Corporate Capital Trust II - FORM 10-Q

Attached files

file	filename
EX-32.1 - CERTIFICATION - Corporate Capital Trust II	d354826dex321.htm
EX-31.2 - CERTIFICATION - Corporate Capital Trust II	d354826dex312.htm
EX-31.1 - CERTIFICATION - Corporate Capital Trust II	d354826dex311.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

☒	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2017

☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission file number: 814-01108

CORPORATE CAPITAL TRUST II

(Exact name of registrant as specified in its charter)


Delaware		47-1595504
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

CNL Center at City Commons
450 South Orange Avenue
Orlando, Florida		32801
(Address of principal executive offices)		(Zip Code)

Registrant’s telephone number, including area code (866) 745-3797

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 ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted 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 and post such files). Yes ☐ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definition of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.



Large accelerated filer	☐	Accelerated filer	☐

Non-accelerated filer	☒ Do not check if smaller reporting company	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 ☒

The number of shares of common stock of the registrant outstanding as of May 11, 2017 was 9,624,174.

CORPORATE CAPITAL TRUST II

INDEX


		PAGE

PART I. FINANCIAL INFORMATION

Item 1.	Financial Statements:

	Condensed Statements of Assets and Liabilities as of March 31, 2017 (unaudited) and December 31, 2016		2

	Condensed Statements of Operations for the three months ended March 31, 2017 and 2016 (unaudited)		3

	Condensed Statements of Changes in Net Assets for the three months ended March 31, 2017 and 2016 (unaudited)		4

	Condensed Statements of Cash Flows for the three months ended March 31, 2017 and 2016 (unaudited)		5

	Condensed Schedules of Investments as of March 31, 2017 (unaudited) and December 31, 2016		6

	Notes to Condensed Financial Statements (unaudited)		16

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		31

Item 3.	Quantitative and Qualitative Disclosures about Market Risk		46

Item 4.	Controls and Procedures		47

PART II. OTHER INFORMATION

Item 1.	Legal Proceedings		48

Item 1A.	Risk Factors		48

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds		48

Item 3.	Defaults Upon Senior Securities		48

Item 4.	Mine Safety Disclosures		48

Item 5.	Other Information		48

Item 6.	Exhibits		48

Signatures			49

Exhibit Index			50

Item 1. Financial Statements

Corporate Capital Trust II

Condensed Statements of Assets and Liabilities


	March 31, 2017			December 31, 2016
	(unaudited)
Assets
Investment at fair value:
Non-controlled, non-affiliated investments (amortized cost of $78,190,049 and $55,455,599, respectively)	$	78,949,591		$	56,192,783
Cash		14,120,408			3,843,177
Interest receivable		714,056			332,207
Receivable for investments sold		1,417,240			2,562,122
Principal receivable		60,469			25,163
Receivable from advisors		173,278			281,497
Prepaid expenses		16,029			55,346

Total assets		95,451,071			63,292,295

Liabilities
Payable for investment purchased		14,299,797			7,248,119
Distributions payable		—			251,754
Accrued performance-based incentive fees		204,887			167,068
Accrued trustees’ fees		6,924			1,632
Accrued distribution and shareholder servicing fees		78,193			54,567
Accrued professional services		340,194			186,238
Other accrued expenses and liabilities		553,583			365,626

Total liabilities		15,483,578			8,275,004

Commitments and contingencies (Note 9)
Net Assets	$	79,967,493		$	55,017,291

Components of Net Assets
Preferred stock, $0.001 par value per share, 100,000,000 shares authorized and unissued at March 31, 2017 and December 31, 2016	$	—		$	—
Common stock, $0.001 par value per share, 1,000,000,000 shares authorized, 8,643,702 and 5,944,203 shares issued and outstanding at March 31, 2017 and December 31, 2016, respectively		8,644			5,944
Paid-in capital in excess of par value		79,420,053			54,258,832
Undistributed (distributions in excess of) net investment income		(181,923	)		55,521
Accumulated net realized losses		(35,568	)		(35,568	)
Accumulated net unrealized appreciation on investments		756,287			732,562

Net assets	$	79,967,493		$	55,017,291

Net asset value per share	$	9.25		$	9.26

See notes to condensed financial statements.

Corporate Capital Trust II

Condensed Statements of Operations (unaudited)


	Three Months Ended March 31,
	2017			2016
Investment income
Interest income	$	1,210,713		$	1,493
Fee income		22,373			—

Total investment income		1,233,086			1,493

Operating expenses
Investment advisory fees		370,099			7,493
Professional services		236,392			132,534
Administrative services		185,889			28,206
Custodian and accounting fees		69,986			16,148
Trustee fees and expenses		50,958			16,515
Performance-based incentive fees		37,819			5,813
Insurance		39,317			—
Distribution and shareholder servicing fees		199,686			5,301
Other		80,744			3,524

Total operating expenses		1,270,890			215,534

Expense support		(657,974	)		(204,420	)

Net operating expenses		612,916			11,114

Net investment income (loss)		620,170			(9,621	)

Net realized and unrealized gains
Net realized gains on:
Non-controlled, non-affiliated investments		163,353			—
Foreign currency transactions		21			—

Net realized gains		163,374			—

Net change in unrealized appreciation on:
Non-controlled, non-affiliated investments		22,358			29,067
Foreign currency translation		1,367			—

Net change in unrealized appreciation		23,725			29,067

Net realized and unrealized gains		187,099			29,067

Net increase in net assets resulting from operations	$	807,269		$	19,446

Net investment income (loss) per share	$	0.09		$	(0.02	)

Diluted and basic earnings per share	$	0.11		$	0.03

Weighted average number of shares of common stock outstanding (basic and diluted)		7,053,792			556,049

Distributions declared per share	$	0.15		$	0.05

See notes to condensed financial statements.

Corporate Capital Trust II

Condensed Statements of Changes in Net Assets (unaudited)


	Three Months Ended March 31,
	2017			2016
Operations
Net investment income (loss)	$	620,170		$	(9,621	)
Net realized gains on investments and foreign currency transactions		163,374			—
Net change in unrealized appreciation on investments and foreign currency translation		23,725			29,067

Net increase in net assets resulting from operations		807,269			19,446

Distributions to shareholders from
Net investment income		(620,170	)		—
Net realized gains		(163,374	)		—
Distributions in excess of net investment income (Note 6)		(237,444	)		(30,301	)

Net decrease in net assets resulting from shareholders’ distributions		(1,020,988	)		(30,301	)

Capital share transactions
Issuance of shares of common stock		24,550,223			4,876,200
Reinvestment of shareholders’ distributions		613,698			—

Net increase in net assets resulting from capital share transactions		25,163,921			4,876,200

Total increase in net assets		24,950,202			4,865,345
Net assets at beginning of period		55,017,291			202,000

Net assets at end of period	$	79,967,493		$	5,067,345

Capital share activity
Shares issued from subscriptions		2,633,597			541,755
Shares issued from reinvestment of distributions		65,902			—

Net increase in shares outstanding		2,699,499			541,755

Distributions in excess of net investment income at end of period	$	(181,923	)	$	(39,922	)

See notes to condensed financial statements.

