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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 March 31, 2019
OR
 
 
o
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


SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
 
 
 
 
 
Title of Each Class
 
Trading Symbol(s)
 
Name of Each Exchange
on Which Registered
Common Stock, par value $0.01 per share
5.875% Unsecured Notes due 2024
6.125% Unsecured Notes due 2028
 
OCSL
OSLE
OCSLL
 
The Nasdaq Global Select Market
The New York Stock Exchange
The Nasdaq Global Select Market
The registrant had 140,960,651 shares of common stock outstanding as of May 6, 2019.



OAKTREE SPECIALTY LENDING CORPORATION
FORM 10-Q FOR THE QUARTER ENDED MARCH 31, 2019

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)
 
 
March 31, 2019 (unaudited)
 
September 30, 2018
ASSETS
Investments at fair value:
 
 
 
 
Control investments (cost March 31, 2019: $211,964; cost September 30, 2018: $213,470)
 
$
193,416

 
$
196,874

Affiliate investments (cost March 31, 2019: $3,678; cost September 30, 2018: $1,080)
 
4,578

 
2,161

Non-control/Non-affiliate investments (cost March 31, 2019: $1,390,882; cost September 30, 2018: $1,392,383)
 
1,306,894

 
1,292,166

Total investments at fair value (cost March 31, 2019: $1,606,524; cost September 30, 2018: $1,606,933)
 
1,504,888

 
1,491,201

Cash and cash equivalents
 
12,815

 
13,380

Restricted cash
 
337

 
109

Interest, dividends and fees receivable
 
9,822

 
10,272

Due from portfolio companies
 
1,407

 
1,357

Receivables from unsettled transactions
 
1,818

 
26,760

Deferred financing costs
 
6,848

 
5,209

Derivative assets at fair value
 
563

 
162

Other assets
 
2,819

 
3,008

Total assets
 
$
1,541,317

 
$
1,551,458

LIABILITIES AND NET ASSETS
Liabilities:
 

 
 
Accounts payable, accrued expenses and other liabilities
 
$
1,505

 
$
3,581

Base management fee and incentive fee payable
 
8,922

 
8,223

Due to affiliate
 
1,940

 
3,274

Interest payable
 
2,117

 
3,365

Payable to syndication partners
 
586

 
109

Payables from unsettled transactions
 
9,900

 
37,236

Deferred tax liability
 
713

 
422

Credit facility payable
 
424,825

 
241,000

Unsecured notes payable (net of $2,908 and $3,483 of unamortized financing costs as of March 31, 2019 and September 30, 2018, respectively)
 
158,342

 
386,485

Secured borrowings at fair value (proceeds March 31, 2019: $11,502; proceeds September 30, 2018: $12,314)
 
9,011

 
9,728

Total liabilities
 
617,861

 
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 March 31, 2019 and September 30, 2018
 
1,409

 
1,409

Additional paid-in-capital
 
1,492,739

 
1,492,739

Accumulated overdistributed earnings
 
(570,692
)
 
(636,113
)
Total net assets (equivalent to $6.55 and $6.09 per common share as of March 31, 2019 and September 30, 2018, respectively) (Note 12)
 
923,456

 
858,035

Total liabilities and net assets
 
$
1,541,317

 
$
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
March 31, 2019
 
Three months ended
March 31, 2018
 
Six months ended
March 31, 2019
 
Six months ended
March 31, 2018
Interest income:
 
 
 
 
 
 
 
 
Control investments
 
$
2,852

 
$
3,071

 
$
6,191

 
$
6,274

Affiliate investments
 
22

 
917

 
35

 
1,866

Non-control/Non-affiliate investments
 
31,231

 
22,533

 
63,398

 
48,098

Interest on cash and cash equivalents
 
204

 
112

 
474

 
333

Total interest income
 
34,309

 
26,633

 
70,098

 
56,571

PIK interest income:
 
 
 
 
 
 
 
 
Control investments
 
—

 
1,210

 
67

 
2,401

Affiliate investments
 
—

 
188

 
—

 
364

Non-control/Non-affiliate investments
 
2,280

 
548

 
3,045

 
1,048

Total PIK interest income
 
2,280

 
1,946

 
3,112

 
3,813

Fee income:
 
 
 
 
 
 
 
 
Control investments
 
7

 
128

 
13

 
248

Affiliate investments
 
5

 
44

 
9

 
48

Non-control/Non-affiliate investments
 
1,120

 
3,770

 
2,312

 
4,677

Total fee income
 
1,132

 
3,942

 
2,334

 
4,973

Dividend and other income:
 
 
 
 
 
 
 
 
Control investments
 
523

 
2,258

 
976

 
3,298

Total dividend and other income
 
523

 
2,258

 
976

 
3,298

Total investment income
 
38,244

 
34,779

 
76,520

 
68,655

Expenses:
 
 
 
 
 
 
 
 
Base management fee
 
5,731

 
5,386

 
11,299

 
10,976

Part I incentive fee
 
3,813

 
3,247

 
7,541

 
4,077

Part II incentive fee
 
8,170

 
—

 
9,990

 
—

Professional fees
 
499

 
1,015

 
1,465

 
3,913

Directors fees
 
142

 
177

 
285

 
353

Interest expense
 
8,970

 
8,530

 
17,874

 
18,114

Administrator expense
 
406

 
391

 
1,169

 
885

General and administrative expenses
 
705

 
722

 
1,336

 
1,838

Total expenses
 
28,436

 
19,468

 
50,959

 
40,156

Fees waived
 
(7,901
)
 
48

 
(9,465
)
 
(86
)
Net expenses
 
20,535

 
19,516

 
41,494

 
40,070

Net investment income
 
17,709

 
15,263

 
35,026

 
28,585

Unrealized appreciation (depreciation):
 
 
 
 
 
 
 
 
Control investments
 
3,868

 
(5,849
)
 
(1,952
)
 
(7,175
)
Affiliate investments
 
(181
)
 
(2,063
)
 
(181
)
 
(2,231
)
Non-control/Non-affiliate investments
 
17,108

 
7,127

 
16,324

 
(36,506
)
Secured borrowings
 
(76
)
 
408

 
(95
)
 
2,063

Foreign currency forward contracts
 
753

 
—

 
401

 
—

Net unrealized appreciation (depreciation)
 
21,472

 
(377
)
 
14,497

 
(43,849
)
Realized gains (losses):
 
 
 
 
 
 
 
 
Affiliate investments
 
—

 
2,048

 
—

 
2,048

Non-control/Non-affiliate investments
 
25,899

 
2,806

 
42,660

 
2,515

Foreign currency forward contracts
 
(686
)
 
—

 
515

 
—

Net realized gains (losses)
 
25,213

 
4,854

 
43,175

 
4,563

Redemption premium on unsecured notes payable
 
—

 
(120
)
 
—

 
(120
)
Provision for income tax (expense) benefit
 
91

 
—

 
(495
)
 
—

Net realized and unrealized gains (losses), net of taxes
 
46,776

 
4,357

 
57,177

 
(39,406
)
Net increase (decrease) in net assets resulting from operations
 
$
64,485

 
$
19,620

 
$
92,203

 
$
(10,821
)
Net investment income per common share — basic and diluted
 
$
0.13

 
$
0.11

 
$
0.25

 
$
0.20

Earnings (loss) per common share — basic and diluted (Note 5)
 
$
0.46

 
$
0.14

 
$
0.65

 
$
(0.08
)
Weighted average common shares outstanding — basic and diluted
 
140,961

 
140,961

 
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
March 31, 2019
 
Three months ended
March 31, 2018
 
Six months ended
March 31, 2019
 
Six months ended
March 31, 2018
Operations:
 
 
 
 
 
 
 
 
Net investment income
 
$
17,709

 
$
15,263

 
$
35,026

 
$
28,585

Net unrealized appreciation (depreciation)
 
21,472

 
(377
)
 
14,497

 
(43,849
)
Net realized gains (losses)
 
25,213

 
4,854

 
43,175

 
4,563

Redemption premium on unsecured notes payable

 
—

 
(120
)
 
—

 
(120
)
Provision for income taxes
 
91

 
—

 
(495
)
 
—

Net increase (decrease) in net assets resulting from operations
 
64,485

 
19,620

 
92,203

 
(10,821
)
Stockholder transactions:
 
 
 
 
 
 
 
 
Distributions to stockholders
 
(13,391
)
 
(11,981
)
 
(26,782
)
 
(29,602
)
Net increase (decrease) in net assets from stockholder transactions
 
(13,391
)
 
(11,981
)
 
(26,782
)
 
(29,602
)
Capital share transactions:
 
 
 
 
 
 
 
 
Issuance of common stock under dividend reinvestment plan
 
312

 
533

 
696

 
827

Repurchases of common stock under dividend reinvestment program
 
(312
)
 
(533
)
 
(696
)
 
(827
)
Net increase (decrease) in net assets from capital share transactions
 
—

 
—

 
—

 
—

Total increase (decrease) in net assets
 
51,094

 
7,639

 
65,421

 
(40,423
)
Net assets at beginning of period
 
872,362

 
819,595

 
858,035

 
867,657

Net assets at end of period
 
$
923,456

 
$
827,234

 
$
923,456

 
$
827,234

Net asset value per common share
 
$
6.55

 
$
5.87

 
$
6.55

 
$
5.87

Common shares outstanding at end of period
 
140,961

 
140,961

 
140,961

 
140,961




See notes to Consolidated Financial Statements.

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



 
 
Six months ended
March 31, 2019
 
Six months ended
March 31, 2018
Operating activities:
 
 
 
 
Net increase (decrease) in net assets resulting from operations
 
$
92,203

 
$
(10,821
)
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
 
(14,497
)
 
43,849

Net realized (gains) losses
 
(43,175
)
 
(4,563
)
Redemption premium on unsecured notes payable
 
—

 
120

PIK interest income, net of PIK interest income collected
 
(3,112
)
 
(2,614
)
Accretion of original issue discount on investments
 
(13,224
)
 
(4,033
)
Accretion of original issue discount on unsecured notes payable
 
107

 
132

Amortization of deferred financing costs
 
1,545

 
2,046

Deferred taxes
 
291

 
—

Purchases of investments and net revolver activity
 
(270,266
)
 
(427,931
)
Principal payments received on investments (scheduled payments)
 
9,025

 
19,965

Principal payments received on investments (payoffs)
 
190,704

 
374,178

Proceeds from the sale of investments
 
129,306

 
140,158

Changes in operating assets and liabilities:
 
 
 
 
(Increase) decrease in interest, dividends and fees receivable
 
1,575

 
(879
)
(Increase) decrease in due from portfolio companies
 
(50
)
 
(6
)
(Increase) decrease in receivables from unsettled transactions
 
24,942

 
(12,852
)
(Increase) decrease in other assets
 
189

 
(2,832
)
Increase (decrease) in accounts payable, accrued expenses and other liabilities
 
(2,076
)
 
569

Increase (decrease) in base management fee and incentive fee payable
 
699

 
1,844

Increase (decrease) in due to affiliate
 
(1,334
)
 
(106
)
Increase (decrease) in interest payable
 
(1,248
)
 
111

Increase (decrease) in payables from unsettled transactions
 
(27,336
)
 
(37,584
)
Increase (decrease) in director fees payable
 
—

 
(8
)
Increase (decrease) in amounts payable to syndication partners
 
477

 
—

Net cash provided by operating activities
 
74,745

 
78,743

Financing activities:
 
 
 
 
Distributions paid in cash
 
(26,086
)
 
(28,775
)
Borrowings under credit facilities
 
228,825

 
183,000

Repayments of borrowings under credit facilities
 
(45,000
)
 
(255,995
)
Repayments of unsecured notes
 
(228,825
)
 
—

Repurchase of unsecured notes
 
—

 
(21,188
)
Repayments of secured borrowings
 
(692
)
 
(541
)
Repurchases of common stock under dividend reinvestment plan
 
(696
)
 
(827
)
Deferred financing costs paid
 
(2,608
)
 
(6,175
)
Net cash used in financing activities
 
(75,082
)
 
(130,501
)
Net increase (decrease) in cash and cash equivalents and restricted cash
 
(337
)
 
(51,758
)
Cash and cash equivalents and restricted cash, beginning of period
 
13,489

 
59,913

Cash and cash equivalents and restricted cash, end of period
 
$
13,152

 
$
8,155

Supplemental information:
 
 
 
 
Cash paid for interest
 
$
17,472

 
$
15,825

Non-cash financing activities:
 
 
 
 
Issuance of shares of common stock under dividend reinvestment plan
 
$
696

 
$
827

 
 
 
 
 
Reconciliation to the Consolidated Statements of Assets and Liabilities
 
March 31, 2019
 
September 30, 2018
Cash and cash equivalents
 
$
12,815

 
$
13,380

Restricted cash
 
337

 
109

Total cash and cash equivalents and restricted cash
 
$
13,152

 
$
13,489


See notes to Consolidated Financial Statements.

4
Oaktree Specialty Lending Corporation
Consolidated Schedule of Investments
March 31, 2019
(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, 9.00% cash due 12/15/2020 (11)(20)
 
 
 
 
 
$
32,510

 
$
23,381

 
$
32,510

 100% equity interest (11)(12)(20)
 
 
 
 
 
 
 
8,500

 
867

  
 
 
 
 
 
 
 
31,881

 
33,377

 New IPT, Inc.
 
 
 
 Oil & gas equipment services
 
 
 
 
 
 
 First Lien Term Loan, LIBOR+5.00% cash due 3/17/2021 (6)(20)(24)
 
7.60
%
 
 
 
4,107

 
4,107

 
4,107

 Second Lien Term Loan, LIBOR+5.10% cash due 9/17/2021 (6)(20)(24)
 
7.70
%
 
 
 
601

 
601

 
602

 First Lien Revolver, LIBOR+5.00% cash due 3/17/2021 (6)(19)(20)(24)
 
7.60
%
 
 
 
1,009

 
1,009

 
1,009

 50.087 Class A Common Units in New IPT Holdings, LLC (20)
 
 
 
 
 
 
 
—

 
2,903

 
 
 
 
 
 
 
 
5,717

 
8,621

 Senior Loan Fund JV I, LLC (14)(15)
 
 
 
Multi-sector holdings
 
 
 
 
 
 
 Subordinated Debt, LIBOR+7.00% cash due 12/29/2028 (6)(11)(20)
 
9.51
%
 
 
 
96,250

 
96,250

 
96,250

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

 
30,584

 
 
 
 
 
 
 
 
145,572

 
126,834

 Thruline Marketing, Inc. (25)
 
 
 
Advertising
 
 
 
 
 
 
 First Lien Term Loan, LIBOR+7.00% cash due 4/3/2022 (6)(20)(24)
 
9.60
%
 
 
 
18,146

 
18,146

 
18,146

 First Lien Revolver, LIBOR+7.75% cash due 4/3/2022 (6)(19)(20)(24)
 
 
 
 
 
—

 
—

 
—

 9,073 Class A Units in FS AVI Holdco, LLC (20)
 
 
 
 
 
 
 
10,648

 
6,438

 
 
 
 
 
 
 
 
28,794

 
24,584

 Total Control Investments (20.9% of net assets)
 
 
 
 
 
 
 
$
211,964

 
$
193,416

 
 
 
 
 
 
 
 
 
 
 
 Affiliate Investments (17)
 
 
 
 
 
 
 
 
 
 
 Assembled Brands Capital LLC
 
 
 
Specialized finance
 
 
 
 
 
 
 First Lien Delayed Draw Term Loan, LIBOR+6.00% cash due 10/17/2023 (6)(19)(20)
 
8.60
%
 
 
 
$
1,835

 
$
1,834

 
$
1,835

 764,376.60 Class A Units (20)
 
 
 
 
 
 
 
764

 
764

 583,190.81 Class B Units (20)
 
 
 
 
 
 
 
—

 
—

 
 
 
 
 
 
 
 
2,598

 
2,599

 Caregiver Services, Inc.
 
 
 
Healthcare services
 
 
 
 
 
 
 1,080,399 shares of Series A Preferred Stock, 10% (20)
 
 
 
 
 
 
 
1,080

 
1,979

 
 
 
 
 
 
 
 
1,080

 
1,979

 Total Affiliate Investments (0.5% of net assets)
 
 
 
 
 
 
 
$
3,678

 
$
4,578

 
 
 
 
 
 
 
 
 
 
 
 Non-Control/Non-Affiliate Investments (18)
 
 
 
 
 
 
 
 
 
 
 4 Over International, LLC
 
 
 
 Commercial printing
 
 
 
 
 
 
 First Lien Term Loan, LIBOR+6.00% cash due 6/7/2022 (6)(20)(24)
 
8.50
%
 
 
 
$
5,861

 
$
5,819

 
$
5,792

 First Lien Revolver, LIBOR+6.00% cash due 6/7/2021 (6)(19)(20)(24)
 
 
 
 
 
—

 
(17
)
 
(26
)
 
 
 
 
 
 
 
 
5,802

 
5,766

 99 Cents Only Stores LLC
 
 
 
 General merchandise stores
 
 
 
 
 
 
 First Lien Term Loan, LIBOR+5.00% cash 1.50% PIK due 1/13/2022 (6)
 
7.65
%
 
 
 
19,276

 
18,811

 
16,120

 
 
 
 
 
 
 
 
18,811

 
16,120

 Access CIG, LLC
 
 
 
Diversified support services
 
 
 
 
 
 
 Second Lien Term Loan, LIBOR+7.75% cash due 2/27/2026 (6)
 
10.24
%
 
 
 
15,000

 
14,883

 
14,900

 
 
 
 
 
 
 
 
14,883

 
14,900

 Aden & Anais Merger Sub, Inc.
 
 
 
Apparel, accessories & luxury goods
 
 
 
 
 
 
 51,645 Common Units in Aden & Anais Holdings, Inc. (20)
 
 
 
 
 
 
 
5,165

 
—

 
 
 
 
 
 
 
 
5,165

 
—

 Advanced Pain Management
 
 
 
Healthcare services
 
 
 
 
 
 
 First Lien Term Loan, LIBOR+8.50% cash due 6/30/2019 (6)(20)(21)(24)
 
 
 
 
 
26,684

 
22,596

 
—

 
 
 
 
 
 
 
 
22,596

 
—


5
Oaktree Specialty Lending Corporation
Consolidated Schedule of Investments
March 31, 2019
(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 (20)
 
 
 
 
 
 
 
$
13,611

 
$
12,312

 
 
 
 
 
 
 
 
13,611

 
12,312

 AI Ladder (Luxembourg) Subco S.a.r.l.
 
 
 
 Electrical components & equipment
 
 
 
 
 
 
 First Lien Term Loan, LIBOR+4.50% cash due 7/9/2025 (6)(11)
 
7.10
%
 
 
 
$
21,941

 
21,347

 
21,598

 
 
 
 
 
 
 
 
21,347

 
21,598

 AI Sirona (Luxembourg) Acquisition S.a.r.l.
 
 
 
Pharmaceuticals
 
 
 
 
 
 
 Second Lien Term Loan, EURIBOR+7.25% cash due 7/10/2026 (6)(11)(20)(24)
 
7.25
%
 
 
 
€
17,500

 
20,035

 
18,864

 
 
 
 
 
 
 
 
20,035

 
18,864

 Air Medical Group Holdings, Inc.
 
 
 
Healthcare services
 
 
 
 
 
 
 First Lien Term Loan, LIBOR+4.25% cash due 3/14/2025 (6)(24)
 
6.74
%
 
 
 
$
6,353

 
6,211

 
5,988

 
 
 
 
 
 
 
 
6,211

 
5,988

 AirStrip Technologies, Inc.
 
 
 
Application software
 
 
 
 
 
 
 22,858.71 Series C-1 Preferred Stock Warrants (exercise price $34.99757) expiration date 5/11/2025 (20)
 
 
 
 
 
 
 
90

 
—

 
 
 
 
 
 
 
 
90

 
—

 Airxcel, Inc.
 
 
 
Household appliances
 
 
 
 
 
 
 First Lien Term Loan, LIBOR+4.50% cash due 4/28/2025 (6)
 
7.00
%
 
 
 
7,940

 
7,871

 
7,371

 
 
 
 
 
 
 
 
7,871

 
7,371

 Algeco Scotsman Global Finance Plc
 
 
 
Construction & engineering
 
 
 
 
 
 
 Fixed Rate Bond, 10.00% cash due 8/15/2023 (11)
 
 
 
 
 
2,561

 
2,600

 
2,574

 Fixed Rate Bond, 8.00% cash due 2/15/2023 (11)
 
 
 
 
 
23,915

 
23,385

 
24,094

 
 
 
 
 
 
 
 
25,985

 
26,668

 Allen Media, LLC
 
 
 
Movies & entertainment
 
 
 
 
 
 
 First Lien Term Loan, LIBOR+6.50% cash due 8/30/2023 (6)(20)(24)
 
9.08
%
 
 
 
19,750

 
19,310

 
19,182

 
 
 
 
 
 
 
 
19,310

 
19,182

 Allied Universal Holdco LLC
 
 
 
 Security & alarm services
 
 
 
 
 
 
 First Lien Term Loan, LIBOR+3.75% cash due 7/28/2022 (6)(24)
 
6.25
%
 
 
 
9,803

 
9,847

 
9,504

 Second Lien Term Loan, LIBOR+8.50% cash due 7/28/2023 (6)(24)
 
11.00
%
 
 
 
1,149

 
1,165

 
1,124

 
 
 
 
 
 
 
 
11,012

 
10,628

 Altice France S.A.
 
 
 
 Integrated telecommunication services
 
 
 
 
 
 
 Fixed Rate Bond, 8.13% cash due 1/15/2024 (11)
 
 
 
 
 
3,000

 
3,050

 
3,053

 Fixed Rate Bond, 7.63% cash due 2/15/2025 (11)
 
 
 
 
 
2,000

 
2,013

 
1,828

 
 
 
 
 
 
 
 
5,063

 
4,881

 Alvotech Holdings S.A.
 
 
 
Biotechnology
 
 
 
 
 
 
 Fixed Rate Bond 15% PIK Note due 12/13/2023 (11)(20)
 
 
 
 
 
30,000

 
29,421

 
30,000

 
 
 
 
 
 
 
 
29,421

 
30,000

 Ancile Solutions, Inc.
 
 
 
Application software
 
 
 
 
 
 
 First Lien Term Loan, LIBOR+7.00% cash due 6/30/2021 (6)(20)(24)
 
9.60
%
 
 
 
9,326

 
9,206

 
9,248

 
 
 
 
 
 
 
 
9,206

 
9,248

 Apptio, Inc.
 
 
 
Application software
 
 
 
 
 
 
 First Lien Term Loan, LIBOR+7.25% cash due 1/10/2025 (6)(20)(24)
 
9.74
%
 
 
 
18,462

 
18,106

 
18,103

 First Lien Revolver, LIBOR+7.25% cash due 1/10/2025 (6)(19)(20)(24)
 
 
 
 
 
—

 
(30
)
 
(30
)
 
 
 
 
 
 
 
 
18,076

 
18,073

 Asurion, LLC
 
 
 
 Property & casualty insurance
 
 
 
 
 
 
 Second Lien Term Loan, LIBOR+6.50% cash due 8/4/2025 (6)(24)
 
9.00
%
 
 
 
22,000

 
21,950

 
22,355

 
 
 
 
 
 
 
 
21,950

 
22,355


6
Oaktree Specialty Lending Corporation
Consolidated Schedule of Investments
March 31, 2019
(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, 9.00% cash due 10/1/2025
 
 
 
 
 
$
3,000

 
$
2,973

 
$
3,259

 
 
 
 
 
 
 
 
2,973

 
3,259

 Belk Inc.
 
 
 
Department stores
 
 
 
 
 
 
 First Lien Term Loan, LIBOR+4.75% cash due 12/12/2022 (6)(24)
 
7.45
%
 
 
 
658

 
577

 
532

 
 
 
 
 
 
 
 
577

 
532

 Blackhawk Network Holdings, Inc.
 
 
 
Data processing & outsourced services
 
 
 
 
 
 
 Second Lien Term Loan, LIBOR+7.00% cash due 6/15/2026 (6)(24)
 
9.50
%
 
 
 
26,250

 
25,996

 
26,119

 
 
 
 
 
 
 
 
25,996

 
26,119

 Boxer Parent Company Inc.
 
 
 
Systems software
 
 
 
 
 
 
 First Lien Term Loan, LIBOR+4.25% cash due 10/2/2025 (6)
 
6.85
%
 
 
 
10,985

 
10,876

 
10,780

 
 
 
 
 
 
 
 
10,876

 
10,780

 California Pizza Kitchen, Inc.
 
 
 
Restaurants
 
 
 
 
 
 
 First Lien Term Loan, LIBOR+6.00% cash due 8/23/2022 (6)(24)
 
8.50
%
 
 
 
3,138

 
3,113

 
3,040

 
 
 
 
 
 
 
 
3,113

 
3,040

 Cenegenics, LLC
 
 
 
Healthcare services
 
 
 
 
 
 
 First Lien Term Loan, 9.75% cash 2.00% PIK due 9/30/2019 (20)(21)
 
 
 
 
 
29,431

 
27,738

 
1,016

 First Lien Revolver, 15.00% cash due 9/30/2019 (19)(20)(21)
 
 
 
 
 
2,203

 
2,203

 
(211
)
 452,914.87 Common Units in Cenegenics, LLC (20)
 
 
 
 
 
 
 
598

 
—

 345,380.141 Preferred Units in Cenegenics, LLC (20)
 
 
 
 
 
 
 
300

 
—

 
 
 
 
 
 
 
 
30,839

 
805

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

 
22,061

 
21,890

 
 
 
 
 
 
 
 
22,061

 
21,890

 CITGO Petroleum Corp.
 
 
 
 Oil & gas refining & marketing
 
 
 
 
 
 
 First Lien Term Loan, LIBOR+5.00% cash due 3/22/2024 (6)(24)
 
7.60
%
 
 
 
10,000

 
9,900

 
10,000

 
 
 
 
 
 
 
 
9,900

 
10,000

 Convergeone Holdings, Inc.
 
 
 
IT consulting & other services
 
 
 
 
 
 
 First Lien Term Loan, LIBOR+5.00% cash due 1/4/2026 (6)
 
7.50
%
 
 
 
20,000

 
19,204

 
19,194

 
 
 
 
 
 
 
 
19,204

 
19,194

 Conviva Inc.
 
 
 
Application software
 
 
 
 
 
 
 417,851 Series D Preferred Stock Warrants (exercise price $1.1966) expiration date 2/28/2021 (20)
 
 
 
 
 
 
 
105

 
426

 
 
 
 
 
 
 
 
105

 
426

 Covia Holdings Corporation
 
 
 
 Oil & gas equipment & services
 
 
 
 
 
 
 First Lien Term Loan, LIBOR+3.75% cash due 6/1/2025 (6)(11)(24)
 
6.16
%
 
 
 
7,940

 
7,940

 
6,807

 
 
 
 
 
 
 
 
7,940

 
6,807

 DAE Aviation Holdings
 
 
 
Aerospace & defense
 
 
 
 
 
 
 Fixed Rate Bond, 10.00% cash due 7/15/2023
 
 
 
 
 
1,500

 
1,606

 
1,613

 
 
 
 
 
 
 
 
1,606

 
1,613

 Datto Inc.
 
 
 
Technology distributors
 
 
 
 
 
 
 First Lien Term Loan, LIBOR+8.00% cash due 12/7/2022 (6)(20)(24)
 
10.49
%
 
 
 
35,000

 
34,484

 
35,700

 First Lien Revolver, LIBOR+8.00% cash due 12/7/2022 (6)(19)(20)(24)
 
 
 
 
 
—

 
(35
)
 
—

 
 
 
 
 
 
 
 
34,449

 
35,700

 DigiCert, Inc.
 
 
 
 Internet services & infrastructure
 
 
 
 
 
 
 First Lien Term Loan, LIBOR+4.00% cash due 10/31/2024 (6)(24)
 
6.50
%
 
 
 
4,244

 
4,202

 
4,178

 
 
 
 
 
 
 
 
4,202

 
4,178


7
Oaktree Specialty Lending Corporation
Consolidated Schedule of Investments
March 31, 2019
(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 (26)
 
 
 
Healthcare services
 
 
 
 
 
 
 Subordinated Term Loan, 11.00% cash 1.00% PIK due 10/18/2019 (20)(21)
 
 
 
 
 
$
20,153

 
$
14,478

 
$
7,030

 First Lien Term Loan, PRIME+4.00% cash due 4/8/2019 (6)(20)(24)
 
9.50
%
 
 
 
45,691

 
44,099

 
44,480

 First Lien Revolver, PRIME+4.00% cash due 4/8/2019 (6)(19)(20)(24)
 
9.50
%
 
 
 
2,090

 
2,090

 
1,979

 
 
 
 
 
 
 
 
60,667

 
53,489

 The Dun & Bradstreet Corporation
 
 
 
 Research & consulting services
 
 
 
 
 
 
 First Lien Term Loan, LIBOR+5.00% cash due 2/6/2026 (6)(24)
 
7.49
%
 
 
 
10,000

 
9,802

 
9,906

 Fixed Rate Bond 6.875% cash due 8/15/2026
 
 
 
 
 
5,000

 
5,000

 
5,122

 
 
 
 
 
 
 
 
14,802

 
15,028

 Eagleview Technology Corporation
 
 
 
Application software
 
 
 
 
 
 
 Second Lien Term Loan, LIBOR+7.50% cash due 8/14/2026 (6)(20)(24)
 
9.98
%
 
 
 
12,000

 
11,880

 
11,790

 
 
 
 
 
 
 
 
11,880

 
11,790

 EHR Canada, LLC
 
 
 
Food retail
 
 
 
 
 
 
 First Lien Term Loan, LIBOR+8.00% cash due 9/28/2020 (6)(20)(24)
 
10.60
%
 
 
 
14,611

 
14,404

 
14,626

 
 
 
 
 
 
 
 
14,404

 
14,626

 EOS Fitness Opco Holdings, LLC
 
 
 
Leisure facilities
 
 
 
 
 
 
 487.5 Class A Preferred Units, 12% (20)
 
 
 
 
 
 
 
488

 
806

 12,500 Class B Common Units (20)
 
 
 
 
 
 
 
—

 
644

 
 
 
 
 
 
 
 
488

 
1,450

 Equitrans Midstream Corp.
 
