passage of the Dodd-Frank Wall Street Reform and Consumer Protection Act, and the adoption of the Basel III Accord continues to create opportunities for non-bank lenders such as us. We believe middle-market companies represent a significant opportunity for direct lending as there are nearly 200,000 middle-market businesses, representing one-third of private sector gross domestic product and accounting for approximately 48 million jobs according to the National Center for the Middle Market. In addition, according to the S&P Global Market Intelligence LCD Middle Market Review, there was a total of $10.7 billion of syndicated middle market loan issuance in calendar year 2018.
We believe that quantitative easing and other similar monetary policies implemented by central banks worldwide in reaction to the 2008 financial crisis have created significant inflows of capital, including from private equity sponsors, focused on yield-driven products such as sub-investment grade debt. While we believe that private equity sponsors continue to have a large pool of available capital and will continue to pursue acquisitions in the middle market, increased competition from other lenders to middle-market companies together with increased capital focused on the sector have led to spread compression across the middle market, resulting in spreads near historically low levels.
We believe that the fundamentals of middle-market companies remain strong. In this environment, we believe attractive risk-adjusted returns can be achieved by investing in companies that cannot efficiently access traditional debt capital markets. We believe that we have the resources and experience to source, diligence and structure investments in these companies and is well placed to generate attractive returns for investors.
Investment Advisory Agreement with Oaktree
Upon the closing of the transactions, or the Transaction, contemplated by the Asset Purchase Agreement by and among Oaktree, Fifth Street Management LLC, or the Former Adviser, and for certain limited purposes, Fifth Street Asset Management Inc., or FSAM, and Fifth Street Holdings L.P., Oaktree became the investment adviser to each of Oaktree Strategic Income Corporation, or OCSI, and us.  The closing of the Transaction resulted in the assignment for purposes of the Investment Company Act of the investment advisory agreement between the Former Adviser and us, or the Former Investment Advisory Agreement, and, as a result, its immediate termination. See “Note 11. Related Party Transactions– Investment Advisory Agreement” and “– Administrative Services” in the notes to the accompanying Consolidated Financial Statements.


72


Critical Accounting Policies

Basis of Presentation
Our Consolidated Financial Statements have been prepared in accordance with accounting principles generally accepted in the United States of America, or GAAP, and pursuant to the requirements for reporting on Form 10-Q and Regulation S-X. In the opinion of management, all adjustments of a normal recurring nature considered necessary for the fair presentation of the Consolidated Financial Statements have been made. All intercompany balances and transactions have been eliminated. We are an investment company following the accounting and reporting guidance in Financial Accounting Standards Board, or FASB, Accounting Standards Codification, or ASC, Topic 946, Financial Services-Investment Companies, or ASC 946.
Investment Valuation
We value our investments in accordance with FASB ASC Topic 820, Fair Value Measurements and Disclosures, or ASC 820, which defines fair value as the amount 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. We report our investments for which current market values are not readily available at fair value. A liability’s fair value is defined as the amount that would be paid to transfer the liability to a new obligor, not the amount that would be paid to settle the liability with the creditor. ASC 820 prioritizes the use of observable market prices derived from such prices over entity-specific inputs. Where observable prices or inputs are not available or reliable, valuation techniques are applied. These valuation techniques involve some level of management estimation and judgment, the degree of which is dependent on the price transparency for the investments or market and the investments’ complexity.
Hierarchical levels, defined by ASC 820 and directly related to the amount of subjectivity associated with the inputs to fair valuation of these assets and liabilities, are as follows:
 
•
Level 1 — Unadjusted, quoted prices in active markets for identical assets or liabilities as of the measurement date.
•
Level 2 — Observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data at the measurement date for substantially the full term of the assets or liabilities.
•
Level 3 — Unobservable inputs that reflect management’s best estimate of what market participants would use in pricing the asset or liability at the measurement date. Consideration is given to the risk inherent in the valuation technique and the risk inherent in the inputs to the model.
If inputs used to measure fair value fall into different levels of the fair value hierarchy, an investment's level is based on the lowest level of input that is significant to the fair value measurement. Our assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment, and considers factors specific to the investment. This includes investment securities that are valued using "bid" and "ask" prices obtained from independent third party pricing services or directly from brokers. These investments may be classified as Level 3 because the quoted prices may be indicative in nature for securities that are in an inactive market, may be for similar securities or may require adjustments for investment-specific factors or restrictions.
Financial instruments with readily available quoted prices generally will have a higher degree of market price observability and a lesser degree of judgment inherent in measuring fair value. As such, Oaktree obtains and analyzes readily available market quotations provided by pricing vendors and brokers for all of our investments for which quotations are available. In determining the fair value of a particular investment, pricing vendors and brokers use observable market information, including both binding and non-binding indicative quotations.
We seek to obtain at least two quotations for the subject or similar securities, typically from pricing vendors. If we are unable to obtain two quotes from pricing vendors, or if the prices obtained from pricing vendors are not within our set threshold, we seek to obtain a quote directly from a broker making a market for the asset. Oaktree evaluates the quotations provided by pricing vendors and brokers based on available market information, including trading activity of the subject or similar securities, or by performing a comparable security analysis to ensure that fair values are reasonably estimated. Oaktree also performs back-testing of valuation information obtained from pricing vendors and brokers against actual prices received in transactions. In addition to ongoing monitoring and back-testing, Oaktree performs due diligence procedures over pricing vendors to understand their methodology and controls to support their use in the valuation process. Generally, we do not adjust any of the prices received from these sources.
If the quotations obtained from pricing vendors or brokers are determined to not be reliable or are not readily available, we value such investments using any of three different valuation techniques. The first valuation technique is the transaction precedent technique, which utilizes recent or expected future transactions of the investment to determine fair value, to the extent applicable. The second valuation technique is an analysis of the enterprise value, or EV, of the portfolio company. EV means the entire value of the portfolio company to a market participant, including the sum of the values of debt and equity securities used to capitalize the enterprise at a point in time. The EV analysis is typically performed to determine (i) the value of equity investments, (ii) whether there is credit impairment for

73


debt investments and (iii) the value for debt investments that we are deemed to control under the Investment Company Act. To estimate the EV of a portfolio company, Oaktree analyzes various factors, including the portfolio company’s historical and projected financial results, macroeconomic impacts on the company, and competitive dynamics in the company’s industry. Oaktree also utilizes some or all of the following information based on the individual circumstances of the portfolio company: (i) valuations of comparable public companies, (ii) recent sales of private and public comparable companies in similar industries or having similar business or earnings characteristics, (iii) purchase price multiples as a multiple of their earnings or cash flow, (iv) the portfolio company’s ability to meet its forecasts and its business prospects, (v) a discounted cash flow analysis, (vi) estimated liquidation or collateral value of the portfolio company’s assets and (vii) offers from third parties to buy the portfolio company. We may probability weight potential sale outcomes with respect to a portfolio company when uncertainty exists as of the valuation date. The third valuation technique is a market yield technique, which is typically performed for non-credit impaired debt investments. In the market yield technique, a current price is imputed for the investment based upon an assessment of the expected market yield for a similarly structured investment with a similar level of risk, and we consider the current contractual interest rate, the capital structure and other terms of the investment relative to risk of the company and the specific investment. A key determinant of risk, among other things, is the leverage through the investment relative to the EV of the portfolio company. As debt investments held by us are substantially illiquid with no active transaction market, we depend on primary market data, including newly funded transactions and industry-specific market movements, as well as secondary market data with respect to high yield debt instruments and syndicated loans, as inputs in determining the appropriate market yield, as applicable.
In accordance with ASC 820-10, certain investments that qualify as investment companies in accordance with ASC 946 may be valued using net asset value as a practical expedient for fair value. Consistent with FASB guidance under ASC 820, these investments are excluded from the hierarchical levels.
We estimate the fair value of privately held warrants using a Black Scholes pricing model, which includes an analysis of various factors and subjective assumptions, including the current stock price (by using an EV analysis as described above), the expected period until exercise, expected volatility of the underlying stock price, expected dividends and the risk-free rate. Changes in the subjective input assumptions can materially affect the fair value estimates.
Our Board of Directors undertakes a multi-step valuation process each quarter in connection with determining the fair value of our investments:
•
The quarterly valuation process begins with each portfolio company or investment being initially valued by Oaktree’s valuation team in conjunction with Oaktree’s portfolio management team and investment professionals responsible for each portfolio investment;
•Preliminary valuations are then reviewed and discussed with management of Oaktree;
•
Separately, independent valuation firms engaged by our Board of Directors prepare valuations of our investments, on a selected basis, for which market quotations are not readily available or are readily available but deemed not reflective of the fair value of the investment, and submit the reports to us and provide such reports to Oaktree and the Audit Committee of our Board of Directors;
•
Oaktree compares and contrasts its preliminary valuations to the valuations of the independent valuation firms and prepares a valuation report for the Audit Committee;
•
The Audit Committee reviews the preliminary valuations with Oaktree, and Oaktree responds and supplements the preliminary valuations to reflect any discussions between Oaktree and the Audit Committee;
•
The Audit Committee makes a recommendation to our full Board of Directors regarding the fair value of the investments in our portfolio; and
•
Our Board of Directors discusses valuations and determines the fair value of each investment in our portfolio.
The fair value of our investments as of December 31, 2018 and September 30, 2018 was determined in good faith by our Board of Directors. Our Board of Directors has and will continue to engage independent valuation firms to provide assistance regarding the determination of the fair value of a portion of our portfolio securities for which market quotations are not readily available or are readily available but deemed not reflective of the fair value of the investment each quarter, and the Board of Directors may reasonably rely on that assistance. As of December 31, 2018, 84.9% of our portfolio at fair value was valued either based on market quotations, the transactions precedent approach or by independent valuation firms. However, our Board of Directors is responsible for the ultimate valuation of the portfolio investments at fair value as determined in good faith pursuant to our valuation policy and a consistently applied valuation process.
As of December 31, 2018 and September 30, 2018, approximately 95.0% and 96.1%, respectively, of our total assets represented investments at fair value.

74


Revenue Recognition
Interest and Dividend Income
Interest income, adjusted for accretion of original issue discount, or OID, is recorded on the accrual basis to the extent that such amounts are expected to be collected. We stop accruing interest on investments when it is determined that interest is no longer collectible. Investments that are expected to pay regularly scheduled interest in cash are generally placed on non-accrual status when there is reasonable doubt that principal or interest cash payments will be collected. Cash interest payments received on investments may be recognized as income or a return of capital depending upon management’s judgment. A non-accrual investment is restored to accrual status if past due principal and interest are paid in cash, and the portfolio company, in management’s judgment, is likely to continue timely payment of its remaining obligations. As of December 31, 2018, there were seven investments on which we had stopped accruing cash and/or payment in kind, or PIK, interest or OID income.
In connection with our investment in a portfolio company, we sometimes receive nominal cost equity that is valued as part of the negotiation process with the portfolio company. When we receive nominal cost equity, we allocate our cost basis in the investment between debt securities and the nominal cost equity at the time of origination. Any resulting discount from recording the loan, or otherwise purchasing a security at a discount, is accreted into interest income over the life of the loan.
We generally recognize dividend income on the ex-dividend date. Distributions received from equity investments are evaluated to determine if the distribution should be recorded as dividend income or a return of capital. Generally, we will not record distributions from such equity investments as dividend income unless there are sufficient earnings at the portfolio company prior to the distribution. Distributions that are classified as a return of capital are recorded as a reduction in the cost basis of the investment.
Fee Income
Oaktree may provide financial advisory services to portfolio companies and in return we may receive fees for capital structuring services. These fees are generally nonrecurring and are recognized by us upon the investment closing date. We may also receive additional fees in the ordinary course of business, including servicing, amendment, and prepayment fees, which are classified as fee income and recognized as they are earned or the services are rendered.
We have also structured exit fees across certain of our portfolio investments to be received upon the future exit of those investments. Exit fees are payable upon the exit of a debt security. These fees are to be paid to us upon the sooner to occur of (i) a sale of the borrower or substantially all of the assets of the borrower, (ii) the maturity date of the loan or (iii) the date when full prepayment of the loan occurs. The receipt of such fees is contingent upon the occurrence of one of the events listed above for each of the investments. A percentage of these fees is included in net investment income over the life of the loan.
PIK Interest
Our investments in debt securities may contain PIK interest provisions. PIK interest, which represents contractually deferred interest added to the loan balance that is generally due at the end of the loan term, is generally recorded on the accrual basis to the extent such amounts are expected to be collected. We generally cease accruing PIK interest if there is insufficient value to support the accrual or if we do not expect the portfolio company to be able to pay all principal and interest due. Our decision to cease accruing PIK interest involves subjective judgments and determinations based on available information about a particular portfolio company, including whether the portfolio company is current with respect to its payment of principal and interest on its loans and debt securities; financial statements and financial projections for the portfolio company; our assessment of the portfolio company's business development success; information obtained by us in connection with periodic formal update interviews with the portfolio company's management and, if appropriate, the private equity sponsor; and information about the general economic and market conditions in which the portfolio company operates. Based on this and other information, we determine whether to cease accruing PIK interest on a loan or debt security. Our determination to cease accruing PIK interest is generally made well before our full write-down of a loan or debt security. In addition, if it is subsequently determined that we will not be able to collect any previously accrued PIK interest, the fair value of the loans or debt securities would be reduced by the amount of such previously accrued, but uncollectible, PIK interest. The accrual of PIK interest on our debt investments increases the recorded cost bases of these investments in our Consolidated Financial Statements and, as a result, increases the cost bases of these investments for purposes of computing the capital gains incentive fee payable by us to Oaktree beginning in the fiscal year ending September 30, 2019. To maintain our status as a RIC, income from PIK interest may be required to be distributed to our stockholders even though we have not yet collected the cash and may never do so.