Corporate Capital Trust II

Condensed Statements of Cash Flows (unaudited)


	Three Months Ended March 31,
	2017			2016
Operating Activities:
Net increase in net assets resulting from operations	$	807,269		$	19,446
Adjustments to reconcile net increase in net assets resulting from operations to net cash used in operating activities:
Purchases of investments		(40,946,950	)		(3,845,510	)
Increase in payable for investments purchased		7,051,678			3,378,985
Proceeds from sales of investments		14,735,508			—
Proceeds from principal payments		3,802,744			—
Net realized gain on investments		(163,353	)		—
Net change in unrealized appreciation on investments		(22,358	)		(29,067	)
Net change in unrealized appreciation on foreign currency translation		(1,367	)		—
Amortization of premium/discount – net		(162,399	)		(25	)
Decrease in receivable for investments sold		1,146,249			—
Increase in principal receivable		(35,306	)		—
Decrease (increase) in receivable from advisors		108,219			(196,928	)
Increase in interest receivable		(381,849	)		(8,608	)
Decrease in prepaid expenses		39,317			—
Increase in accrued professional services		153,956			132,534
Increase in accrued performance-based incentive fees		37,819			5,813
Increase in accrued distribution and shareholder servicing fees		23,626			5,301
Increase in accrued trustees’ fees		5,292			16,516
Increase in other accrued expenses and liabilities		187,957			47,878

Net cash used in operating activities		(13,613,948	)		(473,665	)

Financing Activities:
Proceeds from issuance of shares of common stock		24,550,223			4,876,200
Distributions paid		(659,044	)		(30,301	)

Net cash provided by financing activities		23,891,179			4,845,899

Net increase in cash		10,277,231			4,372,234
Cash, beginning of period		3,843,177			202,000

Cash, end of period	$	14,120,408		$	4,574,234

Supplemental disclosure of cash flow information and non-cash financing activities:
Distribution reinvested	$	613,698		$	—

Excise taxes paid	$	6,107		$	—

See notes to condensed financial statements.

Corporate Capital Trust II

Condensed Schedule of Investments (unaudited)

As of March 31, 2017


Company ^(a)(b)	Footnotes	Industry	Interest Rate	Base Rate Floor			Maturity Date		No. Shares/ Principal Amount^(c)		Cost^(d)		Fair Value
Senior Secured Loans—First Lien—65.0%
ABB CONCISE Optical Group, LLC	⁽¹⁾	Retailing	L + 500		1.00	%		6/15/2023	$	513,589	$	512,057	$	519,367
ABILITY Network, Inc.	^(e)(2)	Health Care Equipment & Services	L + 500		1.00	%		5/14/2021		201.748		198,257		202,631
Accuride Corp	^(e)(1)	Capital Goods	L + 700		1.00	%		11/17/2023		1,041,805		1,018,603		1,043,107
BakerCorp International Inc.	^(e)(1)	Capital Goods	L + 300		1.25	%		2/7/2020		3,502,514		3,383,292		3,397,438
Bay Club, Co.	⁽²⁾	Consumer Services	L + 650		1.00	%		8/31/2022		1,223,177		1,200,562		1,236,944
Belk, Inc.	^(e)(1)	Retailing	L + 475		1.00	%		12/12/2022		3,352,853		2,961,331		2,846,321
Caesars Growth Properties Holdings LLC	^(f)(2)	Consumer Services	L + 525		1.00	%		5/8/2021		533,115		534,127		537,447
Commercial Barge Line, Co.	⁽¹⁾	Transportation	L + 875		1.00	%		11/12/2020		549,247		521,973		509,427
CSM Bakery Products	⁽¹⁾	Food, Beverage & Tobacco	L + 400		1.00	%		7/3/2020		1,492,283		1,452,267		1,410,953
David’s Bridal, Inc.	⁽¹⁾	Retailing	L + 400		1.25	%		10/11/2019		852,774		797,100		703,232
Distribution International, Inc.	^(e)(1)	Retailing	L + 500		1.00	%		12/15/2021		4,459,924		3,853,091		3,835,534
DJO Finance, LLC	^(e)(2)	Health Care Equipment & Services	L + 325		1.00	%		6/8/2020		3,802,149		3,703,513		3,688,883
FleetPride Corp.	⁽¹⁾	Capital Goods	L + 400		1.25	%		11/19/2019		1,540,176		1,344,783		1,458,354
Foresight Energy LLC	^(e)(f)(1)	Materials	L + 575		1.00	%		3/17/2022		1,725,080		1,699,204		1,685,188
Global Eagle Entertainment Inc.	^(f)(3)	Media	L + 600		1.00	%		1/6/2023		783,647		760,688		741,530
Heartland Dental Care, Inc.	⁽²⁾	Pharmaceuticals, Biotechnology & Life Sciences	L + 450		1.00	%		12/21/2018		261,168		259,111		263,127
Jo-Ann Stores, Inc.	⁽³⁾	Retailing	L + 500		1.00	%		10/20/2023		1,539,620		1,509,081		1,512,684
Koosharem, LLC	^(e)(1)	Commercial & Professional Services	L + 650		1.00	%		5/15/2020		2,440,437		2,189,261		2,281,809
MedAssets, Inc.	⁽²⁾	Health Care Equipment & Services	L + 550		1.00	%		10/20/2022		1,560,647		1,570,201		1,571,384
Netsmart Technologies, Inc.	⁽¹⁾	Health Care Equipment & Services	L + 450		1.00	%		4/19/2023		81,425		81,232		82,137

See notes to condensed financial statements.

Corporate Capital Trust II

Condensed Schedule of Investments (unaudited) (continued)

As of March 31, 2017


Company ^(a)(b)	Footnotes	Industry	Interest Rate		Base Rate Floor			Maturity Date		No. Shares/ Principal Amount^(c)		Cost^(d)		Fair Value
NewWave Communications, Inc.	⁽¹⁾	Media		L + 375		1.00	%		4/30/2020	$	74,743	$	69,823	$	75,303
P2 Energy Solutions	^(f)(1)	Software & Services		L + 400		1.00	%		10/30/2020		3,334,301		3,246,746		3,294,706
PAE Holding Corp	⁽²⁾	Capital Goods		L + 550		1.00	%		10/20/2022		1,288,858		1,283,598		1,302,552
Paradigm Acquisition Corp.	⁽¹⁾	Health Care Equipment & Services		L + 500		1.00	%		6/2/2022		1,488,636		1,488,636		1,492,365
Polyconcept North America, Inc.	⁽²⁾	Consumer Durables & Apparel		L + 525		1.00	%		8/10/2023		334,191		331,083		337,115
RedPrairie Corp.	⁽²⁾	Software & Services		L + 350		1.00	%		10/12/2023		997,500		1,001,060		1,005,709
Riverbed Technology, Inc.	⁽²⁾	Technology Hardware & Equipment		L + 400		1.00	%		4/25/2022		34,216		34,216		34,227
Safway Group Holding, LLC	⁽²⁾	Capital Goods		L + 475		1.00	%		8/21/2023		1,492,500		1,501,545		1,510,925
Savers, Inc.	⁽¹⁾	Retailing		L + 375		1.25	%		7/9/2019		691,307		616,166		612,671
Sequa Corp.	^(e)(1)	Capital Goods		L + 400		1.25	%		6/19/2017		4,174,274		3,983,669		4,132,531
SI Organization, Inc.	⁽¹⁾	Capital Goods		L + 475		1.00	%		11/23/2019		602,006		602,035		608,778
SIRVA Worldwide, Inc.	⁽¹⁾	Commercial & Professional Services		L + 650		1.00	%		11/22/2022		2,143,179		2,091,291		2,132,463
TIBCO Software, Inc.	⁽²⁾	Software & Services		L + 450		1.00	%		12/4/2020		38,490		39,111		38,975
TruGreen, LP	⁽²⁾	Consumer Services		L + 550		1.00	%		4/13/2023		1,581,241		1,596,488		1,602,983
Vertafore, Inc.	⁽²⁾	Software & Services		L + 325		1.00	%		6/30/2023		140,235		139,558		141,112
Vertiv Group Corp.	⁽¹⁾	Technology Hardware & Equipment		L + 400		1.00	%		11/30/2023		2,126,131		2,071,524		2,151,390
WireCo WorldGroup, Inc.	⁽²⁾	Capital Goods		L + 550		1.00	%		9/29/2023		562,066		561,170		567,217
Xerox Business Services	^(f)(2)	Software & Services		L + 550		0.75	%		12/71/2023		1,377,062		1,352,650		1,395,308

Total Senior Secured Loans - First Lien												$	51,560,103	$	51,963,827

Senior Secured Loans - Second Lien - 18.3%
Applied Systems, Inc.	⁽¹⁾	Software & Services		L + 650		1.00	%		1/24/2022	$	1,950,737	$	1,952,978	$	1,971,220
BJ’s Wholesale Club, Inc.	⁽⁴⁾	Food & Staples Retailing		L + 750		1.00	%		1/27/2025		949,470		940,109		929,056

See notes to condensed financial statements.