 
 
 Oil & gas storage & transportation
 
 
 
 
 
 
 First Lien Term Loan, LIBOR+4.50% cash due 1/31/2024 (6)(11)
 
7.00
%
 
 
 
11,970

 
11,626

 
12,025

 
 
 
 
 
 
 
 
11,626

 
12,025

 Eton
 
 
 
 Research & consulting services
 
 
 
 
 
 
 Second Lien Term Loan, LIBOR+7.50% cash due 5/1/2026 (6)
 
10.00
%
 
 
 
20,000

 
19,911

 
19,750

 
 
 
 
 
 
 
 
19,911

 
19,750

 ExamSoft Worldwide, Inc.
 
 
 
Application software
 
 
 
 
 
 
 180,707 Class C Units in ExamSoft Investor LLC (20)
 
 
 
 
 
 
 
181

 
—

 
 
 
 
 
 
 
 
181

 
—

 Gentiva Health Services, Inc.
 
 
 
 Healthcare services
 
 
 
 
 
 
 Second Lien Term Loan, LIBOR+7.00% cash due 7/2/2026 (6)
 
9.50
%
 
 
 
14,500

 
14,408

 
14,863

 
 
 
 
 
 
 
 
14,408

 
14,863

 GI Chill Acquisition LLC
 
 
 
 Managed healthcare
 
 
 
 
 
 
 First Lien Term Loan, LIBOR+4.00% cash due 8/6/2025 (6)(20)
 
6.60
%
 
 
 
17,910

 
17,820

 
17,944

 Second Lien Term Loan, LIBOR+7.50% cash due 8/6/2026 (6)(20)
 
10.10
%
 
 
 
10,000

 
9,908

 
10,000

 
 
 
 
 
 
 
 
27,728

 
27,944

 GKD Index Partners, LLC
 
 
 
 Specialized finance
 
 
 
 
 
 
 First Lien Term Loan, LIBOR+7.25% cash due 6/29/2023 (6)(20)(24)
 
9.85
%
 
 
 
23,447

 
23,248

 
23,078

 First Lien Revolver, LIBOR+7.25% cash due 6/29/2023 (6)(19)(20)(24)
 
 
 
 
 
—

 
(10
)
 
(18
)
 
 
 
 
 
 
 
 
23,238

 
23,060

 GoodRx, Inc.
 
 
 
Interactive media & services
 
 
 
 
 
 
 Second Lien Term Loan, LIBOR+7.50% cash due 10/12/2026 (6)(20)
 
10.00
%
 
 
 
22,222

 
21,776

 
22,555

 
 
 
 
 
 
 
 
21,776

 
22,555

 HealthEdge Software, Inc.
 
 
 
Application software
 
 
 
 
 
 
 482,453 Series A-3 Preferred Stock Warrants (exercise price $1.450918) expiration date 9/30/2023 (20)
 
 
 
 
 
 
 
213

 
765

 
 
 
 
 
 
 
 
213

 
765

 I Drive Safely, LLC
 
 
 
Education services
 
 
 
 
 
 
 125,079 Class A Common Units of IDS Investments, LLC (20)
 
 
 
 
 
 
 
1,000

 
200

 
 
 
 
 
 
 
 
1,000

 
200


8
Oaktree Specialty Lending Corporation
Consolidated Schedule of Investments
March 31, 2019
(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+7.00% cash due 8/2/2022 (6)(20)(24)
 
9.63
%
 
 
 
$
14,659

 
$
13,224

 
$
13,120

 
 
 
 
 
 
 
 
13,224

 
13,120

 iCIMs, Inc.
 
 
 
Application software
 
 
 
 
 
 
 First Lien Term Loan, LIBOR+6.50% cash due 9/12/2024 (6)(20)(24)
 
8.99
%
 
 
 
14,118

 
13,861

 
13,860

 First Lien Revolver, LIBOR+6.50% cash due 9/12/2024 (6)(19)(20)(24)
 
 
 
 
 
—

 
(16
)
 
(16
)
 
 
 
 
 
 
 
 
13,845

 
13,844

 Integral Development Corporation
 
 
 
Other diversified financial services
 
 
 
 
 
 
 1,078,284 Common Stock Warrants (exercise price $0.9274) expiration date 7/10/2024 (20)
 
 
 
 
 
 
 
113

 
—

 
 
 
 
 
 
 
 
113

 
—

 Internet Pipeline, Inc.
 
 
 
 Internet services & infrastructure
 
 
 
 
 
 
 First Lien Term Loan, LIBOR+4.75% cash due 8/4/2022 (6)(20)(24)
 
7.25
%
 
 
 
5,482

 
5,432

 
5,445

 
 
 
 
 
 
 
 
5,432

 
5,445

 Kason Corporation
 
 
 
Industrial machinery
 
 
 
 
 
 
 Mezzanine Term Loan, 11.5% cash 1.75% PIK due 10/28/2019 (20)
 
 
 
 
 
6,167

 
6,167

 
6,067

 498.60 Class A Preferred Units in Kason Investment, LLC, 8% (20)
 
 
 
 
 
 
 
499

 
328

 5,540 Class A Common Units in Kason Investment, LLC (20)
 
 
 
 
 
 
 
55

 
—

 
 
 
 
 
 
 
 
6,721

 
6,395

 Kellermeyer Bergensons Services, LLC
 
 
 
 Environmental & facilities services
 
 
 
 
 
 
 Second Lien Term Loan, LIBOR+8.50% cash due 4/29/2022 (6)(20)(24)
 
11.25
%
 
 
 
6,105

 
5,931

 
6,158

 
 
 
 
 
 
 
 
5,931

 
6,158

 L Squared Capital Partners LLC
 
 
 
Multi-sector holdings
 
 
 
 
 
 
 2% Limited Partnership Interest (11)(16)
 
 
 
 
 
 
 
1,259

 
3,229

 
 
 
 
 
 
 
 
1,259

 
3,229

 Lanai Holdings III, Inc.
 
 
 
Healthcare distributors
 
 
 
 
 
 
 First Lien Term Loan, LIBOR+4.75% cash due 8/29/2022 (6)(24)
 
7.49
%
 
 
 
19,996

 
19,634

 
19,296

 
 
 
 
 
 
 
 
19,634

 
19,296

 Lannett Company, Inc.
 
 
 
Pharmaceuticals
 
 
 
 
 
 
 First Lien Term Loan, LIBOR+5.00% cash due 11/25/2020 (6)(11)(24)
 
7.50
%
 
 
 
1,763

 
1,765

 
1,717

 
 
 
 
 
 
 
 
1,765

 
1,717

 Lift Brands Holdings, Inc.
 
 
 
Leisure facilities
 
 
 
 
 
 
 2,000,000 Class A Common Units in Snap Investments, LLC (20)
 
 
 
 
 
 
 
1,399

 
3,020

 
 
 
 
 
 
 
 
1,399

 
3,020

 Long's Drugs Incorporated
 
 
 
Pharmaceuticals
 
 
 
 
 
 
 50 Series A Preferred Shares in Long's Drugs Incorporated (20)
 
 
 
 
 
 
 
385

 
904

 25 Series B Preferred Shares in Long's Drugs Incorporated (20)
 
 
 
 
 
 
 
210

 
556

 
 
 
 
 
 
 
 
595

 
1,460

 LTI Holdings, Inc.
 
 
 
 Auto parts & equipment
 
 
 
 
 
 
 Second Lien Term Loan, LIBOR+6.75% cash due 9/6/2026 (6)
 
9.25
%
 
 
 
9,000

 
9,000

 
8,578

 
 
 
 
 
 
 
 
9,000

 
8,578

 Lytx Holdings, LLC
 
 
 
Research & consulting services
 
 
 
 
 
 
 3,500 Class B Units (20)
 
 
 
 
 
 
 
—

 
1,771

 
 
 
 
 
 
 
 
—

 
1,771

 Maravai Intermediate Holdings, LLC
 
 
 
Biotechnology
 
 
 
 
 
 
 First Lien Term Loan, LIBOR+4.25% cash due 8/2/2025 (6)(20)
 
6.75
%
 
 
 
11,940

 
11,821

 
11,910

 
 
 
 
 
 
 
 
11,821

 
11,910


9
Oaktree Specialty Lending Corporation
Consolidated Schedule of Investments
March 31, 2019
(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
 Mayfield Agency Borrower Inc.
 
 
 
 Property & casualty insurance
 
 
 
 
 
 
 First Lien Term Loan, LIBOR+4.50% cash due 2/28/2025 (6)(24)
 
7.00
%
 
 
 
$
7,444

 
$
7,412

 
$
7,276

 Second Lien Term Loan, LIBOR+8.50% cash due 3/2/2026 (6)(20)(24)
 
11.00
%
 
 
 
37,500

 
37,012

 
36,844

 
 
 
 
 
 
 
 
44,424

 
44,120

 McAfee, LLC
 
 
 
Systems software
 
 
 
 
 
 
 First Lien Term Loan, LIBOR+3.75% cash due 9/30/2024 (6)(24)
 
6.25
%
 
 
 
11,012

 
10,932

 
11,019

 Second Lien Term Loan, LIBOR+8.50% cash due 9/29/2025 (6)(24)
 
11.00
%
 
 
 
7,333

 
7,372

 
7,418

 
 
 
 
 
 
 
 
18,304

 
18,437

 McDermott Technology (Americas), Inc.
 
 
 
 Oil & gas equipment services
 
 
 
 
 
 
 First Lien Term Loan, LIBOR+5.00% cash due 5/12/2025 (6)(11)(24)
 
7.50
%
 
 
 
4,483

 
4,458

 
4,307

 
 
 
 
 
 
 
 
4,458

 
4,307

 MHE Intermediate Holdings, LLC
 
 
 
 Diversified support services
 
 
 
 
 
 
 First Lien Term Loan, LIBOR+5.00% cash due 3/8/2024 (6)(20)(24)
 
7.60
%
 
 
 
2,947

 
2,925

 
2,889

 
 
 
 
 
 
 
 
2,925

 
2,889

 Mindbody, Inc.
 
 
 
Internet services & infrastructure
 
 
 
 
 
 
 First Lien Term Loan, LIBOR+7.00% cash due 2/15/2025 (6)(20)(24)
 
9.48
%
 
 
 
28,952

 
28,385

 
28,373

 First Lien Revolver, LIBOR+7.00% cash due 2/15/2025 (6)(19)(20)(24)
 
 
 
 
 
—

 
(60
)
 
(61
)
 
 
 
 
 
 
 
 
28,325

 
28,312

 Ministry Brands, LLC
 
 
 
Application software
 
 
 
 
 
 
 Second Lien Term Loan, LIBOR+9.25% cash due 6/2/2023 (6)(20)(24)
 
11.88
%
 
 
 
7,056

 
6,988

 
7,055

 Second Lien Delayed Draw Term Loan, LIBOR+9.25% cash due 6/2/2023 (6)(20)(24)
 
11.88
%
 
 
 
1,944

 
1,925

 
1,943

 First Lien Revolver, LIBOR+5.00% cash due 12/2/2022 (6)(19)(20)(24)
 
 
 
 
 
—

 
(8
)
 
(2
)
 
 
 
 
 
 
 
 
8,905

 
8,996

 Morphe LLC
 
 
 
Personal products
 
 
 
 
 
 
 First Lien Term Loan, LIBOR+6.00% cash due 2/10/2023 (6)(20)(24)
 
8.50
%
 
 
 
19,000

 
18,850

 
19,000

 
 
 
 
 
 
 
 
18,850

 
19,000

 Natural Resource Partners LP
 
 
 
 Coal & consumable fuels
 
 
 
 
 
 
 Fixed Rate Bond, 10.50% cash due 3/15/2022 (11)
 
 
 
 
 
7,000

 
7,260

 
7,394

 
 
 
 
 
 
 
 
7,260

 
7,394

 Navicure, Inc.
 
 
 
 Healthcare technology
 
 
 
 
 
 
 Second Lien Term Loan, LIBOR+7.50% cash due 10/31/2025 (6)(20)(24)
 
10.00
%
 
 
 
14,500

 
14,380

 
14,283

 
 
 
 
 
 
 
 
14,380

 
14,283

 Numericable SFR SA
 
 
 
 Integrated telecommunication services
 
 
 
 
 
 
 Fixed Rate Bond, 7.38% cash due 5/1/2026 (11)
 
 
 
 
 
5,000

 
5,110

 
4,913

 
 
 
 
 
 
 
 
5,110

 
4,913

 OmniSYS Acquisition Corporation
 
 
 
Diversified support services
 
 
 
 
 
 
 100,000 Common Units in OSYS Holdings, LLC (20)
 
 
 
 
 
 
 
1,000

 
1,083

 
 
 
 
 
 
 
 
1,000

 
1,083

 Onvoy, LLC
 
 
 
 Integrated telecommunication services
 
 
 
 
 
 
 Second Lien Term Loan, LIBOR+10.50% cash due 2/10/2025 (6)(20)(24)
 
13.10
%
 
 
 
16,750

 
16,750

 
13,187

 19,666.67 Class A Units in GTCR Onvoy Holdings, LLC (20)
 
 
 
 
 
 
 
1,967

 
—

 13,664.73 Series 3 Class B Units in GTCR Onvoy Holdings, LLC (20)
 
 
 
 
 
 
 
—

 
—

 
 
 
 
 
 
 
 
18,717

 
13,187

 P2 Upstream Acquisition Co.
 
 
 
Application software
 
 
 
 
 
 
 First Lien Term Loan, LIBOR+4.00% cash due 10/30/2020 (6)(24)
 
6.74
%
 
 
 
2,992

 
2,933

 
2,962

 First Lien Revolver, LIBOR+4.00% cash due 2/1/2020 (6)(19)(24)
 
 
 
 
 
—

 
—

 
(90
)
 
 
 
 
 
 
 
 
2,933

 
2,872

 Pingora MSR Opportunity Fund I-A, LP
 
 
 
Thrift & mortgage finance
 
 
 
 
 
 
 1.86% Limited Partnership Interests (11)(16)
 
 
 
 
 
—

 
4,656

 
3,972

 
 
 
 
 
 
 
 
4,656

 
3,972


10
Oaktree Specialty Lending Corporation
Consolidated Schedule of Investments
March 31, 2019
(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
 PLATO Learning Inc.
 
 
 
Education services
 
 
 
 
 
 
 Unsecured Senior PIK Note, 8.5% PIK due 12/9/2021 (20)(22)
 
 
 
 
 
$
2,765

 
$
2,434

 
$
—

 Unsecured Junior PIK Note, 10% PIK due 12/9/2021 (20)(22)
 
 
 
 
 
13,131

 
10,227

 
—

 Unsecured Revolver, 5% cash due 12/9/2021 (19)(20)(21)
 
 
 
 
 
2,587

 
2,471

 
389

 126,127.80 Class A Common Units of Edmentum (20)
 
 
 
 
 
 
 
126

 
—

 
 
 
 
 
 
 
 
15,258

 
389

 ProFrac Services, LLC
 
 
 
Industrial machinery
 
 
 
 
 
 
 First Lien Term Loan, LIBOR+5.75% cash due 9/15/2023 (6)(20)(24)
 
8.36
%
 
 
 
17,700

 
17,542

 
17,346

 
 
 
 
 
 
 
 
17,542

 
17,346

 QuorumLabs, Inc.
 
 
 
Application software
 
 
 
 
 
 
 64,887,669 Junior-2 Preferred Stock (20)
 
 
 
 
 
 
 
375

 
—

 
 
 
 
 
 
 
 
375

 
—

 Refac Optical Group (13)
 
 
 
Specialty stores
 
 
 
 
 
 
 First Lien Term Loan, LIBOR+10.00% cash due 1/9/2019 (6)(20)(21)
 
 
 
 
 
1,858

 
1,692

 
1,858

 First Lien Term Loan, LIBOR+11.00% cash 1.75% PIK due 9/30/2018 (6)(20)(21)
 
 
 
 
 
36,262

 
32,947

 
32,868

 First Lien Term Loan, 15.50% cash due 9/30/2018 (20)(21)
 
 
 
 
 
3,538

 
3,232

 
3,105

 First Lien Revolver, LIBOR+10.00% cash due 9/30/2018 (6)(20)(21)
 
 
 
 
 
3,621

 
3,360

 
3,621

 1,550.9435 Shares of Common Stock in Refac Holdings, Inc. (20)
 
 
 
 
 
 
 
1

 
—

 550.9435 Series A-2 Preferred Stock in Refac Holdings, Inc., 10% (20)
 
 
 
 
 
 
 
305

 
—

 1,000 Series A Preferred Stock in Refac Holdings, Inc., 10% (20)
 
 
 
 
 
 
 
999

 
—

 
 
 
 
 
 
 
 
42,536

 
41,452

 Salient CRGT, Inc.
 
 
 
Aerospace & defense
 
 
 
 
 
 
 First Lien Term Loan, LIBOR+5.75% cash due 2/28/2022 (6)(20)(24)
 
8.25
%
 
 
 
3,130

 
3,093

 
3,091

 
 
 
 
 
 
 
 
3,093

 
3,091

 Scilex Pharmaceuticals Inc.
 
 
 
Pharmaceuticals
 
 
 
 
 
 
 Fixed Rate Zero Coupon Bond due 8/15/2026 (20)
 
 
 
 
 
15,969

 
10,631

 
10,699

 
 
 
 
 
 
 
 
10,631

 
10,699

 ShareThis, Inc.
 
 
 
Application software
 
 
 
 
 
 
 345,452 Series C Preferred Stock Warrants (exercise price $3.0395) expiration date 3/4/2024 (20)
 
 
 
 
 
 
 
367

 
4

 
 
 
 
 
 
 
 
367

 
4

 Sorrento Therapeutics, Inc.
 
 
 
Biotechnology
 
 
 
 
 
 
 First Lien Term Loan, LIBOR+7.00% cash due 11/7/2023 (6)(11)(20)(24)
 
9.63
%
 
 
 
25,000

 
23,159

 
24,250

 First Lien Delayed Draw Term Loan, LIBOR+7.00% cash due 11/7/2023 (6)(11)(19)(20)(24)
 
 
 
 
 
 
 
(115
)
 
(115
)
 Stock Warrants (exercise price $3.28) expiration date 5/7/2029 (11)(20)
 
 
 
 
 
 
 
1,750

 
4,449

 
 
 
 
 
 
 
 
24,794

 
28,584

 StandardAero Aviation Holdings Inc.
 
 
 
Aerospace & defense
 
 
 
 
 
 
 First Lien Term Loan, LIBOR+3.75% cash due 7/7/2022 (6)(24)
 
6.25
%
 
 
 
4,974

 
4,969

 
4,987

 
 
 
 
 
 
 
 
4,969

 
4,987

 Swordfish Merger Sub LLC
 
 
 
Auto parts & equipment
 
 
 
 
 
 
 Second Lien Term Loan, LIBOR+6.75% cash due 2/2/2026 (6)(24)
 
9.24
%
 
 
 
12,500

 
12,446

 
12,031

 
 
 
 
 
 
 
 
12,446

 
12,031

 TerSera Therapeutics, LLC
 
 
 
Pharmaceuticals
 
 
 
 
 
 
 Second Lien Term Loan, LIBOR+9.25% cash due 3/30/2024 (6)(20)(24)
 
11.85
%
 
 
 
21,563

 
21,173

 
21,297

 Second Lien Delayed Draw Term Loan, LIBOR+9.25% cash due 12/31/2020 (6)(19)(20)
 


 
 
 


 
—

 
(100
)
 668,879 Common Units of TerSera Holdings LLC (20)
 
 
 
 
 
 
 
1,731

 
2,629

 
 
 
 
 
 
 
 
22,904

 
23,826


11
Oaktree Specialty Lending Corporation
Consolidated Schedule of Investments
March 31, 2019
(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
 Thing5, LLC
 
 
 
Data processing & outsourced services
 
 
 
 
 
 
 First Lien Term Loan, LIBOR+7.50% cash 2.00% PIK due 10/11/2020 (6)(20)(21)(23)(24)
 
 
 
 
 
$
46,688

 
$
45,650

 
$
33,904

 First Lien Revolver, LIBOR+7.50% cash due 10/11/2020 (6)(19)(20)(21)(24)
 
 
 
 
 
2,274

 
2,175

 
2,274

 2,000,000 Units in T5 Investment Vehicle, LLC (20)
 
 
 
 
 
 
 
2,000

 
—

 
 
 
 
 
 
 
 
49,825

 
36,178

 TigerText, Inc.
 
 
 
Application software
 
 
 
 
 
 
 299,110 Series B Preferred Stock Warrants (exercise price $1.3373) expiration date 12/8/2024 (20)
 
 
 
 
 
 
 
60

 
566

 
 
 
 
 
 
 
 
60

 
566

 Tribe Buyer LLC
 
 
 
 Human resource & employment services
 
 
 
 
 
 
 First Lien Term Loan, LIBOR+4.50% cash due 2/16/2024 (6)(24)
 
7.00
%
 
 
 
843

 
843

 
817

 
 
 
 
 
 
 
 
843

 
817

 Truck Hero, Inc.
 
 
 
Auto parts & equipment
 
 
 
 
 
 
 Second Lien Term Loan, LIBOR+8.25% cash due 4/21/2025 (6)(20)(24)
 
10.75
%
 
 
 
21,500

 
21,191

 
20,962

 
 
 
 
 
 
 
 
21,191

 
20,962

 Uber Technologies, Inc.
 
 
 
Application software
 
 
 
 
 
 
 First Lien Term Loan, LIBOR+4.00% cash due 4/4/2025 (6)(24)
 
6.49
%
 
 
 
5,718

 
5,677

 
5,730

 
 
 
 
 
 
 
 
5,677

 
5,730

 UOS, LLC
 
 
 
Trading companies & distributors
 
 
 
 
 
 
 First Lien Term Loan, LIBOR+5.50% cash due 4/18/2023 (6)(24)
 
8.00
%
 
 
 
10,294

 
10,426

 
10,345

 
 
 
 
 
 
 
 
10,426

 
10,345

 U.S. Wells Services, LLC
 
 
 
Oil & gas drilling
 
 
 
 
 
 
 Second Lien Delayed Draw Term Loan, LIBOR+7.75% cash due 5/31/2020 (6)(11)(20)(24)
 
10.25
%
 
 
 
30,000

 
28,983

 
29,400

 
 
 
 
 
 
 
 
28,983

 
29,400

 Veritas US Inc.
 
 
 
Application software
 
 
 
 
 
 
 First Lien Term Loan, LIBOR+4.50% cash due 1/27/2023 (6)(24)
 
7.00
%
 
 
 
34,375

 
34,685

 
31,931

 
 
 
 
 
 
 
 
34,685

 
31,931

 Verscend Holding Corp.
 
 
 
 Healthcare technology
 
 
 
 
 
 
 First Lien Term Loan, LIBOR+4.50% cash due 8/27/2025 (6)(24)
 
7.00
%
 
 
 
24,875

 
24,760

 
24,751

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

 
12,024

 
12,015

 
 
 
 
 
 
 
 
36,784

 
36,766

 Vertex Aerospace Services Corp.
 
 
 
Aerospace & defense
 
 
 
 
 
 
 First Lien Term Loan, LIBOR+4.75% cash due 6/29/2025 (6)
 
7.25
%
 
 
 
15,872

 
15,800

 
15,916

 
 
 
 
 
 
 
 
15,800

 
15,916

 Vitalyst Holdings, Inc.
 
 
 
IT consulting & other services
 
 
 
 
 
 
 675 Series A Preferred Units of PCH Support Holdings, Inc., 10% (20)
 
 
 
 
 
 
 
675

 
440

 7,500 Class A Common Stock Units of PCH Support Holdings, Inc. (20)
 
 
 
 
 
 
 
75

 
—

 
 
 
 
 
 
 
 
750

 
440

 Weatherford International
 
 
 
 Oil & gas equipment services
 
 
 
 
 
 
 Fixed Rate Bond, 9.88% cash due 2/15/2024 (11)
 
 
 
 
 
12,000

 
11,516

 
8,700

 
 
 
 
 
 
 
 
11,516

 
8,700

 Windstream Services, LLC
 
 
 
Integrated telecommunication services
 
 
 
 
 
 
 Fixed Rate Bond, 8.63% cash due 10/31/2025 (11)
 
 
 
 
 
5,000

 
4,874

 
4,768

 
 
 
 
 
 
 
 
4,874

 
4,768

 WP CPP Holdings, LLC
 
 
 
Aerospace & defense
 
 
 
 
 
 
 Second Lien Term Loan, LIBOR+7.75% cash due 4/30/2026 (6)(24)
 
10.51
%
 
 
 
15,000

 
14,865

 
14,937

 
 
 
 
 
 
 
 
14,865

 
14,937


12
Oaktree Specialty Lending Corporation
Consolidated Schedule of Investments
March 31, 2019
(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
 xMatters, Inc.
 
 
 
Application software
 
 
 
 
 
 
 600,000 Common Stock Warrants (exercise price $1.78) expiration date 2/26/2025 (20)
 
 
 
 
 
 
 
$
709

 
$
281

 
 
 
 
 
 
 
 
709

 
281

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

 
19,176

 
 
 
 
 
 
 
 
—

 
19,176

 Zep Inc.
 
 
 
Specialty chemicals
 
 
 
 
 
 
 Second Lien Term Loan, LIBOR+8.25% cash due 8/11/2025 (6)(20)(24)
 
10.85
%
 
 
 
$
30,000

 
29,880

 
26,925

 First Lien Term Loan, LIBOR+4.00% cash due 8/12/2024 (6)(24)
 
6.60
%
 
 
 
1,985

 
1,901

 
1,760

 
 
 
 
 
 
 
 
31,781

 
28,685

 Zephyr Bidco Limited
 
 
 
Specialized finance
 
 
 
 
 
 
 Second Lien Term Loan, UK LIBOR+7.50% cash due 7/23/2026 (6)(11)(24)
 
8.23
%
 
 
 
£
18,000

 
23,604

 
23,337

 
 
 
 
 
 
 
 
23,604

 
23,337

Total Non-Control/Non-Affiliate Investments (141.5% of net assets)
 
 
 
 
 
 
 
$
1,390,882

 
$
1,306,894

Total Portfolio Investments (163.0% of net assets)
 
 
 
 
 
 
 
$
1,606,524

 
$
1,504,888

Cash and Cash Equivalents and Restricted Cash
 
 
 
 
 
 
 
 
 
 
JP Morgan Prime Money Market Fund, Institutional Shares
 
 
 
 
 
 
 
$
1,204

 
$
1,204

Other cash accounts
 
 
 
 
 
 
 
11,948

 
11,948

Total Cash and Cash Equivalents and Restricted Cash (1.4% of net assets)
 
 
 
 
 
 
 
$
13,152

 
$
13,152

Total Portfolio Investments, Cash and Cash Equivalents and Restricted Cash (164.4% of net assets)
 
 
 
 
 
 
 
$
1,619,676

 
$
1,518,040





Derivative Instrument
 
Notional Amount to be Purchased
 
Notional Amount to be Sold
 
Maturity Date
 
Counterparty
 
Cumulative Unrealized Appreciation /(Depreciation)
Foreign currency forward contract
 
$
23,656

 
£
17,887

 
4/8/2019
 
JPMorgan Chase Bank, N.A.
 
$
338

Foreign currency forward contract
 
$
19,716

 
€
17,325

 
4/23/2019
 
JPMorgan Chase Bank, N.A.
 
225

 
 
 
 
 
 
 
 
 
 
$
563



13
Oaktree Specialty Lending Corporation
Consolidated Schedule of Investments
March 31, 2019
(dollar amounts in thousands)
(unaudited)

(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 March 31, 2019, the reference rates for the Company's variable rate loans were the 30-day LIBOR at 2.50%, the 60-day LIBOR at 2.56%, the 90-day LIBOR at 2.60%, the 180-day LIBOR at 2.65%, the PRIME at 5.50%, the 30-day UK LIBOR at 0.73% and the 30-day EURIBOR at (0.42)%.
(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 (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.
(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 six months ended March 31, 2019 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 March 31, 2019, qualifying assets represented 73.0% of the Company's total assets and non-qualifying assets represented 27.0% 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.
(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.
(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 March 31, 2019, these investments are categorized as Level 3 within the fair value hierarchy established by ASC 820.
(21)
This investment was on cash non-accrual status as of March 31, 2019. Cash non-accrual status is inclusive of PIK and other non-cash income, where applicable.