75


Portfolio Composition
Our investments principally consist of loans, purchased equity investments and equity grants in privately-held companies and Senior Loan Fund JV I, LLC, or SLF JV I. Our loans are typically secured by a first, second or subordinated lien on the assets of the portfolio company and generally have terms of up to ten years (but an expected average life of between three and four years). We believe the environment for direct lending remains active, and, as a result, a number of our portfolio companies were able to refinance and repay their loans during the three months ended December 31, 2018.
During the three months ended December 31, 2018, we originated $231.1 million of investment commitments in 14 new and three existing portfolio companies and funded $162.4 million of investments.
During the three months ended December 31, 2018, we received $208.3 million of proceeds from prepayments, exits, other paydowns and sales and exited 14 portfolio companies.
A summary of the composition of our investment portfolio at cost and fair value as a percentage of total investments is shown in the following tables:
 
 
 
December 31, 2018
 
September 30, 2018
Cost:
 
 
 
 
Senior secured debt
 
77.65
%
 
74.69
%
Subordinated debt
 
9.02

 
11.85

Debt investments in SLF JV I
 
6.06

 
8.05

LLC equity interests of SLF JV I
 
3.11

 
1.01

Purchased equity
 
3.39

 
3.70

Equity grants
 
0.37

 
0.25

Limited partnership interests
 
0.40

 
0.45

Total
 
100.00
%
 
100.00
%
 
 
 
December 31, 2018
 
September 30, 2018
Fair value:
 
 
 
 
Senior secured debt
 
80.01
%
 
75.40
%
Subordinated debt
 
7.81

 
10.97

Debt investments in SLF JV I
 
6.57

 
8.67

LLC equity interests of SLF JV I
 
1.77

 
—

Purchased equity
 
2.77

 
3.99

Equity grants
 
0.54

 
0.44

Limited partnership interests
 
0.53

 
0.53

Total
 
100.00
%
 
100.00
%


76


The industry composition of our portfolio at cost and fair value as a percentage of total investments was as follows:
 
 
December 31, 2018
 
September 30, 2018
Cost:
 
 
 
 
Multi-sector holdings (1)
 
9.26
%
 
9.85
%
Healthcare services
 
8.29

 
7.43

Application software
 
5.54

 
5.34

Data processing & outsourced services
 
4.80

 
5.45

Property & casualty insurance
 
4.29

 
4.13

Biotechnology
 
4.15

 
0.74

Pharmaceuticals
 
3.63

 
4.30

Healthcare technology
 
3.23

 
3.19

Specialized finance
 
3.10

 
3.02

Healthcare equipment
 
2.99

 
2.98

Auto parts & equipment
 
2.69

 
2.65

Specialty stores
 
2.68

 
2.73

Advertising
 
2.67

 
2.64

Aerospace & defense
 
2.54

 
2.86

Research & consulting services
 
2.18

 
2.15

Technology distributors
 
2.17

 
2.14

Integrated telecommunication services
 
2.13

 
2.10

Airlines
 
2.03

 
2.03

Specialty chemicals
 
2.00

 
1.98

Oil & gas equipment & services
 
1.89

 
3.53

Systems software
 
1.84

 
0.99

Managed healthcare
 
1.75

 
1.73

Construction & engineering
 
1.63

 
1.89

Industrial machinery
 
1.56

 
1.87

Diversified support services
 
1.55

 
1.20

General merchandise stores
 
1.45

 
1.43

Food retail
 
1.43

 
1.37

Healthcare distributors
 
1.42

 
1.22

Oil & gas refining & marketing
 
1.40

 
1.40

Interactive media & services
 
1.37

 
—

Electrical components & equipment
 
1.35

 
2.42

Movies & entertainment
 
1.23

 
1.21

Personal products
 
1.20

 
1.20

Apparel, accessories & luxury goods
 
1.16

 
1.14

Oil & gas drilling
 
0.97

 
—

Education services
 
0.90

 
0.86

Oil & gas storage & transportation
 
0.73

 
—

Security & alarm services
 
0.70

 
0.69

Trading companies & distributors
 
0.66

 
0.43

Internet services & infrastructure
 
0.61

 
0.34

Household appliances
 
0.50

 
0.49

Coal & consumable fuels
 
0.46

 
0.46

Environmental & facilities services
 
0.37

 
0.37

Commercial printing
 
0.37

 
0.36

Leisure facilities
 
0.34

 
0.34

Thrifts & mortgage finance
 
0.31

 
0.33

Restaurants
 
0.20

 
0.19

Alternative carriers
 
0.13

 
—

Human resource & employment services
 
0.05

 
0.10

IT consulting & other services
 
0.05

 
0.05

Department stores
 
0.04

 
0.04

Other diversified financial services
 
0.01

 
0.01

Commodity chemicals
 
—

 
0.18

Consumer electronics
 
—

 
1.38

Hypermarkets & super centers
 
—

 
0.13

Investment banking & brokerage
 
—

 
0.78

Oil & gas exploration & production
 
—

 
2.16

Total
 
100.00
%
 
100.00
%

77


 
 
December 31, 2018
 
September 30, 2018
Fair value:
 
 
 
 
Multi-sector holdings (1)
 
8.56
 %
 
9.57
 %
Healthcare services
 
5.82

 
4.50

Application software
 
5.62

 
6.47

Property & casualty insurance
 
4.64

 
4.52

Biotechnology
 
4.46

 
0.80

Data processing & outsourced services
 
4.25

 
4.98

Pharmaceuticals
 
4.10

 
4.82

Healthcare equipment
 
3.55

 
0.66

Healthcare technology
 
3.40

 
3.50

Specialized finance
 
3.29

 
3.24

Specialty stores
 
2.84

 
2.95

Auto parts & equipment
 
2.83

 
2.89

Aerospace & defense
 
2.75

 
3.11

Research & consulting services
 
2.47

 
2.44

Technology distributors
 
2.33

 
2.32

Airlines
 
2.29

 
2.18

Advertising
 
2.23

 
2.19

Specialty chemicals
 
2.01

 
2.06

Systems software
 
1.96

 
1.08

Managed healthcare
 
1.91

 
1.88

Integrated telecommunication services
 
1.83

 
1.90

Oil & gas equipment & services
 
1.76

 
4.01

Construction & engineering
 
1.69

 
2.14

Diversified support services
 
1.68

 
1.23

Industrial machinery
 
1.64

 
1.97

Food retail
 
1.56

 
1.48

Interactive media & services
 
1.51

 
—

Electrical components & equipment
 
1.49

 
2.70

Oil & gas refining & marketing
 
1.49

 
1.52

Healthcare distributors
 
1.47

 
1.30

General merchandise stores
 
1.42

 
1.55

Movies & entertainment
 
1.33

 
1.31

Personal products
 
1.31

 
1.31

Oil & gas drilling
 
1.05

 
—

Apparel, accessories & luxury goods
 
0.90

 
0.91

Oil & gas storage & transportation
 
0.80

 
—

Security & alarm services
 
0.71

 
0.73

Trading companies & distributors
 
0.70

 
0.47

Internet services & infrastructure
 
0.66

 
0.37

Leisure products
 
0.64

 
0.81

Leisure facilities
 
0.57

 
0.55

Household appliances
 
0.51

 
0.53

Coal & consumable fuels
 
0.49

 
0.50

Environmental & facilities services
 
0.42

 
0.42

Commercial printing
 
0.40

 
0.40

Thrifts & mortgage finance
 
0.30

 
0.32

Restaurants
 
0.21

 
0.21

Alternative carriers
 
0.13

 
—

Human resource & employment services
 
0.06

 
0.11

Department stores
 
0.04

 
0.04

IT consulting & other services
 
0.03

 
0.03

Education services
 
(0.11
)
 
(0.14
)
Hypermarkets & super centers
 
—

 
0.14

Commodity chemicals
 
—

 
0.21

Consumer electronics
 
—

 
1.57

Investment banking & brokerage
 
—

 
0.86

Oil & gas exploration & production
 
—

 
2.38

Total
 
100.00
 %
 
100.00
 %
___________________
(1)
This industry includes our investment in SLF JV I.

78


Loans and Debt Securities on Non-Accrual Status
As of December 31, 2018 and September 30, 2018, there were seven and eight investments on which we had stopped accruing cash and/or PIK interest or OID income.
The percentages of our debt investments at cost and fair value by accrual status as of December 31, 2018 and September 30, 2018 were as follows:
 
 
December 31, 2018
 
September 30, 2018
 
 
Cost
 
% of Debt
Portfolio
 
Fair
Value
 
% of Debt
Portfolio
 
Cost
 
% of Debt
Portfolio
 
Fair
Value
 
% of Debt
Portfolio
Accrual
 
$
1,262,978

 
85.79
%
 
$
1,250,409

 
90.43
%
 
$
1,298,999

 
85.46
%
 
$
1,318,531

 
93.03
%
PIK non-accrual (1)
 
51,771

 
3.52

 
40,715

 
2.94

 
12,661

 
0.83

 
—

 
—

Cash non-accrual (2)
 
157,293

 
10.69

 
91,640

 
6.63

 
208,345

 
13.71

 
98,760

 
6.97

Total
 
$
1,472,042

 
100.00
%
 
$
1,382,764

 
100.00
%
 
$
1,520,005

 
100.00
%
 
$
1,417,291

 
100.00
%
 ___________________
(1)
PIK non-accrual status is inclusive of other non-cash income, where applicable.
(2)
Cash non-accrual status is inclusive of PIK and other non-cash income, where applicable.

Senior Loan Fund JV I, LLC
In May 2014, we entered into a limited liability company, or LLC, agreement with Trinity Universal Insurance Company, a subsidiary of Kemper Corporation, or Kemper to form SLF JV I. On July 1, 2014, SLF JV I began investing in senior secured loans of middle-market companies and other corporate debt securities. We co-invest in these securities with Kemper through our investment in SLF JV I. SLF JV I is managed by a four person Board of Directors, two of whom are selected by us and two of whom are selected by Kemper. All portfolio decisions and investment decisions in respect of SLF JV I must be approved by the SLF JV I investment committee, which consists of one representative selected by us and one representative selected by Kemper (with approval from a representative of each required). Since we do not have a controlling financial interest in SLF JV I, we do not consolidate SLF JV I.
SLF JV I is capitalized pro rata with LLC equity interests as transactions are completed and may be capitalized with additional subordinated notes issued to us and Kemper by SLF JV I. On December 28, 2018, we and Kemper directed the redemption of our holdings of mezzanine notes issued by SLF Repack Issuer 2016, LLC, a wholly-owned, special purpose issuer subsidiary of SLF JV I. Upon such redemption, the assets collateralizing the mezzanine notes, which consisted of equity interests of SLF JV I Funding LLC (the "Equity Interests"), were distributed in-kind to each of us and Kemper, based upon our respective holdings of mezzanine notes. Upon such distribution, we and Kemper each then directed that a portion of our respective Equity Interests holdings be contributed to SLF JV I in exchange for LLC equity interests of SLF JV I and the remainder be applied as payment for the subordinated notes of SLF JV I.  SLF Repack Issuer 2016, LLC was dissolved following the foregoing redemption and liquidation. The subordinated notes issued by SLF JV I, or the SLF JV 1 Subordinated Notes, and the mezzanine notes issued by SLF Repack Issuer 2016, LLC, or the SLF Repack Notes, collectively are referred to as the SLF JV I Notes. Prior to their redemption on December 28, 2018, the SLF Repack Notes consisted of Class A mezzanine secured deferrable floating rate notes and Class B mezzanine secured deferrable fixed rate notes. The SLF JV I Subordinated Notes are (and the SLF Repack Notes were, prior to their redemption) senior in right of payment to SLF JV I LLC equity interests and subordinated in right of payment to SLF JV I’s secured debt. As of December 31, 2018, we and Kemper owned, in the aggregate, 87.5% and 12.5%, respectively, of the LLC equity interests of SLF JV I and the outstanding SLF JV I Subordinated Notes and as of September 30, 2018, we and Kemper owned in the aggregate, 87.5% and 12.5%, respectively, of the LLC equity interest in SLF JV I and the outstanding SLF Repack Notes.
SLF JV I has a senior revolving credit facility with Deutsche Bank AG, New York Branch (as amended, the "Deutsche Bank I Facility"), which permitted up to $200.0 million of borrowings as of December 31, 2018 and September 30, 2018. Borrowings under the Deutsche Bank I Facility are secured by all of the assets of SLF JV I Funding LLC, a special purpose financing subsidiary of SLF JV I. As of December 31, 2018, the reinvestment period of the Deutsche Bank I Facility was scheduled to expire June 28, 2021 and the maturity date for the Deutsche Bank I Facility was June 28, 2026. As of December 31, 2018, borrowings under the Deutsche Bank I Facility accrued interest at a rate equal to the 3-month London Interbank Offered Rate, or LIBOR, plus 1.85% per annum during the reinvestment period and 3-month LIBOR plus 2.00% per annum during the amortization period. Under the Deutsche Bank I Facility, $143.0 million and $153.0 million of borrowings were outstanding as of December 31, 2018 and September 30, 2018, respectively.
As of December 31, 2018 and September 30, 2018, SLF JV I had total assets of $309.6 million and $314.2 million, respectively. SLF JV I's portfolio primarily consisted of senior secured loans to 42 and 40 portfolio companies as of December 31, 2018 and September 30, 2018, respectively. The portfolio companies in SLF JV I are in industries similar to those in which we may invest directly. As of December 31, 2018, our investment in SLF JV I consisted of LLC equity interests of $26.0 million, at fair value, and subordinated notes of $96.3 million, at fair value. As of September 30, 2018, our investment in SLF JV I consisted of LLC equity interests of $0.0 million, at fair

79


value, and Class A mezzanine secured deferrable floating rate notes and Class B mezzanine secured deferrable fixed rate notes of $99.8 million and $29.5 million, at fair value, respectively.
As of each of December 31, 2018 and September 30, 2018, we and Kemper had funded approximately $165.5 million to SLF JV I, of which $144.8 million was from us. As of December 31, 2018 and September 30, 2018, we and Kemper had the option to fund additional SF JV I Notes, subject to additional equity funding to SLF JV I. As of each of December 31, 2018 and September 30, 2018, we had commitments to fund LLC equity interests in SLF JV I of $17.5 million, of which $1.3 million was unfunded.
Below is a summary of SLF JV I's portfolio, followed by a listing of the individual loans in SLF JV I's portfolio as of December 31, 2018 and September 30, 2018:

 
 
December 31, 2018
 
September 30, 2018
Senior secured loans (1)
 
$290,872
 
$297,053
Weighted average interest rate on senior secured loans (2)
 
7.20%
 
7.20%
Number of borrowers in SLF JV I
 
42
 
40
Largest exposure to a single borrower (1)
 
$17,512
 
$17,512
Total of five largest loan exposures to borrowers (1)
 
$58,329
 
$66,507
__________________
(1) At principal amount.
(2) Computed using the weighted average annual interest rate on accruing senior secured loans at fair value.