Corporate Capital Trust II

Condensed Schedule of Investments (unaudited) (continued)

As of March 31, 2017


Company ^(a)(b)	Footnotes	Industry	Interest Rate			Base Rate Floor			Maturity Date		No. Shares/ Principal Amount^(c)		Cost^(d)		Fair Value
CTI Foods Holding Co., LLC	^(e)(1)	Food, Beverage & Tobacco		L + 725			1.00	%		6/28/2021	$	222,222	$	205,441	$	202,222
Foresight Energy LLC	^(e)(f)(1)	Software & Services		L + 800			1.00	%		2/28/2025		1,807,220		1,780,112		1,828,681
Formula One (LUX)	^(e)(f)(g)(3)	Media		L + 675			1.00	%		7/29/2022		295,841		295,101		298,245
Genoa, a QoL Healthcare Co., LLC	⁽¹⁾	Health Care Equipment & Services		L + 800			1.00	%		10/28/2024		352,940		353,710		356,469
Grocery Outlet, Inc.	⁽¹⁾	Food & Staples Retailing		L + 825			1.00	%		10/21/2022		198,393		184,582		199,469
iParadigms Holdings, LLC	⁽¹⁾	Software & Services		L + 725			1.00	%		7/29/2022		189,244		184,447		183,252
Misys, Ltd. (GBR)	^(g)(f)	Software & Services		12.00	%					6/12/2019		286,240		303,503		300,910
NEP Group, Inc.	⁽¹⁾	Media		L + 875			1.25	%		7/22/2020		215,054		203,447		218,280
New Arclin US Holding Corp	⁽³⁾	Materials		L + 875			1.00	%		2/9/2025		424,480		420,293		429,255
NewWave Communications, Inc.	⁽¹⁾	Media		L + 800			1.00	%		10/30/2020		206,718		202,459		208,010
Polyconcept North America, Inc.	⁽ⁱ⁾⁽²⁾	Consumer Durables & Apparel		L + 1000			1.00	%		12/31/2023		624,235		609,810		614,074
Press Ganey Holdings, Inc.	⁽²⁾	Health Care Equipment & Services		L + 800			1.00	%		10/21/2024		2,024,940		2,052,901		2,073,032
SI Organization, Inc.	⁽¹⁾	Capital Goods		L + 875			1.00	%		5/23/2020		460,504		454,331		464,821
SRS Distribution, Inc.	⁽¹⁾	Capital Goods		L + 875			1.00	%		2/24/2023		2,005,948		1,997,772		2,086,186
Sungard Public Sector LLC	⁽ⁱ⁾⁽¹⁾	Software & Services		L + 850			1.00	%		1/30/2025		654,480		648,051		646,930
WireCo WorldGroup, Inc.	⁽²⁾	Capital Goods		L + 950			1.00	%		9/30/2024		1,632,350		1,626,898		1,649,694

Total Senior Secured Loans—Second Lien													$	14,415,945	$	14,659,806

Total Senior Debt													$	65,976,048	$	66,623,633

Subordinated Debt—15.3%
Allegheny Technologies Inc.	^(f)	Materials		7.88	%					8/15/2023	$	2,958,000	$	2,894,148	$	3,027,217
Dynegy Inc.	^(f)	Utilities		6.75	%					11/1/2019		2,847,000		2,913,437		2,925,293
JC Penney Corp., Inc.	^(f)	Retailing		8.13	%					10/1/2019		2,436,000		2,614,385		2,630,880

See notes to condensed financial statements.

Corporate Capital Trust II

Condensed Schedule of Investments (unaudited) (continued)

As of March 31, 2017


Company ^(a)(b)	Footnotes	Industry	Interest Rate			Base Rate Floor	Maturity Date		No. Shares/ Principal Amount^(c)		Cost^(d)		Fair Value
Pactiv LLC	^(e)	Materials		7.95	%			12/15/2025		849,000		943,874		921,165
				8.38	%			4/15/2027		2,481,000		2,785,733		2,766,315

Total Subordinated Debt											$	12,151,577	$	12,270,870

Equity—0.1%
Polyconcept North America Holdings, Inc., Common Stock	⁽ⁱ⁾	Consumer Durables & Apparel								624	$	62,424	$	55,088
Total Equity											$	62,424	$	55,088
TOTAL INVESTMENTS^(h) — 98.7%											$	78,190,049	$	78,949,591

OTHER ASSETS IN EXCESS OF LIABILITIES—1.3%														1,017,902

NET ASSETS—100.0%													$	79,967,493

(a)	Security may be an obligation of one or more entities affiliated with the named company.

(b)	Non-controlled/non-affiliated investments as defined by the Investment Company Act of 1940, as amended (“1940 Act”), unless otherwise indicated. Non-controlled/non-affiliated investments are investments that are neither controlled investments nor affiliated investments.

(c)	Denominated in U.S. dollars unless otherwise noted.

(d)	Represents amortized cost for debt securities and cost for common stocks translated to U.S. dollars.

(e)	Position or portion thereof unsettled as of March 31, 2017.

(f)

The investment is not a qualifying asset as defined in Section 55(a) under the 1940 Act. A business development company may not acquire any asset other than qualifying assets, unless, at the time the acquisition is made, qualifying assets represent at least 70% of the company’s total assets. 80.2% of the Company’s total assets represented qualifying assets as of March 31, 2017.

(g)	A portfolio company domiciled in a foreign country. The jurisdiction of the security issuers may be a different country than the domicile of the portfolio company.

(h)

As of March 31, 2017, the aggregate gross unrealized appreciation for all securities in which there was an excess of value over tax cost was $1,159,918; the aggregate gross unrealized depreciation for all securities in which there was an excess of tax cost over value was $400,376; the net unrealized appreciation was $759,542; the aggregate cost of securities for Federal income tax purposes was $78,190,049.

(i)	Investments classified as Level 3 whereby fair value was determined by the Company’s Board of Trustees (see Note 2).

(1)	The interest rate on these investments is subject to a base rate of 3-Month LIBOR, which at March 31, 2017 was 1.15%. The current base rate for each investment may be different from the reference rate on March 31, 2017.

(2)	The interest rate on these investments is subject to a base rate of 1-Month LIBOR, which at March 31, 2017 was 0.98%. The current base rate for each investment may be different from the reference rate on March 31, 2017.

See notes to condensed financial statements.

Corporate Capital Trust II

Condensed Schedule of Investments (unaudited) (continued)

As of March 31, 2017

(3)	The interest rate on these investments is subject to a base rate of 6-Month LIBOR, which at March 31, 2017 was 1.42%. The current base rate for each investment may be different from the reference rate on March 31, 2017.

(4)	The interest rate on these investments is subject to a base rate of 2-Month LIBOR, which at March 31, 2017 was 1.03%. The current base rate for each investment may be different from the reference rate on March 31, 2017.

Abbreviations:

GBR – United Kingdom

LUX – Luxembourg

L = LIBOR – London Interbank Offered Rate, typically 3-Month

See notes to condensed financial statements.