14
Oaktree Specialty Lending Corporation
Consolidated Schedule of Investments
March 31, 2019
(dollar amounts in thousands)
(unaudited)

(22)
This investment was on PIK non-accrual status as of March 31, 2019. PIK non-accrual status is inclusive of other non-cash income, where applicable.
(23)
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 March 31, 2019 includes $9.0 million related to the Company's secured borrowings. (See Note 14 in the accompanying notes to the Consolidated Financial Statements.)
(24)
Loan includes interest rate floor, which is generally 1.00%.
(25)
Prior to March 31, 2019, this portfolio company was named Keypath Education, Inc.
(26)
Payments on the Company's investment in Dominion Diagnostics, LLC are currently past due. In April 2019, the Company entered into a forbearance agreement with Dominion Diagnostics, LLC in which the Company has agreed not to take action against Dominion Diagnostics, LLC through May 10, 2019.



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

 
—







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, 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, 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, LIBOR+6.5% (1% floor) cash due 8/4/2025 (13)(21)
 
8.74
%
 
 
 
22,000

 
21,946

 
22,653

 
 
 
 
 
 
 
 
21,946

 
22,653





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, 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







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










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, LIBOR+7.25% (1.25% floor) cash due 10/1/2021 (13)
 
9.65
%
 
 
 
11,568

 
11,529

 
11,568

 First Lien Term Loan, 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




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, 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, 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, LIBOR+7.5% cash (1.75% floor) cash due 3/15/2019 (13)(22)
 
 
 
 
 
11,068

 
8,181

 
9,102

 First Lien Term Loan, 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, 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






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, 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
)






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, 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, LIBOR+8% cash due 1/9/2019 (13)(22)
 
 
 
 
 
2,242

 
2,149

 
2,241

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

 
33,700

 
34,994

 First Lien Term Loan, 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, 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






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, 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, 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, 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, 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, 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









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, 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




(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 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 March 31, 2019, 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 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 March 31, 2019 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 including for purposes of computing the capital gain incentive fee payable by the Company to Oaktree beginning in the

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





fiscal year ending September 30, 2019. To maintain its status as a RIC, certain 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 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 term 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 2016, 2017 or 2018. 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 are 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 $11.5 million and $12.3 million in the aggregate as of March 31, 2019 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 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 March 31, 2019, 163.0% 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 $30.6 million, respectively. As of March 31, 2019, 1.4% of net assets at fair value, or $13.2 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 March 31, 2019, 78.9% 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 and six months ended March 31, 2019, the Company recorded net realized gains of $25.2 million and $43.2 million, respectively. During the three and six months ended March 31, 2018, the Company recorded net realized gains of $4.9 million and $4.6 million, respectively. During the three and six months ended March 31, 2019, the Company recorded net unrealized appreciation of $21.5 million and $14.5 million, respectively. During the three and six months ended March 31, 2018, the Company recorded net unrealized depreciation of $0.4 million and $43.8 million, respectively.
The composition of the Company's investments as of March 31, 2019 and September 30, 2018 at cost and fair value was as follows:
 
 
March 31, 2019
 
September 30, 2018
 
 
Cost
 
Fair Value
 
Cost
 
Fair Value
Investments in debt securities
 
$
1,397,493

 
$
1,307,542

 
$
1,390,672

 
$
1,287,958

Investments in equity securities
 
63,459

 
70,512

 
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

 
30,584

 
16,172

 
41

Total
 
$
1,606,524

 
$
1,504,888

 
$
1,606,933

 
$
1,491,201


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 debt investments as of March 31, 2019 and September 30, 2018 at fixed rates and floating rates was as follows:
 
 
 
March 31, 2019
 
September 30, 2018
 
 
Fair Value
 
% of Debt
Portfolio
 
Fair Value
 
% of Debt
Portfolio
Fixed rate debt securities, including debt investments in SLF JV I
 
$
191,828

 
13.66
%
 
$
237,718

 
16.77
%
Floating rate debt securities, including debt investments in SLF JV I
 
1,211,964

 
86.34

 
1,179,573

 
83.23

Total
 
$
1,403,792

 
100.00
%
 
$
1,417,291

 
100.00
%
The following table presents the financial instruments carried at fair value as of March 31, 2019 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)
 
$
—

 
$
450,301

 
$
736,955

 
$
—

 
$
1,187,256

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

 
96,101

 
120,435

 
—

 
216,536

Investments in equity securities (preferred)
 
—

 
—

 
5,013

 
—

 
5,013

Investments in equity securities (common and warrants, including LLC equity interests of SLF JV I)
 
19,176

 
—

 
39,122

 
37,785

 
96,083

Total investments at fair value
 
19,176

 
546,402

 
901,525

 
37,785

 
1,504,888

Cash equivalents
 
1,204

 
—

 
—

 
—

 
1,204

Derivative assets
 
—

 
563

 
—

 
—

 
563

Total assets at fair value

$
20,380

 
$
546,965

 
$
901,525

 
$
37,785

 
$
1,506,655

Secured borrowings
 
$
—

 
$
—

 
$
9,011

 
$
—

 
$
9,011

Total liabilities at fair value
 
$
—

 
$
—

 
$
9,011

 
$
—

 
$
9,011

__________ 
(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.
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 assets
 
—

 
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


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





__________ 
(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 have both unobservable or Level 3 components and 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 December 31, 2018 to March 31, 2019 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 December 31, 2018
 
$
741,372

 
$
119,953

 
$
4,988

 
$
34,107

 
$
900,420

 
$
9,302

New investments & net revolver activity
 
60,800

 
1,978

 
—

 
—

 
62,778

 
—

Redemptions/repayments/sales
 
(95,212
)
 
(394
)
 
—

 
(9,995
)
 
(105,601
)
 
(367
)
Transfers in (a)
 
19,780

 
—

 
—

 
—

 
19,780

 
—

Net accrual of PIK interest income
 
420

 
26

 
—

 
—

 
446

 
—

Accretion of OID
 
5,486

 
292

 
—

 
—

 
5,778

 
—

Net unrealized appreciation (depreciation)
 
(13,190
)
 
(1,420
)
 
25

 
7,073

 
(7,512
)
 
76

Net realized gains (losses)
 
17,499

 
—

 
—

 
7,937

 
25,436

 
—

Fair value as of March 31, 2019
 
$
736,955

 
$
120,435

 
$
5,013

 
$
39,122

 
$
901,525

 
$
9,011

Net unrealized appreciation (depreciation) relating to Level 3 assets & liabilities still held as of March 31, 2019 and reported within net unrealized appreciation (depreciation) in the Consolidated Statement of Operations for the three months ended March 31, 2019
 
$
(8,658
)
 
$
(1,420
)
 
$
25

 
$
7,876

 
$
(2,177
)
 
$
76

__________
(a) There were transfers into Level 3 from Level 2 for certain investments during the three months ended March 31, 2019 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)





The following table provides a roll-forward in the changes in fair value from December 31, 2017 to March 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
 
Total
 
Secured Borrowings
Fair value as of December 31, 2017
 
$
815,352

 
$
169,951

 
$
16,350

 
$
68,434

 
$
1,070,087

 
$
11,601

New investments & net revolver activity
 
135,179

 
932

 
—

 
—

 
136,111

 
—

Redemptions/repayments/sales
 
(127,842
)
 
(21,006
)
 
(2,612
)
 
(6,252
)
 
(157,712
)
 
(541
)
Transfers in (a)
 
14,609

 
—

 
—

 
—

 
14,609

 
—

Net accrual of PIK interest income
 
699

 
337

 
—

 
—

 
1,036

 
—

Accretion of OID
 
1,189

 
—

 
—

 
—

 
1,189

 
—

Net unrealized appreciation (depreciation)
 
1,095

 
686

 
(2,054
)
 
(1,505
)
 
(1,778
)
 
(408
)
Net realized gains (losses)
 
1

 
—

 
2,113

 
2,301

 
4,415

 
—

Fair value as of March 31, 2018
 
$
840,282

 
$
150,900

 
$
13,797

 
$
62,978

 
$
1,067,957

 
$
10,652

Net unrealized appreciation (depreciation) relating to Level 3 assets & liabilities still held as of March 31, 2018 and reported within net unrealized appreciation (depreciation) in the Consolidated Statement of Operations for the three months ended March 31, 2018
 
$
2,496

 
$
772

 
$
269

 
$
(1,553
)
 
$
1,984

 
$
(408
)
__________
(a) There was a transfer into Level 3 from Level 2 for one investment during the quarter ended March 31, 2018 as a result of a decreased number of market quotes available and/or decreased market liquidity.

The following table provides a roll-forward in the changes in fair value from September 30, 2018 to March 31, 2019 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
 
150,799

 
2,511

 
—

 
2,514

 
155,824

 
—

Redemptions/repayments/sales
 
(128,235
)
 
(16,143
)
 
—

 
(31,286
)
 
(175,664
)
 
(812
)
Transfers in (a)
 
23,446

 
—

 
—

 
—

 
23,446

 
—

Transfers out (b)
 
—

 
(33,150
)
 
—

 
—

 
(33,150
)
 
—

Net accrual of PIK interest income
 
1,065

 
121

 
—

 
(12,073
)
 
(10,887
)
 
—

Accretion of OID
 
12,080

 
663

 
—

 
—

 
12,743

 
—

Net unrealized appreciation (depreciation)
 
21,908

 
7,574

 
590

 
(4,391
)
 
25,681

 
95

Net realized gains (losses)
 
16,921

 
—

 
(495
)
 
23,224

 
39,650

 
—

Fair value as of March 31, 2019
 
$
736,955

 
$
120,435

 
$
5,013

 
$
39,122

 
$
901,525

 
$
9,011

Net unrealized appreciation (depreciation) relating to Level 3 assets & liabilities still held as of March 31, 2019 and reported within net unrealized appreciation (depreciation) in the Consolidated Statement of Operations for the six months ended March 31, 2019
 
$
(16,071
)
 
$
7,577

 
$
95

 
$
8,733

 
$
334

 
$
95

__________
(a) There were transfers into Level 3 from Level 2 for certain investments during the six months ended March 31, 2019 as a result of a decreased number of market quotes available and/or decreased market liquidity.

(b) There was one transfer from Level 3 to Level 1 during the six months ended March 31, 2019 as a result of an initial public offering of a portfolio company. There was also one transfer out of Level 3 during the six months ended March 31, 2019 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.

37
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 a roll-forward in the changes in fair value from September 30, 2017 to March 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
 
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
 
208,403

 
2,663

 
—

 
2,500

 
213,566

 
—

Redemptions/repayments/sales
 
(367,736
)
 
(21,819
)
 
(2,613
)
 
(6,242
)
 
(398,410
)
 
(541
)
Transfers out (a)
 
(37,368
)
 
—

 
—

 
—

 
(37,368
)
 
—

Net accrual of PIK interest income
 
1,382

 
412

 
—

 
—

 
1,794

 
—

Accretion of OID
 
1,377

 
—

 
—

 
—

 
1,377

 
—

Net unrealized appreciation (depreciation)
 
(26,219
)
 
(10,686
)
 
(2,148
)
 
(4,736
)
 
(43,789
)
 
(2,063
)
Net realized gains (losses)
 
1

 
(1
)
 
2,113

 
2,292

 
4,405

 
—

Fair value as of March 31, 2018
 
$
840,282

 
$
150,900

 
$
13,797

 
$
62,978

 
$
1,067,957

 
$
10,652

Net unrealized appreciation (depreciation) relating to Level 3 assets & liabilities still held as of March 31, 2018 and reported within net unrealized appreciation (depreciation) in the Consolidated Statement of Operations for the six months ended March 31, 2018
 
$
(23,668
)
 
$
(10,686
)
 
$
(57
)
 
$
(4,667
)
 
$
(39,078
)
 
$
(2,063
)
__________
(a) There were transfers out of Level 3 into Level 2 for certain investments during the six months ended March 31, 2018 as a result of an increased number of market quotes available and/or increased market liquidity.


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 March 31, 2019:
Asset
 
Fair Value
 
Valuation Technique
 
Unobservable Input
 
Range
 
Weighted
Average (a)
Senior secured debt
 
$
404,044

 
Market yield technique
 
Market yield
 
(b)
7.6%
-
23.7%
 
13.6%
 
 
39,622

 
Enterprise value technique
 
EBITDA multiple
 
(c)
2.2x
-
7.6x
 
4.9x
 
 
33,315

 
Transactions precedent
 
Transaction price
 
(d)
N/A
-
N/A
 
N/A
 
 
259,974

 
Market quotations
 
Broker quoted price
 
(e)
N/A
-
N/A
 
N/A
Subordinated debt
 
16,766

 
Market yield technique
 
Market yield
 
(b)
14.0%
-
17.5%
 
15.3%
 
 
7,419

 
Enterprise value technique
 
EBITDA multiple
 
(c)
5.5x
-
8.4x
 
5.7x
SLF JV I debt investments
 
96,250

 
Enterprise value technique
 
N/A
 
(f)
N/A
-
N/A
 
N/A
Preferred & common equity
 
2,242

 
Enterprise value technique
 
Revenue multiple
 
(c)
0.9x
-
10.9x
 
5.9x
 
 
41,026

 
Enterprise value technique
 
EBITDA multiple
 
(c)
2.2x
-
18.0x
 
6.8x
 
 
867

 
Transactions precedent
 
Transaction price
 
(d)
N/A
-
N/A
 
N/A
Total
 
$
901,525

 
 
 
 
 
 
 
 
 
 
 
Secured borrowings
 
9,011

 
Enterprise value technique
 
EBITDA multiple
 
(c)
5.3x
-
5.5x
 
5.4x
Total
 
$
9,011

 
 
 
 
 
 
 
 
 
 
 
__________ 
(a)
Weighted averages are calculated based on fair value of investments or secured borrowings.
(b)
Used when market participants would take into account market yield when pricing the investment.
(c)
Used when market participants 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.

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





(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.
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 participants would take into account market yield when pricing the investment.
(c)
Used when market participants 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 March 31, 2019 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
 
$
424,825

 
$
424,825

 
$
—

 
$
—

 
$
424,825

Unsecured notes payable (net of unamortized financing costs)
 
158,342

 
162,899

 
—

 
162,899

 
—

Total
 
$
583,167

 
$
587,724

 
$
—

 
$
162,899

 
$
424,825

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 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:
 
 
March 31, 2019
 
September 30, 2018
Cost:
 
 
 
 % of Total Investments
 
 
 
 % of Total Investments
Senior secured debt
 
$
1,252,613

 
77.97
%
 
$
1,200,242

 
74.69
%
Subordinated debt
 
144,880

 
9.02

 
190,430

 
11.85

Debt investments in SLF JV I
 
96,250

 
5.99

 
129,333

 
8.05

Common equity & warrants
 
56,551

 
3.52

 
63,848

 
3.97

LLC equity interests of SLF JV I
 
49,322

 
3.07

 
16,172

 
1.01

Preferred equity
 
6,908

 
0.43

 
6,908

 
0.43

Total
 
$
1,606,524

 
100.00
%
 
$
1,606,933

 
100.00
%
 
 
March 31, 2019
 
September 30, 2018
Fair Value:
 
 
 
 % of Total Investments
 
% of Net Assets
 
 
 
 % of Total Investments
 
% of Net Assets
Senior secured debt
 
$
1,187,256

 
78.89
%
 
128.56
%
 
$
1,124,408

 
75.40
%
 
131.05
%
Subordinated debt
 
120,286

 
7.99
%
 
13.03
%
 
163,550

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

 
6.40
%
 
10.42
%
 
129,333

 
8.67
%
 
15.07
%
Common equity & warrants
 
65,499

 
4.35
%
 
7.10
%
 
68,951

 
4.63
%
 
8.04
%
LLC equity interests of SLF JV I
 
30,584

 
2.03
%
 
3.31
%
 
41

 
—

 
—

Preferred equity
 
5,013

 
0.34
%
 
0.54
%
 
4,918

 
0.33
%
 
0.57
%
Total
 
$
1,504,888

 
100.00
%
 
162.96
%
 
$
1,491,201

 
100.00
%
 
173.79
%


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





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:
 
 
March 31, 2019
 
September 30, 2018
Cost:
 
 
 
 % of Total Investments
 
 
 
 % of Total Investments
Northeast
 
$
536,118

 
33.37
%
 
$
539,568

 
33.58
%
West
 
310,857

 
19.35
%
 
247,831

 
15.42
%
Midwest
 
297,443

 
18.51
%
 
278,632

 
17.34
%
International
 
162,446

 
10.11
%
 
155,657

 
9.69
%
Southeast
 
137,536

 
8.56
%
 
172,461

 
10.73
%
Southwest
 
92,309

 
5.75
%
 
200,904

 
12.50
%
South
 
39,859

 
2.48
%
 
—

 
—

Northwest
 
29,956

 
1.87
%
 
11,880

 
0.74
%
Total
 
$
1,606,524

 
100.00
%
 
$
1,606,933

 
100.00
%
 
 
March 31, 2019
 
September 30, 2018
Fair Value:
 
 
 
 % of Total Investments
 
% of Net Assets
 
 
 
 % of Total Investments
 
% of Net Assets
Northeast
 
$
490,768

 
32.61
%
 
53.14
%
 
$
495,942

 
33.26
%
 
57.80
%
West
 
285,499

 
18.97
%
 
30.92
%
 
230,117

 
15.43
%
 
26.82
%
Midwest
 
250,064

 
16.62
%
 
27.08
%
 
229,222

 
15.37
%
 
26.71
%
International
 
163,638

 
10.87
%
 
17.72
%
 
158,048

 
10.60
%
 
18.42
%
Southeast
 
136,678

 
9.08
%
 
14.80
%
 
177,024

 
11.87
%
 
20.63
%
Southwest
 
108,198

 
7.19
%
 
11.72
%
 
188,608

 
12.65
%
 
21.98
%
South
 
40,180

 
2.67
%
 
4.35
%
 
—

 
—

 
—
%
Northwest
 
29,863

 
1.99
%
 
3.23
%
 
12,240

 
0.82
%
 
1.43
%
Total
 
$
1,504,888

 
100.00
%
 
162.96
%
 
$
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 March 31, 2019 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)





 
 
March 31, 2019
 
September 30, 2018
Cost:
 
 
 
 % of Total Investments
 
 
 
 % of Total Investments
Multi-sector holdings (1)
 
$
146,831

 
9.16
%
 
$
157,883

 
9.85
%
Healthcare services
 
135,801

 
8.45

 
119,468

 
7.43

Application software
 
107,307

 
6.68

 
85,875

 
5.34

Data processing & outsourced services
 
75,821

 
4.72

 
87,617

 
5.45

Property & casualty insurance
 
66,374

 
4.13

 
66,370

 
4.13

Biotechnology
 
66,036

 
4.11

 
11,880

 
0.74

Pharmaceuticals
 
55,930

 
3.48

 
69,098

 
4.30

Healthcare technology
 
51,164

 
3.18

 
51,283

 
3.19

Specialized finance
 
49,441

 
3.08

 
48,571

 
3.02

Auto parts & equipment
 
42,637

 
2.65

 
42,633

 
2.65

Specialty stores
 
42,536

 
2.65

 
43,887

 
2.73

Advertising
 
42,405

 
2.64

 
42,405

 
2.64

Aerospace & defense
 
40,333

 
2.51

 
45,918

 
2.86

Internet services & infrastructure
 
37,959

 
2.36

 
5,454

 
0.34

Research & consulting services
 
34,713

 
2.16

 
34,595

 
2.15

Technology distributors
 
34,449

 
2.14

 
34,375

 
2.14

Integrated telecommunication services
 
33,764

 
2.10

 
33,768

 
2.10

Oil & gas refining & marketing
 
31,961

 
1.99

 
22,493

 
1.40

Airlines
 
31,880

 
1.98

 
32,602

 
2.03

Specialty chemicals
 
31,781

 
1.98

 
31,773

 
1.98

Oil & gas equipment & services
 
29,631

 
1.84

 
56,753

 
3.53

Systems software
 
29,180

 
1.82

 
15,898

 
0.99

Oil & gas drilling
 
28,983

 
1.80

 
—

 
—

Managed healthcare
 
27,728

 
1.73

 
27,812

 
1.73

Construction & engineering
 
25,985

 
1.62

 
30,437

 
1.89

Industrial machinery
 
24,263

 
1.51

 
30,127

 
1.87

Healthcare distributors
 
22,607

 
1.41

 
19,683

 
1.22

Interactive media & services
 
21,776

 
1.36

 
—

 
—

Electrical components & equipment
 
21,347

 
1.33

 
38,831

 
2.42

IT consulting & other services
 
19,954

 
1.24

 
750

 
0.05

Movies & entertainment
 
19,310

 
1.20

 
19,504

 
1.21

Personal products
 
18,850

 
1.17

 
19,327

 
1.20

General merchandise stores
 
18,811

 
1.17

 
22,959

 
1.43

Diversified support services
 
18,808

 
1.17

 
19,266

 
1.20

Apparel, accessories & luxury goods
 
18,389

 
1.14

 
18,308

 
1.14

Education services
 
16,258

 
1.01

 
13,748

 
0.86

Food retail
 
14,404

 
0.90

 
22,052

 
1.37

Oil & gas storage & transportation
 
11,626

 
0.72

 
—

 
—

Security & alarm services
 
11,012

 
0.69

 
11,071

 
0.69

Trading companies & distributors
 
10,426

 
0.65

 
6,981

 
0.43

Household appliances
 
7,871

 
0.49

 
7,905

 
0.49

Coal & consumable fuels
 
7,260

 
0.45

 
7,329

 
0.46

Environmental & facilities services
 
5,931

 
0.37

 
5,923

 
0.37

Commercial printing
 
5,802

 
0.36

 
5,856

 
0.36

Thrifts & mortgage finance
 
4,656

 
0.29

 
5,344

 
0.33

Restaurants
 
3,113

 
0.19

 
3,129

 
0.19

Leisure facilities
 
1,887

 
0.12

 
5,401

 
0.34

Human resource & employment services
 
843

 
0.05

 
1,581

 
0.10

Department stores
 
577

 
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

Healthcare equipment
 
—

 
—

 
47,901

 
2.98

Hypermarkets & super centers
 
—

 
—

 
2,057

 
0.13

Investment banking & brokerage
 
—

 
—

 
12,539

 
0.78

Oil & gas exploration & production
 
—

 
—

 
34,727

 
2.16

Total
 
$
1,606,524

 
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)





 
 
March 31, 2019
 
September 30, 2018
Fair Value:
 
 
 
 % of Total Investments
 
% of Net Assets
 
 
 
 % of Total Investments
 
% of Net Assets
Multi-sector holdings (1)
 
$
130,057

 
8.67
%
 
14.06
%
 
$
143,037

 
9.57
 %
 
16.66
 %
Application software
 
104,527

 
6.95

 
11.32

 
96,457

 
6.47

 
11.24

Healthcare services
 
77,124

 
5.12

 
8.35

 
67,039

 
4.50

 
7.81

Biotechnology
 
70,494

 
4.68

 
7.63

 
11,963

 
0.80

 
1.39

Property & casualty insurance
 
66,475

 
4.42

 
7.20

 
67,409

 
4.52

 
7.86

Data processing & outsourced services
 
62,297

 
4.14

 
6.75

 
74,266

 
4.98

 
8.66

Pharmaceuticals
 
56,566

 
3.76

 
6.13

 
71,946

 
4.82

 
8.39

Healthcare technology
 
51,049

 
3.39

 
5.53

 
52,160

 
3.50

 
6.08

Specialized finance
 
48,997

 
3.26

 
5.31

 
48,248

 
3.24

 
5.62

Auto parts & equipment
 
41,572

 
2.76

 
4.50

 
43,146

 
2.89

 
5.03

Specialty stores
 
41,452

 
2.75

 
4.49

 
44,001

 
2.95

 
5.13

Aerospace & defense
 
40,544

 
2.69

 
4.39

 
46,338

 
3.11

 
5.40

Internet services & infrastructure
 
37,935

 
2.52

 
4.11

 
5,580

 
0.37

 
0.65

Advertising
 
36,896

 
2.45

 
4.00

 
32,687

 
2.19

 
3.81

Research & consulting services
 
36,549

 
2.43

 
3.96

 
36,359

 
2.44

 
4.24

Technology distributors
 
35,700

 
2.37

 
3.87

 
34,597

 
2.32

 
4.03

Airlines
 
33,377

 
2.22

 
3.61

 
32,510

 
2.18

 
3.79

Oil & gas refining & marketing
 
31,890

 
2.12

 
3.45

 
22,684

 
1.52

 
2.64

Oil & gas drilling
 
29,400

 
1.95

 
3.18

 
—

 
—

 
—

Systems software
 
29,217

 
1.94

 
3.16

 
16,175

 
1.08

 
1.89

Specialty chemicals
 
28,685

 
1.91

 
3.11

 
30,704

 
2.06

 
3.58

Oil & gas equipment & services
 
28,435

 
1.89

 
3.08

 
59,822

 
4.01

 
6.97

Managed healthcare
 
27,944

 
1.86

 
3.03

 
28,012

 
1.88

 
3.26

Integrated telecommunication services
 
27,750

 
1.84

 
3.01

 
28,358

 
1.90

 
3.30

Construction & engineering
 
26,668

 
1.77

 
2.89

 
31,930

 
2.14

 
3.72

Industrial machinery
 
23,741

 
1.58

 
2.57

 
29,323

 
1.97

 
3.42

Healthcare distributors
 
22,555

 
1.50

 
2.44

 
19,395

 
1.30

 
2.26

Interactive media & services
 
22,555

 
1.50

 
2.44

 
—

 
—

 
—

Electrical components & equipment
 
21,598

 
1.44

 
2.34

 
40,238

 
2.70

 
4.69

IT consulting & other services
 
19,634

 
1.30

 
2.13

 
497

 
0.03

 
0.06

Movies & entertainment
 
19,182

 
1.27

 
2.08

 
19,475

 
1.31

 
2.27

Leisure products
 
19,177

 
1.27

 
2.08

 
12,073

 
0.81

 
1.41

Personal products
 
19,000

 
1.26

 
2.06

 
19,500

 
1.31

 
2.27

Diversified support services
 
18,872

 
1.25

 
2.04

 
18,295

 
1.23

 
2.13

General merchandise stores
 
16,120

 
1.07

 
1.75

 
23,058

 
1.55

 
2.69

Food retail
 
14,626

 
0.97

 
1.58

 
22,050

 
1.48

 
2.57

Apparel, accessories & luxury goods
 
13,120

 
0.87

 
1.42

 
13,624

 
0.91

 
1.59

Oil & gas storage & transportation
 
12,025

 
0.80

 
1.30

 
—

 
—

 
—

Security & alarm services
 
10,628

 
0.71

 
1.15

 
10,865

 
0.73

 
1.27

Trading companies & distributors
 
10,346

 
0.69

 
1.12

 
7,009

 
0.47

 
0.82

Coal & consumable fuels
 
7,394

 
0.49

 
0.80

 
7,525

 
0.50

 
0.88

Household appliances
 
7,371

 
0.49

 
0.80

 
7,943

 
0.53

 
0.93

Environmental & facilities services
 
6,158

 
0.41

 
0.67

 
6,189

 
0.42

 
0.72

Commercial printing
 
5,766

 
0.38

 
0.62

 
5,922

 
0.40

 
0.69

Leisure facilities
 
4,470

 
0.30

 
0.48

 
8,154

 
0.55

 
0.95

Thrifts & mortgage finance
 
3,972

 
0.26

 
0.43

 
4,759

 
0.32

 
0.55

Restaurants
 
3,040

 
0.20

 
0.33

 
3,076

 
0.21

 
0.36

Human resource & employment services
 
817

 
0.05

 
0.09

 
1,593

 
0.11

 
0.19

Education services
 
589

 
0.04

 
0.06

 
(2,125
)
 
(0.14
)
 
(0.25
)
Department stores
 
532

 
0.04

 
0.06

 
581

 
0.04

 
0.07

Commodity chemicals
 
—

 
—

 
—

 
3,101

 
0.21

 
0.36

Consumer electronics
 
—

 
—

 
—

 
23,438

 
1.57

 
2.73

Healthcare equipment
 
—

 
—

 
—

 
9,812

 
0.66

 
1.14

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
 
$
1,504,888

 
100.00
%
 
162.96
%
 
$
1,491,201

 
100.00
 %
 
173.79
 %
___________________

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

As of March 31, 2019 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

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





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 and six months ended March 31, 2019 and 2018, 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 March 31, 2019, 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 March 31, 2019 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 March 31, 2019, 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 March 31, 2019, 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, $185.0 million and $153.0 million of borrowings were outstanding as of March 31, 2019 and September 30, 2018, respectively.
As of March 31, 2019 and September 30, 2018, SLF JV I had total assets of $346.6 million and $314.2 million, respectively. SLF JV I's portfolio primarily consisted of senior secured loans to 49 and 40 portfolio companies as of March 31, 2019 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 March 31, 2019, the Company's investment in SLF JV I consisted of LLC equity interests of $30.6 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 March 31, 2019 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 March 31, 2019 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 March 31, 2019 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 March 31, 2019 and September 30, 2018:
 
 
March 31, 2019
 
September 30, 2018
Senior secured loans (1)
 
$327,645
 
$297,053
Weighted average interest rate on senior secured loans (2)
 
7.03%
 
7.20%
Number of borrowers in SLF JV I
 
49
 
40
Largest exposure to a single borrower (1)
 
$10,889
 
$17,512
Total of five largest loan exposures to borrowers (1)
 
$50,714
 
$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 March 31, 2019
Portfolio Company
 
Industry
 
Investment Type
 
Maturity Date
 
Current Interest Rate(1)(2)
 
 Cash Interest Rate
 
Principal
 
Cost
 
Fair Value (3)
 Access CIG, LLC
 
Diversified support services
 
First Lien Term Loan
 
2/27/2025
 
LIBOR+3.75%
 
6.24
%
 
$
9,347

 
$
9,299

 
$
9,254

 Accudyne Industries, LLC (6)
 
Industrial machinery
 
First Lien Term Loan
 
8/18/2024
 
LIBOR+3.00%
 
5.50
%
 
8,906

 
8,906

 
8,906

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

 

 
 
 

 
1,390

 
1,258

AI Ladder (Luxembourg) Subco S.a.r.l.
(4)
 
Electrical components & equipment
 
First Lien Term Loan
 
7/9/2025
 
LIBOR+4.50%
 
7.10
%
 
6,198

 
6,031

 
6,102

 Air Newco LP
 
IT consulting & other services
 
First Lien Term Loan
 
5/31/2024
 
LIBOR+4.75%
 
7.24
%
 
9,950

 
9,925

 
9,950

 AL Midcoast Holdings LLC
 
Oil & gas storage & transportation
 
First Lien Term Loan
 
8/1/2025
 
LIBOR+5.50%
 
8.10
%
 
9,950

 
9,850

 
9,929

Allied Universal Holdco LLC (4)(6)
 
Security & alarm services
 
First Lien Term Loan
 
7/28/2022
 
LIBOR+3.75%
 
6.25
%
 
6,876

 
6,915

 
6,666

 Altice France S.A.
 