80



SLF JV I Portfolio as of December 31, 2018
Portfolio Company
 
Industry
 
Investment Type
 
Maturity Date
 
Current Interest Rate(1)(2)
 
 Cash Interest Rate
 
Principal
 
Cost
 
Fair Value (3)
 Accudyne Industries, LLC
 
Industrial machinery
 
First Lien Term Loan B
 
8/18/2024
 
LIBOR+3% (1% floor)
 
5.52
%
 
$
8,906

 
$
8,906

 
$
8,474

AdVenture Interactive, Corp. (4)
 
Advertising
 
927 Common Stock Shares
 

 

 
 
 

 
1,390

 
670

AI Ladder (Luxembourg) Subco S.a.r.l.
(4)
 
 Electrical components & equipment
 
First Lien Term Loan B
 
7/9/2025
 
LIBOR+4.5%
 
7.02
%
 
6,225

 
6,050

 
6,174

 Air Newco LP
 
 IT consulting & other services
 
First Lien Term Loan B
 
5/31/2024
 
LIBOR+4.75%
 
7.14
%
 
9,975

 
9,950

 
9,900

 AL Midcoast Holdings LLC
 
 Oil & gas storage & transportation
 
First Lien Term Loan B
 
8/1/2025
 
LIBOR+5.5%
 
8.30
%
 
9,975

 
9,875

 
9,710

Allied Universal Holdco LLC (4)
 
Security & alarm services
 
First Lien Term Loan
 
7/28/2022
 
LIBOR+3.75% (1% floor)
 
6.27
%
 
6,894

 
6,936

 
6,559

 Altice France S.A.
 
 Integrated telecommunication services
 
First Lien Term Loan B13
 
8/14/2026
 
LIBOR+4%
 
6.46
%
 
7,500

 
7,319

 
7,105

 Alvogen Pharma US, Inc.
 
 Pharmaceuticals
 
First Lien Term Loan B
 
4/1/2022
 
LIBOR+4.75% (1% floor)
 
7.27
%
 
9,750

 
9,750

 
9,576

 Asset International, Inc.
 
 Research & consulting services
 
First Lien Term Loan
 
12/30/2024
 
LIBOR+4.5% (1% floor)
 
7.02
%
 
6,930

 
6,811

 
6,815

 Blackhawk Network Holdings, Inc.
 
 Data processing & outsourced services
 
First Lien Term Loan
 
6/15/2025
 
LIBOR+3%
 
5.52
%
 
9,950

 
9,927

 
9,502

Brazos Delaware II, LLC
 
 Oil & gas equipment & services
 
First Lien Term Loan B
 
5/21/2025
 
LIBOR+4%
 
6.47
%
 
7,463

 
7,429

 
6,872

Clearent Newco, LLC
 
Application software
 
First Lien Term Loan
 
3/20/2024
 
LIBOR+4% (1% floor)
 
6.52
%
 
6,877

 
6,788

 
6,704

 
 
 
 
Delayed Draw Term Loan
 
3/20/2024
 
LIBOR+4% (1% floor)
 
6.52
%
 
336

 
310

 
286

 
 
 
 
First Lien Revolver
 
3/20/2023
 
PRIME+4% (1% floor)
 
8.50
%
 
480

 
466

 
453

 Total Clearent Newco, LLC
 
 
 
 
 
 
 
 
 
 
 
7,693

 
7,564

 
7,443

DigiCert, Inc.
 
 Internet services & infrastructure
 
First Lien Term Loan
 
10/31/2024
 
LIBOR+4% (1% floor)
 
6.52
%
 
4,313

 
4,210

 
4,237

EOS Fitness Opco Holdings, LLC (4)
 
Leisure facilities
 
First Lien Term Loan
 
12/30/2019
 
LIBOR+8.25% (0.75% floor)
 
10.60
%
 
17,512

 
17,416

 
17,513

Eton (4)
 
 Research & consulting services
 
Second Lien Term Loan
 
5/1/2026
 
LIBOR+7.5% (0% floor)
 
10.02
%
 
6,000

 
5,972

 
6,030

Everi Payments Inc.
 
Casinos & gaming
 
First Lien Term Loan B
 
5/9/2024
 
LIBOR+3% (1% floor)
 
5.52
%
 
4,925

 
4,902

 
4,792

Falmouth Group Holdings Corp.
 
Specialty chemicals
 
First Lien Term Loan B
 
12/14/2021
 
LIBOR+6.75% (1% floor)
 
9.27
%
 
4,121

 
4,092

 
4,093

Gentiva Health Services Inc.
 
 Healthcare services
 
First Lien Term Loan
 
7/2/2025
 
LIBOR+3.75%
 
6.31
%
 
7,980

 
7,845

 
7,761

Gigamon Inc.
 
 Systems software
 
First Lien Term Loan
 
12/27/2024
 
LIBOR+4.25% (1% floor)
 
7.05
%
 
7,920

 
7,852

 
7,821

 GoodRx, Inc.
 
 Interactive media & services
 
First Lien Term Loan
 
10/10/2025
 
LIBOR+3%
 
5.43
%
 
8,000

 
7,981

 
7,740

 Intelsat Jackson Holdings S.A. (4)
 
 Alternative carriers
 
First Lien Term Loan B3
 
11/27/2023
 
LIBOR+3.75% (1% floor)
 
6.26
%
 
5,000

 
4,878

 
4,863

Keypath Education, Inc. (4)
 
 Advertising
 
First Lien Term Loan
 
4/3/2022
 
LIBOR+7% (1% floor) cash
 
9.80
%
 
1,854

 
1,852

 
1,854

 
 
 
 
927 shares Common Stock
 
 
 
 
 
 
 
 
 
1,088

 
816

 Total Keypath Education, Inc.
 
 
 
 
 
 
 
 
 
 
 
1,854

 
2,940

 
2,670


81


Portfolio Company
 
Industry
 
Investment Type
 
Maturity Date
 
Current Interest Rate(1)(2)
 
 Cash Interest Rate
 
Principal
 
Cost
 
Fair Value (3)
 KIK Custom Products Inc.
 
Household products
 
First Lien Term Loan B
 
5/15/2023
 
LIBOR+4% (1% floor) cash
 
6.52
%
 
$
8,000

 
$
7,966

 
$
7,570

 McDermott Technology (Americas), Inc. (4)
 
 Oil & gas equipment & services
 
First Lien Term Loan B
 
5/12/2025
 
LIBOR+5% (1% floor) cash
 
7.52
%
 
9,925

 
9,743

 
9,292

Morphe LLC (4)
 
Personal products
 
First Lien Term Loan
 
2/10/2023
 
LIBOR+6% (1% floor) cash
 
8.52
%
 
4,331

 
4,295

 
4,310

New IPT, Inc. (4)
 
 Oil & gas equipment & services
 
First Lien Term Loan
 
3/17/2021
 
LIBOR+5% (1% floor) cash
 
7.80
%
 
1,794

 
1,794

 
1,794

 
 
 
 
Second Lien Term Loan
 
9/17/2021
 
LIBOR+5.1% (1% floor) cash
 
7.90
%
 
394

 
394

 
394

 
 
 
 
21.876 Class A Common Units
 
 
 
 
 
 
 
—

 
—

 
1,001

Total New IPT, Inc.
 
 
 
 
 
 
 
 
 
 
 
2,188

 
2,188

 
3,189

Northern Star Industries Inc.
 
Electrical components & equipment
 
First Lien Term Loan B
 
3/31/2025
 
LIBOR+4.75% (1% floor) cash
 
7.55
%
 
6,948

 
6,916

 
6,939

Novetta Solutions, LLC
 
Application software
 
First Lien Term Loan
 
10/17/2022
 
LIBOR+5% (1% floor) cash
 
7.53
%
 
6,040

 
6,000

 
5,889

OCI Beaumont LLC
 
Commodity chemicals
 
First Lien Term Loan B
 
3/13/2025
 
LIBOR+4% (1% floor) cash
 
6.80
%
 
7,940

 
7,931

 
7,806

Refac Optical Group (4)(5)
 
Specialty stores
 
First Lien Term Loan A
 
1/9/2019
 
LIBOR+8% cash
 


 
2,123

 
1,940

 
2,123

Salient CRGT, Inc. (4)
 
Aerospace & defense
 
First Lien Term Loan
 
2/28/2022
 
LIBOR+5.75% (1% floor) cash
 
8.27
%
 
2,251

 
2,222

 
2,218

Scientific Games International, Inc.
 
Casinos & gaming
 
First Lien Term Loan B-5
 
8/14/2024
 
LIBOR+2.75% (1% floor) cash
 
5.25
%
 
6,565

 
6,537

 
6,183

Sequa Corp.
 
Aerospace & defense
 
First Lien Term Loan B
 
11/28/2021
 
LIBOR+5% (1% floor) cash
 
7.41
%
 
4,987

 
4,813

 
4,782

SHO Holding I Corporation
 
Footwear
 
First Lien Term Loan
 
11/18/2022
 
LIBOR+5% (1% floor) cash
 
7.53
%
 
8,485

 
8,464

 
8,050

Signify Health, LLC
 
 Healthcare services
 
First Lien Term Loan
 
12/23/2024
 
LIBOR+4.5% (1% floor) cash
 
7.30
%
 
9,925

 
9,838

 
9,975

Sirva Worldwide, Inc.
 
Diversified support services
 
First Lien Term Loan
 
8/4/2025
 
LIBOR+5.5% cash
 
8.06
%
 
5,000

 
4,925

 
4,913

Triple Royalty Sub LLC
 
 Pharmaceuticals
 
 Fixed Rate Bond 144A
 
4/15/2033
 
9% PIK
 


 
5,000

 
5,000

 
5,000

TV Borrower US, LLC
 
Integrated telecommunications services
 
First Lien Term Loan
 
2/22/2024
 
LIBOR+4.75% (1% floor) cash
 
7.55
%
 
2,013

 
2,006

 
2,003

Uber Technologies, Inc.
 
Application software
 
First Lien Term Loan
 
4/4/2025
 
LIBOR+4% (1% floor) cash
 
6.39
%
 
9,950

 
9,905

 
9,720

Uniti Group LP
 
Specialized REITs
 
First Lien Term Loan B
 
10/24/2022
 
LIBOR+3% (1% floor) cash
 
5.52
%
 
6,451

 
6,225

 
5,859

Veritas US Inc. (4)
 
Application software
 
First Lien Term Loan B-1
 
1/27/2023
 
LIBOR+4.5% (1% floor) cash
 
7.09
%
 
6,947

 
6,900

 
5,972

Verra Mobility, Corp.
 
Data processing & outsourced services
 
First Lien Term Loan B
 
2/28/2025
 
LIBOR+3.75% (1% floor) cash
 
6.27
%
 
10,917

 
10,933

 
10,672

WP CPP Holdings, LLC (4)
 
Aerospace & defense
 
Second Lien Term Loan
 
4/30/2026
 
LIBOR+7.75% (1% floor) cash
 
10.28
%
 
6,000

 
5,944

 
5,905

 
 
 
 
 
 
 
 
 
 
 
 
$
290,872

 
$
290,686

 
$
284,690

__________________
(1) Represents the current interest rate as of December 31, 2018. All interest rates are payable in cash, unless otherwise noted.
(2) The interest rate on the principal balance outstanding for all floating rate loans is indexed to LIBOR and/or an alternate base rate (e.g., prime rate), which typically resets semi-annually, quarterly, or monthly at the borrower's option. The borrower may also elect to have multiple interest reset periods for each loan. For each of these loans, we have provided the applicable margin over LIBOR or the alternate base rate based on each respective credit agreement and the cash interest rate as of period end. All LIBOR shown above is in U.S. dollars. As of December 31, 2018, the reference rates for SLF JV I's variable rate loans were the 30-day LIBOR at 2.52%, 60-day LIBOR at 2.62%, the 90-day LIBOR at 2.80%, the 180-day LIBOR at 2.88%, and the PRIME at 5.50%.
(3) Represents the current determination of fair value as of December 31, 2018 utilizing a similar technique as us in accordance with ASC 820. However, the determination of such fair value is not included in our Board of Directors' valuation process described elsewhere herein.
(4) This investment is held by both us and SLF JV I as of December 31, 2018.
(5) This investment was on cash non-accrual status as of December 31, 2018. Cash non-accrual status is inclusive of PIK and other non-cash income, where applicable.