Corporate Capital Trust II

Condensed Schedule of Investments

As of December 31, 2016


Company ^(a)(b)	Footnotes	Industry	Interest Rate		Base Rate Floor			Maturity Date		No. Shares/ Principal Amount^(c)		Cost^(d)		Fair Value
Senior Secured Loans—First Lien—72.1%
ABB CONCISE Optical Group, LLC	⁽¹⁾	Retailing		L + 500		1.00	%		6/15/2023	$	514,880	$	513,108	$	521,959
ABILITY Network, Inc.	⁽¹⁾	Health Care Equipment & Services		L + 500		1.00	%		5/14/2021		202,267		198,590		203,278
Accuride Corp	⁽¹⁾	Capital Goods		L + 700		1.00	%		11/3/2023		788,670		765,163		772,897
BakerCorp International Inc	⁽¹⁾	Capital Goods		L + 300		1.25	%		2/7/2020		114,026		100,373		109,323
Bay Club, Co.	⁽¹⁾	Consumer Services		L + 650		1.00	%		8/24/2022		1,226,258		1,202,771		1,236,988
Belk, Inc.	⁽¹⁾	Retailing		L + 475		1.00	%		12/12/2022		1,229,651		1,114,290		1,064,675
Caesars Growth Properties Holdings LLC	^(e)(f)(1)	Consumer Services		L + 525		1.00	%		5/8/2021		534,486		535,552		539,331
Commercial Barge Line, Co.	⁽¹⁾	Transportation		L + 875		1.00	%		11/12/2020		556,474		527,276		526,795
CSM Bakery Products	⁽¹⁾	Food, Beverage & Tobacco		L + 400		1.00	%		7/3/2020		1,496,141		1,453,460		1,359,244
David’s Bridal, Inc.	⁽¹⁾	Retailing		L + 400		1.25	%		10/11/2019		854,141		793,882		757,696
Distribution International, Inc.	⁽¹⁾	Retailing		L + 500		1.00	%		12/15/2021		2,154,232		1,870,577		1,863,411
FleetPride Corp.	⁽¹⁾	Capital Goods		L + 400		1.25	%		11/19/2019		1,544,197		1,334,388		1,467,628
Genesys Telecommunications Laboratories, Inc.	⁽¹⁾	Software & Services		L + 525		0.75	%		12/1/2023		1,486,000		1,463,845		1,516,188
Global Eagle Entertainment Inc	^(e)(f)(3)	Media		L + 600		1.00	%		12/22/2022		1,007,850		977,615		993,992
Heartland Dental Care, Inc.	⁽¹⁾	Pharmaceuticals, Biotechnology & Life Sciences		L + 450		1.00	%		12/21/2018		261,836		259,498		262,572
Information Resources Inc	^(e)(2)	Commercial & Professional Services		L + 425		1.00	%		12/20/2023		608,070		605,030		613,391
Integra Telecom Holdings, Inc.	⁽¹⁾	Telecommunication Services		L + 425		1.00	%		8/14/2020		1,581,949		1,585,804		1,589,068
Koosharem, LLC	⁽¹⁾	Commercial & Professional Services		L + 650		1.00	%		5/15/2020		2,150,648		1,905,116		1,949,025
MedAssets, Inc.	⁽²⁾	Health Care Equipment & Services		L + 550		1.00	%		10/20/2022		1,564,578		1,574,521		1,588,046
Netsmart Technologies, Inc.	⁽¹⁾	Health Care Equipment & Services		L + 450		1.00	%		4/19/2023		81,630		81,430		82,064

See notes to condensed financial statements.

Corporate Capital Trust II

Condensed Schedule of Investments (continued)

As of December 31, 2016


Company ^(a)(b)	Footnotes	Industry	Interest Rate		Base Rate Floor			Maturity Date		No. Shares/ Principal Amount^(c)		Cost^(d)		Fair Value
NewWave Communications, Inc.	⁽¹⁾	Media		L + 375		1.00	%		4/30/2020	$	75,401	$	70,127	$	75,190
P2 Energy Solutions, Inc.	^(e)(f)(1)	Software & Services		L + 400		1.00	%		10/30/2020		532,707		507,403		508,069
PAE Holding Corp	⁽¹⁾	Capital Goods		L + 550		1.00	%		10/7/2022		2,195,480		2,194,968		2,217,435
Paradigm Acquisition Corp.	⁽¹⁾	Health Care Equipment & Services		L + 500		1.00	%		6/2/2022		1,492,424		1,492,424		1,485,581
Polyconcept North America, Inc.	⁽²⁾	Consumer Durables & Apparel		L + 525		1.00	%		8/10/2023		335,030		331,819		339,218
RedPrairie Corp.	⁽²⁾	Software & Services		L + 350		1.00	%		10/12/2023		1,000,000		1,003,681		1,012,625
Riverbed Technology, Inc.	⁽²⁾	Technology Hardware & Equipment		L + 325		1.00	%		4/25/2022		34,550		34,550		34,847
Safway Group Holding, LLC	⁽¹⁾	Capital Goods		L + 475		1.00	%		8/21/2023		1,496,250		1,505,619		1,520,250
Savers, Inc.	⁽¹⁾	Retailing		L + 375		1.25	%		7/9/2019		693,117		611,151		645,032
Sequa Corp.	⁽¹⁾	Capital Goods		L + 400		1.25	%		6/19/2017		1,752,773		1,554,319		1,664,696
SI Organization, Inc.	⁽¹⁾	Capital Goods		L + 475		1.00	%		11/23/2019		603,600		603,636		611,335
SIRVA Worldwide, Inc.	^(e)(1)	Commercial & Professional Services		L + 650		1.00	%		11/18/2022		2,148,550		2,094,836		2,110,950
TIBCO Software, Inc.	⁽²⁾	Software & Services		L + 550		1.00	%		12/4/2020		1,416,198		1,355,664		1,424,759
TruGreen, LP	⁽²⁾	Consumer Services		L + 550		1.00	%		4/13/2023		1,585,224		1,601,050		1,610,984
USIC Holdings Inc	⁽¹⁾	Capital Goods		L + 375		1.00	%		12/31/2023		1,054,790		1,052,172		1,065,776
Vertafore Inc	^(e)(1)	Software & Services		L + 375		1.00	%		6/30/2023		140,588		139,884		141,328
Vertiv, Co.	⁽²⁾	Technology Hardware & Equipment		L + 500		1.00	%		11/30/2023		2,197,160		2,142,506		2,230,117
WireCo WorldGroup, Inc.	⁽¹⁾	Capital Goods		L + 550		1.00	%		7/21/2023		563,478		562,571		570,259
Xerox Business Services, LLC	^(e)(f)(3)	Software & Services		L + 550		0.75	%		12/7/2023		1,380,513		1,357,477		1,399,495

Total Senior Secured Loans—First Lien												$	39,078,146	$	39,685,517

See notes to condensed financial statements.

Corporate Capital Trust II

Condensed Schedule of Investments (continued)

As of December 31, 2016


Company ^(a)(b)	Footnotes	Industry	Interest Rate			Base Rate Floor			Maturity Date		No. Shares/ Principal Amount^(c)		Cost^(d)		Fair Value
Senior Secured Loans—Second Lien—19.2%
Applied Systems, Inc.	⁽¹⁾	Software & Services		L + 650			1.00	%		1/24/2022	$	1,396,857	$	1,394,216	$	1,414,667
BJ’s Wholesale Club Inc	⁽¹⁾	Food & Staples Retailing		L + 750			1.00	%		3/26/2020		2,035,800		2,048,601		2,064,210
CTI Foods Holding Co., LLC	⁽¹⁾	Food, Beverage & Tobacco		L + 725			1.00	%		6/28/2021		222,222		204,665		202,222
Formula One (LUX)	^(e)(f)(g)(3)	Media		L + 675			1.00	%		7/29/2022		422,630		421,573		426,856
Genoa, QoL Healthcare Co., LLC	⁽¹⁾	Health Care Equipment & Services		L + 800			1.00	%		10/28/2024		352,940		353,708		352,940
Grocery Outlet, Inc.	⁽¹⁾	Food & Staples Retailing		L + 825			1.00	%		10/21/2022		198,393		184,154		198,951
iParadigms Holdings, LLC	⁽¹⁾	Software & Services		L + 725			1.00	%		7/29/2022		189,244		184,279		182,620
Misys, Ltd. (GBR)	^(f)(h)(g)	Software & Services		12.00	%					6/12/2019		54,320		57,241		57,794
NEP Group, Inc.	⁽¹⁾	Media		L + 875			1.25	%		7/22/2020		215,054		202,787		217,204
NewWave Communications, Inc.	⁽¹⁾	Media		L + 800			1.00	%		10/30/2020		206,718		202,226		201,292
Polyconcept North America, Inc.	⁽²⁾⁽ⁱ⁾	Consumer Durables & Apparel		L + 1000			1.00	%		12/31/2023		624,235		609,336		615,616
Press Ganey Holdings, Inc.	⁽²⁾	Health Care Equipment & Services		L + 725			1.00	%		10/21/2024		2,024,940		2,053,581		2,065,439
SI Organization, Inc.	⁽¹⁾	Capital Goods		L + 875			1.00	%		5/23/2020		460,504		453,937		465,494
SRS Distribution, Inc.	⁽¹⁾	Capital Goods		L + 875			1.00	%		2/24/2023		444,840		436,419		459,716
WireCo WorldGroup, Inc.	^(3)(e)	Capital Goods		L + 950			1.00	%		7/12/2024		1,632,350		1,626,765		1,646,633

Total Senior Secured Loans—Second Lien													$	10,433,488	$	10,571,654

Total Senior Debt													$	49,511,634	$	50,257,171

Subordinated Debt—10.7%
Allegheny Technologies Inc	^(f)	Materials		7.88	%					8/15/2023	$	2,339,000	$	2,278,936	$	2,292,220
Dynegy Inc	^(f)	Utilities		6.75	%					11/1/2019		978,000		988,195		995,115

See notes to condensed financial statements.