Integrated telecommunication services
 
First Lien Term Loan
 
8/14/2026
 
LIBOR+4.00%
 
6.48
%
 
7,481

 
7,307

 
7,191

 Alvogen Pharma US, Inc. (6)
 
Pharmaceuticals
 
First Lien Term Loan
 
4/1/2022
 
LIBOR+4.75%
 
7.25
%
 
9,625

 
9,625

 
9,392

 Apptio, Inc. (4)(6)
 
Application software
 
First Lien Term Loan
 
1/10/2025
 
LIBOR+7.25%
 
9.74
%
 
4,615

 
4,526

 
4,526

 
 
 
 
First Lien Revolver
 
1/10/2025
 
LIBOR+7.25%
 
 
 
—

 
(7
)
 
(7
)
 Total Apptio, Inc.
 
 
 
 
 
 
 
 
 
 
 
4,615

 
4,519

 
4,519

 Blackhawk Network Holdings, Inc.
 
Data processing & outsourced services
 
First Lien Term Loan
 
6/15/2025
 
LIBOR+3.00%
 
5.50
%
 
9,925

 
9,903

 
9,771

 Boxer Parent Company Inc. (4)
 
Systems software
 
First Lien Term Loan
 
10/2/2025
 
LIBOR+4.25%
 
6.85
%
 
6,647

 
6,558

 
6,523

Brazos Delaware II, LLC
 
Oil & gas equipment & services
 
First Lien Term Loan
 
5/21/2025
 
LIBOR+4.00%
 
6.49
%
 
7,444

 
7,411

 
7,086

Cast & Crew Payroll, LLC
 
Application software
 
First Lien Term Loan
 
2/9/2026
 
LIBOR+4.00%
 
6.50
%
 
5,000

 
4,950

 
5,027

CITGO Petroleum Corp. (4)(6)
 
Oil & gas refining & marketing
 
First Lien Term Loan
 
3/22/2024
 
LIBOR+5.00%
 
7.60
%
 
8,000

 
7,920

 
8,000

Clearent Newco, LLC (6)
 
Application software
 
First Lien Term Loan
 
3/20/2024
 
LIBOR+4.00%
 
6.56
%
 
6,860

 
6,775

 
6,688

 
 
 
 
Delayed Draw Term Loan
 
3/20/2024
 
LIBOR+4.00%
 
6.56
%
 
1,188

 
1,163

 
1,138

 
 
 
 
First Lien Revolver
 
3/20/2023
 
PRIME+3.00%
 
8.50
%
 
693

 
680

 
666

 Total Clearent Newco, LLC
 
 
 
 
 
 
 
 
 
 
 
8,741

 
8,618

 
8,492

DigiCert, Inc. (4)(6)
 
Internet services & infrastructure
 
First Lien Term Loan
 
10/31/2024
 
LIBOR+4.00%
 
6.50
%
 
8,292

 
8,179

 
8,164

Eton (4)
 
Research & consulting services
 
Second Lien Term Loan
 
5/1/2026
 
LIBOR+7.50%
 
10.00
%
 
6,000

 
5,973

 
5,925

Everi Payments Inc. (6)
 
Casinos & gaming
 
First Lien Term Loan
 
5/9/2024
 
LIBOR+3.00%
 
5.50
%
 
4,913

 
4,889

 
4,889

Falmouth Group Holdings Corp. (6)
 
Specialty chemicals
 
First Lien Term Loan
 
12/14/2021
 
LIBOR+6.75%
 
9.25
%
 
4,121

 
4,092

 
4,093

Frontier Communications Corporation (6)
 
Integrated telecommunication services
 
First Lien Term Loan
 
6/15/2024
 
LIBOR+3.75%
 
6.25
%
 
1,995

 
1,944

 
1,953

Gentiva Health Services, Inc.
 
Healthcare services
 
First Lien Term Loan
 
7/2/2025
 
LIBOR+3.75%
 
6.25
%
 
7,960

 
7,830

 
7,990

Gigamon Inc. (6)
 
Systems software
 
First Lien Term Loan
 
12/27/2024
 
LIBOR+4.25%
 
6.85
%
 
7,900

 
7,835

 
7,801

 GoodRx, Inc.
 
Interactive media & services
 
First Lien Term Loan
 
10/10/2025
 
LIBOR+3.00%
 
5.49
%
 
7,980

 
7,962

 
7,907

Indivior Finance S.a.r.l. (6)
 
Pharmaceuticals
 
First Lien Term Loan
 
12/19/2022
 
LIBOR+4.50%
 
7.25
%
 
7,966

 
7,849

 
7,827


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)
 Intelsat Jackson Holdings S.A. (6)
 
Alternative carriers
 
First Lien Term Loan
 
11/27/2023
 
LIBOR+3.75%
 
6.24
%
 
$
10,000

 
$
9,878

 
$
9,866

 KIK Custom Products Inc. (6)
 
Household products
 
First Lien Term Loan
 
5/15/2023
 
LIBOR+4.00%
 
6.50
%
 
8,000

 
7,968

 
7,493

 McDermott Technology (Americas), Inc. (4)(6)
 
Oil & gas equipment & services
 
First Lien Term Loan
 
5/12/2025
 
LIBOR+5.00%
 
7.50
%
 
9,900

 
9,725

 
9,512

 Mindbody, Inc. (4)(6)
 
Internet Services & Infrastructure
 
First Lien Term Loan
 
2/15/2025
 
LIBOR+7.00%
 
9.48
%
 
4,524

 
4,435

 
4,433

 
 
 
 
First Lien Revolver
 
2/15/2025
 
LIBOR+7.00%
 
 
 
—

 
(9
)
 
(10
)
 Total Mindbody, Inc.
 
 
 
 
 
 
 
 
 
 
 
4,524

 
4,426

 
4,423

Morphe LLC (4)(6)
 
Personal products
 
First Lien Term Loan
 
2/10/2023
 
LIBOR+6.00%
 
8.50
%
 
4,275

 
4,241

 
4,275

New IPT, Inc. (4)(6)
 
Oil & gas equipment & services
 
First Lien Term Loan
 
3/17/2021
 
LIBOR+5.00%
 
7.60
%
 
1,794

 
1,794

 
1,794

 
 
 
 
Second Lien Term Loan
 
9/17/2021
 
LIBOR+5.10%
 
7.70
%
 
263

 
263

 
263

 
 
 
 
21.876 Class A Common Units
 
 
 
 
 
 
 
—

 
—

 
1,268

Total New IPT, Inc.
 
 
 
 
 
 
 
 
 
 
 
2,057

 
2,057

 
3,325

Northern Star Industries Inc. (6)
 
Electrical components & equipment
 
First Lien Term Loan
 
3/31/2025
 
LIBOR+4.75%
 
7.35
%
 
6,930

 
6,900

 
6,895

Novetta Solutions, LLC (6)
 
Application software
 
First Lien Term Loan
 
10/17/2022
 
LIBOR+5.00%
 
7.50
%
 
6,024

 
5,987

 
5,915

OCI Beaumont LLC
 
Commodity chemicals
 
First Lien Term Loan
 
3/13/2025
 
LIBOR+4.00%
 
6.60
%
 
7,920

 
7,912

 
7,920

Refac Optical Group (4)(5)(7)
 
Specialty stores
 
First Lien Term Loan
 
1/9/2019
 
LIBOR+10.00%
 


 
2,133

 
1,940

 
2,133

Salient CRGT, Inc. (4)(6)
 
Aerospace & defense
 
First Lien Term Loan
 
2/28/2022
 
LIBOR+5.75%
 
8.25
%
 
2,236

 
2,209

 
2,208

Scientific Games International, Inc. (6)
 
Casinos & gaming
 
First Lien Term Loan
 
8/14/2024
 
LIBOR+2.75%
 
5.25
%
 
6,549

 
6,522

 
6,389

Sequa Corp. (6)
 
Aerospace & defense
 
First Lien Term Loan
 
11/28/2021
 
LIBOR+5.00%
 
7.78
%
 
6,970

 
6,764

 
6,839

SHO Holding I Corporation (6)
 
Footwear
 
First Lien Term Loan
 
10/27/2022
 
LIBOR+5.00%
 
7.74
%
 
8,463

 
8,443

 
7,955

Signify Health, LLC (6)
 
Healthcare services
 
First Lien Term Loan
 
12/23/2024
 
LIBOR+4.50%
 
7.10
%
 
9,900

 
9,817

 
9,900

Sirva Worldwide, Inc.
 
Diversified support services
 
First Lien Term Loan
 
8/4/2025
 
LIBOR+5.50%
 
8.10
%
 
4,969

 
4,894

 
4,857

Thruline Marketing, Inc. (4)(6)
 
Advertising
 
First Lien Term Loan
 
4/3/2022
 
LIBOR+7.00%
 
9.60
%
 
1,854

 
1,852

 
1,854

 
 
 
 
927 Common Stock Shares
 
 
 
 
 
 
 
—

 
1,088

 
658

 Total Thruline Marketing, Inc.
 
 
 
 
 
 
 
 
 
 
 
1,854

 
2,940

 
2,512

Triple Royalty Sub LLC
 
Pharmaceuticals
 
 Fixed Rate Bond
 
4/15/2033
 
9.00%
 


 
5,000

 
5,000

 
5,088

TV Borrower US, LLC (6)
 
Integrated telecommunications services
 
First Lien Term Loan
 
2/22/2024
 
LIBOR+4.75%
 
7.35
%
 
2,008

 
2,001

 
2,005

Uber Technologies, Inc. (4)(6)
 
Application software
 
First Lien Term Loan
 
4/4/2025
 
LIBOR+4.00%
 
6.49
%
 
9,925

 
9,882

 
9,945

Uniti Group LP (6)
 
Specialized REITs
 
First Lien Term Loan
 
10/24/2022
 
LIBOR+5.00%
 
7.50
%
 
6,434

 
6,223

 
6,300

 Valeant Pharmaceuticals International Inc.
 
Pharmaceuticals
 
First Lien Term Loan
 
11/27/2025
 
LIBOR+2.75%
 
5.23
%
 
1,924

 
1,915

 
1,904

Veritas US Inc. (4)(6)
 
Application software
 
First Lien Term Loan
 
1/27/2023
 
LIBOR+4.50%
 
7.00
%
 
6,929

 
6,885

 
6,437

Verra Mobility, Corp. (6)
 
Data processing & outsourced services
 
First Lien Term Loan
 
2/28/2025
 
LIBOR+3.75%
 
6.25
%
 
10,889

 
10,905

 
10,917

WP CPP Holdings, LLC (4)(6)
 
Aerospace & defense
 
Second Lien Term Loan
 
4/30/2026
 
LIBOR+7.75%
 
10.51
%
 
6,000

 
5,945

 
5,975

 
 
 
 
 
 
 
 
 
 
 
 
$
327,645


$
327,059

 
$
325,603


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





__________
(1) Represents the interest rate as of March 31, 2019. 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 March 31, 2019, the reference rates for SLF JV I's variable rate loans were the 30-day LIBOR at 2.50%, 60-day LIBOR at 2.56%, the 90-day LIBOR at 2.60%, the 180-day LIBOR at 2.65%, and the PRIME at 5.50%.
(3) Represents the current determination of fair value as of March 31, 2019 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 March 31, 2019.
(5) This investment was on cash non-accrual status as of March 31, 2019. Cash non-accrual status is inclusive of PIK and other non-cash income, where applicable.
(6) Loan includes interest rate floor, which is generally 1.00%.
(7) Payments on SLF JV I's investment in Refac Optical Group are currently past due.
 


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
 
8/18/2024
 
LIBOR+3.00% (1.00% 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
 
7/9/2025
 
LIBOR+4.50%
 
7.02
%
 
11,300

 
10,970

 
11,367

 Air Newco LP
 
 IT consulting & other services
 
First Lien Term Loan
 
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
 
8/1/2025
 
LIBOR+5.50%
 
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% (1.00% floor)
 
6.14
%
 
6,912

 
6,956

 
6,821

 Altice France S.A.
 
 Integrated telecommunication services
 
First Lien Term Loan
 
8/14/2026
 
LIBOR+4.00%
 
6.16
%
 
7,500

 
7,313

 
7,457

 Alvogen Pharma US, Inc.
 
 Pharmaceuticals
 
First Lien Term Loan
 
4/1/2022
 
LIBOR+4.75% (1.00% floor)
 
6.99
%
 
9,822

 
9,822

 
9,918

 Asset International, Inc.
 
 Research & consulting services
 
First Lien Term Loan
 
12/30/2024
 
LIBOR+4.50% (1.00% 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+3.00%
 
5.39
%
 
9,975

 
9,951

 
10,049

Brazos Delaware II, LLC
 
 Oil & gas equipment & services
 
First Lien Term Loan
 
5/21/2025
 
LIBOR+4.00%
 
6.17
%
 
7,481

 
7,446

 
7,458

Chloe Ox Parent LLC
 
 Healthcare services
 
First Lien Term Loan
 
12/23/2024
 
LIBOR+4.50% (1.00% floor)
 
6.89
%
 
9,950

 
9,860

 
9,987

Clearent Newco, LLC
 
Application software
 
First Lien Term Loan
 
3/20/2024
 
LIBOR+4.00% (1.00% floor)
 
6.24
%
 
6,894

 
6,800

 
6,796

 
 
 
 
Delayed Draw Term Loan
 
3/20/2024
 
LIBOR+4.00% (1.00% floor)
 
6.19
%
 
337

 
310

 
309

 
 
 
 
First Lien Revolver
 
3/20/2023
 
PRIME+3.00% (1.00% 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+7.50%
 
9.74
%
 
6,000

 
5,971

 
6,030

Everi Payments Inc.
 
Casinos & gaming
 
First Lien Term Loan
 
5/9/2024
 
LIBOR+3.00% (1.00% floor)
 
5.24
%
 
4,938

 
4,914

 
4,973

Falmouth Group Holdings Corp.
 
Specialty chemicals
 
First Lien Term Loan
 
12/14/2021
 
LIBOR+6.75% (1.00% floor)
 
8.99
%
 
4,330

 
4,300

 
4,330


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)
Garretson Resolution Group, Inc. (5)
 
Diversified support services
 
First Lien Term Loan
 
5/22/2021
 
LIBOR+6.50% (1.00% floor)
 
 
 
$
5,797

 
$
5,772

 
$
1,159

Gigamon Inc.
 
 Systems software
 
First Lien Term Loan
 
12/27/2024
 
LIBOR+4.50% (1.00% floor)
 
6.89
%
 
7,940

 
7,869

 
8,000

IBC Capital Ltd.
 
 Metal & glass containers
 
First Lien Term Loan
 
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
 
10/1/2021
 
LIBOR+7.25% (1.25% floor)
 
9.65
%
 
8,375

 
8,389

 
8,375

 
 
 
 
First Lien Term Loan
 
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

Keypath Education, Inc. (4)
 
 Advertising
 
First Lien Term Loan
 
4/3/2022
 
LIBOR+7.00% (1.00% floor)
 
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
 
5/15/2023
 
LIBOR+4.00% (1.00% floor)
 
6.24
%
 
8,000

 
7,965

 
7,975

 McDermott Technology (Americas) Inc. (4)
 
 Oil & gas equipment & services
 
First Lien Term Loan
 
5/12/2025
 
LIBOR+5.00% (1.00% floor)
 
7.24
%
 
9,950

 
9,760

 
10,097

Morphe LLC (4)
 
Personal products
 
First Lien Term Loan
 
2/10/2023
 
LIBOR+6.00% (1.00% floor)
 
8.40
%
 
4,388

 
4,348

 
4,388

New IPT, Inc. (4)
 
 Oil & gas equipment & services
 
First Lien Term Loan
 
3/17/2021
 
LIBOR+5.00% (1.00% floor)
 
7.39
%
 
1,794

 
1,794

 
1,794

 
 
 
 
Second Lien Term Loan
 
9/17/2021
 
LIBOR+5.10% (1.00% floor)
 
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
 
3/31/2025
 
LIBOR+4.75% (1.00% floor)
 
7.08
%
 
6,965

 
6,933

 
6,974

Novetta Solutions, LLC
 
Application software
 
First Lien Term Loan
 
10/17/2022
 
LIBOR+5.00% (1.00% floor)
 
7.25
%
 
6,055

 
6,012

 
5,881

OCI Beaumont LLC
 
Commodity chemicals
 
First Lien Term Loan
 
3/13/2025
 
LIBOR+4.00% (1.00% floor)
 
6.39
%
 
7,960

 
7,951

 
8,089

Refac Optical Group (4)(5)
 
Specialty stores
 
First Lien Term Loan
 
1/9/2019
 
LIBOR+8.00%
 
10.26
%
 
2,573

 
2,476

 
2,573

Salient CRGT, Inc. (4)
 
Aerospace & defense
 
First Lien Term Loan
 
2/28/2022
 
LIBOR+5.75% (1.00% floor)
 
7.99
%
 
2,267

 
2,235

 
2,301

Scientific Games International, Inc.
 
Casinos & gaming
 
First Lien Term Loan
 
8/14/2024
 
LIBOR+2.75% (1.00% floor)
 
5.03
%
 
6,582

 
6,552

 
6,579

SHO Holding I Corporation
 
Footwear
 
First Lien Term Loan
 
11/18/2022
 
LIBOR+5.00% (1.00% floor)
 
7.34
%
 
8,507

 
8,484

 
8,082

 Sirva Worldwide, Inc.
 
Diversified support services
 
First Lien Term Loan
 
8/4/2025
 
LIBOR+5.50%
 
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% (1.00% floor)
 
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% (1.00% floor)
 
7.14
%
 
2,019

 
2,011

 
2,026

Uber Technologies Inc.
 
Application software
 
First Lien Term Loan
 
4/4/2025
 
LIBOR+4.00% (1.00% floor)
 
6.12
%
 
9,975

 
9,928

 
10,055

Uniti Group LP
 
Specialized REITs
 
First Lien Term Loan
 
10/24/2022
 
LIBOR+3.00% (1.00% floor)
 
5.24
%
 
6,467

 
6,225

 
6,198

 Veritas US Inc.
 
Application software
 
First Lien Term Loan
 
1/27/2023
 
LIBOR+4.50% (1.00% floor)
 
6.78
%
 
6,965

 
6,915

 
6,801

 Verra Mobility, Corp. (4)
 
Data processing & outsourced services
 
First Lien Term Loan
 
2/28/2025
 
LIBOR+3.75% (1.00% floor)
 
5.99
%
 
10,945

 
10,961

 
11,013

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

 
5,942

 
6,013

 
 
 
 
 
 
 
 
 
 
 
 
$
297,053

 
$
297,158

 
$
294,676



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





__________
(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%, the 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.
(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 March 31, 2019. 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 $2.3 million and $5.1 million on its investments in the SLF JV I Notes for the three and six months ended March 31, 2019, respectively. The Company earned interest of $2.6 million and $5.4 million on its investments in the mezzanine notes for the three and six months ended March 31, 2018, respectively. The subordinated notes bear interest at a rate of one-month LIBOR plus 7.0% per annum and mature on December 29, 2028.
The cost and fair value of the LLC equity interests in SLF JV I held by the Company was $49.3 million and $30.6 million, respectively, as of March 31, 2019, and $16.2 million and $0.0 million, respectively, as of September 30, 2018. The Company did not earn dividend income for the three and six months ended March 31, 2019 with respect to its investment in the LLC equity interests of SLF JV I. The Company earned dividend income of $1.6 million for the three and six months ended March 31, 2018, with respect to its LLC equity interests of SLF JV I. The LLC equity interests of SLF JV I are generally 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 March 31, 2019 and September 30, 2018 and for the three and six months ended March 31, 2019 and 2018:
 
 
March 31, 2019
 
September 30, 2018
Selected Balance Sheet Information:
 
 
 
 
Investments in loans at fair value (cost March 31, 2019: $327,059; cost September 30, 2018: $297,158)
 
$
325,603

 
$
294,676

Receivables from secured financing arrangements at fair value (cost March 31, 2019 and September 30, 2018: $9,801)
 
7,163

 
7,069

Cash and cash equivalents
 
5,195

 
3,226

Restricted cash
 
4,902

 
4,808

Other assets
 
3,759

 
4,418

Total assets
 
$
346,622

 
$
314,197

 
 
 
 
 
Senior credit facility payable
 
$
185,010

 
$
153,010

Debt securities payable at fair value (proceeds March 31, 2019: $110,000; proceeds September 30, 2018: $147,808)
 
110,000

 
147,808

Other liabilities
 
16,658

 
13,331

Total liabilities
 
$
311,668

 
$
314,149

Members' equity
 
34,954

 
48

Total liabilities and members' equity
 
$
346,622

 
$
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 March 31, 2019
 
Three months ended March 31, 2018
 
Six months ended March 31, 2019
 
Six months ended March 31, 2018
Selected Statements of Operations Information:
 
 
 
 
 
 
 
 
Interest income
 
$
5,551

 
$
4,929

 
$
10,989

 
$
9,657

Other income
 
80

 
49

 
89

 
49

Total investment income
 
5,631

 
4,978

 
11,078

 
9,706

Interest expense
 
4,709

 
4,915

 
9,863

 
10,060

Other expenses
 
276

 
111

 
326

 
272

Total expenses (1)
 
4,985

 
5,026

 
10,189

 
10,332

Net unrealized appreciation (depreciation)
 
4,576

 
1,219

 
1,120

 
993

Net realized gains (losses)
 
19

 
(17
)
 
(4,986
)
 
(21
)
Net income (loss)
 
$
5,241

 
$
1,154

 
$
(2,977
)
 
$
346

 __________
(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 six months ended March 31, 2019, the Company sold $8.4 million of senior secured debt investments to SLF JV I at fair value in exchange for $8.3 million cash consideration. A loss of $0.1 million was recognized by the Company on these transactions. The Company did not sell any debt investments to SLF JV I during the six months ended March 31, 2018.

Note 4. Fee Income
For the three and six months ended March 31, 2019, the Company recorded total fee income of $1.1 million and $2.3 million, respectively, of which $0.1 million and $0.3 million, respectively, was recurring in nature. For the three and six months ended March 31, 2018, the Company recorded total fee income of $3.9 million and $5.0 million, respectively, of which $0.3 million and $0.4 million, respectively, was recurring in nature. Recurring fee income primarily consisted of servicing fees and exit fees.

Note 5. Share Data and Net Assets
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 and six months ended March 31, 2019 and 2018:
(Share amounts in thousands)
 
Three months
ended
March 31, 2019
 
Three months
ended
March 31, 2018
 
Six months
ended
March 31, 2019
 
Six months
ended
March 31, 2018
Earnings (loss) per common share — basic and diluted:
 
 
 
 
 
 
 
 
Net increase (decrease) in net assets resulting from operations
 
$
64,485

 
$
19,620

 
$
92,203

 
$
(10,821
)
Weighted average common shares outstanding — basic
 
140,961

 
140,961

 
140,961

 
140,961

Earnings (loss) per common share — basic and diluted
 
$
0.46

 
$
0.14

 
$
0.65

 
$
(0.08
)


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





Changes in Net Assets

The following table presents the changes in net assets for the three and six months ended March 31, 2019:
 
 
Common Stock
 
 
 
 
 
 
 
 
Shares
 
Par Value
 
Additional paid-in-capital
 
Accumulated Overdistributed Earnings
 
Total Net Assets
Balance at September 30, 2018
 
140,961

 
$
1,409

 
$
1,492,739

 
$
(636,113
)
 
$
858,035

Net investment income
 
—

 
—

 
—

 
17,317

 
17,317

Net unrealized appreciation (depreciation)
 
—

 
—

 
—

 
(6,975
)
 
(6,975
)
Net realized gains (losses)
 
—

 
—

 
—

 
17,962

 
17,962

Provision for income taxes
 
—

 
—

 
—

 
(586
)
 
(586
)
Distributions to stockholders
 
—

 
—

 
—

 
(13,391
)
 
(13,391
)
Issuance of common stock under dividend reinvestment plan
 
87

 
1

 
383

 
—

 
384

Repurchases of common stock under dividend reinvestment program
 
(87
)
 
(1
)
 
(383
)
 
—

 
(384
)
Balance at December 31, 2018
 
140,961

 
$
1,409

 
$
1,492,739

 
$
(621,786
)
 
$
872,362

Net investment income
 
—

 
$
—

 
$
—

 
$
17,709

 
$
17,709

Net unrealized appreciation (depreciation)
 
—

 
—

 
—

 
21,472

 
21,472

Net realized gains (losses)
 
—

 
—

 
—

 
25,213

 
25,213

Provision for income taxes
 
—

 
—

 
—

 
91

 
91

Distributions to stockholders
 
—

 
—

 
—

 
(13,391
)
 
(13,391
)
Issuance of common stock under dividend reinvestment plan
 
60

 
1

 
311

 
—

 
312

Repurchases of common stock under dividend reinvestment program
 
(60
)
 
(1
)
 
(311
)
 
—

 
(312
)
Balance at March 31, 2019
 
140,961

 
$
1,409

 
$
1,492,739

 
$
(570,692
)
 
$
923,456


The following table presents the changes in net assets for the three and six months ended March 31, 2018:
 
 
Common Stock
 
 
 
 
 
 
 
 
Shares
 
Par Value
 
Additional paid-in-capital
 
Accumulated Overdistributed Earnings
 
Total Net Assets
Balance at September 30, 2017
 
140,961

 
$
1,409

 
$
1,579,278

 
$
(713,030
)
 
$
867,657

Net investment income
 
—

 
—

 
—

 
13,322

 
13,322

Net unrealized appreciation (depreciation)
 
—

 
—

 
—

 
(43,472
)
 
(43,472
)
Net realized gains (losses)
 
—

 
—

 
—

 
(291
)
 
(291
)
Distributions to stockholders
 
—

 
—

 
—

 
(17,621
)
 
(17,621
)
Issuance of common stock under dividend reinvestment plan
 
58

 
1

 
293

 
—

 
294

Repurchases of common stock under dividend reinvestment program
 
(58
)
 
(1
)
 
(293
)
 
—

 
(294
)
Balance at December 31, 2017
 
140,961

 
$
1,409

 
$
1,579,278

 
$
(761,092
)
 
$
819,595

Net investment income
 
—

 
$
—

 
$
—

 
$
15,263

 
$
15,263

Net unrealized appreciation (depreciation)
 
—

 
—

 
—

 
(377
)
 
(377
)
Net realized gains (losses)
 
—

 
—

 
—

 
4,854

 
4,854

Redemption premium on unsecured notes payable
 
—

 
—

 
—

 
(120
)
 
(120
)
Distributions to stockholders
 
—

 
—

 
—

 
(11,981
)
 
(11,981
)
Issuance of common stock under dividend reinvestment plan
 
123

 
1

 
532

 
—

 
533

Repurchases of common stock under dividend reinvestment program
 
(123
)
 
(1
)
 
(532
)
 
—

 
(533
)
Balance at March 31, 2018
 
140,961

 
$
1,409

 
$
1,579,278

 
$
(753,453
)
 
$
827,234



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





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, may be distributed to stockholders or retained for reinvestment.
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 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 estimates that its distributions for the 2019 calendar year will be composed primarily of ordinary income. The character of such distributions will be appropriately reported to the Internal Revenue Service and stockholders for the 2019 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 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 six months ended March 31, 2019 and 2018:
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
February 1, 2019
 
March 15, 2019
 
March 29, 2019
 
0.095

 
13.1 million
 
59,603

 
 0.3 million
Total for the six months ended March 31, 2019
 
$
0.190

 
$ 26.1 million
 
147,032

 
$ 0.7 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
February 5, 2018
 
March 15, 2018
 
March 30, 2018
 
0.085

 
11.5 million
 
122,884

 
0.5 million
Total for the six months ended March 31, 2018
 
$
0.210

 
$ 28.8 million
 
181,340

 
$ 0.8 million
 __________
(1) Shares were purchased on the open market and distributed.