82


SLF JV I Portfolio as of September 30, 2018
Portfolio Company
 
Industry
 
Investment Type
 
Maturity Date
 
Current Interest Rate(1)(2)
 
 Cash Interest Rate
 
Principal
 
Cost
 
Fair Value (3)
 Accudyne Industries, LLC
 
Industrial machinery
 
First Lien Term Loan B
 
8/18/2024
 
LIBOR+3% (1% floor)
 
5.24
%
 
$
9,088

 
$
9,088

 
$
9,134

AdVenture Interactive, Corp. (4)
 
Advertising
 
927 Common Stock Shares
 
 
 
 
 
 
 
 
 
1,390

 
670

AI Ladder (Luxembourg) Subco S.a.r.l
(4)
 
 Electrical components & equipment
 
First Lien Term Loan B
 
7/9/2025
 
LIBOR+4.5%
 
7.02
%
 
11,300

 
10,970

 
11,367

 Air Newco LP
 
 IT consulting & other services
 
First Lien Term Loan B
 
5/31/2024
 
LIBOR+4.75%
 
6.88
%
 
10,000

 
9,975

 
10,100

 AL Midcoast Holdings LLC
 
 Oil & gas storage & transportation
 
First Lien Term Loan B
 
8/1/2025
 
LIBOR+5.5%
 
7.84
%
 
10,000

 
9,900

 
10,041

Allied Universal Holdco LLC (4)
 
Security & alarm services
 
First Lien Term Loan
 
7/28/2022
 
LIBOR+3.75% (1% floor)
 
6.14
%
 
6,912

 
6,956

 
6,821

 Altice France S.A.
 
 Integrated telecommunication services
 
First Lien Term Loan B13
 
8/14/2026
 
LIBOR+4%
 
6.16
%
 
7,500

 
7,313

 
7,457

 Alvogen Pharma US, Inc.
 
 Pharmaceuticals
 
First Lien Term Loan B
 
4/1/2022
 
LIBOR+4.75% (1% floor)
 
6.99
%
 
9,822

 
9,822

 
9,918

 Asset International, Inc.
 
 Research & consulting services
 
First Lien Term Loan
 
12/30/2024
 
LIBOR+4.5% (1% floor)
 
6.89
%
 
6,948

 
6,824

 
6,917

 Blackhawk Network Holdings, Inc.
 
 Data processing & outsourced services
 
First Lien Term Loan
 
6/15/2025
 
LIBOR+3%
 
5.39
%
 
9,975

 
9,951

 
10,049

Brazos Delaware II, LLC
 
 Oil & gas equipment & services
 
First Lien Term Loan B
 
5/21/2025
 
LIBOR+4%
 
6.17
%
 
7,481

 
7,446

 
7,458

Chloe Ox Parent LLC
 
 Healthcare services
 
First Lien Term Loan
 
12/23/2024
 
LIBOR+4.5% (1% floor)
 
6.89
%
 
9,950

 
9,860

 
9,987

Clearent Newco, LLC
 
Application software
 
First Lien Term Loan
 
3/20/2024
 
LIBOR+4% (1% floor)
 
6.24
%
 
6,894

 
6,800

 
6,796

 
 
 
 
Delayed Draw Term Loan
 
3/20/2024
 
LIBOR+4% (1% floor)
 
6.19
%
 
337

 
310

 
309

 
 
 
 
First Lien Revolver
 
3/20/2023
 
PRIME+3% (1% floor)
 
8.00
%
 
852

 
837

 
836

 Total Clearent Newco, LLC
 
 
 
 
 
 
 
 
 
 
 
8,083

 
7,947

 
7,941

EOS Fitness Opco Holdings, LLC (4)
 
Leisure facilities
 
First Lien Term Loan
 
12/30/2019
 
LIBOR+8.25% (0.75% floor)
 
10.36
%
 
17,512

 
17,399

 
17,512

Eton (4)
 
 Research & consulting services
 
Second Lien Term Loan
 
5/1/2026
 
LIBOR+7.5%
 
9.74
%
 
6,000

 
5,971

 
6,030

Everi Payments Inc.
 
Casinos & gaming
 
First Lien Term Loan B
 
5/9/2024
 
LIBOR+3% (1% floor)
 
5.24
%
 
4,938

 
4,914

 
4,973

Falmouth Group Holdings Corp.
 
Specialty chemicals
 
First Lien Term Loan B
 
12/14/2021
 
LIBOR+6.75% (1% floor)
 
8.99
%
 
4,330

 
4,300

 
4,330

Garretson Resolution Group, Inc. (5)
 
Diversified support services
 
First Lien Term Loan
 
5/22/2021
 
LIBOR+6.5% (1% floor)
 
 
 
5,797

 
5,772

 
1,159

Gigamon Inc.
 
 Systems software
 
First Lien Term Loan
 
12/27/2024
 
LIBOR+4.5% (1% floor)
 
6.89
%
 
7,940

 
7,869

 
8,000

IBC Capital Ltd.
 
 Metal & glass containers
 
First Lien Term Loan B
 
9/11/2023
 
LIBOR+3.75%
 
6.09
%
 
8,955

 
8,933

 
9,028

InMotion Entertainment Group, LLC (4)
 
Consumer electronics
 
First Lien Term Loan A
 
10/1/2021
 
LIBOR+7.25% (1.25% floor)
 
9.65
%
 
8,375

 
8,389

 
8,375

 
 
 
 
First Lien Term Loan B
 
10/1/2021
 
LIBOR+7.25% (1.25% floor)
 
9.65
%
 
8,375

 
8,306

 
8,375

Total InMotion Entertainment Group, LLC
 
 
 
 
 
 
 
 
 
 
 
16,750

 
16,695

 
16,750


83


Portfolio Company
 
Industry
 
Investment Type
 
Maturity Date
 
Current Interest Rate(1)(2)
 
 Cash Interest Rate
 
Principal
 
Cost
 
Fair Value (3)
Keypath Education, Inc. (4)
 
 Advertising
 
First Lien Term Loan
 
4/3/2022
 
LIBOR+7% (1.00% floor) cash
 
9.39
%
 
$
1,855

 
$
1,853

 
$
1,854

 
 
 
 
927 shares Common Stock
 
 
 
 
 
 
 
 
 
1,088

 
816

 Total Keypath Education, Inc.
 
 
 
 
 
 
 
 
 
 
 
1,855

 
2,941

 
2,670

 KIK Custom Products Inc.
 
Household products
 
First Lien Term Loan B
 
5/15/2023
 
LIBOR+4% (1% floor) cash
 
6.24
%
 
8,000

 
7,965

 
7,975

 McDermott Technology (Americas) Inc. (4)
 
 Oil & gas equipment & services
 
First Lien Term Loan B
 
5/12/2025
 
LIBOR+5% (1% floor) cash
 
7.24
%
 
9,950

 
9,760

 
10,097

Morphe LLC (4)
 
Personal products
 
First Lien Term Loan
 
2/10/2023
 
LIBOR+6% (1% floor) cash
 
8.40
%
 
4,388

 
4,348

 
4,388

New IPT, Inc. (4)
 
 Oil & gas equipment & services
 
First Lien Term Loan
 
3/17/2021
 
LIBOR+5% (1% floor) cash
 
7.39
%
 
1,794

 
1,794

 
1,794

 
 
 
 
Second Lien Term Loan
 
9/17/2021
 
LIBOR+5.1% (1% floor) cash
 
7.49
%
 
634

 
634

 
634

 
 
 
 
21.876 Class A Common Units
 
 
 
 
 
 
 
—

 
—

 
1,001

Total New IPT, Inc.
 
 
 
 
 
 
 
 
 
 
 
2,428

 
2,428

 
3,429

Northern Star Industries Inc.
 
Electrical components & equipment
 
First Lien Term Loan B
 
3/31/2025
 
LIBOR+4.75% (1% floor) cash
 
7.08
%
 
6,965

 
6,933

 
6,974

Novetta Solutions, LLC
 
Application software
 
First Lien Term Loan B
 
10/17/2022
 
LIBOR+5% (1% floor) cash
 
7.25
%
 
6,055

 
6,012

 
5,881

OCI Beaumont LLC
 
Commodity chemicals
 
First Lien Term Loan B
 
3/13/2025
 
LIBOR+4% (1% floor) cash
 
6.39
%
 
7,960

 
7,951

 
8,089

Refac Optical Group (4)(5)
 
Specialty stores
 
First Lien Term Loan A
 
9/30/2018
 
LIBOR+8% cash
 
10.26
%
 
2,573

 
2,476

 
2,573

Salient CRGT, Inc. (4)
 
Aerospace & defense
 
First Lien Term Loan
 
2/28/2022
 
LIBOR+5.75% (1% floor) cash
 
7.99
%
 
2,267

 
2,235

 
2,301

Scientific Games International, Inc.
 
Casinos & gaming
 
First Lien Term Loan B-5
 
8/14/2024
 
LIBOR+2.75% (1% floor) cash
 
5.03
%
 
6,582

 
6,552

 
6,579

SHO Holding I Corporation
 
Footwear
 
First Lien Term Loan
 
11/18/2022
 
LIBOR+5% (1% floor) cash
 
7.34
%
 
8,507

 
8,484

 
8,082

 Sirva Worldwide, Inc.
 
Diversified support services
 
First Lien Term Loan
 
8/4/2025
 
LIBOR+5.5% cash
 
7.75
%
 
5,000

 
4,925

 
5,019

TravelCLICK, Inc. (4)
 
Data Processing & outsourced services
 
Second Lien Term Loan
 
11/6/2021
 
LIBOR+7.75% (1% floor) cash
 
9.99
%
 
2,871

 
2,871

 
2,871

TV Borrower US, LLC
 
Integrated telecommunications services
 
First Lien Term Loan
 
2/22/2024
 
LIBOR+4.75% (1% floor) cash
 
7.14
%
 
2,019

 
2,011

 
2,026

Uber Technologies Inc.
 
Application software
 
First Lien Term Loan
 
4/4/2025
 
LIBOR+4% (1% floor) cash
 
6.12
%
 
9,975

 
9,928

 
10,055

Uniti Group LP
 
Specialized REITs
 
First Lien Term Loan B
 
10/24/2022
 
LIBOR+3% (1% floor) cash
 
5.24
%
 
6,467

 
6,225

 
6,198

 Veritas US Inc.
 
Application software
 
First Lien Term Loan B-1
 
1/27/2023
 
LIBOR+4.5% (1% floor) cash
 
6.78
%
 
6,965

 
6,915

 
6,801

 Verra Mobility, Corp. (4)
 
Data processing & outsourced services
 
First Lien Term Loan B
 
2/28/2025
 
LIBOR+3.75% (1% floor) cash
 
5.99
%
 
10,945

 
10,961

 
11,013

 WP CPP Holdings, LLC
 
Aerospace & defense
 
Second Lien Term Loan
 
4/30/2026
 
LIBOR+7.75% cash
 
10.15
%
 
6,000

 
5,942

 
6,013

 
 
 
 
 
 
 
 
 
 
 
 
$
291,053

 
$
297,158

 
$
294,676

 ___________________
(1) Represents the current interest rate as of September 30, 2018. All interest rates are payable in cash, unless otherwise noted.
(2) The interest rate on the principal balance outstanding for all floating rate loans is indexed to LIBOR and/or an alternate base rate (e.g., prime rate), which typically resets semi-annually, quarterly, or monthly at the borrower's option. The borrower may also elect to have multiple interest reset periods for each loan. For each of these loans, we have provided the applicable margin over LIBOR or the alternate base rate based on each respective credit agreement and the cash interest rate as of period end. All LIBOR shown above is in U.S. dollars. As of September 30, 2018, the reference rates for SLF JV I's variable rate loans were the 30-day LIBOR at 2.24%, 60-day LIBOR at 2.29%, the 90-day LIBOR at 2.39%, the 180-day LIBOR at 2.59% and the PRIME at 5.25%.
(3) Represents the current determination of fair value as of September 30, 2018 utilizing a similar technique as us in accordance with ASC 820. However, the determination of such fair value is not included in our Board of Directors' valuation process described elsewhere herein.
(4) This investment is held by both us and SLF JV I as of September 30, 2018.
(5) This investment was on cash non-accrual status as of September 30, 2018. Cash non-accrual status is inclusive of PIK and other non-cash income, where applicable.

84


 
Both the cost and fair value of the subordinated notes of SLF JV I held by us were $96.3 million as of December 31, 2018. Both the cost and fair value of the mezzanine notes held by us were $129.3 million as of September 30, 2018. We earned cash interest of $2.8 million on our investments in the SLF JV I Notes for the three months ended December 31, 2018. We earned interest of $2.8 million, including $1.0 million of PIK interest, on our investments in the mezzanine notes for the three months ended December 31, 2017. The subordinated notes bear interest at a rate of one-month LIBOR plus 7.0% per annum and mature on December 29, 2028. On June 28, 2018, the Class B mezzanine secured deferrable fixed rate notes were amended to bear interest at a fixed cash rate of 10% per annum. Prior to such amendment, these notes bore interest at a fixed PIK rate of 15% per annum.
The cost and fair value of the LLC equity interests in SLF JV I held by us was $49.3 million and $26.0 million, respectively, as of December 31, 2018, and $16.2 million and $0.0 million, respectively, as of September 30, 2018. We did not earn dividend income for each of the three months ended December 31, 2018 and 2017, with respect to our investment in the LLC equity interests of SLF JV I. The LLC equity interests of SLF JV I are dividend producing to the extent SLF JV I has residual cash to be distributed on a quarterly basis.
Below is certain summarized financial information for SLF JV I as of December 31, 2018 and September 30, 2018 and for the three months ended December 31, 2018 and 2017:
 
 
December 31, 2018
 
September 30, 2018
Selected Balance Sheet Information:
 
 
 
 
Investments in loans at fair value (cost December 31, 2018: $290,686; cost September 30, 2018: $297,158)
 
$
284,690

 
$
294,676

Receivables from secured financing arrangements at fair value (cost December 31, 2018: $9,801; cost September 30, 2018: $9,801)
 
7,127

 
7,069

Cash and cash equivalents
 
8,512

 
3,226

Restricted cash
 
4,826

 
4,808

Other assets
 
4,460

 
4,418

Total assets
 
$
309,615

 
$
314,197

 
 
 
 
 
Senior credit facility payable
 
$
143,010

 
$
153,010

Debt securities payable at fair value (proceeds December 31, 2018: $110,000; proceeds September 30, 2018: $147,808)
 
110,000

 
147,808

Other liabilities
 
26,891

 
13,331

Total liabilities
 
279,901

 
314,149

Members' equity
 
29,714

 
48

Total liabilities and members' equity
 
$
309,615

 
$
314,197


 
 
Three months ended December 31, 2018
 
Three months ended December 31, 2017
Selected Statements of Operations Information:
 
 
 
 
Interest income
 
$
5,438

 
$
4,728

Other income
 
9

 
—

Total investment income
 
5,447

 
4,728

Interest expense
 
5,154

 
5,145

Other expenses
 
50

 
161

Total expenses (1)
 
5,204

 
5,306

Net unrealized depreciation
 
(3,456
)
 
(226
)
Net realized loss
 
(5,005
)
 
(4
)
Net loss
 
$
(8,218
)
 
$
(808
)
 __________
(1) There are no management fees or incentive fees charged at SLF JV I.