Corporate Capital Trust II

Condensed Schedule of Investments (continued)

As of December 31, 2016


Company ^(a)(b)	Footnotes	Industry	Interest Rate			Base Rate Floor	Maturity Date		No. Shares/ Principal Amount^(c)		Cost^(d)		Fair Value
JC Penney Corp., Inc.	^(f)	Retailing		8.13	%			10/1/2019	$	1,383,000	$	1,497,869	$	1,493,640
Netflix, Inc.	^(f)	Retailing		5.88	%			2/15/2025		1,017,000		1,116,541		1,097,089

Total Subordinated Debt											$	5,881,541	$	5,878,064

Equity—0.1%
Polyconcept North America Holdings, Inc., Common Stock	⁽ⁱ⁾	Consumer Durables & Apparel								624	$	62,424	$	57,548

Total Equity											$	62,424	$	57,548

TOTAL INVESTMENTS — 102.1%(h)											$	55,455,599	$	56,192,783

OTHER ASSETS IN EXCESS OF LIABILITIES—(2.1%)														(1,175,492	)

NET ASSETS—100.0%													$	55,017,291

(a)	Security may be an obligation of one or more entities affiliated with the named company.

(b)	Non-controlled/non-affiliated investments as defined by the Investment Company Act of 1940, as amended (“1940 Act”), unless otherwise indicated. Non-controlled/non-affiliated investments are investments that are neither controlled investments nor affiliated investments.

(c)	Denominated in U.S. dollars unless otherwise noted.

(d)	Represents amortized cost for debt securities and cost for equity investments translated to U.S. dollars.

(e)	Position or portion thereof unsettled as of December 31, 2016.

(f)

The investment is not a qualifying asset as defined in Section 55(a) under the 1940 Act. A business development company may not acquire any asset other than qualifying assets, unless, at the time the acquisition is made, qualifying assets represent at least 70% of the company’s total assets. 83.9% of the Company’s total assets represented qualifying assets as of December 31, 2016.

(g)	A portfolio company domiciled in a foreign country. The jurisdiction of the security issuer may be a different country than the domicile of the portfolio company.

(h)

As of December 31, 2016, the aggregate gross unrealized appreciation for all securities in which there was an excess of value over tax cost was $930,483; the aggregate gross unrealized depreciation for all securities in which there was an excess of tax cost over value was $228,867; the net unrealized appreciation was $701,616; the aggregate cost of securities for Federal income tax purposes was $55,491,167.

(i)	Investments classified as Level 3 whereby fair value was determined by the Company’s Board of Trustees (see Note 2).

(1)	The interest rate on these investments is subject to a base rate of 3-Month LIBOR, which at December 31, 2016 was 1.00%. The current base rate for each investment may be different from the reference rate on December 31, 2016.

See notes to condensed financial statements.

Corporate Capital Trust II

Condensed Schedule of Investments (continued)

As of December 31, 2016

(2)	The interest rate on these investments is subject to a base rate of 1-Month LIBOR, which at December 31, 2016 was 0.77%. The current base rate for each investment may be different from the reference rate on December 31, 2016.

(3)	The interest rate on these investments is subject to a base rate of 6-Month LIBOR, which at December 31, 2016 was 1.32%. The current base rate for each investment may be different from the reference rate on December 31, 2016.

Abbreviations:

GBR – United Kingdom

LUX – Luxembourg

L = LIBOR – London Interbank Offered Rate, typically 3-Month

See notes to condensed financial statements.

CORPORATE CAPITAL TRUST II

Notes to Condensed Financial Statements (Unaudited)

1. Principal Business and Organization

Corporate Capital Trust II (the “Company”) was formed as a Delaware statutory trust on August 12, 2014. The Company is a non-diversified closed-end management investment company and has elected to be regulated as a business development company under the Investment Company Act of 1940 (the “1940 Act”). The Company’s investment objective is to provide its shareholders with current income and, to a lesser extent, long-term capital appreciation, by investing primarily in the debt of privately owned U.S. companies with a focus on originated transactions sourced through the networks of its advisors. The Company intends to elect to be taxed as a regulated investment company (“RIC”) under the Internal Revenue Code of 1986, as amended (the “Code”) and operate in a manner so as to qualify for the tax treatment applicable to RICs.

The Company is externally managed by CNL Fund Advisors II, LLC (“CNL”) and KKR Credit Advisors (US) LLC (“KKR”, and together with CNL, the “Advisors”), which are collectively responsible for sourcing potential investments, conducting due diligence on prospective investments, analyzing investment opportunities, structuring investments, determining the securities and other assets that the Company will purchase, retain or sell and monitoring the Company’s portfolio on an ongoing basis. Both of the Advisors are registered as investment advisers with the Securities and Exchange Commission (“SEC”). CNL also provides the administrative services necessary for the Company to operate.

On September 29, 2014, the Company filed a registration statement on Form N-2 (the “Registration Statement”) with the SEC to register its common stock. The Registration Statement, as amended, provides for the sale on a continuous basis of up to $2.6 billion of shares of common stock (275 million shares) (the “Offering”). The Registration Statement was declared effective on October 9, 2015, at which time the Company’s Offering commenced.

On March 1, 2016 the Company satisfied its minimum offering requirement to accumulate in excess of $2.25 million in subscriptions in an escrow account via the Share Purchase Agreements entered into by the Advisors. On March 1, 2016, the Company issued shares of common stock in exchange for the subscription capital in the escrow account. The Company commenced principal and investment operations on March 1, 2016.

2. Significant Accounting Policies

Basis of Presentation – The accompanying condensed financial statements of the Company are prepared in accordance with the instructions to Form 10-Q and accounting principles generally accepted in the United States of America (“GAAP”). The Company is an investment company following accounting and reporting guidance in Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 946, Financial Services—Investment Companies (“ASC Topic 946” ). The unaudited condensed financial statements reflect all normal recurring adjustments, which are, in the opinion of management, necessary for the fair presentation of the Company’s results for the interim periods presented. The results of operations for interim periods are not indicative of results to be expected for the full year.

Certain financial information that is normally included in annual financial statements, including certain financial statement footnotes, prepared in accordance with GAAP, is not required for interim reporting purposes and has been condensed or omitted herein. These financial statements should be read in conjunction with the Company’s financial statements and notes related thereto included in the Company’s Annual Report on Form 10-K for the period ended December 31, 2016, which was filed with the SEC on March 17, 2017.

Use of Estimates – The preparation of the condensed financial statements in conformity with GAAP requires management to make estimates and assumptions that affect (i) the reported amounts of assets and liabilities at the date of the condensed financial statements, (ii) the reported amounts of income and expenses during the reporting periods presented and (iii) disclosure of contingent assets and liabilities at the date of the condensed financial statements. Actual results could differ from those estimates.

Cash – Cash consists of demand deposits.