Common Stock Offering
There were no common stock offerings during the three and six months ended March 31, 2019 and 2018.

Note 6. Borrowings
ING Facility

On November 30, 2017, the Company entered into a senior secured revolving credit facility (as amended and restated, the “ING Facility”) pursuant to a Senior Secured Revolving 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

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





stock, common stock and other investments. The ING Facility further allows the Company to request letters of credit from ING Capital LLC, as the issuing bank.

On February 25, 2019, the Company amended and restated the ING Facility to increase the size of the facility from $600 million to $680 million (with an “accordion” feature that permits the Company, under certain circumstances, to increase the size of the facility up to $1.02 billion), extend the period during which the Company may make drawings from expiring on November 30, 2020 to expiring on February 25, 2023, extend the final maturity date from November 30, 2021 to February 25, 2024, and lower the interest rate margins (a) for LIBOR loans (which may be 1-, 2-, 3- or 6-month, at the Company’s option), from 2.75% to 2.25% or from 2.25% to 2.00% and (b) for alternate base rate loans, from 1.75% to 1.25% or from 1.25% to 1.00%, each depending on the Company’s senior debt coverage ratio. During the three months ended March 31, 2019, the Company expensed $0.2 million of unamortized deferred financing costs related to the amendment of the ING Facility.

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 an Amended and Restated Guarantee, Pledge and Security Agreement (“ING Security Agreement”), among the Company, the other obligors party thereto, and ING Capital LLC, as collateral agent to the secured parties. Pursuant to the ING Security Agreement, the Company pledged its entire equity interest in certain immaterial subsidiaries to the collateral agent pursuant to the terms of the ING Security Agreement. As of March 31, 2019, 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 Facility requires 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 the greater of (1) 1.65 to 1.00 and (2) the statutory test applicable to the Company at any time, (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 for the first year following the closing date and (2) 2.25:1.00 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 facility, the occurrence of a change in control, and the failure by the Company to materially perform under the agreements governing the facility, which, if not complied with, could accelerate repayment under the facility. As of March 31, 2019, the Company was in compliance with all financial covenants under the ING Facility. In addition to the asset coverage ratio described above, borrowings under the ING Facility (and the incurrence of certain other permitted debt) are subject to compliance with a borrowing base that will apply different advance rates to different types of assets in the Company’s portfolio. Each loan or letter of credit originated or assumed under the ING Facility is subject to the satisfaction of certain conditions.

As of March 31, 2019, the Company had $424.8 million of borrowings outstanding under the ING Facility, which had a fair value of $424.8 million. The Company's borrowings under the ING Facility bore interest at a weighted average interest rate of 4.688% for the six months ended March 31, 2019. The Company's borrowings under the ING Facility bore interest at a weighted average interest rate of 3.637% for the period from November 30, 2017 to March 31, 2018. As of September 30, 2018, the Company had $241.0 million of borrowings outstanding under the ING Facility. For the three and six months ended March 31, 2019, the Company recorded interest expense of $4.3 million and $7.5 million in the aggregate, related to the ING Facility. For the three and six months ended March 31, 2018, the Company recorded interest expense of $2.5 million and $5.2 million, in the aggregate, related to the Prior ING Facility (as defined below) and the ING Facility.
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.



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 March 31, 2019 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 six months ended March 31, 2018, 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.
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 March 31, 2019 and September 30, 2018, there were six 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 March 31, 2019 and September 30, 2018 were as follows: 
 
 
March 31, 2019
 
September 30, 2018
 
 
Cost
 
% of Debt
Portfolio
 
Fair
Value
 
% of Debt
Portfolio
 
Cost
 
% of Debt
Portfolio
 
Fair
Value
 
% of Debt
Portfolio
Accrual
 
$
1,322,540

 
88.54
%
 
$
1,317,938

 
93.88
%
 
$
1,298,999

 
85.46
%
 
$
1,318,531

 
93.03
%
PIK non-accrual (1)
 
12,661

 
0.85

 
—

 
—

 
12,661

 
0.83

 
—

 
—

Cash non-accrual (2)
 
158,542

 
10.61

 
85,854

 
6.12

 
208,345

 
13.71

 
98,760

 
6.97

Total
 
$
1,493,743

 
100.00
%
 
$
1,403,792

 
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.

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





Listed below is a reconciliation of "net increase (decrease) in net assets resulting from operations" to taxable income for the three and six months ended March 31, 2019 and 2018.
 
 
Three months
ended
March 31, 2019
 
Three months
ended
March 31, 2018
 
Six months
ended
March 31, 2019
 
Six months
ended
March 31, 2018
Net increase (decrease) in net assets resulting from operations
 
$
64,485

 
$
19,620

 
$
92,203

 
$
(10,821
)
Net unrealized appreciation (depreciation)
 
(21,472
)
 
377

 
(14,497
)
 
43,849

Book/tax difference due to loan fees
 
—

 
(51
)
 
—

 
213

Book/tax difference due to organizational costs
 
(11
)
 
(22
)
 
(21
)
 
(44
)
Book/tax difference due to interest income on certain loans
 
—

 
—

 
878

 
—

Book/tax difference due to capital losses not recognized / (recognized)
 
(26,738
)
 
(4,434
)
 
(44,440
)
 
(3,843
)
Other book/tax differences
 
(296
)
 
(3,964
)
 
290

 
(5,170
)
Taxable/Distributable Income (1)
 
$
15,968

 
$
11,526

 
$
34,413

 
$
24,184

 __________
(1) The Company's taxable income for the three and six months ended March 31, 2019 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 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 March 31, 2019, the Company recognized a total tax benefit of $0.1 million which was comprised of (i) a current tax benefit of approximately $0.3 million, primarily a result of return to provision adjustments, and (ii) deferred income tax expense of approximately $0.2 million, which resulted from unrealized appreciation on investments held by the Company’s wholly-owned taxable subsidiaries.
For the six months ended March 31, 2019, the Company recognized a total provision for income taxes of $0.5 million which was comprised of (i) current income tax expense of approximately $0.2 million, as a result of realized gains on investments held by the Company's wholly-owned taxable subsidiaries, net of return to provision adjustments and (ii) deferred income tax expense of approximately $0.3 million, which resulted from unrealized appreciation on investments held by 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 March 31, 2019, the Company recorded net realized gains of $25.2 million, which consisted of the following:

($ in millions)
 
Portfolio Company
Net Realized Gain (Loss)
 Maverick Healthcare Group, LLC
$
17.5

 Comprehensive Pharmacy Services LLC
7.5

 Other, net
0.2

Total, net
$
25.2

During the three months ended March 31, 2018, the Company recorded net realized gains of $4.9 million, which consisted of the following:

($ in millions)
 
Portfolio Company
Net Realized Gain (Loss)
AmBath/ReBath Holdings, Inc.
$
2.0

Yeti Acquisition, LLC
2.0

Access Medical Acquisition, Inc.
1.0

Other, net
(0.1
)
Total, net
$
4.9

During the six months ended March 31, 2019, the Company recorded net realized gains of $43.2 million, which consisted of the following:
($ in millions)
 
Portfolio Company
Net Realized Gain (Loss)
 Maverick Healthcare Group, LLC
$
17.5

 BeyondTrust Holdings LLC
12.4

 Comprehensive Pharmacy Services LLC
7.5

 InMotion Entertainment Group, LLC
2.7

 YETI Holdings, Inc.
2.7

 Other, net
0.4

Total, net
$
43.2


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





During the six months ended March 31, 2018, the Company recorded net realized gains of $4.6 million, which consisted of the following:
($ in millions)
 
Portfolio Company
Net Realized Gain (Loss)
AmBath/ReBath Holdings, Inc.
$
2.0

Yeti Acquisition, LLC
2.0

Access Medical Acquisition, Inc.
1.0

Other, net
(0.4
)
Total, net
$
4.6

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 March 31, 2019 and 2018, the Company recorded net unrealized appreciation (depreciation) of $21.5 million and $(0.4) million, respectively. For the three months ended March 31, 2019, this consisted of $22.3 million of net unrealized appreciation on equity investments, $3.6 million of net unrealized appreciation on debt investments and $0.8 million of net unrealized appreciation of foreign currency forward contracts, partially offset by $5.2 million of net reclassifications to realized gains (resulting in unrealized depreciation). For the three months ended March 31, 2018, this consisted of $5.1 million of net unrealized appreciation on debt investments and $0.4 million of net unrealized depreciation on secured borrowings, offset by $1.2 million of net unrealized depreciation on equity investments and $4.6 million of net reclassifications to realized gains (resulting in unrealized depreciation).
During the six months ended March 31, 2019 and 2018, the Company recorded net unrealized appreciation (depreciation) of $14.5 million and $(43.8) million, respectively. For the six months ended March 31, 2019, this consisted of $24.2 million of net reclassifications to realized losses (resulting in unrealized appreciation), $14.0 million of net unrealized appreciation on equity investments and $0.4 million of net unrealized appreciation of foreign currency forward contracts, partially offset by $24.1 million of net unrealized depreciation on debt investments. For the six months ended March 31, 2018, this consisted of $33.9 million of net unrealized depreciation on debt investments, $5.1 million of net unrealized depreciation on equity investments and $6.9 million of net reclassifications to realized gains (resulting in unrealized depreciation), offset by $2.1 million of net unrealized depreciation on 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 March 31, 2019 and September 30, 2018, the Company had a liability on its Consolidated Statements of Assets and Liabilities in the amount of $8.9 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 March 31, 2019, 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 directors of the Company who are not interested persons. The Investment Advisory Agreement will automatically terminate in the

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





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 and six months ended March 31, 2019, the base management fee (net of waivers) incurred under the Investment Advisory Agreement was $5.7 million and $11.2 million, respectively, which was payable to Oaktree. For the three months ended March 31, 2018 and the period from October 17, 2017 to March 31, 2018, the base management fee (net of waivers) incurred under the Investment Advisory Agreement was $5.4 million and $9.8 million, respectively, 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 and six months ended March 31, 2019, the first part of the incentive fee (incentive fee on income) incurred under the Investment Advisory Agreement was $3.8 million and $7.5 million (prior to waivers), respectively. For the three months ended March 31, 2018 and the period from October 17, 2017 to March 31, 2018, the first part of the incentive fee (incentive fee on income) incurred under the Investment Advisory Agreement was $3.2 million and $4.1 million (prior to waivers), respectively.

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

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





a cumulative basis from the beginning of the fiscal year ending September 30, 2019 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 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 March 31, 2019, 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 and six months ended March 31, 2019, the Company recorded a $8.2 million and $10.0 million capital gains incentive fee accrual (prior to waivers), respectively. For the three and six months ended March 31, 2018, the Company did not accrue any capital gains incentive fees.

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 March 31, 2019, the Company accrued $7.9 million potentially subject to waiver, which included a full $8.2 million waiver of the capital gains incentive fee accrued during the three months ended March 31, 2019 and a $0.3 million reversal of waiver previously accrued related to the incentive fee on income. For the six months ended March 31, 2019, the Company accrued $9.4 million potentially subject to waiver, which included a full $10.0 million waiver of the capital gains incentive fee accrued during the six months ended March 31, 2019 and a $0.6 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 March 31, 2018, the Company accrued a $0.1 million reversal of waiver previously accrued. For the six months ended March 31, 2018, the Company did not accrue any amounts potentially subject to waiver. As of March 31, 2019, the Company accrued $10.6 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

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





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.
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.

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





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 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 March 31, 2019, the Company accrued administrative expenses of $0.5 million, including $0.1 million of general and administrative expenses. For the six months ended March 31, 2019, the Company accrued administrative expenses of $1.3 million, including $0.2 million of general and administrative expenses. For the three months ended March 31, 2018, the Company accrued administrative expenses of $0.5 million, including $0.1 million of general and administrative expenses. For the six months ended March 31, 2018, the Company accrued administrative expenses of $1.2 million, including $0.3 million of general and administrative expenses. Of the accrued administrative expenses of $1.2 million for the six months ended March 31, 2018, $0.2 million was due to the Former Administrator for administrative expenses incurred prior to October 17, 2017 and $1.0 million was due to Oaktree Administrator.
As of March 31, 2019 and September 30, 2018, $1.9 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.


61
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
March 31, 2019
 
Three months ended
March 31, 2018
 
Six months ended
March 31, 2019
 
Six months ended
March 31, 2018 (1)
Net asset value per share at beginning of period
 
$6.19
 
$5.81
 
$6.09
 
$6.16
Net investment income (2)
 
0.13
 
0.11
 
0.25
 
0.20
Net unrealized appreciation (depreciation) (2)
 
0.15
 
—
 
0.10
 
(0.31)
Net realized gains (losses) (2)
 
0.18
 
0.03
 
0.30
 
0.03
Distributions to stockholders (2)
 
(0.10)
 
(0.08)
 
(0.19)
 
(0.21)
Net asset value per share at end of period
 
$6.55
 
$5.87
 
$6.55
 
$5.87
Per share market value at beginning of period
 
$4.23
 
$4.89
 
$4.96
 
$5.47
Per share market value at end of period
 
$5.18
 
$4.21
 
$5.18
 
$4.21
Total return (3)
 
24.68%
 
(12.22)%
 
8.63%
 
(19.57)%
Common shares outstanding at beginning of period
 
140,961
 
140,961
 
140,961
 
140,961
Common shares outstanding at end of period
 
140,961
 
140,961
 
140,961
 
140,961
Net assets at beginning of period
 
$872,362
 
$819,595
 
$858,035
 
$867,657
Net assets at end of period
 
$923,456
 
$827,234
 
$923,456
 
$827,234
Average net assets (4)
 
$901,507
 
$826,924
 
$885,507
 
$838,175
Ratio of net investment income to average net assets
 
7.97%
 
7.48%
 
7.93%
 
6.84%
Ratio of total expenses to average net assets
 
12.79%
 
9.55%
 
11.54%
 
9.61%
Ratio of net expenses to average net assets
 
9.24%
 
9.57%
 
9.40%
 
9.59%
Ratio of portfolio turnover to average investments at fair value
 
7.26%
 
15.09%
 
18.18%
 
28.46%
Weighted average outstanding debt (5)
 
$610,891
 
$573,783
 
$612,649
 
$613,233
Average debt per share (2)
 
$4.33
 
$4.07
 
$4.35
 
$4.35
Asset coverage ratio at end of period (6)
 
254.12%
 
241.77%
 
254.12%
 
241.77%
 __________
(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 $597.6 million and $583.6 million as of March 31, 2019 and 2018, 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 was amortized based on the effective interest method over the term of the notes.
Interest on the 2019 Notes was paid semi-annually on March 1 and September 1 at a rate of 4.875% per annum. During the three and six months ended March 31, 2018, the Company repurchased and subsequently canceled $21.2 million of the 2019 Notes. The Company recognized a loss of $0.1 million in connection with such transaction. The 2019 Notes matured on March 1, 2019 and were fully repaid during the three months ended March 31, 2019.
For the three and six months ended March 31, 2019, the Company recorded interest expense of $2.1 million and $5.1 million, respectively, related to the 2019 Notes. For the three and six months ended March 31, 2018, the Company recorded interest expense of $3.2 million and $6.5 million, respectively, related to the 2019 Notes.

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





As of March 31, 2019, there were no 2019 Notes outstanding. 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 Deutsche Bank Trust Company Americas (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 Securities Exchange Act of 1934, as amended (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 six months ended March 31, 2019 and 2018, the Company did not repurchase any of the 2024 Notes in the open market.
For the three and six months ended March 31, 2019, the Company recorded interest expense of $1.2 million and $2.3 million, respectively, related to the 2024 Notes. For the three and six months ended March 31, 2018, the Company recorded interest expense of $1.2 million and $2.3 million, respectively, related to the 2024 Notes.
As of March 31, 2019, there were $75.0 million of 2024 Notes outstanding, which had a carrying value and fair value of $73.8 million and $76.2 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.
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.

63
OAKTREE SPECIALTY LENDING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share and per share amounts, percentages and as otherwise indicated)





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 six months ended March 31, 2019 and 2018, the Company did not repurchase any of the 2028 Notes in the open market.
For the three and six months ended March 31, 2019, the Company recorded interest expense of $1.4 million and $2.7 million related to the 2028 Notes. For the three and six months ended March 31, 2018, the Company recorded interest expense of $1.4 million and $2.7 million, respectively, related to the 2028 Notes.
As of March 31, 2019, there were $86.3 million of 2028 Notes outstanding, which had a carrying value and fair value of $84.5 million and $86.7 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 March 31, 2019, there were $11.5 million of secured borrowings outstanding. As of March 31, 2019, secured borrowings at fair value totaled $9.0 million and the fair value of the investment that is associated with these secured borrowings was $33.9 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 six months ended March 31, 2019, there were $0.7 million of net repayments on secured borrowings. During the six months ended March 31, 2018, there were $0.5 million of net repayments on secured borrowings.
For the three and six months ended March 31, 2019, the Company recorded interest expense of $0.1 million and $0.1 million, respectively, related to the secured borrowings. For the three and six months ended March 31, 2018, the Company recorded interest expense of $0.3 million and $0.6 million, respectively, related to the secured borrowings. For the three and six months ended March 31, 2019, the Company recorded unrealized appreciation on secured borrowings of $0.1 million. For the three and six months ended March 31, 2018, the Company recorded unrealized depreciation on secured borrowings of $0.4 million and $2.1 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 March 31, 2019, 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 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 March 31, 2019.
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
 
$
23,656

 
£
17,887

 
4/8/2019
 
$
338

 
$
—

 
Derivative assets
Foreign currency forward contract
 
$
19,716

 
€
17,325

 
4/23/2019
 
$
225

 
$
—

 
Derivative assets
 
 
 
 
 
 
 
 
$
563

 
$
—

 
 




64

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
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 March 31, 2019, the Company's only off-balance sheet arrangements consisted of $95.1 million of unfunded commitments, which was comprised of $90.3 million to provide debt financing to certain of its portfolio companies, $1.3 million to provide equity financing to SLF JV I and $3.5 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 March 31, 2019 and September 30, 2018 is shown in the table below:
 
 
March 31, 2019
 
September 30, 2018
Assembled Brands Capital LLC
 
$
38,932

 
$
—

Sorrento Therapeutics, Inc.
 
12,500

 
—

P2 Upstream Acquisition Co.
 
9,000

 
10,000

TerSera Therapeutics, LLC
 
8,100

 
3,281

Pingora MSR Opportunity Fund I-A, LP
 
3,500

 
4,656

Mindbody, Inc.
 
3,048

 
—

Thruline Marketing, Inc.
 
3,000

 
3,000

Datto Inc.
 
2,356

 
2,356

4 Over International, LLC
 
2,232

 
2,232

New IPT, Inc.
 
2,229

 
2,229

Dominion Diagnostics, LLC
 
2,090

 
4,180

Thing5, LLC (1)
 
1,726

 
1,298

Apptio, Inc.
 
1,538

 
—

Senior Loan Fund JV I, LLC
 
1,328

 
1,328

GKD Index Partners, LLC
 
1,156

 
289

Ministry Brands, LLC
 
1,000

 
700

iCIMs, Inc.
 
882

 
882

Cenegenics, LLC (1)(2)
 
297

 
297

PLATO Learning Inc. (1)
 
160

 
2,671

InMotion Entertainment Group, LLC
 
—

 
7,534

Access CIG, LLC
 
—

 
765

EOS Fitness Opco Holdings, LLC
 
—

 
5,000

Total
 
$
95,074

 
$
52,698

 ___________ 
(1) This investment was on cash or PIK non-accrual status as of March 31, 2019.
(2) This portfolio company does not have the ability to draw on this unfunded commitment as of March 31, 2019.


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 and six months ended March 31, 2019, except as discussed below:
Distribution Declaration
On May 3, 2019, the Company’s Board of Directors declared a quarterly distribution of $0.095 per share, payable on June 28, 2019 to stockholders of record on June 14, 2019.
ING Facility
On April 1, 2019, the Company increased the size of the ING Facility from $680 million to $700 million under the “accordion” feature that permits the Company, under certain circumstances, to increase the size of the facility up to $1.02 billion.

Investment Advisory Agreement
On May 3, 2019, the Company entered into an amended and restated investment advisory agreement with Oaktree which provides that effective upon the application of the reduced asset coverage requirements in Section 61(a)(2) of the Investment Company Act to the Company, the base management fee on the Company’s gross assets, including any investments made with borrowings, but excluding any cash and cash equivalents, that exceed the product of (A) 200% and (B) the Company’s net asset value will be 1.00%. For the avoidance of doubt, the 200% will be calculated in accordance with the Investment Company Act and will give effect to exemptive relief the Company received from the U.S. Securities and Exchange Commission with respect to 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)
Six months ended March 31, 2019
(unaudited)
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 March 31, 2019
 
% of Total Net Assets
Control Investments
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 First Star Speir Aviation Limited (5)
 
 
 
Airlines
 
 
 
 
 
 
 
 
 
 
 
 
 


 


 First Lien Term Loan, 9.00% cash due 12/15/2020
 
 
 
 
 
$
32,510

 
$
—

 
$
976

 
$
32,510

 
$
722

 
$
(722
)
 
$
32,510

 
3.5
%
 100% equity interest
 
 
 
 
 
—

 
—

 
—

 
—

 
967

 
(100
)
 
867

 
0.1
%
 New IPT, Inc.
 
 
 
 Oil & gas equipment services
 
 
 
 
 
 
 
 
 
 
 
 
 


 


 First Lien Term Loan, LIBOR+5.00% cash due 3/17/2021 (7)
 
7.60
%
 
 
 
4,107

 
—

 
170

 
4,107

 
—

 
—

 
4,107

 
0.4
%
 Second Lien Term Loan, LIBOR+5.10% cash due 9/17/2021 (7)
 
7.70
%
 
 
 
601

 
—

 
39

 
1,453

 
—

 
(851
)
 
602

 
0.1
%
 First Lien Revolver, LIBOR+5.00% cash due 3/17/2021 (7)
 
7.60
%
 
 
 
1,009

 
—

 
43

 
1,009

 
—

 
—

 
1,009

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

 
—

 
—

 
2,291

 
612

 
—

 
2,903

 
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, 10.00% cash due 2036 in SLF Repack Issuer 2016 LLC
 
 
 
 
 
—

 
—

 
707

 
29,520

 
67

 
(29,587
)
 
—

 
—
%
 Subordinated Note, LIBOR+7.00% cash due 12/29/2028
 
9.51
%
 
 
 
96,250

 
—

 
2,388

 
—

 
96,250

 
—

 
96,250

 
10.4
%
 87.5% LLC equity interest
 
 
 
 
 
—

 
—

 
—

 
41

 
37,734

 
(7,191
)
 
30,584

 
3.3
%
 Thruline Marketing, Inc. (8)
 
 
 
Advertising
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 First Lien Term Loan, LIBOR+7.00% cash due 4/3/2022 (7)
 
9.60
%
 
 
 
18,146

 
—

 
880

 
18,146

 
—

 
—

 
18,146

 
2.0
%
 First Lien Revolver, LIBOR+7.75% cash due 4/3/2022 (7)
 
 
 
 
 
—

 
—

 
8

 
—

 
—

 
—

 
—

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

 
—

 
—

 
7,984

 
—

 
(1,546
)
 
6,438

 
0.7
%
Total Control Investments
 
 
 
 
 
$
152,623

 
$
—

 
$
7,247

 
$
196,874

 
$
136,352

 
$
(139,810
)
 
$
193,416

 
20.9
%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Affiliate Investments
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 Assembled Brands Capital LLC
 
 
 
Specialized finance
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 First Lien Delayed Draw Term Loan LIBOR+6.00% cash due 10/17/2023
 
8.60
%
 
 
 
$
1,835

 
$
—

 
$
44

 
$
—

 
$
1,835

 
$
—

 
$
1,835

 
0.2
%
 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, 10.00%
 
 
 
 
 
—

 
—

 
—

 
2,161

 
—

 
(182
)
 
1,979

 
0.2
%
Total Affiliate Investments
 
 
 
 
 
$
1,835

 
$
—

 
$
44

 
$
2,161

 
$
2,599

 
$
(182
)
 
$
4,578

 
0.5
%
Total Control & Affiliate Investments
 
 
 
 
 
$
154,458

 
$
—

 
$
7,291

 
$
199,035

 
$
138,951

 
$
(139,992
)
 
$
197,994

 
21.4
%

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).
(7)
Investment includes interest rate floor, which is generally 1.00%.
(8)
Prior to March 31, 2019, this portfolio company was named Keypath Education, Inc.



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)
Six months ended March 31, 2018
(unaudited)
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,
2017
 
Gross
Additions (3)
 
Gross
Reductions (4)
 
Fair Value
at March 31, 2018
 
% of Total Net Assets
Control Investments
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 AdVenture Interactive, Corp.
 
 
 
 Advertising
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 9,073 shares of common units
 
 
 
 
 
$
—

 
$
—

 
$
—

 
$
13,818

 
$
136

 
$
(7,397
)
 
$
6,557

 
0.8
 %
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
—
 %
 Ameritox Ltd. (7)
 
 
 
 Healthcare services
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 First Lien Term Loan, LIBOR+5.00% (1.00% floor) cash 3% PIK due 4/11/2021
 
6.88
%
 
 
 
34,921

 
—

 
—

 
4,445

 
1,004

 
(5,449
)
 
—

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

 
—

 
—

 
—

 
—

 
—

 
—

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

 
—

 
—

 
—

 
—

 
—

 
—

 
—
 %
 4,930.03 Class A Units in Ameritox Holdings II, LLC
 
 
 
 
 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—
 %
 Eagle Hospital Physicians, LLC
 
 
 
 Healthcare services
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 Earnout
 
 
 
 
 
—

 
—

 
—

 
4,986

 
98

 
(152
)
 
4,932

 
0.6
 %
 First Star Bermuda Aviation Limited (6)
 
 
 
 Airlines
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 First Lien Term Loan, 9.00% cash 3.00% PIK due 8/19/2018
 
 
 
 
 
11,868

 
—

 
811

 
11,868

 
—

 
—

 
11,868

 
1.4
 %
 100% equity interest
 
 
 
 
 
—

 
—

 
—

 
2,323

 
4,993

 
(2,220
)
 
5,096

 
0.6
 %
 First Star Speir Aviation Limited (6)
 
 
 
 Airlines
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 First Lien Term Loan, 9.00% cash due 12/15/2020
 
 
 
 
 
32,510

 
—

 
363

 
41,395

 
974

 
(9,858
)
 
32,511

 
3.9
 %
 100% equity interest
 
 
 
 
 
—

 
—

 
—

 
3,926

 
3,011

 
(3,088
)
 
3,849

 
0.5
 %
 Keypath Education, Inc.
 
 
 
 Advertising
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 First Lien Term Loan, LIBOR+7.00% (1.00% floor) cash due 4/3/2022
 
9.30
%
 
 
 
19,960

 
—

 
870

 
19,960

 
—

 
—

 
19,960

 
2.4
 %
 First Lien Revolver, LIBOR+7.00% (1.00% floor) cash due 4/3/2022
 
9.30
%
 
 
 
—

 
—

 
9

 
—

 
—

 
—

 
—

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

 
—

 
—

 
7,918

 
66

 
—

 
7,984

 
1.0
 %
 New IPT, Inc.
 
 
 
 Oil & gas equipment services
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 First Lien Term Loan, LIBOR+5.00% (1.00% floor) cash due 3/17/2021
 
7.31
%
 
 
 
4,107

 
—

 
135

 
4,107

 
—

 
—

 
4,107

 
0.5
 %
 Second Lien Term Loan, LIBOR+5.10% (1.00% floor) cash due 9/17/2021
 
7.41
%
 
 
 
2,003

 
—

 
82

 
2,504

 
—

 
(501
)
 
2,003

 
0.2
 %
 First Lien Revolver, LIBOR+5.00% (1.00% floor) cash due 3/17/2021
 
7.31
%
 
 
 
1,009

 
—

 
37

 
1,009

 
—

 
—

 
1,009

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

 
—

 
—

 
736

 
1,422

 
—

 
2,158

 
0.3
 %
 Senior Loan Fund JV I, LLC (5)
 
 
 
 Multi-sector holdings
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 Class A Mezzanine Secured Deferrable Floating Rate Notes due 2036 in SLF Repack Issuer 2016 LLC
 
6.81
%
 
 
 
100,804

 
—

 
3,380

 
101,030

 
—

 
(226
)
 
100,804

 
12.2
 %
 Class B Mezzanine Secured Deferrable Fixed Rate Notes, 15.00% PIK due 2036 in SLF Repack Issuer 2016 LLC
 
 
 
 
 
27,691

 
—

 
2,008

 
27,641

 
228

 
(178
)
 
27,691

 
3.3
 %
 87.5% LLC equity interest
 
 
 
 
 
—

 
—

 
1,570

 
5,525

 
—

 
(1,281
)
 
4,244

 
0.5
 %

69

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,
2017
 
Gross
Additions (3)
 
Gross
Reductions (4)
 
Fair Value
at March 31, 2018
 
% of Total Net Assets
 Traffic Solutions Holdings, Inc.
 