SLF JV I has elected to fair value the debt securities issued to us and Kemper under ASC Topic 825, Financial Instruments, or ASC 825. The debt securities are valued based on the total assets less the total liabilities senior to the mezzanine notes of SLF JV I in an amount not exceeding par under the enterprise value technique.

85


During the three months ended December 31, 2018 and 2017, we did not sell any debt investments to SLF JV I.
Discussion and Analysis of Results and Operations
Results of Operations
The principal measure of our financial performance is the net increase (decrease) in net assets resulting from operations, which includes net investment income, net realized gains (losses) and net unrealized appreciation (depreciation). Net investment income is the difference between our income from interest, dividends, fees, and other investment income and total expenses. Net realized gains (losses) are the difference between the proceeds received from dispositions of investment related assets and liabilities and their stated costs. Net unrealized appreciation (depreciation) is the net change in the fair value of our investment related assets and liabilities carried at fair value during the reporting period, including the reversal of previously recorded unrealized appreciation (depreciation) when gains or losses are realized.
Comparison of Three Months Ended December 31, 2018 and December 31, 2017
Total Investment Income
Total investment income includes interest on our investments, fee income and dividend and other income.
Total investment income for the three months ended December 31, 2018 and December 31, 2017 was $38.3 million and $33.9 million, respectively. For the three months ended December 31, 2018, this amount consisted of $36.6 million of interest income from portfolio investments (which included $0.8 million of PIK interest), $1.2 million of fee income and $0.5 million of dividend income. For the three months ended December 31, 2017, this amount primarily consisted of $31.8 million of interest income from portfolio investments (which included $1.9 million of PIK interest), $1.0 million of fee income and $1.0 million of dividend income. The increase of $4.4 million, or 13.0%, in our total investment income for the three months ended December 31, 2018, as compared to the three months ended December 31, 2017, was due primarily to a $4.8 million increase in interest income, which was primarily attributable to $5.6 million of OID accretion related to our first lien term loan with Dominion Diagnostics. In light of the portfolio company’s improved performance, we began recognizing OID accretion again this quarter. Given our relatively low cost basis and short time until the loan’s contractual maturity in April 2019, this has generated a meaningful amount of income during the quarter. This increase was partially offset by lower levels of dividend income, which was primarily due to the exit of one portfolio company.
Expenses
Net expenses (expenses net of fee waivers) for the three months ended December 31, 2018 and December 31, 2017 were $21.0 million and $20.6 million, respectively. Net expenses increased for the three months ended December 31, 2018, as compared to the three months ended December 31, 2017, by $0.4 million, or 2.0%, due primarily to a $3.2 million increase in incentive fees (net of waivers), which was attributable to a higher pre-incentive fee net investment income, partially offset by a $1.9 million decrease in professional fees and a $0.7 million decrease in interest expense, which was attributable to lower levels of outstanding debt.
Net Investment Income
As a result of the $4.4 million increase in total investment income and the $0.4 million increase in net expenses, net investment income for the three months ended December 31, 2018 increased by $4.0 million, or 30.0%, compared to the three months ended December 31, 2017.
Realized Gain (Loss)
Realized gains or losses are measured by the difference between the net proceeds from the sale or redemption of investments, secured borrowings and foreign currency and the cost basis without regard to unrealized appreciation or depreciation previously recognized, and includes investments written-off during the period, net of recoveries. Realized losses may also be recorded in connection with our determination that certain investments are considered worthless securities and/or meet the conditions for loss recognition per the applicable tax rules.
During the three months ended December 31, 2018, we recorded net realized gains of $18.0 million primarily in connection with the full or partial exits of our investments in BeyondTrust Holdings LLC, InMotion Entertainment Group, LLC and YETI Holdings, Inc. During the three months ended December 31, 2017, we recorded net realized losses of $0.3 million in connection with the sale of various debt investments in the open market.

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Net Unrealized Appreciation (Depreciation)
Net unrealized appreciation or depreciation is the net change in the fair value of our investments, secured borrowings and foreign currency during the reporting period, including the reversal of previously recorded unrealized appreciation or depreciation when gains or losses are realized.
During the three months ended December 31, 2018 and 2017, we recorded net unrealized depreciation of $7.0 million and $43.5 million, respectively. For the three months ended December 31, 2018, this consisted of $15.5 million of net reclassifications to realized gains (resulting in unrealized depreciation), $5.6 million of net unrealized depreciation on equity investments and $0.4 million of net unrealized depreciation of foreign currency forward contracts, partially offset by $14.5 million of net unrealized appreciation on debt investments. For the three months ended December 31, 2017, this consisted of $39.0 million of net unrealized depreciation on debt investments, $3.8 million of net unrealized depreciation on equity investments and $2.3 million of net reclassifications to realized gains (resulting in unrealized depreciation), offset by $1.6 million of net unrealized depreciation of secured borrowings.

Financial Condition, Liquidity and Capital Resources
We have a number of alternatives available to fund our investment portfolio and our operations, including raising equity, increasing or refinancing debt and funding from operational cash flow. We generally expect to fund the growth of our investment portfolio through (i) equity offerings in public or private offerings, which offerings will depend on future market conditions, funding needs and other factors, and (ii) additional debt capital (to the extent permissible under the Investment Company Act). In the future, we may also securitize a portion of our investments. To securitize investments, we would likely create a wholly-owned subsidiary and contribute a pool of loans to the subsidiary. We would then sell interests in the subsidiary on a non-recourse basis to purchasers and we would retain all or a portion of the equity in the subsidiary. We cannot assure you, however, that our efforts to grow our portfolio will be successful. For example, our common stock has generally traded at prices below net asset value for the past several years, and we are currently limited in our ability to raise additional equity at prices below the then-current net asset value per share. Additionally, to generate liquidity we may reduce investment size by syndicating a portion of any given transaction. We intend to continue to generate cash primarily from cash flows from operations, including interest earned and future borrowings. We intend to fund our future distribution obligations through operating cash flow or with funds obtained through future equity and debt offerings or credit facilities, as we deem appropriate.
Our primary uses of funds are investments in our targeted asset classes and cash distributions to holders of our common stock. We may from time to time repurchase or redeem some or all of our outstanding notes in open-market transactions, privately negotiated transactions or otherwise. We generally expect to target a debt to equity ratio of 0.70x to 0.85x (i.e., one dollar of equity for each $0.70 to $0.85 of debt outstanding). On March 23, 2018, the SBCAA was enacted into law. The SBCAA, among other things, amended Section 61(a) of the Investment Company Act to add a new Section 61(a)(2) that reduces the asset coverage requirement applicable to Business Development Companies from 200% to 150% so long as the Business Development Company meets certain disclosure requirements and obtains certain approvals. See "Recent Developments."
For the three months ended December 31, 2018, we experienced a net increase in cash and cash equivalents and restricted cash of $43.2 million. During that period, we received $86.9 million of net cash from operating activities, primarily from $208.3 million of principal payments and sale proceeds received, a $29.8 million decrease in net receivables from unsettled transactions and the cash activities related to $17.3 million of net investment income, partially offset by funding $162.4 million of investments and net revolvers. During the same period, net cash used in financing activities was $43.7 million, primarily consisting of $30.0 million of net repayments under the ING Facility (as defined below) credit facility, $0.3 million of repayments of secured borrowings, $13.0 million of cash distributions paid to our stockholders and $0.4 million of repurchases of common stock under our dividend reinvestment plan, or DRIP.
For the three months ended December 31, 2017, we experienced a net increase in cash and cash equivalents and restricted cash of $14.2 million. During that period, $60.6 million of cash was provided by operating activities, primarily consisting of $284.9 million of principal payments and proceeds from the sale of investments and cash activities related to $13.3 million of net investment income, partially offset by cash used to fund $200.2 million of investments and net revolvers and a $34.1 net decrease in payables for unsettled transactions. During the same period, cash used by financing activities was $74.8 million, primarily consisting of $51.0 million of net repayments under our credit facilities, $17.3 million of cash distributions paid to our stockholders and $6.2 million of deferred financing costs paid.
As of December 31, 2018, we had $56.7 million in cash and cash equivalents (including $0.5 million of restricted cash), portfolio investments (at fair value) of $1.5 billion, $10.0 million of interest, dividends and fees receivable, $40.3 million of net payables from unsettled transactions, $211.0 million of borrowings outstanding under our credit facilities, $386.8 million of unsecured notes payable (net of unamortized financing costs), $9.3 million of secured borrowings (at fair value) and unfunded commitments of $104.7 million.
As of September 30, 2018, we had $13.5 million in cash and cash equivalents (including $0.1 million of restricted cash), portfolio investments (at fair value) of $1.5 billion, $10.3 million of interest, dividends and fees receivable, $10.5 million of net payables from

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unsettled transactions, $241.0 million of borrowings outstanding under our credit facilities, $386.5 million of unsecured notes payable (net of unamortized financing costs), $9.7 million of secured borrowings (at fair value) and unfunded commitments of $52.7 million.
Significant Capital Transactions
The following table reflects the distributions per share that we have paid, including shares issued under our DRIP, on our common stock since October 1, 2017:
Date Declared
 
Record Date
 
Payment Date
 
Amount
per Share
 
Cash
Distribution
 
DRIP Shares
Issued (1)
 
DRIP Shares
Value
August 7, 2017
 
December 15, 2017
 
December 29, 2017
 
$
0.125

 
$ 17.3 million
 
58,456

 
$ 0.3 million
February 5, 2018
 
March 15, 2018
 
March 30, 2018
 
0.085

 
11.5 million
 
122,884

 
0.5 million
May 3, 2018
 
June 15, 2018
 
June 29, 2018
 
0.095

 
13.0 million
 
87,283

 
0.4 million
August 1, 2018
 
September 15, 2018
 
September 28, 2018
 
0.095

 
13.2 million
 
34,575

 
0.2 million
November 19, 2018
 
December 17, 2018
 
December 28, 2018
 
0.095

 
13.0 million
 
87,429

 
0.4 million
 ______________
(1)
Shares were purchased on the open market and distributed.
We did not repurchase shares of our common stock during the three months ended December 31, 2018 and 2017.
Indebtedness
See “Note 6. Borrowings” in the Consolidated Financial Statements for more details regarding our indebtedness and secured borrowings.
ING Facility
On November 30, 2017, we entered into a senior secured revolving credit facility, or, as amended, the ING Facility, pursuant to a Senior Secured Revolving Credit Agreement, or, as amended, the ING Credit Agreement, with the lenders party thereto, ING Capital LLC, as administrative agent, ING Capital LLC, JPMorgan Chase Bank, N.A. and Merrill Lynch, Pierce, Fenner & Smith Incorporated as joint lead arrangers and joint bookrunners, and JPMorgan Chase Bank, N.A. and Bank of America, N.A., as syndication agents. As of December 31, 2018, the ING Facility permits up to $600 million of borrowings and includes an “accordion” feature that permits us, under certain circumstances, to increase the size of the ING Facility up to $800 million. Borrowings under the ING Credit Agreement bear interest at a rate equal to, at our election, either (a) LIBOR (1-, 2-, 3- or 6-month, at our option) plus a margin of 2.25%, 2.50% or 2.75% per annum depending on our senior debt coverage ratio as calculated under the ING Credit Agreement, with no LIBOR floor or (b) an alternate base rate plus a margin of 1.25%, 1.50% or 1.75% per annum depending on our senior debt coverage ratio as calculated under the ING Credit Agreement. The period during which we may make drawings under the ING Facility expires on November 29, 2020, or the Revolving Termination Date, and the final maturity date of the ING Facility will occur one year following the Revolving Termination Date.
Each loan or letter of credit originated under the ING Facility is subject to the satisfaction of certain conditions. We cannot be assured that we will be able to borrow funds under the ING Facility at any particular time or at all.
The following table describes significant financial covenants, as of December 31, 2018, with which we must comply under the ING Facility on a quarterly basis:
Financial Covenant
 
Description
 
Target Value
 
September 30, 2018 Reported Value (1)
Minimum shareholders' equity
 
Net assets shall not be less than the greater of (a) 40% of total assets and (b) $700 million plus 50% of the aggregate net proceeds of all sales of equity interests after November 30, 2017
 
$700 million
 
$858 million
Asset coverage ratio
 
Asset coverage ratio shall not be less than 2.00:1
 
2.00:1
 
2.33:1
Interest coverage ratio
 
Interest coverage ratio shall not be less than 2.00:1
 
2.00:1
 
2.74:1
Minimum net worth
 
Net worth shall not be less than $650 million
 
$650 million
 
$846 million
 ___________ 
(1) As contractually required, we report financial covenants based on the last filed quarterly or annual report, in this case our Annual Report on Form 10-K for the year ended September 30, 2018. We were in compliance with all financial covenants under the ING Facility based on the financial information contained in this Quarterly Report on Form 10-Q.