Valuation of Investments – The Company measures the value of its investments in accordance with ASC Topic 820, Fair Value Measurements and Disclosure (“ASC Topic 820”), issued by the FASB. Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Market participants are defined as buyers and sellers in the principal or most advantageous market (which may be a hypothetical market) that are independent, knowledgeable, and willing and able to transact. In accordance with ASC Topic 820, the Company considers its principal market to be the market that has the greatest volume and level of activity.

2. Significant Accounting Policies (continued)

ASC Topic 820 defines hierarchical levels directly related to the amount of subjectivity associated with the inputs used to determine fair values of assets and liabilities. The hierarchical levels and types of inputs used to measure fair value for each level are described as follows:

Level 1 – Quoted prices are available in active markets for identical investments as of the reporting date. Publicly listed equities and debt securities, publicly listed derivatives, money market/short-term investment funds and foreign currency are generally included in Level 1. The Company does not adjust the quoted price for these investments.

Level 2 – Valuation inputs are other than quoted prices in active markets, which are either directly or indirectly observable as of the reporting date, and fair value is determined through the use of models or other valuation methodologies. In certain cases, debt and equity securities are valued on the basis of prices from orderly transactions for similar investments in active markets between market participants and provided by reputable dealers or independent pricing services. In determining the value of a particular investment, independent pricing services may use certain information with respect to transactions in such investments, quotations from dealers, pricing matrices, market transactions in comparable investments, and various relationships between investments. Investments generally included in this category are corporate bonds and loans that are priced based on observable inputs.

Level 3 – Valuation inputs are unobservable for the investment and include situations where there is little, if any, market activity for the investment. The inputs into the determination of fair value require significant judgment or estimation. Investments generally included in this category are illiquid corporate bonds and loans, unlisted common and preferred stock investments, and equity options that lack observable market pricing.

In certain cases, the inputs used to measure fair value may fall within different levels of the fair value hierarchy. In such cases, an investment’s level within the fair value hierarchy is based on the lowest level of input that is significant to the fair value measurement. Depending on the relative liquidity in the markets for certain investments, the Company may transfer assets to Level 3 if it determines that observable quoted prices, obtained directly or indirectly, are not available or reliable. The Company’s assessment of the significance of a particular input to the fair value measurement requires judgment, and the consideration of factors specific to the investment.

Investments for which market quotations are readily available are valued using market quotations, which are generally obtained from independent pricing services, broker-dealers or market makers. With respect to the Company’s portfolio investments for which market quotations are not readily available, the Company’s board of trustees is responsible for determining in good faith the fair value of the Company’s portfolio investments in accordance with the valuation policy and procedures approved by the board of trustees, based on, among other things, the input of the Company’s Advisors and management, its audit committee, and independent third-party valuation firms.

The Company and the board of trustees conduct their fair value determination process on a monthly basis and any other time when a decision regarding the fair value of the portfolio investments is required. A determination of fair value involves subjective judgments and estimates. Due to the inherent uncertainty of determining the fair value of portfolio investments that do not have a readily available market value, the fair value of the investments may differ significantly from the values that would have been determined had a readily available market value existed for such investments, and the differences could be material. Further, such investments are generally less liquid than publicly traded securities. If the Company was required to liquidate a portfolio investment that does not have a readily available market value in a forced or liquidation sale, the Company could realize significantly less than the value recorded by the Company.

The Company and its Advisors undertake a multi-step valuation process each quarter for determining the fair value of the Company’s investments, the market prices of which are not readily available, as described below:

•

Each portfolio company or investment is initially valued by KKR (internal valuation) and/or the Company’s independent third party valuation firm (external valuation), which provides a valuation range.

•

Valuation recommendations are formulated and documented by KKR and reviewed by KKR’s valuation committee. The KKR valuation committee then provides its valuation recommendation for each portfolio investment, along with supporting documentation, to CNL and the Company.

2. Significant Accounting Policies (continued)

•

After the Company’s management has substantially completed its review, it forwards the valuation recommendations and supporting documentation for audit committee review.

•

The Company’s board of trustees then discusses the investment valuation recommendations with the Advisors and management and, based on those discussions and the related review process conducted by the Company’s audit committee, determines the fair value of the investments in good faith.

The valuation techniques used by the Company for the assets and liabilities that are classified as Level 3 in the fair value hierarchy are described below.

Senior Debt and Subordinated Debt: Senior debt and subordinated debt investments are initially valued at transaction price and are subsequently valued using (i) market data for similar instruments (e.g., recent transactions or indicative broker quotes), (ii) comparisons to benchmark derivative indices or (iii) valuation models. Valuation models are generally based on yield analysis and discounted cash flow techniques, where the key inputs are based on relative value analyses and the assignment of risk-adjusted discounted rates, based on the analysis of similar instruments from similar issuers. In addition, an illiquidity discount is applied where appropriate.

Equity Investments: Equity investments are initially valued at transaction price and are subsequently valued using valuation models in the absence of readily observable market prices. Valuation models are generally based on (i) market and income (discounted cash flow) approaches, in which various internal and external factors are considered, and (ii) earnings before interest, taxes, depreciation and amortization (“EBITDA”) valuation multiples analysis. Factors include key financial inputs and recent public and private transactions for comparable investments. Key inputs used for the discounted cash flow approach include the weighted average cost of capital and assumed inputs used to calculate terminal values, such as EBITDA exit multiples. The fair value for a particular investment will generally be within the value range conclusions derived by the two approaches. Upon completion of the valuations conducted, an illiquidity discount is applied where appropriate.

The Company utilizes several valuation techniques that use unobservable pricing inputs and assumptions in determining the fair value of its Level 3 investments. The unobservable pricing inputs and assumptions may differ by asset and in the application of the Company’s valuation methodologies. The reported fair value estimates could vary materially if the Company had chosen to incorporate different unobservable pricing inputs and other assumptions.

Security Transactions, Realized/Unrealized Gains or Losses, and Income Recognition – Investments purchased on a secondary basis are recorded on the trade date. The Company measures realized gains or losses from the sale of investments using the specific identification method. Realized gains or losses are measured by the difference between the net proceeds from the sale and the amortized cost basis of the investment without regard to unrealized gains or losses previously recognized, and include investments charged off during the period, net of recoveries. Unrealized gains or losses primarily reflect the change in investment values, including the reversal of previously recorded unrealized gains or losses when gains or losses are realized. The amortized cost basis of investments includes (i) the original cost and (ii) adjustments for the accretion/amortization of market discounts and premiums and original issue discount. The Company reports changes in fair value of investments as a component of net change in unrealized appreciation (depreciation) on investments in the condensed statements of operations.

Interest Income – Interest income is recorded on an accrual basis and includes amortization of premiums to par value and accretion of discounts to par value. Discounts and premiums to par value on securities purchased are accreted/amortized into interest income over the life of the respective security using the effective interest method. Upon prepayment of a debt investment, any prepayment penalties and unamortized loan fees and discounts are recorded as interest income.

Debt securities are placed on nonaccrual status when principal or interest payments are at least 90 days past due or when there is reasonable doubt that principal or interest will be collected. Generally, accrued interest is reversed against interest income when a debt security is placed on nonaccrual status. Interest payments received on debt securities on nonaccrual status may be recognized as interest income or applied to principal based on management’s judgment. Debt securities on nonaccrual status are restored to accrual status when past due principal and interest are paid and, in management’s judgment, such investments are likely to remain current on interest payment obligations. The Company may make exceptions to this treatment if the debt security has sufficient collateral value and is in the process of collection.

Fee Income – The Company receives fees for commitments, amendments and other services related to portfolio companies. Such fees are recognized as fee income when earned or the services are rendered.

2. Significant Accounting Policies (continued)

Paid In Capital – The Company records the proceeds from the sale of its common stock on a net basis to (i) capital stock and (ii) paid-in capital in excess of par value, excluding up-front selling commissions and dealer manager fees.