 
 
 Construction & engineering
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 First Lien Term Loan, LIBOR+7.00% (1.00% floor) cash 2% PIK due 4/1/2021
 
9.32
%
 
 
 
$
36,759

 
$
—

 
$
1,798

 
$
36,568

 
$
391

 
$
(200
)
 
$
36,759

 
4.4
 %
 First Lien Revolver, LIBOR+6.00% (1.00% floor) cash due 4/1/2021
 
8.32
%
 
 
 
1,500

 
—

 
1,062

 
1,250

 
750

 
(500
)
 
1,500

 
0.2
 %
 LC Facility, 6.00% cash due 4/1/2021
 
 
 
 
 
4,752

 
—

 
96

 
4,752

 
—

 
—

 
4,752

 
0.6
 %
 746,114 Series A Preferred Units, 10.00%
 
 
 
 
 
—

 
—

 
—

 
7,700

 
335

 
—

 
8,035

 
1.0
 %
 746,114 Common Stock Unit
 
 
 
 
 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—
 %
 TransTrade Operators, Inc. (7)
 
 
 
 Air freight and logistics
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 First Lien Term Loan, 5.00% cash due 12/31/2017
 
 
 
 
 
15,973

 
—

 
—

 
1,810

 
—

 
(1,810
)
 
—

 
—
 %
 First Lien Revolver, 8.00% cash due 12/31/2017
 
 
 
 
 
7,757

 
—

 
—

 
—

 
—

 
(740
)
 
(740
)
 
(0.1
)%
 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 Holding LLC
 
 
 
 
 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—
 %
Total Control Investments
 
 
 
 
 
$
301,614

 
$
—

 
$
12,221

 
$
305,271

 
$
13,408

 
$
(33,600
)
 
$
285,079

 
34.5
 %
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Affiliate Investments
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
AmBath/ReBath Holdings, Inc.
 
 
 
 Home improvement retail
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 First Lien Term Loan, 12.50% cash 2.50% PIK due 8/31/2018
 
 
 
 
 
—

 
—

 
1,738

 
22,957

 
308

 
(23,265
)
 
—

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

 
2,048

 
—

 
1,827

 
221

 
(2,048
)
 
—

 
—
 %
Caregiver Services, Inc.
 
 
 
 Healthcare services
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 Second Lien Term Loan, 10.00% cash 2.00% PIK due 6/30/2019
 
 
 
 
 
9,800

 
—

 
540

 
9,665

 
92

 
(28
)
 
9,729

 
1.2
 %
 1,080,399 shares of Series A Preferred Stock, 10.00%
 
 
 
 
 
—

 
—

 
—

 
2,534

 
—

 
(373
)
 
2,161

 
0.3
 %
Total Affiliate Investments
 
 
 
 
 
$
9,800

 
$
2,048

 
$
2,278

 
$
36,983

 
$
621

 
$
(25,714
)
 
$
11,890

 
1.4
 %
Total Control & Affiliate Investments
 
 
 
 
 
$
311,414

 
$
2,048

 
$
14,499

 
$
342,254

 
$
14,029

 
$
(59,314
)
 
$
296,969

 
35.9
 %

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, 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.
(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)
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).
(6)
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.
(7)
This investment was on cash non-accrual status as of March 31, 2018 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 the 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 and 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 almost $600 million at fair value. Over time, Oaktree intends to rotate us out of the approximately $296 million of non-core investments at fair value that remain in our portfolio as of March 31, 2019.
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 are 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



Brookfield Transaction
 
On March 13, 2019, OCG entered into an Agreement and Plan of Merger, or the Merger Agreement, with Brookfield Asset Management Inc., a corporation incorporated under the laws of the Province of Ontario, or Brookfield, Berlin Merger Sub, LLC, a Delaware limited liability company and wholly-owned subsidiary of Brookfield, or Merger Sub, Oslo Holdings LLC, a Delaware limited liability company and wholly-owned subsidiary of Oaktree Capital Group Holdings, L.P., or SellerCo, and Oslo Holdings Merger Sub LLC, a Delaware limited liability company and wholly-owned subsidiary of OCG, or Seller MergerCo, pursuant to which, among other things and subject to the satisfaction of closing conditions contained in the Merger Agreement, (i) Merger Sub will merge with and into OCG with OCG continuing as the surviving entity and (ii) immediately following the Merger, SellerCo will merge with and into Seller MergerCo, with Seller MergerCo continuing as the surviving entity.  Such transactions are collectively referred to as the “Brookfield Transaction.”  As a result of the Brookfield Transaction, Brookfield would indirectly own a majority economic interest in OCG’s business.  Upon consummation of the Brookfield Transaction, Brookfield and OCG will continue to operate their respective businesses independently, with each remaining under its current brand and led by its existing management and investment teams. As a result, our management team is expected to continue to operate in the same professional capacity for us following completion of the Brookfield Transaction.  The Brookfield Transaction is subject to various closing conditions, and there is no assurance the Brookfield Transaction will be completed. 
 
If the Brookfield Transaction is consummated, Oaktree’s current management will maintain actual control of the management of Oaktree for an initial period of up to seven years following the closing of the Brookfield Transaction (or less if certain other conditions are triggered). Following the conclusion of this initial period, Brookfield will have the right to assume control of Oaktree. Oaktree has informed our Board of Directors that it does not believe the consummation of the Brookfield Transaction would be deemed an ‘‘assignment’’ of the Investment Advisory Agreement under the Investment Company Act, although such a determination is inherently uncertain. In accordance with the Investment Company Act, however, the Investment Advisory Agreement automatically terminates upon its assignment. To prevent any potential disruption in Oaktree’s ability to provide services to us once an assignment is deemed to occur, whether as a result of the consummation of the Brookfield Transaction or as a result of Brookfield exercising actual control over Oaktree, we have filed a preliminary proxy statement and intend to convene a special meeting seeking stockholder approval of a new investment advisory agreement between us and Oaktree, which agreement was approved by our Board of Directors on May 3, 2019. All material terms will remain unchanged from the Investment Advisory Agreement in effect as of May 3, 2019. The consummation of the Brookfield Transaction is currently expected to occur in the third quarter of 2019 and is subject to customary closing conditions, including receipt of approval for the transaction from OCG’s stockholders, as well as the receipt of required regulatory approvals.

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.

73


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 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 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.

74


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 March 31, 2019 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 March 31, 2019, 93.6% 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 March 31, 2019 and September 30, 2018, approximately 97.6% and 96.1%, respectively, of our total assets represented investments at fair value.
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 March 31, 2019, there were six 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.


75


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 including 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.
Portfolio Composition
Our investments principally consist of loans, common and preferred equity and warrants 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 six months ended March 31, 2019.
During the six months ended March 31, 2019, we originated $331.1 million of investment commitments in 19 new and four existing portfolio companies and funded $273.5 million of investments.
During the six months ended March 31, 2019, we received $329.0 million of proceeds from prepayments, exits, other paydowns and sales and exited 18 portfolio companies.

76


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:
 
 
 
March 31, 2019
 
September 30, 2018
Cost:
 
 
 
 
Senior secured debt
 
77.97
%
 
74.69
%
Subordinated debt
 
9.02

 
11.85

Debt investments in SLF JV I
 
5.99

 
8.05

Common equity & warrants
 
3.52

 
3.97

LLC equity interests of SLF JV I
 
3.07

 
1.01

Preferred equity
 
0.43

 
0.43

Total
 
100.00
%
 
100.00
%
 
 
 
March 31, 2019
 
September 30, 2018
Fair value:
 
 
 
 
Senior secured debt
 
78.89
%
 
75.40
%
Subordinated debt
 
7.99

 
10.97

Debt investments in SLF JV I
 
6.40

 
8.67

Common equity & warrants
 
4.35

 
4.63

LLC equity interests of SLF JV I
 
2.03

 
—

Preferred equity
 
0.34

 
0.33

Total
 
100.00
%
 
100.00
%


77


The industry composition of our portfolio at cost and fair value as a percentage of total investments was as follows:
 
 
March 31, 2019
 
September 30, 2018
Cost:
 
 
 
 
Multi-sector holdings (1)
 
9.16
%
 
9.85
%
Healthcare services
 
8.45

 
7.43

Application software
 
6.68

 
5.34

Data processing & outsourced services
 
4.72

 
5.45

Property & casualty insurance
 
4.13

 
4.13

Biotechnology
 
4.11

 
0.74

Pharmaceuticals
 
3.48

 
4.30

Healthcare technology
 
3.18

 
3.19

Specialized finance
 
3.08

 
3.02

Auto parts & equipment
 
2.65

 
2.65

Specialty stores
 
2.65

 
2.73

Advertising
 
2.64

 
2.64

Aerospace & defense
 
2.51

 
2.86

Internet services & infrastructure
 
2.36

 
0.34

Research & consulting services
 
2.16

 
2.15

Technology distributors
 
2.14

 
2.14

Integrated telecommunication services
 
2.10

 
2.10

Oil & gas refining & marketing
 
1.99

 
1.40

Airlines
 
1.98

 
2.03

Specialty chemicals
 
1.98

 
1.98

Oil & gas equipment & services
 
1.84

 
3.53

Systems software
 
1.82

 
0.99

Oil & gas drilling
 
1.80

 
—

Managed healthcare
 
1.73

 
1.73

Construction & engineering
 
1.62

 
1.89

Industrial machinery
 
1.51

 
1.87

Healthcare distributors
 
1.41

 
1.22

Interactive media & services
 
1.36

 
—

Electrical components & equipment
 
1.33

 
2.42

IT consulting & other services
 
1.24

 
0.05

Movies & entertainment
 
1.20

 
1.21

Personal products
 
1.17

 
1.20

General merchandise stores
 
1.17

 
1.43

Diversified support services
 
1.17

 
1.20

Apparel, accessories & luxury goods
 
1.14

 
1.14

Education services
 
1.01

 
0.86

Food retail
 
0.90

 
1.37

Oil & gas storage & transportation
 
0.72

 
—

Security & alarm services
 
0.69

 
0.69

Trading companies & distributors
 
0.65

 
0.43

Household appliances
 
0.49

 
0.49

Coal & consumable fuels
 
0.45

 
0.46

Environmental & facilities services
 
0.37

 
0.37

Commercial printing
 
0.36

 
0.36

Thrifts & mortgage finance
 
0.29

 
0.33

Restaurants
 
0.19

 
0.19

Leisure facilities
 
0.12

 
0.34

Human resource & employment services
 
0.05

 
0.10

Department stores
 
0.04

 
0.04

Other diversified financial services
 
0.01

 
0.01

Commodity chemicals
 
—

 
0.18

Consumer electronics
 
—

 
1.38

Healthcare equipment
 
—

 
2.98

Hypermarkets & super centers
 
—

 
0.13

Investment banking & brokerage
 
—

 
0.78

Oil & gas exploration & production
 
—

 
2.16

Total
 
100.00
%
 
100.00
%

78


 
 
March 31, 2019
 
September 30, 2018
Fair value:
 
 
 
 
Multi-sector holdings (1)
 
8.67
%
 
9.57
 %
Application software
 
6.95

 
6.47

Healthcare services
 
5.12

 
4.50

Biotechnology
 
4.68

 
0.80

Property & casualty insurance
 
4.42

 
4.52

Data processing & outsourced services
 
4.14

 
4.98

Pharmaceuticals
 
3.76

 
4.82

Healthcare technology
 
3.39

 
3.50

Specialized finance
 
3.26

 
3.24

Auto parts & equipment
 
2.76

 
2.89

Specialty stores
 
2.75

 
2.95

Aerospace & defense
 
2.69

 
3.11

Internet services & infrastructure
 
2.52

 
0.37

Advertising
 
2.45

 
2.19

Research & consulting services
 
2.43

 
2.44

Technology distributors
 
2.37

 
2.32

Airlines
 
2.22

 
2.18

Oil & gas refining & marketing
 
2.12

 
1.52

Oil & gas drilling
 
1.95

 
—

Systems software
 
1.94

 
1.08

Specialty chemicals
 
1.91

 
2.06

Oil & gas equipment & services
 
1.89

 
4.01

Managed healthcare
 
1.86

 
1.88

Integrated telecommunication services
 
1.84

 
1.90

Construction & engineering
 
1.77

 
2.14

Industrial machinery
 
1.58

 
1.97

Healthcare distributors
 
1.50

 
1.30

Interactive media & services
 
1.50

 
—

Electrical components & equipment
 
1.44

 
2.70

IT consulting & other services
 
1.30

 
0.03

Movies & entertainment
 
1.27

 
1.31

Leisure products
 
1.27

 
0.81

Personal products
 
1.26

 
1.31

Diversified support services
 
1.25

 
1.23

General merchandise stores
 
1.07

 
1.55

Food retail
 
0.97

 
1.48

Apparel, accessories & luxury goods
 
0.87

 
0.91

Oil & gas storage & transportation
 
0.80

 
—

Security & alarm services
 
0.71

 
0.73

Trading companies & distributors
 
0.69

 
0.47

Coal & consumable fuels
 
0.49

 
0.50

Household appliances
 
0.49

 
0.53

Environmental & facilities services
 
0.41

 
0.42

Commercial printing
 
0.38

 
0.40

Leisure facilities
 
0.30

 
0.55

Thrifts & mortgage finance
 
0.26

 
0.32

Restaurants
 
0.20

 
0.21

Human resource & employment services
 
0.05

 
0.11

Education services
 
0.04

 
(0.14
)
Department stores
 
0.04

 
0.04

Commodity chemicals
 
—

 
0.21

Consumer electronics
 
—

 
1.57

Healthcare equipment
 
—

 
0.66

Hypermarkets & super centers
 
—

 
0.14

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.


79


Loans and Debt Securities on Non-Accrual Status
As of March 31, 2019 and September 30, 2018, there were six 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 March 31, 2019 and September 30, 2018 were as follows:
 
 
March 31, 2019
 
September 30, 2018
 
 
Cost
 
% of Debt
Portfolio
 
Fair
Value
 
% of Debt
Portfolio
 
Cost
 
% of Debt
Portfolio
 
Fair
Value
 
% of Debt
Portfolio
Accrual
 
$
1,322,540

 
88.54
%
 
$
1,317,938

 
93.88
%
 
$
1,298,999

 
85.46
%
 
$
1,318,531

 
93.03
%
PIK non-accrual (1)
 
12,661

 
0.85

 
—

 
—

 
12,661

 
0.83

 
—

 
—

Cash non-accrual (2)
 
158,542

 
10.61

 
85,854

 
6.12

 
208,345

 
13.71

 
98,760

 
6.97

Total
 
$
1,493,743

 
100.00
%
 
$
1,403,792

 
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 March 31, 2019, 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 March 31, 2019 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 March 31, 2019, 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 March 31, 2019, 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, $185.0 million and $153.0 million of borrowings were outstanding as of March 31, 2019 and September 30, 2018, respectively.
As of March 31, 2019 and September 30, 2018, SLF JV I had total assets of $346.6 million and $314.2 million, respectively. SLF JV I's portfolio primarily consisted of senior secured loans to 49 and 40 portfolio companies as of March 31, 2019 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 March 31, 2019, our investment in SLF JV I consisted of LLC equity interests of $30.6 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 value, and Class A

80


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 March 31, 2019 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 March 31, 2019 and September 30, 2018, we and Kemper had the option to fund additional SLF JV I Notes, subject to additional equity funding to SLF JV I. As of each of March 31, 2019 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 March 31, 2019 and September 30, 2018:

 
 
March 31, 2019
 
September 30, 2018
Senior secured loans (1)
 
$327,645
 
$297,053
Weighted average interest rate on senior secured loans (2)
 
7.03%
 
7.20%
Number of borrowers in SLF JV I
 
49
 
40
Largest exposure to a single borrower (1)
 
$10,889
 
$17,512
Total of five largest loan exposures to borrowers (1)
 
$50,714
 
$66,507
__________________
(1) At principal amount.
(2) Computed using the weighted average annual interest rate on accruing senior secured loans at fair value.

81



SLF JV I Portfolio as of March 31, 2019
Portfolio Company
 
Industry
 
Investment Type
 
Maturity Date
 
Current Interest Rate(1)(2)
 
 Cash Interest Rate
 
Principal
 
Cost
 
Fair Value (3)
 Access CIG, LLC
 
Diversified support services
 
First Lien Term Loan
 
2/27/2025
 
LIBOR+3.75%
 
6.24
%
 
$
9,347

 
$
9,299

 
$
9,254

 Accudyne Industries, LLC (6)
 
Industrial machinery
 
First Lien Term Loan
 
8/18/2024
 
LIBOR+3.00%
 
5.50
%
 
8,906

 
8,906

 
8,906

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

 

 
 
 

 
1,390

 
1,258

AI Ladder (Luxembourg) Subco S.a.r.l.
(4)
 
Electrical components & equipment
 
First Lien Term Loan
 
7/9/2025
 
LIBOR+4.50%
 
7.10
%
 
6,198

 
6,031

 
6,102

 Air Newco LP
 
IT consulting & other services
 
First Lien Term Loan
 
5/31/2024
 
LIBOR+4.75%
 
7.24
%
 
9,950

 
9,925

 
9,950

 AL Midcoast Holdings LLC
 
Oil & gas storage & transportation
 
First Lien Term Loan
 
8/1/2025
 
LIBOR+5.50%
 
8.10
%
 
9,950

 
9,850

 
9,929

Allied Universal Holdco LLC (4)(6)
 
Security & alarm services
 
First Lien Term Loan
 
7/28/2022
 
LIBOR+3.75%
 
6.25
%
 
6,876

 
6,915

 
6,666

 Altice France S.A.
 
Integrated telecommunication services
 
First Lien Term Loan
 
8/14/2026
 
LIBOR+4.00%
 
6.48
%
 
7,481

 
7,307

 
7,191

 Alvogen Pharma US, Inc. (6)
 
Pharmaceuticals
 
First Lien Term Loan
 
4/1/2022
 
LIBOR+4.75%
 
7.25
%
 
9,625

 
9,625

 
9,392

 Apptio, Inc. (4)(6)
 
Application software
 
First Lien Term Loan
 
1/10/2025
 
LIBOR+7.25%
 
9.74
%
 
4,615

 
4,526

 
4,526

 
 
 
 
First Lien Revolver
 
1/10/2025
 
LIBOR+7.25%
 
 
 
—

 
(7
)
 
(7
)
 Total Apptio, Inc.
 
 
 
 
 
 
 
 
 
 
 
4,615

 
4,519

 
4,519

 Blackhawk Network Holdings, Inc.
 
Data processing & outsourced services
 
First Lien Term Loan
 
6/15/2025
 
LIBOR+3.00%
 
5.50
%
 
9,925

 
9,903

 
9,771

 Boxer Parent Company Inc. (4)
 
Systems software
 
First Lien Term Loan
 
10/2/2025
 
LIBOR+4.25%
 
6.85
%
 
6,647

 
6,558

 
6,523

Brazos Delaware II, LLC
 
Oil & gas equipment & services
 
First Lien Term Loan
 
5/21/2025
 
LIBOR+4.00%
 
6.49
%
 
7,444

 
7,411

 
7,086

Cast & Crew Payroll, LLC
 
Application software
 
First Lien Term Loan
 
2/9/2026
 
LIBOR+4.00%
 
6.50
%
 
5,000

 
4,950

 
5,027

CITGO Petroleum Corp. (4)(6)
 
Oil & gas refining & marketing
 
First Lien Term Loan
 
3/22/2024
 
LIBOR+5.00%
 
7.60
%
 
8,000

 
7,920

 
8,000

Clearent Newco, LLC (6)
 
Application software
 
First Lien Term Loan
 
3/20/2024
 
LIBOR+4.00%
 
6.56
%
 
6,860

 
6,775

 
6,688

 
 
 
 
Delayed Draw Term Loan
 
3/20/2024
 
LIBOR+4.00%
 
6.56
%
 
1,188

 
1,163

 
1,138

 
 
 
 
First Lien Revolver
 
3/20/2023
 
PRIME+3.00%
 
8.50
%
 
693

 
680

 
666

 Total Clearent Newco, LLC
 
 
 
 
 
 
 
 
 
 
 
8,741

 
8,618

 
8,492

DigiCert, Inc. (4)(6)
 
Internet services & infrastructure
 
First Lien Term Loan
 
10/31/2024
 
LIBOR+4.00%
 
6.50
%
 
8,292

 
8,179

 
8,164

Eton (4)
 
Research & consulting services
 
Second Lien Term Loan
 
5/1/2026
 
LIBOR+7.50%
 
10.00
%
 
6,000

 
5,973

 
5,925

Everi Payments Inc. (6)
 
Casinos & gaming
 
First Lien Term Loan
 
5/9/2024
 
LIBOR+3.00%
 
5.50
%
 
4,913

 
4,889

 
4,889

Falmouth Group Holdings Corp. (6)
 
Specialty chemicals
 
First Lien Term Loan
 
12/14/2021
 
LIBOR+6.75%
 
9.25
%
 
4,121

 
4,092

 
4,093

Frontier Communications Corporation (6)
 
Integrated telecommunication services
 
First Lien Term Loan
 
6/15/2024
 
LIBOR+3.75%
 
6.25
%
 
1,995

 
1,944

 
1,953

Gentiva Health Services, Inc.
 
Healthcare services
 
First Lien Term Loan
 
7/2/2025
 
LIBOR+3.75%
 
6.25
%
 
7,960

 
7,830

 
7,990

Gigamon Inc. (6)
 
Systems software
 
First Lien Term Loan
 
12/27/2024
 
LIBOR+4.25%
 
6.85
%
 
7,900

 
7,835

 
7,801

 GoodRx, Inc.
 
Interactive media & services
 
First Lien Term Loan
 
10/10/2025
 
LIBOR+3.00%
 
5.49
%
 
7,980

 
7,962

 
7,907

Indivior Finance S.a.r.l. (6)
 
Pharmaceuticals
 
First Lien Term Loan
 
12/19/2022
 
LIBOR+4.50%
 
7.25
%
 
7,966

 
7,849

 
7,827


82


Portfolio Company
 
Industry
 
Investment Type
 
Maturity Date
 
Current Interest Rate(1)(2)
 
 Cash Interest Rate
 
Principal
 
Cost
 
Fair Value (3)
 Intelsat Jackson Holdings S.A. (6)
 
Alternative carriers
 
First Lien Term Loan
 
11/27/2023
 
LIBOR+3.75%
 
6.24
%
 
$
10,000

 
$
9,878

 
$
9,866

 KIK Custom Products Inc. (6)
 
Household products
 
First Lien Term Loan
 
5/15/2023
 
LIBOR+4.00%
 
6.50
%
 
8,000

 
7,968

 
7,493

 McDermott Technology (Americas), Inc. (4)(6)
 
Oil & gas equipment & services
 
First Lien Term Loan
 
5/12/2025
 
LIBOR+5.00%
 
7.50
%
 
9,900

 
9,725

 
9,512

 Mindbody, Inc. (4)(6)
 
Internet Services & Infrastructure
 
First Lien Term Loan
 
2/15/2025
 
LIBOR+7.00%
 
9.48
%
 
4,524

 
4,435

 
4,433

 
 
 
 
First Lien Revolver
 
2/15/2025
 
LIBOR+7.00%
 
 
 
—

 
(9
)
 
(10
)
 Total Mindbody, Inc.
 
 
 
 
 
 
 
 
 
 
 
4,524

 
4,426

 
4,423

Morphe LLC (4)(6)
 
Personal products
 
First Lien Term Loan
 
2/10/2023
 
LIBOR+6.00%
 
8.50
%
 
4,275

 
4,241

 
4,275

New IPT, Inc. (4)(6)
 
Oil & gas equipment & services
 
First Lien Term Loan
 
3/17/2021
 
LIBOR+5.00%
 
7.60
%
 
1,794

 
1,794

 
1,794

 
 
 
 
Second Lien Term Loan
 
9/17/2021
 
LIBOR+5.10%
 
7.70
%
 
263

 
263

 
263

 
 
 
 
21.876 Class A Common Units
 
 
 
 
 
 
 
—

 
—

 
1,268

Total New IPT, Inc.
 
 
 
 
 
 
 
 
 
 
 
2,057

 
2,057

 
3,325

Northern Star Industries Inc. (6)
 
Electrical components & equipment
 
First Lien Term Loan
 
3/31/2025
 
LIBOR+4.75%
 
7.35
%
 
6,930

 
6,900

 
6,895

Novetta Solutions, LLC (6)
 
Application software
 
First Lien Term Loan
 
10/17/2022
 
LIBOR+5.00%
 
7.50
%
 
6,024

 
5,987

 
5,915

OCI Beaumont LLC
 
Commodity chemicals
 
First Lien Term Loan
 
3/13/2025
 
LIBOR+4.00%
 
6.60
%
 
7,920

 
7,912

 
7,920

Refac Optical Group (4)(5)(7)
 
Specialty stores
 
First Lien Term Loan
 
1/9/2019
 
LIBOR+10.00%
 


 
2,133

 
1,940

 
2,133

Salient CRGT, Inc. (4)(6)
 
Aerospace & defense
 
First Lien Term Loan
 
2/28/2022
 
LIBOR+5.75%
 
8.25
%
 
2,236

 
2,209

 
2,208

Scientific Games International, Inc. (6)
 
Casinos & gaming
 
First Lien Term Loan
 
8/14/2024
 
LIBOR+2.75%
 
5.25
%
 
6,549

 
6,522

 
6,389

Sequa Corp. (6)
 
Aerospace & defense
 
First Lien Term Loan
 
11/28/2021
 
LIBOR+5.00%
 
7.78
%
 
6,970

 
6,764

 
6,839

SHO Holding I Corporation (6)
 
Footwear
 
First Lien Term Loan
 
10/27/2022
 
LIBOR+5.00%
 
7.74
%
 
8,463

 
8,443

 
7,955

Signify Health, LLC (6)
 
Healthcare services
 
First Lien Term Loan
 
12/23/2024
 
LIBOR+4.50%
 
7.10
%
 
9,900

 
9,817

 
9,900

Sirva Worldwide, Inc.
 
Diversified support services
 
First Lien Term Loan
 
8/4/2025
 
LIBOR+5.50%
 
8.10
%
 
4,969

 
4,894

 
4,857

Thruline Marketing, Inc. (4)(6)
 
Advertising
 
First Lien Term Loan
 
4/3/2022
 
LIBOR+7.00%
 
9.60
%
 
1,854

 
1,852

 
1,854

 
 
 
 
927 Common Stock Shares
 
 
 
 
 
 
 
—

 
1,088

 
658

 Total Thruline Marketing, Inc.
 
 
 
 
 
 
 
 
 
 
 
1,854

 
2,940

 
2,512

Triple Royalty Sub LLC
 
Pharmaceuticals
 
 Fixed Rate Bond
 
4/15/2033
 
9.00%
 


 
5,000

 
5,000

 
5,088

TV Borrower US, LLC (6)
 
Integrated telecommunications services
 
First Lien Term Loan
 
2/22/2024
 
LIBOR+4.75%
 
7.35
%
 
2,008

 
2,001

 
2,005

Uber Technologies, Inc. (4)(6)
 
Application software
 
First Lien Term Loan
 
4/4/2025
 
LIBOR+4.00%
 
6.49
%
 
9,925

 
9,882

 
9,945

Uniti Group LP (6)
 
Specialized REITs
 
First Lien Term Loan
 
10/24/2022
 
LIBOR+5.00%
 
7.50
%
 
6,434

 
6,223

 
6,300

 Valeant Pharmaceuticals International Inc.
 
Pharmaceuticals
 
First Lien Term Loan
 
11/27/2025
 
LIBOR+2.75%
 
5.23
%
 
1,924

 
1,915

 
1,904

Veritas US Inc. (4)(6)
 
Application software
 
First Lien Term Loan
 
1/27/2023
 
LIBOR+4.50%
 
7.00
%
 
6,929

 
6,885

 
6,437

Verra Mobility, Corp. (6)
 
Data processing & outsourced services
 
First Lien Term Loan
 
2/28/2025
 
LIBOR+3.75%
 
6.25
%
 
10,889

 
10,905

 
10,917

WP CPP Holdings, LLC (4)(6)
 
Aerospace & defense
 
Second Lien Term Loan
 
4/30/2026
 
LIBOR+7.75%
 
10.51
%
 
6,000

 
5,945

 
5,975

 
 
 
 
 
 
 
 
 
 
 
 
$
327,645

 
$
327,059

 
$
325,603


83


__________________
(1) Represents the current interest rate as of March 31, 2019. 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 March 31, 2019, the reference rates for SLF JV I's variable rate loans were the 30-day LIBOR at 2.50%, 60-day LIBOR at 2.56%, the 90-day LIBOR at 2.60%, the 180-day LIBOR at 2.65%, and the PRIME at 5.50%.
(3) Represents the current determination of fair value as of March 31, 2019 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 March 31, 2019.
(5) This investment was on cash non-accrual status as of March 31, 2019. Cash non-accrual status is inclusive of PIK and other non-cash income, where applicable.
(6) Loan includes interest rate floor, which is generally 1.00%.
(7) Payments on SLF JV I's investment in Refac Optical Group are currently past due.
 