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From May 27, 2010 through November 30, 2017, we were party to a secured syndicated revolving credit facility with certain lenders party thereto from time to time and ING Capital LLC, as administrative agent, as amended, or the Prior ING Facility. In connection with the entry into the ING Credit Agreement, we repaid all outstanding borrowings under the Prior ING Facility following which the Prior ING Facility was terminated. Obligations under the Prior ING Facility would have otherwise matured on August 6, 2018.
As of December 31, 2018, we had $211.0 million of borrowings outstanding under the ING Facility, which had a fair value of $211.0 million. Our borrowings under the ING Facility bore interest at a weighted average interest rate of 4.677% for the three months ended December 31, 2018. As of September 30, 2018, we had $241.0 million of borrowings outstanding under the ING Facility. Our borrowings under the Prior ING Facility bore interest at a weighted average interest rate of 3.705% for the period from October 1, 2017 to November 30, 2017 and our borrowings under the ING Facility bore interest at a weighted average interest rate of 3.961% for the period from November 30, 2017 to December 31, 2017.
For the three months ended December 31, 2018, we recorded interest expense of $3.3 million, in the aggregate, related to the ING Facility. For the three months ended December 31, 2017, we recorded interest expense of $2.7 million, in the aggregate, related to the Prior ING Facility and the ING facility.
Sumitomo Facility
On September 16, 2011, a consolidated wholly-owned bankruptcy remote, special purpose subsidiary entered into a credit facility, as amended, or the Sumitomo Facility, with Sumitomo Mitsui Banking Corporation, or SMBC, an affiliate of Sumitomo Mitsui Financial Group, Inc., as administrative agent, and each of the lenders from time to time party thereto. Prior to its termination on November 24, 2017, the Sumitomo Facility permitted up to $125 million of borrowings (subject to collateral requirements) and borrowings under the Sumitomo Facility bore interest at a rate of either (i) LIBOR (1-month) plus 2.00% per annum, with no LIBOR floor, if the borrowings under the Sumitomo Facility were greater than 35% of the aggregate available borrowings under the Sumitomo Facility or (ii) LIBOR (1-month) plus 2.25% per annum, if the borrowings under the Sumitomo Facility were less than or equal to 35% of the aggregate available borrowings under the Sumitomo Facility. On November 24, 2017, all outstanding borrowings under the Sumitomo Facility were repaid, following which the Sumitomo Facility was terminated. Obligations under the Sumitomo Facility would have otherwise matured on the earlier of August 6, 2018 or the date on which the Prior ING Facility was repaid, refinanced or terminated.
As of December 31, 2017, there were no borrowings outstanding under the Sumitomo Facility. Our borrowings under the Sumitomo Facility bore interest at a weighted average interest rate of 3.501% for the period from October 1, 2017 through termination on November 24, 2017. For the period from October 1, 2017 through termination on November 24, 2017, we recorded interest expense of $0.7 million, including $0.6 million of debt issuance costs that were expensed, related to the Sumitomo Facility.
2019 Notes
For the three months ended December 31, 2018 and 2017, we recorded interest expense of $3.0 million and $3.3 million, respectively, related to our 4.875% unsecured notes due 2019, or the 2019 Notes. During the three months ended December 31, 2018 and 2017, we did not repurchase any of the 2019 Notes in the open market.
As of December 31, 2018, there were $228.8 million of 2019 Notes outstanding, which had a carrying value and fair value of $228.6 million and $226.5 million, respectively. As of September 30, 2018, there were $228.8 million of 2019 Notes outstanding, which had a carrying value and fair value of $228.3 million and $230.5 million, respectively.
2024 Notes
For each of the three months ended December 31, 2018 and 2017, we recorded interest expense of $1.2 million related to our 5.875% unsecured notes due 2024, or the 2024 Notes. During the three months ended December 31, 2018 and 2017, we did not repurchase any of the 2024 Notes in the open market.
As of December 31, 2018, there were $75.0 million of 2024 Notes outstanding, which had a carrying value and fair value of $73.8 million and $74.7 million, respectively. As of September 30, 2018, there were $75.0 million of 2024 Notes outstanding, which had a carrying value and fair value of $73.7 million and $75.7 million, respectively. As of December 31, 2018, the 2024 Notes were listed on the New York Stock Exchange under the trading symbol “OSLE” with a par value of $25.00 per note.
2028 Notes
For each of the three months ended December 31, 2018 and 2017, we recorded interest expense of $1.4 million related to our 6.125% unsecured notes due 2028, or the 2028 Notes. During the three ended December 31, 2018 and 2017, we did not repurchase any of the 2028 Notes in the open market.

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As of December 31, 2018, there were $86.3 million of 2028 Notes outstanding, which had a carrying value and fair value of $84.5 million and $81.2 million, respectively. As of September 30, 2018, there were $86.3 million of 2028 Notes outstanding, which had a carrying value and fair value of $84.4 million and $86.9 million, respectively. As of December 31, 2018, the 2028 Notes were listed on the Nasdaq Global Select Market under the trading symbol “OCSLL” with a par value of $25.00 per note.
Secured Borrowings
We follow the guidance in ASC Topic 860, Transfers and Servicing, when accounting for loan participations and other partial loan sales. Such guidance requires a participation or other partial loan sale to meet the definition of a "participating interest," as defined in the guidance, in order for sale treatment to be allowed. Participations or other partial loan sales which do not meet the definition of a participating interest remain on our Consolidated Statements of Assets and Liabilities and the proceeds are recorded as a secured borrowing until the definition is met. Secured borrowings are carried at fair value to correspond with the related investments, which are carried at fair value.
As of December 31, 2018, there were $11.9 million of secured borrowings outstanding. As of December 31, 2018, secured borrowings at fair value totaled $9.3 million and the fair value of the loan that is associated with these secured borrowings was $34.1 million. These secured borrowings were the result of the completion of partial loan sales totaling $22.8 million of a senior secured debt investment during the fiscal year ended September 30, 2014 that did not meet the definition of a participating interest. As a result, sale treatment was not allowed and these partial loan sales were treated as secured borrowings. During the three months ended December 31, 2018, there were $0.3 million of net repayments on secured borrowings. During the three months ended December 31, 2017, there were no net repayments on secured borrowings.
For the three months ended December 31, 2018 and 2017, we recorded interest expense of $0.1 million and $0.3 million, respectively, related to the secured borrowings.
Off-Balance Sheet Arrangements
We may be a party to financial instruments with off-balance sheet risk in the normal course of business to meet the financial needs of our portfolio companies. As of December 31, 2018, our only off-balance sheet arrangements consisted of $104.7 million of unfunded commitments, which was comprised of $98.7 million to provide debt financing to certain of our portfolio companies, $1.3 million to provide equity financing to SLF JV I and $4.7 million related to unfunded limited partnership interests. As of September 30, 2018, our only off-balance sheet arrangements consisted of $52.7 million of unfunded commitments, which was comprised of $46.7 million to provide debt financing to certain of our portfolio companies, $1.3 million to provide equity financing to SLF JV I and $4.7 million related to unfunded limited partnership interests. Such commitments are subject to our portfolio companies' satisfaction of certain financial and nonfinancial covenants and may involve, to varying degrees, elements of credit risk in excess of the amount recognized in our Consolidated Statements of Assets and Liabilities.
A list of unfunded commitments by investment (consisting of revolvers, term loans with delayed draw components, SLF JV I subordinated notes and LLC equity interests, and limited partnership interests) as of December 31, 2018 and September 30, 2018 is shown in the table below:

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December 31, 2018
 
September 30, 2018
Assembled Brands Capital LLC
 
$
39,951

 
$
—

U.S. Well Services, LLC
 
14,000

 
—

 Sorrento Therapeutics, Inc.
 
12,500

 
—

 P2 Upstream Acquisition Co.
 
7,667

 
10,000

 EOS Fitness Opco Holdings, LLC
 
5,000

 
5,000

 Pingora MSR Opportunity Fund I-A, LP
 
4,656

 
4,656

 Keypath Education, Inc.
 
3,000

 
3,000

 Dominion Diagnostics, LLC (1)
 
2,439

 
4,180

 Datto Inc.
 
2,356

 
2,356

 4 Over International, LLC
 
2,232

 
2,232

 New IPT, Inc.
 
2,229

 
2,229

 PLATO Learning Inc. (1)
 
2,138

 
2,671

 Thing5, LLC (1)(2)
 
1,726

 
1,298

 Senior Loan Fund JV I, LLC
 
1,328

 
1,328

Ministry Brands, LLC
 
1,000

 
700

 iCIMs, Inc.
 
882

 
882

 GKD Index Partners, LLC
 
809

 
289

 Access CIG LLC
 
497

 
765

 Cenegenics, LLC (1)(2)
 
297

 
297

 InMotion Entertainment Group, LLC
 
—

 
7,534

 TerSera Therapeutics, LLC
 
—

 
3,281

Total
 
$
104,707

 
$
52,698

 ___________ 
(1) This investment was on cash or PIK non-accrual status as of December 31, 2018.
(2) This portfolio company does not have the ability to draw on this unfunded commitment as of December 31, 2018.

Contractual Obligations
The following table reflects information pertaining to our debt outstanding under the ING Facility, the 2019 Notes, the 2024 Notes, the 2028 Notes and our secured borrowings:
 
 
Debt Outstanding
as of September 30, 2018
 
Debt Outstanding
as of December 31, 2018
 
Weighted average debt
outstanding for the
three months ended
December 31, 2018
 
Maximum debt
outstanding
for the three months ended
December 31, 2018

ING Facility
 
$
241,000

 
$
211,000

 
$
211,978

 
$
241,000

2019 Notes
 
228,825

 
228,825

 
228,825

 
228,825

2024 Notes
 
75,000

 
75,000

 
75,000

 
75,000

2028 Notes
 
86,250

 
86,250

 
86,250

 
86,250

Secured borrowings
 
12,314

 
11,869

 
12,314

 
12,314

Total debt
 
$
643,389

 
$
612,944

 
$
614,367

 


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The following table reflects our contractual obligations arising from the ING Facility, our secured borrowings, our 2019 Notes, our 2024 Notes and our 2028 Notes:
 
 
 
Payments due by period as of December 31, 2018
Contractual Obligations
 
Total
 
Less than 1 year
 
1-3 years
 
3-5 years
 
More than 5 years
ING Facility
 
$
211,000

 
$
—

 
$
211,000

 
$
—

 
$
—

Interest due on ING Facility
 
29,216

 
10,023

 
19,193

 
—

 
—

Secured borrowings
 
11,869

 
—

 
11,869

 
—

 
—

Interest due on secured borrowings
 
2,411

 
1,354

 
1,057

 
—

 
—

2019 Notes
 
228,825

 
228,825

 
—

 
—

 
—

Interest due on 2019 Notes
 
1,834

 
1,834

 
—

 
—

 
—

2024 Notes
 
75,000

 
—

 
—

 
—

 
75,000

Interest due on 2024 Notes
 
25,713

 
4,406

 
8,813

 
8,813

 
3,681

2028 Notes
 
86,250

 
—

 
—

 
—

 
86,250

Interest due on 2028 Notes
 
49,326

 
5,283

 
10,566

 
10,566

 
22,911

Total
 
$
721,444

 
$
251,725

 
$
262,498

 
$
19,379

 
$
187,842

Regulated Investment Company Status and Distributions
We have qualified and elected to be treated as a RIC under Subchapter M of the Code for tax purposes. As long as we continue to qualify as a RIC, we will not be subject to tax on our investment company taxable income (determined without regard to any deduction for dividends paid) or realized net capital gains, to the extent that such taxable income or gains is distributed, or deemed to be distributed as dividends, to stockholders on a timely basis.
Taxable income generally differs from net income for financial reporting purposes due to temporary and permanent differences in the recognition of income and expenses, and generally excludes net unrealized appreciation or depreciation. Distributions declared and paid by us in a taxable year may differ from taxable income for that taxable year as such distributions may include the distribution of taxable income derived from the current taxable year or the distribution of taxable income derived from the prior taxable year carried forward into and distributed in the current taxable year. Distributions also may include returns of capital.
To maintain RIC tax treatment, we must, among other things, distribute dividends, with respect to each taxable year, of an amount at least equal to 90% of our investment company taxable income (i.e., our net ordinary income and our realized net short-term capital gains in excess of realized net long-term capital losses, if any), determined without regard to any deduction for dividends paid. As a RIC, we are also subject to a federal excise tax, based on distribution requirements of our taxable income on a calendar year basis. We anticipate timely distribution of our taxable income in accordance with tax rules. We did not incur a U.S. federal excise tax for calendar years 2017 and 2018 and do not expect to incur a U.S. federal excise tax for the calendar year 2019. We may incur a federal excise tax in future years.
We intend to distribute at least 90% of our annual taxable income (which includes our taxable interest and fee income) to our stockholders. The covenants contained in the ING Facility may prohibit us from making distributions to our stockholders, and, as a result, could hinder our ability to satisfy the distribution requirement associated with our ability to be subject to tax as a RIC. In addition, we may retain for investment some or all of our net capital gains (i.e., realized net long-term capital gains in excess of realized net short-term capital losses) and treat such amounts as deemed distributions to our stockholders. If we do this, our stockholders will be treated as if they received actual distributions of the capital gains we retained and then reinvested the net after-tax proceeds in our common stock. Our stockholders also may be eligible to claim tax credits (or, in certain circumstances, tax refunds) equal to their allocable share of the tax we paid on the capital gains deemed distributed to them. To the extent our taxable earnings for a fiscal and taxable year fall below the total amount of our dividend distributions for that fiscal and taxable year, a portion of those distributions may be deemed a return of capital to our stockholders.
We may not be able to achieve operating results that will allow us to make distributions at a specific level or to increase the amount of these distributions from time to time. In addition, we may be limited in our ability to make distributions due to the asset coverage test for borrowings applicable to us as a Business Development Company under the Investment Company Act and due to provisions in our credit facilities and debt instruments. If we do not distribute a certain percentage of our taxable income annually, we will suffer adverse tax consequences, including possible loss of our ability to be subject to tax as a RIC. We cannot assure stockholders that they will receive any distributions or distributions at a particular level.