Foreign Currency Translation, Transactions and Gains/Losses - Foreign currency amounts are translated into U.S. dollars on the following basis: (i) at the exchange rate on the last business day of the reporting period for the fair value of investment securities, other assets and liabilities; and (ii) at the prevailing exchange rate on the respective recording dates for the purchase and sale of investment securities, income, expenses, gains and losses.

Net assets and fair values are presented based on the applicable foreign exchange rates described above and 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 fair values of investments held; therefore, fluctuations related to foreign exchange rate conversions are included with the net realized gains (losses) and unrealized appreciation (depreciation) on investments.

Net realized gains or losses on foreign currency transactions arise from sales of foreign currency, and the difference between the amounts of dividends, interest, and foreign withholding taxes recorded by the Company and the U.S. dollar equivalent of the amounts actually received or paid by the Company.

Unrealized appreciation (depreciation) from foreign currency translation for other receivables or payables is presented as net change in unrealized appreciation (depreciation) in foreign currency translation in the condensed statements of operations.

Management Fees – The Company incurs a base management fee (recorded as investment advisory fees) and performance-based incentive fees, including (i) a subordinated incentive fee on income and (ii) an incentive fee on capital gains, due to its Advisors pursuant to an investment advisory agreement described in Note 5 “Related Party Transactions.” The two components of performance-based incentive fees are combined and expensed in the condensed statements of operations and accrued as accrued performance-based incentive fees in the condensed statements of assets and liabilities. Pursuant to the terms of the investment advisory agreement, the incentive fee on capital gains is determined and payable in arrears as of the end of each calendar year (or upon termination of the investment advisory agreement) based on the Company’s realized capital gains on a cumulative basis from inception, net of all realized capital losses on a cumulative basis and unrealized depreciation at year end, less the aggregate amount of any previously paid capital gains incentive fees. Although the terms of the investment advisory agreement do not provide for the inclusion of unrealized gains in the calculation of the incentive fee on capital gains, pursuant to relevant authoritative guidance for investment companies, the Company includes unrealized gains in the calculation of the incentive fee on capital gains expense and related accrued incentive fee on capital gains. This accrual reflects the incentive fees that would be payable to the Advisors if the Company’s entire portfolio was liquidated at its fair value as of the balance sheet date even though the Advisors are not entitled to an incentive fee with respect to unrealized gains unless and until such gains are actually realized.

Organization and Offering Expenses – Organization expenses will be expensed on the Company’s statement of operations. Offering expenses will be capitalized on the Company’s statement of assets and liabilities as deferred offering expenses and expensed to the Company’s statement of operations over a 12-month period, noting, however, the deferral period will not exceed 12 months from the date the Advisors incurred the offering expenses.

Earnings per Share – Earnings per share is calculated based upon the weighted average number of shares of common stock outstanding during the reporting period.

Distributions – Weekly distributions are generally declared quarterly by the Company’s board of trustees and recognized as a liability on the applicable record date. Distributions are paid monthly. The Company has adopted a distribution reinvestment plan that provides for reinvestment of distributions on behalf of shareholders. Shareholders who have elected to participate in the distribution reinvestment plan will have their cash distribution automatically reinvested in additional shares of common stock at a price per share equivalent to the then current public offering price, net of up-front selling commissions and dealer manager fees.

Federal Income Taxes – The Company intends to elect to be treated for federal income tax purposes, and intends to maintain its qualification, as a RIC under Subchapter M of the Code. Generally, a RIC is not subject to federal income taxes on distributed income and gains if it distributes at least 90% of its “Investment Company Taxable Income,” as defined in the Code. The Company intends to distribute sufficient dividends to maintain its RIC status each year.

2. Significant Accounting Policies (continued)

The Company is generally subject to nondeductible federal excise taxes if it does not distribute to its shareholders an amount at least equal to the sum of (i) 98% of its net ordinary income for the calendar year, (ii) 98.2% of its capital gains in excess of capital losses for the one-year period generally ending on October 31 of the calendar year and (iii) any ordinary income and net capital gains for preceding years that were not distributed during such years and on which the Company paid no federal income tax. The Company may pay a 4% nondeductible federal excise tax on under-distribution of capital gains and taxable income.

The Company recognizes in its condensed financial statements the effect of a tax position when it is deemed more likely than not, based on the technical merits, that the position will be sustained upon examination. Tax benefits of positions not deemed to meet the more-likely-than-not threshold are recorded as tax expenses in the current year. The Company did not have any uncertain tax positions that met the recognition or measurement criteria of ASC 740-10-25, Income Taxes – Overall –Recognition, nor did it have any unrecognized tax benefits for the periods presented herein. Although the Company files federal and state tax returns, its major tax jurisdiction is federal.

Permanent book and tax basis differences are reclassified among the Company’s capital accounts, as appropriate on an annual basis. Additionally, the tax character and amount of distributions is determined in accordance with the Code which differs from GAAP.

Recent Accounting Pronouncements —In August 2016, the FASB issued ASU 2016-15, “Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments,” which will make eight targeted changes to how cash receipts and cash payments are presented and classified in the statement of cash flows. The ASU further clarifies how the predominance principle should be applied to cash receipts and payments relating to more than one class of cash flows. The ASU is effective for annual reporting periods, and interim periods within those annual periods, beginning after December 15, 2017. The ASU is to be applied retrospectively for each period presented. The Company is currently evaluating the impact this ASU will have on the Company’s statement of cash flows.

In November 2016, the FASB issued ASU 2016-18, “Statement of Cash Flows (Topic 230): Restricted Cash,” which modifies the presentation of the statement of cash flows and requires reconciliation to the overall change in the total of cash, cash equivalents, restricted cash and restricted cash equivalents. As a result, the statement of cash flows will no longer present transfers between cash and cash equivalents and restricted cash and restricted cash equivalents. The ASU is effective for annual reporting periods, and interim periods within those annual periods, beginning after December 15, 2017, with early adoption permitted. The ASU is to be applied retrospectively for each period presented. The Company adopted this ASU on December 31, 2016 and the adoption has not materially impacted the presentation of the Company’s cash flows.

3. Investments

The Company is engaged in a strategy to invest primarily in the debt of privately owned and thinly traded U.S. companies. The primary investment concentrations include (i) senior debt securities and (ii) subordinated debt securities. The Company’s investments may, in some cases, be accompanied by warrants, options or other forms of equity participation. The Company may separately purchase common or preferred equity interests, including non-controlling equity investments. Additionally, the Company may invest in convertible securities, derivatives and private investment funds. The fair value of the Company’s investments will generally fluctuate with, among other things, changes in prevailing interest rates, the general supply of, and demand for, debt capital among private and public companies, general domestic and global economic conditions, the condition of certain financial markets, developments or trends in any particular industry and changes in the financial condition and credit quality of each security’s issuer.

As of March 31, 2017 and December 31, 2016, the Company’s investment portfolio consisted of the following:


	As of March 31, 2017
Asset Category	Amortized Cost		Fair Value		Percentage of Investment Portfolio			Percentage of Net Assets
Senior debt
Senior secured loans – first lien	$	51,560,103	$	51,963,827		65.8	%		65.0	%
Senior secured loans – second lien		14,415,945		14,659,806		18.6			18.3

Total senior debt		65,976,048		66,623,633		84.4			83.3
Subordinated debt		12,151,577		12,270,870		15.5			15.3
Equity		62,424		55,088		0.1			0.1

Total investments	$	78,190,049	$	78,949,591		100.0	%		98.7	%

3. Investments (continued)


	As of December 31, 2016
Asset Category	Amortized Cost		Fair Value		Percentage of Investment Portfolio			Percentage of Net Assets
Senior debt
Senior secured loans - first lien	$	39,078,146	$	39,685,517		70.6	%		72.1	%
Senior secured loans - second lien		10,433,488		10,571,654		18.8			19.2

Total senior debt		49,511,634		50,257,171		89.4			91.3
Subordinated debt		5,881,541		5,878,064		10.5			10.7
Equity		62,424		57,548		0.1			0.1

Total investments	$	55,455,599	$	56,192,783		100.0	%		102.1	%

As of March 31, 2017 and December 31, 2016, none of the Company’s debt investments were on nonaccrual status.