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
 
8/18/2024
 
LIBOR+3.00% (1.00% 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
 
7/9/2025
 
LIBOR+4.50%
 
7.02
%
 
11,300

 
10,970

 
11,367

 Air Newco LP
 
 IT consulting & other services
 
First Lien Term Loan
 
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
 
8/1/2025
 
LIBOR+5.50%
 
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% (1.00% floor)
 
6.14
%
 
6,912

 
6,956

 
6,821

 Altice France S.A.
 
 Integrated telecommunication services
 
First Lien Term Loan
 
8/14/2026
 
LIBOR+4.00%
 
6.16
%
 
7,500

 
7,313

 
7,457

 Alvogen Pharma US, Inc.
 
 Pharmaceuticals
 
First Lien Term Loan
 
4/1/2022
 
LIBOR+4.75% (1.00% floor)
 
6.99
%
 
9,822

 
9,822

 
9,918

 Asset International, Inc.
 
 Research & consulting services
 
First Lien Term Loan
 
12/30/2024
 
LIBOR+4.50% (1.00% 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+3.00%
 
5.39
%
 
9,975

 
9,951

 
10,049

Brazos Delaware II, LLC
 
 Oil & gas equipment & services
 
First Lien Term Loan
 
5/21/2025
 
LIBOR+4.00%
 
6.17
%
 
7,481

 
7,446

 
7,458

Chloe Ox Parent LLC
 
 Healthcare services
 
First Lien Term Loan
 
12/23/2024
 
LIBOR+4.50% (1.00% floor)
 
6.89
%
 
9,950

 
9,860

 
9,987

Clearent Newco, LLC
 
Application software
 
First Lien Term Loan
 
3/20/2024
 
LIBOR+4.00% (1.00% floor)
 
6.24
%
 
6,894

 
6,800

 
6,796

 
 
 
 
Delayed Draw Term Loan
 
3/20/2024
 
LIBOR+4.00% (1.00% floor)
 
6.19
%
 
337

 
310

 
309

 
 
 
 
First Lien Revolver
 
3/20/2023
 
PRIME+3.00% (1.00% 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+7.50%
 
9.74
%
 
6,000

 
5,971

 
6,030

Everi Payments Inc.
 
Casinos & gaming
 
First Lien Term Loan
 
5/9/2024
 
LIBOR+3.00% (1.00% floor)
 
5.24
%
 
4,938

 
4,914

 
4,973

Falmouth Group Holdings Corp.
 
Specialty chemicals
 
First Lien Term Loan
 
12/14/2021
 
LIBOR+6.75% (1.00% 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+6.50% (1.00% floor)
 
 
 
5,797

 
5,772

 
1,159

Gigamon Inc.
 
 Systems software
 
First Lien Term Loan
 
12/27/2024
 
LIBOR+4.50% (1.00% floor)
 
6.89
%
 
7,940

 
7,869

 
8,000


84


Portfolio Company
 
Industry
 
Investment Type
 
Maturity Date
 
Current Interest Rate(1)(2)
 
 Cash Interest Rate
 
Principal
 
Cost
 
Fair Value (3)
IBC Capital Ltd.
 
 Metal & glass containers
 
First Lien Term Loan
 
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
 
10/1/2021
 
LIBOR+7.25% (1.25% floor)
 
9.65
%
 
8,375

 
8,389

 
8,375

 
 
 
 
First Lien Term Loan
 
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

Keypath Education, Inc. (4)
 
 Advertising
 
First Lien Term Loan
 
4/3/2022
 
LIBOR+7.00% (1.00% floor)
 
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
 
5/15/2023
 
LIBOR+4.00% (1.00% floor)
 
6.24
%
 
8,000

 
7,965

 
7,975

 McDermott Technology (Americas) Inc. (4)
 
 Oil & gas equipment & services
 
First Lien Term Loan
 
5/12/2025
 
LIBOR+5.00% (1.00% floor)
 
7.24
%
 
9,950

 
9,760

 
10,097

Morphe LLC (4)
 
Personal products
 
First Lien Term Loan
 
2/10/2023
 
LIBOR+6.00% (1.00% floor)
 
8.40
%
 
4,388

 
4,348

 
4,388

New IPT, Inc. (4)
 
 Oil & gas equipment & services
 
First Lien Term Loan
 
3/17/2021
 
LIBOR+5.00% (1.00% floor)
 
7.39
%
 
1,794

 
1,794

 
1,794

 
 
 
 
Second Lien Term Loan
 
9/17/2021
 
LIBOR+5.10% (1.00% floor)
 
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
 
3/31/2025
 
LIBOR+4.75% (1.00% floor)
 
7.08
%
 
6,965

 
6,933

 
6,974

Novetta Solutions, LLC
 
Application software
 
First Lien Term Loan
 
10/17/2022
 
LIBOR+5.00% (1.00% floor)
 
7.25
%
 
6,055

 
6,012

 
5,881

OCI Beaumont LLC
 
Commodity chemicals
 
First Lien Term Loan
 
3/13/2025
 
LIBOR+4.00% (1.00% floor)
 
6.39
%
 
7,960

 
7,951

 
8,089

Refac Optical Group (4)(5)
 
Specialty stores
 
First Lien Term Loan
 
9/30/2018
 
LIBOR+8.00%
 
10.26
%
 
2,573

 
2,476

 
2,573

Salient CRGT, Inc. (4)
 
Aerospace & defense
 
First Lien Term Loan
 
2/28/2022
 
LIBOR+5.75% (1.00% floor)
 
7.99
%
 
2,267

 
2,235

 
2,301

Scientific Games International, Inc.
 
Casinos & gaming
 
First Lien Term Loan
 
8/14/2024
 
LIBOR+2.75% (1.00% floor)
 
5.03
%
 
6,582

 
6,552

 
6,579

SHO Holding I Corporation
 
Footwear
 
First Lien Term Loan
 
11/18/2022
 
LIBOR+5.00% (1.00% floor)
 
7.34
%
 
8,507

 
8,484

 
8,082

 Sirva Worldwide, Inc.
 
Diversified support services
 
First Lien Term Loan
 
8/4/2025
 
LIBOR+5.50%
 
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% (1.00% floor)
 
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% (1.00% floor)
 
7.14
%
 
2,019

 
2,011

 
2,026

Uber Technologies Inc.
 
Application software
 
First Lien Term Loan
 
4/4/2025
 
LIBOR+4.00% (1.00% floor)
 
6.12
%
 
9,975

 
9,928

 
10,055

Uniti Group LP
 
Specialized REITs
 
First Lien Term Loan
 
10/24/2022
 
LIBOR+3.00% (1.00% floor)
 
5.24
%
 
6,467

 
6,225

 
6,198

 Veritas US Inc.
 
Application software
 
First Lien Term Loan
 
1/27/2023
 
LIBOR+4.50% (1.00% floor)
 
6.78
%
 
6,965

 
6,915

 
6,801

 Verra Mobility, Corp. (4)
 
Data processing & outsourced services
 
First Lien Term Loan
 
2/28/2025
 
LIBOR+3.75% (1.00% floor)
 
5.99
%
 
10,945

 
10,961

 
11,013

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

85


I's variable rate loans were the 30-day LIBOR at 2.24%, the 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.
 
Both the cost and fair value of the subordinated notes of SLF JV I held by us were $96.3 million as of March 31, 2019. 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 $2.3 million and $5.1 million on our investments in the SLF JV I Notes for the three and six months ended March 31, 2019, respectively. We earned interest of $2.6 million and $5.4 million on our investments in the mezzanine notes for the three and six months ended March 31, 2018, respectively. The subordinated notes bear interest at a rate of one-month LIBOR plus 7.0% per annum and mature on December 29, 2028.
The cost and fair value of the LLC equity interests in SLF JV I held by us was $49.3 million and $30.6 million, respectively, as of March 31, 2019, and $16.2 million and $0.0 million, respectively, as of September 30, 2018. We did not earn dividend income for the three and six months ended March 31, 2019 with respect to our investment in the LLC equity interests of SLF JV I. We earned dividend income of $1.6 million for the three and six months ended March 31, 2018 with respect to our 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 March 31, 2019 and September 30, 2018 and for the three and six months ended March 31, 2019 and 2018:
 
 
March 31, 2019
 
September 30, 2018
Selected Balance Sheet Information:
 
 
 
 
Investments in loans at fair value (cost March 31, 2019: $327,059; cost September 30, 2018: $297,158)
 
$
325,603

 
$
294,676

Receivables from secured financing arrangements at fair value (cost March 31, 2019 and September 30, 2018: $9,801)
 
7,163

 
7,069

Cash and cash equivalents
 
5,195

 
3,226

Restricted cash
 
4,902

 
4,808

Other assets
 
3,759

 
4,418

Total assets
 
$
346,622

 
$
314,197

 
 
 
 
 
Senior credit facility payable
 
$
185,010

 
$
153,010

Debt securities payable at fair value (proceeds March 31, 2019: $110,000; proceeds September 30, 2018: $147,808)
 
110,000

 
147,808

Other liabilities
 
16,658

 
13,331

Total liabilities
 
311,668

 
314,149

Members' equity
 
34,954

 
48

Total liabilities and members' equity
 
$
346,622

 
$
314,197


 
 
Three months ended March 31, 2019
 
Three months ended March 31, 2018
 
Six months ended March 31, 2019
 
Six months ended March 31, 2018
Selected Statements of Operations Information:
 
 
 
 
 
 
 
 
Interest income
 
$
5,551

 
$
4,929

 
$
10,989

 
$
9,657

Other income
 
80

 
49

 
89

 
49

Total investment income
 
5,631

 
4,978

 
11,078

 
9,706

Interest expense
 
4,709

 
4,915

 
9,863

 
10,060

Other expenses
 
276

 
111

 
326

 
272

Total expenses (1)
 
4,985

 
5,026

 
10,189

 
10,332

Net unrealized appreciation (depreciation)
 
4,576

 
1,219

 
1,120

 
993

Net realized gains (losses)
 
19

 
(17
)
 
(4,986
)
 
(21
)
Net income (loss)
 
$
5,241

 
$
1,154

 
$
(2,977
)
 
$
346

 __________

86


(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.
During the six months ended March 31, 2019, we sold $8.4 million of senior secured debt investments to SLF JV I at fair value in exchange for $8.3 million cash consideration. A loss of $0.1 million was recognized by us on these transactions. We did not sell any debt investments to SLF JV I during the six months ended March 31, 2018.
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 and Six Months Ended March 31, 2019 and March 31, 2018
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 March 31, 2019 and March 31, 2018 was $38.2 million and $34.8 million, respectively. For the three months ended March 31, 2019, this amount consisted of $36.6 million of interest income from portfolio investments (which included $2.3 million of PIK interest), $1.1 million of fee income and $0.5 million of dividend income. For the three months ended March 31, 2018, this amount primarily consisted of $28.6 million of interest income from portfolio investments (which included $1.9 million of PIK interest), $3.9 million of fee income and $2.3 million of dividend income. The increase of $3.5 million, or 10.0%, in our total investment income for the three months ended March 31, 2019, as compared to the three months ended March 31, 2018, was due primarily to a $8.0 million increase in interest income, which was primarily attributable to $4.3 million of OID accretion related to our first lien term loan and revolver with Dominion Diagnostics, LLC, $0.8 million of interest income related to our investment in Maverick Healthcare Group, LLC, which was on non-accrual status during the three months ended March 31, 2018, and increases in LIBOR, partially offset by a $2.8 million decrease in fee income, which was attributable to higher structuring and prepayment fees earned during the three months ended March 31, 2018, and a $1.7 million decrease in dividend income, which was primarily attributable to higher dividend income earned on our investment in SLF JV I during the three months ended March 31, 2018.
Total investment income for the six months ended March 31, 2019 and March 31, 2018 was $76.5 million and $68.7 million, respectively. For the six months ended March 31, 2019, this amount consisted of $73.2 million of interest income from portfolio investments (which included $3.1 million of PIK interest), $2.3 million of fee income and $1.0 million of dividend income. For the six months ended March 31, 2018, this amount primarily consisted of $60.4 million of interest income from portfolio investments (which included $3.8 million of PIK interest), $5.0 million of fee income and $3.3 million of dividend income. The increase of $7.9 million, or 11.5%, in our total investment income for the six months ended March 31, 2019, as compared to the six months ended March 31, 2018, was due primarily to a $12.8 million increase in interest income, which was primarily attributable to $9.9 million of OID accretion related to our first lien term loan and revolver with Dominion Diagnostics, LLC, $1.2 million of interest income related to our investment in Maverick Healthcare Group, LLC, which was on non-accrual status during the six months ended March 31, 2018, and increases in LIBOR, partially offset by a $2.6 million decrease in fee income, which was attributable to higher structuring and prepayment fees earned during the six months ended March 31, 2018, and a $2.3 million decrease in dividend income, which was attributable to higher dividend income earned related to our investments in SLF JV I and First Star Bermuda Aviation Limited during the six months ended March 31, 2018.

87


Expenses
Net expenses (expenses net of fee waivers) for the three months ended March 31, 2019 and March 31, 2018 were $20.5 million and $19.5 million, respectively. Net expenses increased for the three months ended March 31, 2019, as compared to the three months ended March 31, 2018, by $1.0 million, or 5.2%, due primarily to a $0.8 million increase in incentive fees (net of waivers), which was attributable to a higher pre-incentive fee net investment income, a $0.4 million increase in interest expense, which was attributable to increases in LIBOR and higher levels of outstanding debt, a $0.3 million increase in management fees, which was attributable to higher total assets, partially offset by a $0.5 million decrease in professional fees.
Net expenses (expenses net of fee waivers) for the six months ended March 31, 2019 and March 31, 2018 were $41.5 million and $40.1 million, respectively. Net expenses increased for the six months ended March 31, 2019, as compared to the six months ended March 31, 2018, by $1.4 million, or 3.6%, due primarily to a $4.1 million increase in incentive fees (net of waivers), which was attributable to a higher pre-incentive fee net investment income, a $0.3 million increase in management fees, which was attributable to higher total assets, and a $0.3 million increase in administrator expense, partially offset by a $2.4 million decrease in professional fees, a $0.5 million decrease in general and administrative expenses and a $0.2 million decrease in interest expense.
Net Investment Income
As a result of the $3.5 million increase in total investment income and the $1.0 million increase in net expenses, net investment income for the three months ended March 31, 2019 increased by $2.4 million, or 16.0%, compared to the three months ended March 31, 2018.
As a result of the $7.9 million increase in total investment income and the $1.4 million increase in net expenses, net investment income for the six months ended March 31, 2019 increased by $6.4 million, or 22.5%, compared to the six months ended March 31, 2018.
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 March 31, 2019, we recorded net realized gains of $25.2 million primarily in connection with the full exits of our investments in Maverick Healthcare Group, LLC and Comprehensive Pharmacy Services LLC. During the three months ended March 31, 2018, we recorded net realized gains of $4.9 million in connection with the sale of investments in AmBath/ReBath Holdings, Inc., Yeti Acquisition, LLC and Access Medical Acquisition, Inc.
During the six months ended March 31, 2019, we recorded net realized gains of $43.2 million primarily in connection with the full or partial exits of our investments in Maverick Healthcare Group, LLC, Comprehensive Pharmacy Services LLC, BeyondTrust Holdings LLC, InMotion Entertainment Group, LLC and YETI Holdings, Inc. During the six months ended March 31, 2018, we recorded net realized gains of $4.6 million in connection with the sale of investments in AmBath/ReBath Holdings, Inc., Yeti Acquisition, LLC and Access Medical Acquisition, Inc.
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 March 31, 2019 and 2018, we recorded net unrealized appreciation (depreciation) of $21.5 million and $(0.4) million, respectively. For the three months ended March 31, 2019, this consisted of $22.3 million of net unrealized appreciation on equity investments, $3.6 million of net unrealized appreciation on debt investments and $0.8 million of net unrealized appreciation of foreign currency forward contracts, partially offset by $5.2 million of net reclassifications to realized gains (resulting in unrealized depreciation). For the three months ended March 31, 2018, this consisted of $5.1 million of net unrealized appreciation on debt investments and $0.4 million of net unrealized depreciation on secured borrowings, offset by $1.2 million of net unrealized depreciation on equity investments and $4.6 million of net reclassifications to realized gains (resulting in unrealized depreciation).
During the six months ended March 31, 2019 and 2018, we recorded net unrealized appreciation (depreciation) of $14.5 million and $(43.8) million, respectively. For the six months ended March 31, 2019, this consisted of $24.2 million of net reclassifications to realized losses (resulting in unrealized appreciation), $14.0 million of net unrealized appreciation on equity investments and $0.4 million of net unrealized appreciation of foreign currency forward contracts, partially offset by $24.1 million of net unrealized depreciation on debt

88


investments. For the six months ended March 31, 2018, this consisted of $33.9 million of net unrealized depreciation on debt investments, $5.1 million of net unrealized depreciation on equity investments and $6.9 million of net reclassifications to realized gains (resulting in unrealized depreciation), offset by $2.1 million of net unrealized depreciation on 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. 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 of our senior securities will be 150% rather than 200% effective as of February 1, 2020. In addition, we have filed a preliminary proxy statement and intend to convene a special meeting of our stockholders to approve the application of the reduced asset coverage requirements in Section 61(a)(2) of the Investment Company Act to us. If such approval is obtained, the asset coverage required of our senior securities will be reduced to 150% effective the day after approval. Upon effectiveness of the modified asset coverage requirements to us, the base management fee will be reduced 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).
For the six months ended March 31, 2019, we experienced a net decrease in cash and cash equivalents and restricted cash of $0.3 million. During that period, we received $74.7 million of net cash from operating activities, primarily from $329.0 million of principal payments and sale proceeds received and the cash activities related to $17.7 million of net investment income, partially offset by funding $270.3 million of investments and net revolvers. During the same period, net cash used in financing activities was $75.1 million, primarily consisting of $183.8 million of net borrowings under the ING Facility (as defined below), $228.8 million of repayments of unsecured notes, $0.7 million of repayments of secured borrowings, $26.1 million of cash distributions paid to our stockholders and $0.7 million of repurchases of common stock under our dividend reinvestment plan, or DRIP.
For the six months ended March 31, 2018, we experienced a net decrease in cash and cash equivalents and restricted cash of $51.8 million. During that period, we received $78.7 million of net cash from operating activities, primarily from $534.3 million of principal payments and sale proceeds received and the cash activities related to $28.6 million of net investment income, partially offset by funding $427.9 million of investments and net revolvers. During the same period, net cash used by financing activities was $130.5 million, primarily consisting of $73.0 million of net repayments under our credit facilities, $21.2 million of repurchases of unsecured notes, $0.5 million of repayments of secured borrowings, $28.8 million of cash distributions paid to our stockholders, $6.2 million of payments of deferred financing costs and $0.8 million of repurchases of common stock under our DRIP.
As of March 31, 2019, we had $13.2 million in cash and cash equivalents (including $0.3 million of restricted cash), portfolio investments (at fair value) of $1.5 billion, $9.8 million of interest, dividends and fees receivable, $8.1 million of net payables from unsettled transactions, $424.8 million of borrowings outstanding under our ING Facility (as defined below), $158.3 million of unsecured notes payable (net of unamortized financing costs), $9.0 million of secured borrowings (at fair value) and unfunded commitments of $95.1 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
February 1, 2019
 
March 15, 2019
 
March 29, 2019
 
0.095

 
13.1 million
 
59,603

 
 0.3 million
 ______________
(1)
Shares were purchased on the open market and distributed.
We did not repurchase shares of our common stock during the three and six months ended March 31, 2019 and 2018.
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 and restated, the ING Facility, pursuant to a Senior Secured Revolving 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.
On February 25, 2019, we amended and restated the ING Facility to increase the size of facility from $600 million to $680 million (with an “accordion” feature that permits us, under certain circumstances, to increase the size of the facility up to $1.02 billion), extend the period during which we may make drawings from expiring on November 30, 2020 to expiring on February 25, 2023, extend the final maturity date from November 30, 2021 to February 25, 2024, and lower the interest rate margins (a) for LIBOR loans (which may be 1-, 2-, 3- or 6-month, at our option), from 2.75% to 2.25% or from 2.25% to 2.00% and (b) for alternate base rate loans, from 1.75% to 1.25% or from 1.25% to 1.00%, each depending on our senior debt coverage ratio.
Each loan or letter of credit originated or assumed under the ING Facility is subject to the satisfaction of certain conditions. Borrowings under the ING Facility are subject to the facility’s various covenants and the leverage restrictions contained in the Investment Company Act. 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 March 31, 2019, with which we must comply under the ING Facility on a quarterly basis:
Financial Covenant
 
Description
 
Target Value
 
December 31, 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
 
$872 million
Asset coverage ratio
 
Asset coverage ratio shall not be less than the greater of 1.65:1 and the statutory test applicable to us
 
2.00:1
 
2.42:1
Interest coverage ratio
 
Interest coverage ratio shall not be less than 2.00:1
 
2.00:1
 
2.86:1
Minimum net worth
 
Net worth shall not be less than $600 million
 
$600 million
 
$857 million
 ___________ 
(1) As contractually required, we report financial covenants based on the last filed quarterly or annual report, in this case our Quarterly Report on Form 10-Q for the three months ended December 31, 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 Facility, 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 March 31, 2019, we had $424.8 million of borrowings outstanding under the ING Facility, which had a fair value of $424.8 million. Our borrowings under the ING Facility bore interest at a weighted average interest rate of 4.688% for the six months ended March 31, 2019. Our borrowings under the Prior ING Facility bore interest at a weighted average interest rate of 3.637% for the period from November 30, 2017 to March 31, 2018. As of September 30, 2018, we had $241.0 million of borrowings outstanding under the ING Facility.
For the three and six months ended March 31, 2019, we recorded interest expense of $4.3 million and $7.5 million, in the aggregate, related to the ING Facility. For the three and six months ended March 31, 2018, we recorded interest expense of $2.5 million and $5.2 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 March 31, 2019 and September 30, 2018, 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 six months ended March 31, 2018, 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 and six months ended March 31, 2019 and 2018, we recorded interest expense of $2.1 million and $5.1 million, respectively, related to our 4.875% unsecured notes due 2019, or the 2019 Notes. During the three and six months ended March 31, 2019, we fully repaid the 2019 Notes. During the three and six months ended March 31, 2018, we repurchased and subsequently canceled $21.2 million of the 2019 Notes. We recognized a loss of $0.1 million in connection with such transaction.
As of March 31, 2019, there were no 2019 Notes outstanding. 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 the three and six months ended March 31, 2019, we recorded interest expense of $1.2 million and $2.3 million, respectively, related to our 5.875% unsecured notes due 2024, or the 2024 Notes. For the three and six months ended March 31, 2018, we recorded interest expense of $1.2 million and $2.3 million, respectively, related to the 2024 Notes. During the six months ended March 31, 2019 and 2018, we did not repurchase any of the 2024 Notes in the open market.
As of March 31, 2019, there were $75.0 million of 2024 Notes outstanding, which had a carrying value and fair value of $73.8 million and $76.2 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 March 31, 2019, 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 the three and six months ended March 31, 2019, we recorded interest expense of $1.4 million and $2.7 million, respectively, related to our 6.125% unsecured notes due 2028, or the 2028 Notes. For the three and six months ended March 31, 2018, we recorded interest expense of $1.4 million and $2.7 million, respectively, related to the 2028 Notes. During the six months ended March 31, 2019 and 2018, we did not repurchase any of the 2028 Notes in the open market.

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As of March 31, 2019, there were $86.3 million of 2028 Notes outstanding, which had a carrying value and fair value of $84.5 million and $86.7 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 March 31, 2019, 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 March 31, 2019, there were $11.5 million of secured borrowings outstanding. As of March 31, 2019, secured borrowings at fair value totaled $9.0 million and the fair value of the loan that is associated with these secured borrowings was $33.9 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 six months ended March 31, 2019, there were $0.7 million of net repayments on secured borrowings. During the six months ended March 31, 2018, there were $0.5 million of net repayments on secured borrowings.
For the three and six months ended March 31, 2019, we recorded interest expense of $0.1 million and $0.1 million, respectively, related to the secured borrowings. For the three and six months ended March 31, 2018, we recorded interest expense of $0.3 million and $0.6 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 March 31, 2019, our only off-balance sheet arrangements consisted of $95.1 million of unfunded commitments, which was comprised of $90.3 million to provide debt financing to certain of our portfolio companies, $1.3 million to provide equity financing to SLF JV I and $3.5 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.

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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 March 31, 2019 and September 30, 2018 is shown in the table below:
 
 
March 31, 2019
 
September 30, 2018
Assembled Brands Capital LLC
 
$
38,932

 
$
—

Sorrento Therapeutics, Inc.
 
12,500

 
—

P2 Upstream Acquisition Co.
 
9,000

 
10,000

TerSera Therapeutics, LLC
 
8,100

 
3,281

Pingora MSR Opportunity Fund I-A, LP
 
3,500

 
4,656

Mindbody, Inc.
 
3,048

 
—

Thruline Marketing, Inc.
 
3,000

 
3,000

Datto Inc.
 
2,356

 
2,356

4 Over International, LLC
 
2,232

 
2,232

New IPT, Inc.
 
2,229

 
2,229

Dominion Diagnostics, LLC
 
2,090

 
4,180

Thing5, LLC (1)
 
1,726

 
1,298

Apptio, Inc.
 
1,538

 
—

Senior Loan Fund JV I, LLC
 
1,328

 
1,328

GKD Index Partners, LLC
 
1,156

 
289

Ministry Brands, LLC
 
1,000

 
700

iCIMs, Inc.
 
882

 
882

Cenegenics, LLC (1)(2)
 
297

 
297

PLATO Learning Inc. (1)
 
160

 
2,671

InMotion Entertainment Group, LLC
 
—

 
7,534

Access CIG, LLC
 
—

 
765

EOS Fitness Opco Holdings, LLC
 
—

 
5,000

Total
 
$
95,074

 
$
52,698

 ___________ 
(1) This investment was on cash or PIK non-accrual status as of March 31, 2019.
(2) This portfolio company does not have the ability to draw on this unfunded commitment as of March 31, 2019.

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 March 31, 2019
 
Weighted average debt
outstanding for the
six months ended
March 31, 2019
 
Maximum debt
outstanding
for the six months ended
March 31, 2019


ING Facility
 
$
241,000

 
$
424,825

 
$
249,399

 
$
439,825

2019 Notes
 
228,825

 
—

 
189,849

 
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

 
11,502

 
12,151

 
12,314

Total debt
 
$
643,389

 
$
597,577

 
$
612,649

 


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The following table reflects our contractual obligations arising from the ING Facility, our secured borrowings, our 2024 Notes and our 2028 Notes:
 
 
 
Payments due by period as of March 31, 2019
Contractual Obligations
 
Total
 
Less than 1 year
 
1-3 years
 
3-5 years
 
More than 5 years
ING Facility
 
$
424,825

 
$
—

 
$
—

 
$
424,825

 
$
—

Interest due on ING Facility
 
93,805

 
19,117

 
38,234

 
36,454

 
—

Secured borrowings
 
11,502

 
—

 
11,502

 
—

 
—

Interest due on secured borrowings
 
2,171

 
1,415

 
756

 
—

 
—

2024 Notes
 
75,000

 
—

 
—

 
—

 
75,000

Interest due on 2024 Notes
 
24,627

 
4,406

 
8,813

 
8,813

 
2,595

2028 Notes
 
86,250

 
—

 
—

 
—

 
86,250

Interest due on 2028 Notes
 
48,023

 
5,283

 
10,566

 
10,566

 
21,608

Total
 
$
766,203

 
$
30,221

 
$
69,871

 
$
480,658

 
$
185,453

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.
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

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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 May 3, 2019, our Board of Directors declared a quarterly distribution of $0.095 per share, payable on June 28, 2019 to stockholders of record on June 14, 2019.
ING Facility
On April 1, 2019, we increased the size of the ING Facility from $680 million to $700 million under the “accordion” feature that permits us, under certain circumstances, to increase the size of the facility up to $1.02 billion.