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A RIC may treat a distribution of its own stock as fulfilling its RIC distribution requirements if each stockholder elects to receive his or her entire distribution in either cash or stock of the RIC, subject to certain limitations regarding the aggregate amount of cash to be distributed to all stockholders. If these and certain other requirements are met, for U.S federal income tax purposes, the amount of the dividend paid in stock will be equal to the amount of cash that could have been received instead of stock. We have no current intention of paying dividends in shares of our stock in accordance with these guidelines.
We may generate qualified net interest income or qualified net short-term capital gains that may be exempt from U.S. withholding tax when distributed to foreign stockholders. A RIC is permitted to designate distributions of qualified net interest income and qualified short-term capital gains as exempt from U.S. withholding tax when paid to non-U.S. shareholders with proper documentation. The following table, which may be subject to change as we finalize our annual tax filings, lists the percentage of qualified net interest income and qualified short-term capital gains for the year ended September 30, 2018, our last tax year end.
Year Ended
 
Qualified Net Interest Income
Qualified Short-Term Capital Gains
September 30, 2018
 
82.1
%
—

We have adopted a DRIP that provides for the reinvestment of any distributions that we declare in cash on behalf of our stockholders, unless a stockholder elects to receive cash. As a result, if our Board of Directors declares a cash distribution, then our stockholders who have not “opted out” of the DRIP will have their cash distributions automatically reinvested in additional shares of our common stock, rather than receiving a cash distribution. If our shares are trading at a premium to net asset value, we typically issue new shares to implement the DRIP, with such shares issued at the greater of the most recently computed net asset value per share of our common stock or 95% of the current market value per share of our common stock on the payment date for such distribution. If our shares are trading at a discount to net asset value, we typically purchase shares in the open market in connection with our obligations under the DRIP.
Related Party Transactions
We have entered into the Investment Advisory Agreement with Oaktree and the Administration Agreement with Oaktree Administrator, a wholly-owned subsidiary of Oaktree. Mr. John B. Frank, an interested member of our Board of Directors, has an indirect pecuniary interest in Oaktree. Oaktree is a registered investment adviser under the Investment Advisers Act of 1940, as amended, that is partially and indirectly owned by OCG. See “Note 11. Related Party Transactions – Investment Advisory Agreement” and “– Administrative Services” in the notes to the accompanying Consolidated Financial Statements.
Prior to October 17, 2017, we were externally managed and advised by our Former Adviser, and our administrator was FSC CT LLC, a wholly-owned subsidiary of our Former Adviser. Messrs. Bernard D. Berman, Patrick J. Dalton, Ivelin M. Dimitrov, Alexander C. Frank, Todd G. Owens and Sandeep K. Khorana, each an interested member of our Board of Directors for all or a portion of our fiscal year ended September 30, 2017 and prior to October 17, 2017, had a direct or indirect pecuniary interest in our Former Adviser. See “Note 11. Related Party Transactions – Former Investment Advisory Agreements” and “– Administrative Services” in the notes to the accompanying Consolidated Financial Statements.
Recent Developments
Distribution Declaration
On February 1, 2019, our Board of Directors declared a quarterly distribution of $0.095 per share, payable on March 29, 2019 to stockholders of record on March 15, 2019.
Reduced Asset Coverage Requirements

At a meeting held on February 1, 2019, our Board of Directors, including a “required majority” of the directors, as defined in Section 57(o) of the Investment Company Act, approved the application of the reduced asset coverage requirements in Section 61(a)(2) of the Investment Company Act as being in the best interests of us and our stockholders. As a result of such approval, provided such approval is not later rescinded and our compliance with certain disclosure requirements, the asset coverage required for our senior securities will be 150% rather than 200% effective as of February 1, 2020. Upon effectiveness of the modified asset coverage requirements to us, Oaktree intends to reduce the base management fee to 1.0% on all assets financed using leverage above 1.0x debt-equity (without giving effect to any debentures issued by a small business investment company subsidiary).


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Item 3. Quantitative and Qualitative Disclosures about Market Risk

We are subject to financial market risks, including changes in the valuations of our investment portfolio and interest rates.
Valuation Risk
Our investments may not have a readily available market price, and we value these investments at fair value as determined in good faith by our Board of Directors, with the assistance of the Audit Committee and Oaktree. There is no single standard for determining fair value in good faith and valuation methodologies involve a significant degree of management judgment. In addition, our valuation methodology utilizes discount rates in part in valuing our investments, and changes in those discount rates may have an impact on the valuation of our investments. Accordingly, valuations by us do not necessarily represent the amounts which may eventually be realized from sales or other dispositions of investments. Estimated fair values may differ from the values that would have been used had a ready market for the investment existed, and the differences could be material to the financial statements.
Interest Rate Risk
We are subject to financial market risks, including changes in interest rates. Changes in interest rates may affect both our cost of funding and our interest income from portfolio investments, cash and cash equivalents and idle funds investments. Our risk management systems and procedures are designed to identify and analyze our risk, to set appropriate policies and limits and to continually monitor these risks and limits by means of reliable administrative and information systems and other policies and programs. Our investment income will be affected by changes in various interest rates, including LIBOR and prime rates, to the extent our debt investments include floating interest rates.
As of December 31, 2018, 86.6% of our debt investment portfolio (at fair value) and 84.0% of our debt investment portfolio (at cost) bore interest at floating rates. The composition of our floating rate debt investments by cash interest rate floor (excluding PIK) as of December 31, 2018 and September 30, 2018 was as follows: 
 
 
December 31, 2018
 
September 30, 2018
($ in thousands)
 
Fair Value
 
% of Floating
Rate Portfolio
 
Fair Value
 
% of Floating
Rate Portfolio
Under 1%
 
$
452,253

 
37.78
%
 
$
282,999

 
23.99
%
1% to under 2%
 
744,760

 
62.22

 
896,574

 
76.01

2% to under 3%
 
—

 
—

 
—

 
—

3% and over
 
—

 
—

 
—

 
—

Total
 
$
1,197,013

 
100.00
%
 
$
1,179,573

 
100.00
%
Based on our Consolidated Statement of Assets and Liabilities as of December 31, 2018, the following table shows the approximate annualized increase (decrease) in components of net assets resulting from operations of hypothetical base rate changes in interest rates, assuming no changes in our investment and capital structure. However, there can be no assurances our portfolio companies will be able to meet their contractual obligations at any or all levels on increases in interest rates.
($ in thousands)
 
 
 
 
 
 
Basis point increase
 
Interest
income
 
Interest
expense
 
Net increase
(decrease)
300
 
$
33,553

 
$
(6,300
)
 
$
27,253

200
 
22,393

 
(4,200
)
 
18,193

100
 
11,232

 
(2,100
)
 
9,132

Basis point decrease
 
Interest Income
 
Interest Expense
 
Net increase (decrease)
100
 
$
(11,089
)
 
$
2,100

 
$
(8,989
)
200 (1)
 
(18,738
)
 
4,200

 
(14,538
)
 __________
(1) The effect of a greater than 200 basis point decrease is limited by interest rate floors on certain investments.

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We regularly measure exposure to interest rate risk. We assess interest rate risk and manage our interest rate exposure on an ongoing basis by comparing our interest rate sensitive assets to our interest rate sensitive liabilities. Based on this review, we determine whether or not any hedging transactions are necessary to mitigate exposure to changes in interest rates. The following table shows a comparison of the interest rate base for our interest-bearing cash and outstanding investments, at principal, and our outstanding borrowings as of December 31, 2018 and September 30, 2018: 
 
 
December 31, 2018
 
September 30, 2018
($ in thousands)
 
Interest Bearing
Cash and
Investments
 
Borrowings
 
Interest Bearing
Cash and
Investments
 
Borrowings
Money market rate
 
$
51,241

 
$
—

 
$
9,108

 
$
—

Prime rate
 
—

 
—

 
1,011

 
—

LIBOR
 
 
 
 
 
 
 
 
30 day
 
701,021

 
211,000

 
609,755

 
241,000

60 day
 
—

 
—

 
55,949

 
—

90 day
 
544,522

 
11,869

 
606,856

 
12,314

180 day
 
—

 
—

 
15,000

 
—

EURIBOR
 
 
 
 
 
 
 
 
30 day
 
20,005

 
—

 
—

 
—

UK LIBOR
 
 
 
 
 
 
 
 
30 day
 
22,925

 
—

 
—

 
—

Fixed rate
 
250,648

 
390,075

 
296,031

 
390,075

Total
 
$
1,590,362

 
$
612,944

 
$
1,593,710

 
$
643,389



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Item 4. Controls and Procedures

Management, with the participation of the Company’s Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures as of December 31, 2018. The term “disclosure controls and procedures,” as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended, or the Exchange Act, means controls and other procedures of a company that are designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the company’s management, including its chief executive officer and chief financial officer, as appropriate to allow timely decisions regarding required disclosure. Management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives. Based on the evaluation of our disclosure controls and procedures as of December 31, 2018, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective, at the reasonable assurance level, in timely identifying, recording, processing, summarizing and reporting any material information relating to us that is required to be disclosed in the reports we file or submit under the Exchange Act.

There were no changes in our internal control over financial reporting that occurred during the three months ended December 31, 2018 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.


PART II

Item 1.     Legal Proceedings
Although we may, from time to time, be involved in litigation arising out of our operations in the normal course of business or otherwise, we are currently not a party to any pending material legal proceedings except as described below.
SEC Examination and Investigation
On March 23, 2016, the Division of Enforcement of the SEC sent document subpoenas and document preservation notices to us, FSAM, FSCO GP LLC - General Partner of Fifth Street Opportunities Fund, L.P., or FSOF, and OCSI. The subpoenas sought production of documents relating to a variety of issues principally related to the activities of our Former Adviser, including those raised in an ordinary-course examination of the Former Adviser by the SEC’s Office of Compliance Inspections and Examinations that began in October 2015, and in the previously disclosed securities class actions and other previously disclosed litigation. The subpoenas were issued pursuant to a formal order of private investigation captioned In the Matter of the Fifth Street Group of Companies, No. HO-12925, dated March 23, 2016, which addresses (among other things) (i) the valuation of our portfolio companies and investments, (ii) the expenses allocated or charged to us and OCSI, (iii) FSOF’s trading in the securities of publicly traded Business Development Companies, (iv) statements to our Board of Directors, other representatives of pooled investment vehicles, investors, or prospective investors concerning the fair value of our portfolio companies or investments as well as expenses allocated or charged to us and OCSI, (v) various issues relating to adoption and implementation of policies and procedures under the Advisers Act, (vi) statements and/or potential omissions in the entities’ SEC filings, (vii) the entities’ books, records, and accounts and whether they fairly and accurately reflected the entities’ transactions and dispositions of assets, and (viii) several other issues relating to corporate books and records. The formal order cites various provisions of the Securities Act of 1933, as amended, the Exchange Act and the Advisers Act, as well as rules promulgated under those Acts, as the bases of the investigation. We have received termination notices from the Enforcement Division Staff and our obligations with respect to the matter are concluded. On December 3, 2018, the SEC announced a settlement in this matter with Fifth Street Management LLC. 

Item 1A. Risk Factors

Except as set forth below, there have been no material changes during the three months ended December 31, 2018 to the risk factors discussed in Item 1A. Risk Factors in our Annual Report on Form 10-K for the year ended September 30, 2018.


96

Because we borrow money, the potential for loss on amounts invested in us will be magnified and may increase the risk of investing in us.
Borrowings, also known as leverage, magnify the potential for loss on invested equity capital. We expect to continue to use leverage to partially finance our investments, through borrowings from banks and other lenders, which will increase the risks of investing in our common stock, including the likelihood of default. We borrow under the ING Facility, have issued the 2019 Notes, the 2024 Notes, and the 2028 Notes, which are collectively referred to as the Notes, and may issue other debt securities or enter into other types of borrowing arrangements in the future. If the value of our assets decreases, leveraging would cause net asset value to decline more sharply than it otherwise would have had we not leveraged. Similarly, any decrease in our income would cause net income to decline more sharply than it would have had we not borrowed. To the extent we incur additional leverage, these effects would be further magnified, increasing the risk of investing in us. Such a decline could negatively affect our ability to make common stock distributions or scheduled debt payments. Leverage is generally considered a speculative investment technique and we only intend to use leverage if expected returns will exceed the cost of borrowing.
As of December 31, 2018, we had $211.0 million of outstanding indebtedness under the ING Facility, $228.8 million of outstanding 2019 Notes, $75.0 million of outstanding 2024 Notes, $86.3 million of outstanding 2028 Notes and $11.9 million of secured borrowings outstanding. These debt instruments require periodic payments of interest. The weighted average interest rate charged on our borrowings as of December 31, 2018 was 5.3% (exclusive of deferred financing costs). We will need to generate sufficient cash flow to make these required interest payments. In order for us to cover our annual interest payments on indebtedness, we must achieve annual returns on our December 31, 2018 total assets of at least 2.18%. If we are unable to meet the financial obligations under our credit facilities, the lenders under the credit facilities will have a superior claim to our assets over our stockholders. If we are unable to meet the financial obligations under the 2019 Notes, 2024 Notes or 2028 Notes, the holders thereof will have the right to declare the principal amount and accrued and unpaid interest on such notes to be due and payable immediately.
As a Business Development Company, under the Investment Company Act, we have historically not been permitted to incur indebtedness unless immediately after such borrowing we have an asset coverage for total borrowings of at least 200% (i.e., the amount of debt may not exceed 50% of the value of our assets). In March 2018, the SBCAA was signed into law and amended the Investment Company Act to, among other things, reduce the asset coverage requirements applicable to Business Development Companies from 200% to 150% (i.e., the amount of debt may not exceed 66.67% of the value of its assets) so long as the Business Development Company meets certain disclosure requirements and obtains certain approvals. At a meeting held on February 1, 2019, our Board of Directors, including a “required majority” of the directors, as defined in Section 57(o) of the Investment Company Act, approved the application of the reduced asset coverage requirements as being in the best interests of us and our stockholders. As a result, provided such approval is not later rescinded, the asset coverage required for our senior securities will be 150% rather than 200% commencing on the earlier of February 1, 2020 or the first day after approval by our stockholders of a proposal to reduce the asset coverage requirements.
Illustration.  The following table illustrates the effect of leverage on returns from an investment in our common stock assuming that we employ the asset coverage in effect as of December 31, 2018 and hypothetical asset coverages of 200% and 150%, in each case at various annual returns on our portfolio as of December 31, 2018, net of expenses. The calculations in the table below are hypothetical and actual returns may be higher or lower than those appearing below.
Assumed Return on Portfolio (Net of Expenses)
- 10%
- 5%
0%
5%
10%
Corresponding net return to common stockholder assuming actual asset coverage as of December 31, 2018(1)
-20.66%
-12.18%
-3.70%
4.78%
13.26%
Corresponding return to common stockholder assuming 200% asset coverage (2)
-25.26%
-15.26%
-5.26%
4.74%
14.74%
Corresponding return to common stockholder assuming 150% asset coverage (3)
-40.50%
-25.51%
-10.51%
4.48%
19.47%

(1) For purposes of this table, this line has assumed $1.5 billion in total assets, $613 million in debt outstanding, $872 million in net assets as of December 31, 2018, and a weighted average interest rate of 5.3% as of December 31, 2018 (exclusive of deferred financing costs). Actual interest payments may be different.
(2) For purposes of this table, this line has assumed $1.7 billion in total assets, $872 million in debt outstanding, $872 million in net assets as of December 31, 2018, and a weighted average interest rate of 5.3% as of December 31, 2018 (exclusive of deferred financing costs). Actual interest payments may be different.