Investment Advisory Agreement
On May 3, 2019, we entered into an amended and restated investment advisory agreement with Oaktree which provides that effective upon the application of the reduced asset coverage requirements in Section 61(a)(2) of the Investment Company Act to us, the base management fee on our gross assets, including any investments made with borrowings, but excluding any cash and cash equivalents, that exceed the product of (A) 200% and (B) our net asset value will be 1.00%. For the avoidance of doubt, the 200% will be calculated in accordance with the Investment Company Act and will give effect to exemptive relief we received from the U.S. SEC with respect to 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 March 31, 2019, 86.3% of our debt investment portfolio (at fair value) and 84.2% 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 March 31, 2019 and September 30, 2018 was as follows: 
 
 
March 31, 2019
 
September 30, 2018
($ in thousands)
 
Fair Value
 
% of Floating
Rate Portfolio
 
Fair Value
 
% of Floating
Rate Portfolio
Under 1%
 
$
402,137

 
33.18
%
 
$
282,999

 
23.99
%
1% to under 2%
 
809,827

 
66.82

 
896,574

 
76.01

2% to under 3%
 
—

 
—

 
—

 
—

3% and over
 
—

 
—

 
—

 
—

Total
 
$
1,211,964

 
100.00
%
 
$
1,179,573

 
100.00
%
Based on our Consolidated Statement of Assets and Liabilities as of March 31, 2019, 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
 
$
35,104

 
$
(12,700
)
 
$
22,404

200
 
23,455

 
(8,500
)
 
14,955

100
 
11,807

 
(4,200
)
 
7,607

Basis point decrease
 
Interest Income
 
Interest Expense
 
Net increase (decrease)
100
 
$
(11,491
)
 
$
4,200

 
$
(7,291
)
200 (1)
 
(18,930
)
 
8,500

 
(10,430
)
 __________
(1) The effect of a greater than 200 basis point decrease is limited by interest rate floors on certain investments.

96


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 March 31, 2019 and September 30, 2018: 
 
 
March 31, 2019
 
September 30, 2018
($ in thousands)
 
Interest Bearing
Cash and
Investments
 
Borrowings
 
Interest Bearing
Cash and
Investments
 
Borrowings
Money market rate
 
$
1,204

 
$
—

 
$
9,108

 
$
—

Prime rate
 
47,781

 
—

 
1,011

 
—

LIBOR
 
 
 
 
 
 
 
 
30 day
 
735,864

 
424,825

 
609,755

 
241,000

60 day
 
—

 
—

 
55,949

 
—

90 day
 
459,050

 
11,502

 
606,856

 
12,314

180 day
 
—

 
—

 
15,000

 
—

EURIBOR
 
 
 
 
 
 
 
 
30 day
 
19,650

 
—

 
—

 
—

UK LIBOR
 
 
 
 
 
 
 
 
30 day
 
23,455

 
—

 
—

 
—

Fixed rate
 
225,682

 
161,250

 
296,031

 
390,075

Total
 
$
1,512,686

 
$
597,577

 
$
1,593,710

 
$
643,389



97


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 March 31, 2019. 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 March 31, 2019, 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 March 31, 2019 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.

Item 1A. Risk Factors

Except as set forth below, there have been no material changes during the three months ended March 31, 2019 to the risk factors discussed in Item 1A. Risk Factors in our Quarterly Report on Form 10-Q for the three months ended December 31, 2018 and our Annual Report on Form 10-K for the year ended September 30, 2018.
Item 2.    Unregistered Sales of Equity Securities and Use of Proceeds.
None.

Item 3. Defaults Upon Senior Securities
None.

Item 4.     Mine Safety Disclosures
Not applicable.

Item 5. Other Information
None.


98


Item 6. Exhibits
 
 
Amended and Restated Senior Secured Revolving Credit Agreement, dated as of February 25, 2019, among Oaktree Specialty Lending Corporation, as Borrower, 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 (Incorporated by reference to Exhibit 10.1 filed with the Registrant’s Form 8-K (File No. 814-00755) filed on February 26, 2019).
 
 
 
 
Amended and Restated Investment Advisory Agreement between Oaktree Specialty Lending Corporation and Oaktree Capital Management, L.P.
 
 
 
  
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: May 7, 2019


99
Exhibit

AMENDED AND RESTATED
INVESTMENT ADVISORY AGREEMENT
BETWEEN
OAKTREE SPECIALTY LENDING CORPORATION
AND
OAKTREE CAPITAL MANAGEMENT, L.P.
This Amended and Restated Investment Advisory Agreement (this “Agreement”) made effective as of October 17, 2017 (the “Effective Date”), as amended on May 3, 2019, by and between OAKTREE SPECIALTY LENDING CORPORATION, a Delaware corporation (the “Company”), and OAKTREE CAPITAL MANAGEMENT, L.P., a Delaware limited partnership (the “Adviser”).
WHEREAS, the Company is a closed-end management investment fund that has elected to be regulated as a business development company (“BDC”) under the Investment Company Act of 1940, as amended (the “Investment Company Act”); and
WHEREAS, the Adviser is organized as an investment adviser that is registered under the Investment Advisers Act of 1940, as amended (the “Advisers Act”); and
WHEREAS, the Company and the Adviser desire to set forth the terms and conditions for the provision by the Adviser of investment advisory services to the Company.
NOW, THEREFORE, in consideration of the premises and for other good and valuable consideration, the parties hereby agree as follows:
1.
Duties of the Adviser.
(a)    The Company hereby appoints the Adviser to act as the investment adviser to the Company and to manage the investment and reinvestment of the assets of the Company, subject to the supervision of the Board of Directors of the Company, (the “Board”) for the period and upon the terms herein set forth, (i) in accordance with the investment objective, policies and restrictions that are set forth in the reports and/or registration statements that the Company files with the Securities and Exchange Commission (the “SEC”) from time to time; (ii) in accordance with all other applicable federal and state laws, rules and regulations, and the Company’s charter and by-laws; and (iii) in accordance with the Investment Company Act. Without limiting the generality of the foregoing, the Adviser shall, during the term and subject to the provisions of this Agreement (A) determine the composition of the portfolio of the Company, the nature and timing of the changes therein and the manner of implementing such changes; (B) identify, evaluate and negotiate the structure of the investments made by the Company; (C) execute, close, monitor and service the Company’s investments; (D) determine the securities and other assets that the Company will purchase, retain, or sell; (E) perform due diligence on prospective

1

portfolio companies; and (F) provide the Company with such other investment advisory, research and related services as the Company may, from time to time, reasonably require for the investment of its funds. The Adviser shall have the power and authority on behalf of the Company to effectuate its investment decisions for the Company, including the negotiation, execution and delivery of all documents relating to the Company’s investments and the placing of orders for other purchase or sale transactions on behalf of the Company. In the event that the Company determines to obtain debt financing (or refinance such financing), the Adviser shall arrange for such financing on the Company’s behalf, subject to the oversight and approval of the Board. If it is necessary for the Adviser to make investments on behalf of the Company through a special purpose vehicle, the Adviser shall have authority to create or arrange for the creation of such special purpose vehicle and to make such investments through such special purpose vehicle.
(b)    The Adviser hereby accepts such appointment and agrees during the term hereof to render the services described herein for the compensation provided herein.
(c)    The Adviser is hereby authorized to enter into one or more sub-advisory agreements with other investment advisers (each, a “Sub-Adviser”) pursuant to which the Adviser may obtain the services of the Sub-Adviser(s) to assist the Adviser in fulfilling its responsibilities hereunder. Specifically, the Adviser may retain a Sub-Adviser to recommend specific securities or other investments based upon the Company’s investment objective and policies, and work, along with the Adviser, in structuring, negotiating, arranging or effecting the acquisition or disposition of such investments and monitoring investments on behalf of the Company, subject to the oversight of the Adviser and the Company. The Adviser, and not the Company, shall be responsible for any compensation payable to any Sub-Adviser. Any sub-advisory agreement entered into by the Adviser shall be in accordance with the requirements of the Investment Company Act and other applicable federal and state law.
(d)    The Adviser shall, for all purposes herein provided, be deemed to be an independent contractor and, except as expressly provided or authorized herein, shall have no authority to act for or represent the Company in any way or otherwise be deemed an agent of the Company.
(e)    Subject to review by and the overall control of the Board, the Adviser shall keep and preserve, in the manner and for the period required by the Investment Company Act, any books and records relevant to the provision of its investment advisory services to the Company and shall specifically maintain all books and records with respect to the Company’s portfolio transactions and shall render to the Board such periodic and special reports as the Board may reasonably request. The Adviser agrees that all records that it maintains for the Company are the property of the Company and shall surrender promptly to the Company any such records upon the Company’s request, provided that the Adviser may retain a copy of such records.
2.
Company’s Responsibilities and Expenses Payable by the Company.
All personnel of the Adviser, when and to the extent engaged in providing investment advisory services hereunder, and the compensation and routine overhead expenses of such personnel allocable to such services, shall be provided and paid for by the Adviser and not by the

2

Company. The Company shall bear all other costs and expenses of its operations and transactions, including (without limitation) fees and expenses relating to: (a) offering expenses; (b) diligence and monitoring of the Company’s financial, regulatory and legal affairs (to the extent an investment opportunity is being considered for the Company and any other accounts managed by Adviser or its affiliates, the Adviser’s out-of-pocket expenses related to the due diligence for such investment will be shared with such other accounts pro rata based on the anticipated allocation of such investments opportunity between the Company and the other accounts); (c) the cost of calculating the Company’s net asset value; (d) the cost of effecting sales and repurchases of shares of the Company’s common stock and other securities; (e) management and incentive fees payable pursuant to this Agreement; (f) fees payable to third parties relating to, or associated with, making investments and valuing investments (including third-party valuation firms); (g) transfer agent and custodial fees; (h) fees and expenses associated with marketing efforts (including attendance at investment conferences and similar events); (i) allocable out-of-pocket costs incurred in providing managerial assistance to those portfolio companies that request it; (j) fees, interest or other costs payable on or in connection with any indebtedness; (k) federal and state registration fees; (l) any exchange listing fees; (m) federal, state and local taxes; (n) independent directors’ fees and expenses; (o) brokerage commissions; (p) costs of proxy statements, stockholders’ reports and notices; (q) costs of preparing government filings, including periodic and current reports with the SEC; (r) fidelity bond, liability insurance and other insurance premiums; (s) printing, mailing, independent accountants and outside legal costs; (t) all other direct expenses incurred by either the Company’s administrator or the Company in connection with administering the Company’s business, including payments under the Company’s administration agreement with its administrator (as in effect from time to time, the “Administration Agreement”) that will be based upon the Company’s allocable portion of overhead and other expenses incurred by the Company’s administrator in performing its obligations under the Administration Agreement; and (u) the compensation of the Company’s chief financial officer and chief compliance officer, and their respective staffs.
3.
Compensation of the Adviser.
The Company agrees to pay, and the Adviser agrees to accept, as compensation for the services provided by the Adviser hereunder, a base management fee (“Base Management Fee”) and an incentive fee (“Incentive Fee”) as hereinafter set forth. The Adviser may agree to temporarily or permanently waive or defer, in whole or in part, the Base Management Fee and/or the Incentive Fee. See Appendix A for examples of how these fees are calculated. The Company shall make any payments due hereunder to the Adviser or to the Adviser’s designee as the Adviser may otherwise direct. Any portion of a deferred fee payable to the Adviser shall be deferred without interest and may be paid in any quarter prior to the termination of this Agreement as the Adviser may determine upon written notice to the Company.
(a)    The Base Management Fee shall be calculated at an annual rate of 1.50% of the Company’s gross assets, including any investments made with borrowings, but excluding any cash and cash equivalents; provided, however, that upon the effectiveness of the 150% asset coverage requirement pursuant to Section 61(a)(2) of the Investment Company Act, the Base

3

Management Fee shall be calculated at an annual rate of 1.00% of the Company’s gross assets, including any investments made with borrowings, but excluding any cash and cash equivalents that exceeds the product of (A) 200% and (B) the Company’s net asset value. For the avoidance of doubt, the 200% will be calculated in accordance with the Investment Company Act and will give effect to exemptive relief the Company received with respect to debentures issued by a small business investment company subsidiary. For purposes of this Agreement, the term “cash and cash equivalents” will have the meaning ascribed to it from time to time in the notes to the financial statements that the Company files with the SEC. The Base Management Fee shall be payable quarterly in arrears, and shall be calculated based on the value of the Company’s gross assets at the end of each fiscal quarter, and appropriately adjusted for any equity capital raises or repurchases during such quarter. The Base Management Fee for any partial month or quarter shall be appropriately prorated (upon termination of the investment advisory agreement, as of the termination date).
(b)    Incentive Fee. The Incentive Fee shall consist of two parts, as follows:
(i)    The first part, referred to as the “Incentive Fee on Income,” shall be calculated and payable quarterly in arrears based on the Company’s “Pre-Incentive Fee Net Investment Income” for the immediately preceding quarter (or upon termination of the investment advisory agreement, as of the termination date). The payment of the Incentive Fee on Income shall be subject to payment of a preferred return to investors each quarter, expressed as a rate of return on the value of the Company’s net assets at the end of the most recently completed calendar quarter, of 1.50%, subject to a “catch up” feature (as described below).
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 calendar 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 original issue discount debt instruments with payment-in-kind 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.
The calculation of the Incentive Fee on Income for each quarter is as follows:
(A)    No Incentive Fee on Income shall be payable to the Adviser in any calendar 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;

4

(B)    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 calendar quarter shall be payable to the Adviser. This portion of the company’s Incentive Fee on Income is referred to as the “catch up” and is intended to provide the Adviser 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 reaches 1.8182% on net assets in any calendar quarter; and
(C)    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 shall equal 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.
(ii)    The second part of the Incentive Fee, referred to as the “Incentive Fee on Capital Gains,” shall be 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 the fiscal year ending September 30, 2019, and shall equal 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 subsequent 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 under this Agreement. Any realized capital gains, realized capital losses, unrealized capital appreciation and unrealized capital depreciation with respect to the Company’s portfolio as of the end of the fiscal year ending September 30, 2018 shall be excluded from the calculations of the second part of the incentive fee.
(c)    In certain circumstances the Adviser, any Sub-Adviser, or any of their respective affiliates, may receive compensation from a portfolio company in connection with the Company’s investment in such portfolio company. Any compensation received by the Adviser, Sub-Adviser, or any of their respective affiliates, attributable to the Company’s investment in any portfolio company, in excess of any of the limitations in or exemptions granted from the 1940 Act, any interpretation thereof by the staff of the SEC, or the conditions set forth in any exemptive relief granted to the Adviser, any Sub-Adviser or the Company by the SEC, shall be delivered promptly to the Company and the Company will retain such excess compensation for the benefit of its shareholders.
4.
Covenants of the Adviser.
The Adviser covenants that it will maintain its registration as an investment adviser under the Advisers Act. The Adviser agrees that its activities will at all times be in compliance in all material respects with all applicable federal and state laws governing its operations and investments.

5

5.
Brokerage Commissions.
The Adviser is hereby authorized, to the fullest extent now or hereafter permitted by law, to cause the Company to pay a member of a national securities exchange, broker or dealer an amount of commission for effecting a securities transaction in excess of the amount of commission another member of such exchange, broker or dealer would have charged for effecting that transaction, if the Adviser determines in good faith, taking into account such factors as price (including the applicable brokerage commission or dealer spread), size of order, difficulty of execution, and operational facilities of the firm and the firm’s risk and skill in positioning blocks of securities, that such amount of commission is reasonable in relation to the value of the brokerage and/or research services provided by such member, broker or dealer, viewed in terms of either that particular transaction or its overall responsibilities with respect to the Company’s portfolio, and constitutes the best net results for the Company.
6.
Other Activities of the Adviser.
The services of the Adviser to the Company are not exclusive. Subject to the provisions of the Company’s charter and by-laws, the Adviser and its managers, partners, principals, officers, employees and agents shall be free to act for their own account or the account of any other Account, and to engage in any other business or render similar or different services to others including, without limitation, the direct or indirect sponsorship or management of other investment based accounts or commingled pools of capital, however structured, having investment objectives similar to those of the Company, so long as the Adviser’s services to the Company hereunder are not impaired thereby. The Company agrees that the Adviser may give advice and take action in the performance of its duties with respect to any of its other clients which may differ from advice given or the timing or nature of action taken with respect to the investments of the Company. Nothing in this Agreement shall limit or restrict the right of any manager, partner, principal, officer, employee or agent of the Adviser to engage in any other business or to devote his or her time and attention in part to any other business, whether of a similar or dissimilar nature, or to receive any fees or compensation in connection therewith (including fees for serving as a director of, or providing consulting services to, one or more of the Company’s portfolio companies, subject to applicable law). So long as this Agreement or any extension, renewal or amendment remains in effect, the Adviser shall be the only investment adviser for the Company, subject to the Adviser’s right to enter into sub-advisory agreements. The Adviser assumes no responsibility under this Agreement other than to render the services called for hereunder. It is understood that directors, managers, officers, employees and stockholders of the Company are or may become interested in the Adviser and its affiliates, as directors, officers, employees, partners, principals, stockholders, members, managers, agents or otherwise, and that the Adviser and directors, officers, employees, partners, principals, stockholders, members, managers and agents of the Adviser and its affiliates are or may become similarly interested in the Company as stockholders or otherwise.
7.
Responsibility of Dual Directors, Officers and/or Employees.
If any person who is a manager, partner, principal, officer, employee or agent of the Adviser is or becomes a director, manager, officer and/or employee of the Company and acts as

6

such in any business of the Company, then such manager, partner, principal, officer, employee and/or agent of the Adviser shall be deemed to be acting in such capacity solely for the Company, and not as a manager, partner, principal, officer, employee or agent of the Adviser or under the control or direction of the Adviser, even if paid by the Adviser.
8.
Limitation of Liability of the Adviser; Indemnification.
The Adviser (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 the Adviser) shall not be liable to the Company for any action taken or omitted to be taken by the Adviser in connection with the performance of any of its duties or obligations under this Agreement or otherwise as an investment adviser of the Company (except to the extent specified in Section 36(b) of the Investment Company Act concerning loss resulting from a breach of fiduciary duty (as the same is finally determined by judicial proceedings) with respect to the receipt of compensation for services, and the Company shall indemnify, defend and protect the Adviser (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 the Adviser, each of whom shall be deemed a third party beneficiary hereof) (collectively, the “Indemnified Parties”) and hold them harmless from and against all damages, liabilities, costs and expenses (including reasonable attorneys’ fees and amounts reasonably paid in settlement) incurred by the Indemnified Parties in or by reason of any pending, threatened or completed action, suit, investigation or other proceeding (including an action or suit by or in the right of the Company or its security holders) arising out of or otherwise based upon the performance of any of the Adviser’s duties or obligations under this Agreement or otherwise as an investment adviser of the Company. Notwithstanding the preceding sentence of this Paragraph 8 to the contrary, nothing contained herein shall protect or be deemed to protect the Indemnified Parties against or entitle or be deemed to entitle the Indemnified Parties to indemnification in respect of, any liability to the Company or its security holders to which the Indemnified Parties would otherwise be subject by reason of willful misfeasance, bad faith or gross negligence in the performance of the Adviser’s duties or by reason of the reckless disregard of the Adviser’s duties and obligations under this Agreement.
9.
Effectiveness, Duration and Termination of Agreement.
This Agreement shall become effective as of the Effective Date. This Agreement shall remain in effect for two years from the Effective Date, and thereafter shall continue automatically for successive annual periods, provided that such continuance is specifically approved at least annually by (a) the vote of the Board or a majority of the outstanding voting securities of the Company and (b) the vote of a majority of the Company’s directors who are not parties to this Agreement or “interested persons” (as such term is defined in Section 2(a)(19) of the Investment Company Act) of any such party, in accordance with the requirements of the Investment Company Act and each of whom is an “independent director” under applicable New York Stock Exchange listing standards. This Agreement may be terminated at any time, without the payment of any penalty, upon 60 days’ written notice, by the vote of a majority of the outstanding voting securities of the Company, or by the vote of the Company’s directors or by

7

the Adviser. This Agreement shall automatically terminate in the event of its “assignment” (as such term is defined for purposes of Section 15(a)(4) of the Investment Company Act). Further, notwithstanding the termination or expiration of this Agreement as aforesaid, the Adviser shall be entitled to any amounts owed under Paragraph 3 through the date of termination or expiration.
10.
Notices.
Any notice under this Agreement shall be given in writing, addressed and delivered or mailed, postage prepaid, to the other party at its principal office.

11.
Amendments.
This Agreement may be amended by mutual consent.
12.
Entire Agreement; Governing Law.
This Agreement contains the entire agreement of the parties and supersedes all prior agreements, understandings and arrangements with respect to the subject matter hereof. Notwithstanding the place where this Agreement may be executed by any of the parties hereto, this Agreement shall be construed in accordance with the laws of the State of New York. For so long as the Company is regulated as a BDC under the Investment Company Act, this Agreement shall also be construed in accordance with the applicable provisions of the Investment Company Act. In such case, to the extent the applicable laws of the State of New York, or any of the provisions herein, conflict with the provisions of the Investment Company Act, the latter shall control. To the fullest extent permitted by law, in the event of any dispute arising out of the terms and conditions of this Agreement, the parties hereto consent and submit to the jurisdiction of the courts of the State of New York in the county of New York and of the U.S. District Court for the Southern District of New York.
13.
Forum Selection.
Any legal action or proceeding with respect to this Agreement or the services provided hereunder or for recognition and enforcement of any judgment in respect hereof brought by the other party hereto or its successors or assigns must be brought and determined in the state or United States district courts of the State of New York (and may not be brought or determined in any other forum or jurisdiction), and each party hereto submits with regard to any action or proceeding for itself and in respect of its property, generally and unconditionally, to the sole and exclusive jurisdiction of the aforesaid courts.
14.
No Third Party Beneficiary.
Other than expressly provided for in Paragraph 8 of this Agreement, this Agreement does not and is not intended to confer any rights or remedies upon any person other than the parties to this Agreement; there are no third-party beneficiaries of this Agreement, including but not limited to stockholders of the Company.

8

15.
Severability.
Every term and provision of this Agreement is intended to be severable. If any term or provision hereof is illegal or invalid for any reason whatsoever, such term or provision will be enforced to the maximum extent permitted by law and, in any event, such illegality or invalidity shall not affect the validity of the remainder of this Agreement.
16.
Counterparts.
This Agreement may be executed in any number of counterparts, each of which shall be deemed an original and all of which taken together shall constitute a single agreement.
17.
Survival of Certain Provisions.
The provisions of Paragraph 8 of this Agreement shall survive any termination or expiration of this Agreement and the dissolution, termination and winding up of the Company.


9


IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed on the date above written.
OAKTREE SPECIALTY LENDING CORPORATION
By: /s/ Edgar Lee    
Name: Edgar Lee
Title: Chief Executive Officer and
Chief Investment Officer     
OAKTREE CAPITAL MANAGEMENT, L.P.
By: /s/ Edgar Lee    
Name: Edgar Lee
Title: Managing Director
By: /s/ Mary Gallegly    
Name: Mary Gallegly
Title: Senior Vice President
[Signature Page to Investment Advisory Agreement]


10


Appendix A
Example 1: Incentive Fee on Income for Each Quarter
Alternative 1
Assumptions
Investment income (including interest, dividends, fees, etc.) = 2%
Preferred return1 = 1.50%
Management fee2 = 0.375%
Other expenses (legal, accounting, custodian, transfer agent, etc.) = 0.20%
Pre-Incentive Fee net investment income
(investment income – (management fee + other expenses)) = 1.425%
Pre-Incentive Fee Net Investment Income does not exceed the Preferred Return, therefore there is no Incentive Fee on Income.
Alternative 2
Assumptions
Investment income (including interest, dividends, fees, etc.) = 2.375%
Preferred Return1 = 1.5%
Management fee2 = 0.375%
Other expenses (legal, accounting, custodian, transfer agent, etc.) = 0.20%
Pre-Incentive Fee net investment income
(investment income – (management fee + other expenses)) = 1.80%
Incentive Fee = 17.5% × pre-Incentive Fee net investment income, subject to “catch-up” 3
= 100% × (1.80% – 1.5%)
= 0.30%
___________________________
1    Represents 6.0% annualized preferred return.
2    Represents 1.5% annualized management fee.
3    The “catch-up” provision is intended to provide the Adviser with an Incentive Fee of 17.5% on all of our pre-Incentive Fee net investment income as if a preferred return did not apply when our net investment income exceeds 1.5% in any calendar quarter and is not applied once the Adviser has received 17.5% of investment income in a quarter. The “catch-up” portion of our pre-Incentive Fee Net Investment Income is the portion that exceeds the 1.5% preferred return but is less than or equal to approximately 1.8182% (that is, 1.5% divided by (1 - 0.175)) in any fiscal quarter.




A-1

Alternative 3
Assumptions
Investment income (including interest, dividends, fees, etc.) = 3.5%
Preferred Return1 = 1.5%
Management fee2 = 0.375%
Other expenses (legal, accounting, custodian, transfer agent, etc.) = 0.20%
Pre-Incentive Fee net investment income
(investment income – (management fee + other expenses)) = 2.925%
Incentive Fee = 17.5% × pre-Incentive Fee net investment income,
subject to “catch-up”3 
Incentive Fee = 100% × “catch-up” + (17.5% × (pre-Incentive Fee net investment income – 1.8182))
Catch-up = 1.8182 – 1.5 = 0.3182
Incentive Fee = (100% × 0.3182) + (17.5% × (2.925 – 1.8182))
= 0.3182 + (17.5% × 1.1068)
= 0.3182 + 0.1937
= 0.5119
Example 2: Incentive Fee on Capital Gains
Assumptions
•
Year 1: $10 million investment made in Company A (“Investment A”), $10 million investment made in Company B (“Investment B”), $10 million investment made in Company C (“Investment C”), $10 million investment made in Company D (“Investment D”) and $10 million investment made in Company E (“Investment E”).
•
Year 2: Investment A sold for $20 million, fair market value (“FMV”) of Investment B determined to be $8 million, FMV of Investment C determined to be $12 million, and FMV of Investments D and E each determined to be $10 million.
•
Year 3: FMV of Investment B determined to be $8 million, FMV of Investment C determined to be $14 million, FMV of Investment D determined to be $14 million and FMV of Investment E determined to be $16 million.
•
Year 4: Investment D sold for $12 million, FMV of Investment B determined to be $10 million, FMV of Investment C determined to be $16 million and FMV of Investment E determined to be $14 million.
•
Year 5: Investment C sold for $20 million, FMV of Investment B determined to be $14 million and FMV of Investment E determined to be $10 million
•
Year 6: Investment B sold for $16 million and FMV of Investment E determined to be $8 million.

A-2

•
Year 7: Investment E sold for $8 million and FMV.
These assumptions are summarized in the following chart:
 
Investment A
Investment B
Investment C
Investment D
Investment E
Cumulative Unrealized Capital Depreciation
Cumulative Realized Capital Losses
Cumulative Realized Capital Gains
Year 1
$10 million
(cost basis)
$10 million
(cost basis)
$10 million
(cost basis)
$10 million
(cost basis)
$10 million (cost basis)
—
—
—
Year 2
$20 million
(sale price)
$8 million FMV
$12 million
FMV
$10 million
FMV
$10 million FMV
$2 million
—
$10 million
Year 3
—
$8 million
FMV
$14 million
FMV
$14 million
FMV
$16 million FMV
$2 million
—
$10 million
Year 4
—
$10 million
FMV
$16 million
FMV
$12 million
(sales price)
$14 million FMV
—
—
$12 million
Year 5
—
$14 million
FMV
$20 million
(sale price)
—
$10 million FMV
—
—
$22 million
Year 6
—
$16 million
(sale price)
—
—
$8 million FMV
$2 million
—
$28 million
Year 7
—
—
—
—
$8 million (sale price)
—
$2 million
$28 million

•
Year 1: None
•
Year 2:
Capital Gains Fee = 17.5% multiplied by ($10 million realized capital gains on sale of Investment A less $2 million cumulative capital depreciation) = $1.4 million
•
Year 3:
Capital Gains Fee = (17.5% multiplied by ($10 million cumulative realized capital gains less $2 million cumulative capital depreciation)) less $1.4 million cumulative Capital Gains Fee previously paid = $1.4 million less $1.4 million = $0.00 million
•
Year 4:
Capital Gains Fee = (17.5% multiplied by ($12 million cumulative realized capital gains)) less $1.4 million cumulative Capital Gains Fee previously paid = $2.1 million less $1.4 million = $0.7 million
•
Year 5:
Capital Gains Fee = (17.5% multiplied by ($22 million cumulative realized capital gains)) less $2.1 million cumulative Capital Gains Fee previously paid = $3.85 million less $2.1 million = $1.75 million
•
Year 6:

A-3

Capital Gains Fee = (17.5% multiplied by ($28 million cumulative realized capital gains less $2 million cumulative capital depreciation)) less $3.85 million cumulative Capital Gains Fee previously paid = $4.55 million less $3.85 million = $0.70 million
•
Year 7:
Capital Gains Fee = (17.5% multiplied by ($28 million cumulative realized capital gains less $2 million cumulative realized capital losses)) less $4.55 million cumulative Capital Gains Fee previously paid = $4.55 million less $4.55 million = $0.00 million


A-4
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 March 31, 2019 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 7th day of May, 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 March 31, 2019 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 7th day of May, 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 March 31, 2019 (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: May 7, 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 March 31, 2019 (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: May 7, 2019