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(3) For purposes of this table, this line has assumed $2.6 billion in total assets, $1.7 billion in debt outstanding, $872 million in net assets as of December 31, 2018, and a weighted average interest rate of 5.3% as of December 31, 2018 (exclusive of deferred financing costs). Actual interest payments may be different.
Because we intend to distribute at least 90% of our taxable income each taxable year to our stockholders in connection with our election to be treated as a RIC, we will continue to need additional capital to finance our growth.
In order to qualify for the tax benefits available to RICs and to minimize corporate-level U.S. federal income taxes, we intend to distribute to our stockholders at least 90% of our taxable income each taxable year, except that we may retain certain net capital gains for investment, and treat such amounts as deemed distributions to our stockholders. If we elect to treat any amounts as deemed distributions, we would be subject to income taxes at the corporate rate applicable to net capital gains on such deemed distributions on behalf of our stockholders. As a result of these requirements, we will likely need to raise capital from other sources to grow our business. As a Business Development Company, under the Investment Company Act, we are currently required to meet a coverage ratio of total assets, less liabilities and indebtedness not represented by senior securities, to total senior securities, which includes all of our borrowings and any outstanding preferred stock, of at least 200% through February 1, 2020 or, if earlier, the first day after approval by our stockholders of a proposal to reduce the asset coverage requirements, and subject to compliance with certain disclosure requirements, 150% thereafter. These requirements limit the amount that we may borrow. Because we will continue to need capital to grow our investment portfolio, these limitations may prevent us from incurring debt and require us to raise additional equity at a time when it may be disadvantageous to do so.
While we may, in the future, issue additional equity securities, we cannot assure you that equity financing will be available to us on favorable terms, or at all. Also, as a Business Development Company, we generally are not permitted to issue equity securities priced below net asset value without stockholder approval. If additional funds are not available to us, we could be forced to curtail or cease new investment activities, and our net asset value and share price could decline.
Regulations governing our operation as a Business Development Company and RIC affect our ability to raise, and the way in which we raise, additional capital or borrow for investment purposes, which may have a negative effect on our growth.
In order to qualify for the tax benefits available to RICs and to minimize corporate-level U.S. federal income taxes, we intend to distribute to our stockholders at least 90% of our taxable income each taxable year, except that we may retain certain net capital gains for investment, and treat such amounts as deemed distributions to our stockholders. If we elect to treat any amounts as deemed distributions, we would be subject to income taxes at the corporate rate on such deemed distributions on behalf of our stockholders.
As a Business Development Company, we may issue “senior securities,” including borrowing money from banks or other financial institutions, only in amounts such that our asset coverage, as defined in the Investment Company Act, after such incurrence or issuance equals at least 200% through February 1, 2020 or, if earlier, the first day after approval by our stockholders of a proposal to reduce the asset coverage requirements, and, subject to compliance with certain disclosure requirements, 150% thereafter; provided that, pursuant to exemptive relief we received from the SEC, we are permitted to exclude the debt of any small business investment company subsidiaries guaranteed by the U.S. Small Business Administration from the definition of senior securities in calculating our asset coverage under the Investment Company Act. These requirements limit the amount that we may borrow, may unfavorably limit our investment opportunities and may reduce our ability in comparison to other companies to profit from favorable spreads between the rates at which we can borrow and the rates at which we can lend. If the value of our assets declines, we may be unable to satisfy the asset coverage test, which could prohibit us from paying distributions and could prevent us from being subject to tax as a RIC. If we cannot satisfy the asset coverage test, we may be required to sell a portion of our investments and, depending on the nature of our debt financing, repay a portion of our indebtedness at a time when such sales may be disadvantageous.
Because we will continue to need capital to grow our investment portfolio, these limitations may prevent us from incurring debt and require us to raise additional equity at a time when it may be disadvantageous to do so. As a result of these requirements we need to periodically access the capital markets to raise cash to fund new investments at a more frequent pace than our privately owned competitors. We generally are not able to issue or sell our common stock at a price below net asset value per share, which may be a disadvantage as compared with other public companies or private investment funds. If our common stock trades at a discount to net asset value, this restriction could adversely affect our ability to raise capital. We may, however, sell our common stock, or warrants, options or rights to acquire our common stock, at a price below the current net asset value of the common stock if our Board of Directors and independent directors determine that such sale is in our best interests and the best interests of our stockholders, and our stockholders as well as those stockholders that are not affiliated with us approve such sale in accordance with the requirements of the Investment Company Act. In any such case, the price at which

98

our securities are to be issued and sold may not be less than a price that, in the determination of our Board of Directors, closely approximates the market value of such securities (less any underwriting commission or discount).
We also may make rights offerings to our stockholders at prices less than net asset value, subject to applicable requirements of the Investment Company Act. If we raise additional funds by issuing more shares of our common stock or issuing senior securities convertible into, or exchangeable for, our common stock, the percentage ownership of our stockholders may decline at that time and such stockholders may experience dilution. Moreover, we can offer no assurance that we will be able to issue and sell additional equity securities in the future, on terms favorable to us or at all.
In addition, we may in the future seek to securitize our portfolio securities to generate cash for funding new investments. To securitize loans, we would likely create a wholly-owned subsidiary and contribute a pool of loans to the subsidiary. We would then sell interests in the subsidiary on a non-recourse basis to purchasers and we would retain all or a portion of the equity in the subsidiary. An inability to successfully securitize our loan portfolio could limit our ability to grow our business or fully execute our business strategy and may decrease our earnings, if any. The securitization market is subject to changing market conditions and we may not be able to access this market when we would otherwise deem appropriate. Moreover, the successful securitization of our portfolio might expose us to losses as the residual investments in which we do not sell interests will tend to be those that are riskier and more apt to generate losses. The Investment Company Act also may impose restrictions on the structure of any securitization.
The indentures under which the Notes are issued contains limited protection for holders of the Notes.
The indentures under which the Notes are issued offers limited protection to holders of the Notes. The terms of the indentures and the Notes do not restrict our or any of our subsidiaries’ ability to engage in, or otherwise be a party to, a variety of corporate transactions, circumstances or events that could have a material adverse impact on investments in the Notes. In particular, the terms of the indenture and the Notes do not place any restrictions on our or our subsidiaries’ ability to:
•
issue securities or otherwise incur additional indebtedness or other obligations, including (1) any indebtedness or other obligations that would be equal in right of payment to the Notes, (2) any indebtedness or other obligations that would be secured and therefore rank effectively senior in right of payment to the Notes to the extent of the values of the assets securing such debt, (3) indebtedness of ours that is guaranteed by one or more of our subsidiaries and which therefore is structurally senior to the Notes and (4) securities, indebtedness or obligations issued or incurred by our subsidiaries that would be senior to our equity interests in our subsidiaries and therefore rank structurally senior to the Notes with respect to the assets of our subsidiaries, in each case other than an incurrence of indebtedness or other obligation that would cause a violation of Section 18(a)(1)(A) of the Investment Company Act as modified by Section 61(a)(1) of the Investment Company Act or any successor provisions, whether or not we continue to be subject to such provisions of the Investment Company Act, but giving effect, in either case, to any exemptive relief granted to us by the SEC (these provisions generally prohibit us from making additional borrowings, including through the issuance of additional debt or the sale of additional debt securities, unless our asset coverage, as defined in the Investment Company Act, after such borrowings equals at least 200% through February 1, 2020 or, if earlier, the first day after approval by our stockholders of a proposal to reduce the asset coverage requirements, and subject to compliance with certain disclosure requirements, 150% thereafter);

•
declare or pay dividends on, or purchase or redeem or make any payments in respect of, capital stock or other securities ranking junior in right of payment to the Notes, including subordinated indebtedness, in each case, while the Notes remain outstanding, except that the indenture governing the 2024 Notes prohibits, (1) dividends, purchases, redemptions or payments that would cause a violation of Section 18(a)(1)(B) of the Investment Company Act as modified by Section 61(a)(1) of the Investment Company Act, or any successor provisions and (2) dividends (except a dividend payable in our stock), or any other distribution, upon a class of our capital stock, or purchasing any such capital stock, unless, in every such case, at the time of the declaration of any such dividend or distribution, or at the time of any such purchase, we have an asset coverage (as defined in the Investment Company Act) of at least 200% after deducting the amount of such dividend, distribution or purchase price, as the case may be, giving effect to any exemptive relief granted to us by the SEC;

•
sell assets (other than certain limited restrictions on our ability to consolidate, merge or sell all or substantially all of our assets);

•
enter into transactions with affiliates;

•
create liens (including liens on the shares of our subsidiaries) or enter into sale and leaseback transactions;

99


•
make investments; or

•
create restrictions on the payment of dividends or other amounts to us from our subsidiaries and maintain our ability to be subject to tax as a RIC.

Furthermore, the terms of the indenture and the Notes do not protect holders of the Notes in the event that we experience changes (including significant adverse changes) in our financial condition, results of operations or credit ratings, as they do not require that we or our subsidiaries adhere to any financial tests or ratios or specified levels of net worth, revenues, income, cash flow or liquidity.
Our ability to recapitalize, incur additional debt and take a number of other actions that are not limited by the terms of the Notes may have important consequences for holders of the Notes, including making it more difficult for us to satisfy our obligations with respect to the Notes or negatively affecting the trading value of the Notes.
Certain of our current debt instruments include more protections for their holders than the indenture and the Notes. In addition, other debt we issue or incur in the future could contain more protections for its holders than the indenture and the Notes, including additional covenants and events of default. The issuance or incurrence of any such debt with incremental protections could affect the market for and trading levels and prices of the Notes.
Item 2.    Unregistered Sales of Equity Securities and Use of Proceeds.
None.


100

Item 3. Defaults Upon Senior Securities
None.

Item 4.     Mine Safety Disclosures
Not applicable.

Item 5. Other Information
None.

Item 6. Exhibits
 
  
Certification of Chief Executive Officer Pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934.
 
 
 
  
Certification of Chief Financial Officer Pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934.
 
 
 
  
Certification of Chief Executive Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. 1350).
 
 
 
  
Certification of Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. 1350).
*
Filed herewith.

SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
 
 
 
 
OAKTREE SPECIALTY LENDING CORPORATION
 
 
By:
 
/s/   Edgar Lee
 
 
Edgar Lee



 
 
Chief Executive Officer
 
 
By:
 
/s/    Mel Carlisle
 
 
Mel Carlisle

 
 
Chief Financial Officer and Treasurer
Date: February 6, 2019


101
Exhibit


Exhibit 31.1

I, Edgar Lee, Chief Executive Officer of Oaktree Specialty Lending Corporation, certify that:
1. I have reviewed this quarterly report on Form 10-Q for the quarter ended December 31, 2018 of Oaktree Specialty Lending Corporation;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.


Dated this 6th day of February, 2019.

 
 
 
By:
 
/s/    Edgar Lee
 
 
Edgar Lee
Chief Executive Officer



Exhibit


Exhibit 31.2
I, Mel Carlisle, Chief Financial Officer of Oaktree Specialty Lending Corporation, certify that:
1. I have reviewed this quarterly report on Form 10-Q for the quarter ended December 31, 2018 of Oaktree Specialty Lending Corporation;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.


Dated this 6th day of February, 2019.
 
 
 
 
By:
 
/s/    Mel Carlisle
 
 
Mel Carlisle
Chief Financial Officer



Exhibit


Exhibit 32.1
Certification of Chief Executive Officer
Pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. 1350)
In connection with the quarterly report on Form 10-Q for the quarter ended December 31, 2018 (the “Report”) of Oaktree Specialty Lending Corporation (the “Registrant”), as filed with the Securities and Exchange Commission on the date hereof, I, Edgar Lee, the Chief Executive Officer of the Registrant, hereby certify, to the best of my knowledge, that:
(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and
(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Registrant.
 
 
/s/    Edgar Lee
Name:    Edgar Lee
 
Date: February 6, 2019



Exhibit


Exhibit 32.2
Certification of Chief Financial Officer
Pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. 1350)
In connection with the quarterly report on Form 10-Q for the quarter ended December 31, 2018 (the “Report”) of Oaktree Specialty Lending Corporation (the “Registrant”), as filed with the Securities and Exchange Commission on the date hereof, I, Mel Carlisle, the Chief Financial Officer of the Registrant, hereby certify, to the best of my knowledge, that:
(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and
(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Registrant.
 
 
/s/    Mel Carlisle
Name:    Mel Carlisle
 
Date: February 6, 2019