The industry composition and geographic dispersion of the Company’s investment portfolio as a percentage of total fair value of the Company’s investments as of March 31, 2017 and December 31, 2016 were as follows:


	As of March 31,			As of December 31,
Industry Composition	2017			2016
Capital Goods		23.1	%		22.5	%
Retailing		16.0			13.2
Software & Services		13.7			13.6
Health Care Equipment & Services		12.0			10.3
Materials		11.2			4.1
Commercial & Professional Services		5.6			8.3
Consumer Services		4.3			6.0
Utilities		3.7			1.8
Technology Hardware & Equipment		2.8			4.0
Food, Beverage & Tobacco		2.0			2.8
Media		2.0			3.4
Food & Staples Retailing		1.4			4.0
Consumer Durables & Apparel		1.3			1.8
Transportation		0.6			0.9
Pharmaceuticals, Biotechnology & Life Sciences		0.3			0.5
Telecommunications		—			2.8

Total		100.0	%		100.0	%


Geographic Dispersion⁽¹⁾	March 31, 2017			December 31, 2016
United States		99.2	%		99.1	%
Luxembourg		0.4			0.8
United Kingdom		0.4			0.1

Total		100.0	%		100.0	%

(1)	The geographic dispersion is determined by the portfolio company’s country of domicile or the jurisdiction of the security’s issuer.

As of March 31, 2017 and December 31, 2016, all of the Company’s investments were denominated in U.S. dollars.

4. Fair Value of Financial Instruments

The Company’s investments were categorized in the fair value hierarchy described in Note 2. “Significant Accounting Policies”, as follows as of March 31, 2017 and December 31, 2016:


	March 31, 2017
Description	Level 1		Level 2		Level 3		Total
Senior debt	$	—	$	65,362,629	$	1,261,004	$	66,623,633
Subordinated debt		—		12,270,870		—		12,270,870
Equity		—		—		55,088		55,088

Total investments	$	—	$	77,633,499	$	1,316,092	$	78,949,591


	December 31, 2016
Description	Level 1		Level 2		Level 3		Total
Senior debt	$	—	$	49,641,555	$	615,616	$	50,257,171
Subordinated debt		—		5,878,064		—		5,878,064
Equity		—		—		57,548		57,548

Total investments	$	—	$	55,519,619	$	673,164	$	56,192,783

There were no transfers between Level 1 and Level 2 during the three months ended March 31, 2017 and year ended December 31, 2016. The carrying value of cash is classified as Level 1 with respect to the fair value hierarchy. At March 31, 2017, the Company held 3 distinct investment positions classified as Level 3, representing an aggregate fair value of $1,316,092 and 1.7% of the total investment portfolio. At December 31, 2016, the Company held two distinct investment positions classified as Level 3, representing an aggregate fair value of $673,164 and 1.2% of the total investment portfolio. The ranges of unobservable inputs used in the fair value measurement of the Company’s Level 3 investments as of March 31, 2017 and December 31, 2016 were as follows:

As of March 31, 2017

Asset Group

Fair
Value ⁽¹⁾

Valuation Techniques

Unobservable Inputs

Range (Weighted

Average) ⁽²⁾

Impact to
Valuation
from an
Increase
in Input ⁽³⁾

Senior Debt

1,261,004

Discounted Cash Flow

Discount Rate

11.50%-13.13% (12.29%)

Decrease

EBITDA Multiple

8.44x-9.24x (8.85x)

Increase

Equity

55,088

Market Comparables

Illiquidity Discounts

10.00% (10.00%)

Decrease

EBITDA Multiple

8.44x (8.44x)

Increase

Total

1,316,092

As of December 31, 2016

Asset Group

Fair
Value ⁽¹⁾

Valuation Techniques

Unobservable Inputs

Range (Weighted

Average) ⁽²⁾

Impact to
Valuation
from an
Increase
in Input ⁽³⁾

Senior Debt

615,616

Discounted Cash Flow

Discount Rate

12.95% (12.95%)

Decrease

EBITDA Multiple

8.58x (8.58x)

Increase

Equity

57,548

Waterfall

Illiquidity Discounts

10.00% (10.00%)

Decrease

EBITDA Multiple

8.58x (8.58x)

Increase

Total

673,164

(1)	Certain investments may be valued at cost for a period of time after an acquisition as the best indicator of fair value.

(2)	Weighted average amounts are based on the estimated fair values.

(3)

This column represents the directional change in the fair value of the Level 3 investments that would result from an increase to the corresponding unobservable input. A decrease to the input would have the opposite effect. Significant changes in these inputs in isolation could result in significantly higher or lower fair value measurements.

4. Fair Value of Financial Instruments (continued)

The preceding tables represent the significant unobservable inputs as they relate to the Company’s determination of fair values for the majority of its investments categorized within Level 3 as of March 31, 2017 and December 31, 2016. In addition to the techniques and inputs noted in the table above, according to the Company’s valuation policy, it may also use other valuation techniques and methodologies when determining the fair value estimates for the Company’s investments. Any significant increases or decreases in the unobservable inputs would result in significant increases or decreases in the fair value of the Company’s investments.

Investments that do not have a readily available market value are valued utilizing a market approach, an income approach (i.e. discounted cash flow approach), or both approaches, as appropriate. The market comparables approach uses prices, including third party indicative broker quotes, and other relevant information generated by market transactions involving identical or comparable assets or liabilities (including a business). The income approach uses valuation techniques to convert future amounts (for example, cash flows or earnings) that are discounted based on a required or expected discount rate to derive a single present value amount. The measurement is based on the value indicated by current market expectations about those future amounts. In following these approaches, the types of factors the Company may take into account to determine the fair value of its investments include, as relevant: available current market data, including an assessment of the credit quality of the security’s issuer, relevant and applicable market trading and transaction comparables, applicable market yields and multiples, illiquidity discounts, security covenants, call protection provisions, information rights, the nature and realizable value of any collateral, the portfolio company’s ability to make payments, its earnings and cash flows, the markets in which the portfolio company does business, comparisons of financial ratios of peer companies that are public, data derived from merger and acquisition activities for comparable companies, and enterprise values, among other factors.

The following table provides reconciliations for the three months ended March 31, 2017 of investments for which Level 3 inputs were used in determining fair value:


	Three Months Ended March 31, 2017
	Senior
	Debt			Equity			Total
Fair value balance as of December 31, 2016	$	615,616		$	57,548		$	673,164
Additions ⁽¹⁾		647,935			—			647,935
Net change in unrealized appreciation (depreciation) ⁽²⁾		(3,138	)		(2,460	)		(5,598	)
Net discount accretion		591			—			591

Fair value balance as of March 31, 2017	$	1,261,004		$	55,088		$	1,316,092

Change in net unrealized appreciation (depreciation) in investments still held as of March 31, 2017 ⁽²⁾	$	(3,138	)	$	(2,460	)	$	(5,598	)

(1)	Includes increases in the cost basis of investments resulting from new and add-on portfolio investments.

(2)	Included in net change in unrealized appreciation (depreciation) in the statement of operations.

No securities were transferred into or out of the Level 3 hierarchy during the three months ended March 31, 2017. All realized and unrealized gains and losses are included in earnings and are reported as separate line items within the Company’s statement of operations.

5. Related Party Transactions

On August 26, 2015 and August 27, 2015, respectively, the Company entered into share purchase agreements for the sale of shares of common stock to each of CNL and KKR for consideration of $5.0 million effective after the Company’s initial registration statement was declared effective by the SEC and prior to acceptance of other shareholders unaffiliated with the Company (the “Founder Stock Agreements” and “Share Purchase Agreements”). On March 1, 2016, the Advisors completed their purchases under the Founder Stock Agreements and Share Purchase Agreements and the Company received $5.0 million. The Company met its minimum offering requirement with proceeds received from CNL and KKR from these share purchase agreements.

As of March 31, 2017 and December 31, 2016, the Advisors owned 6% and 9%, respectively, of the Company’s outstanding shares. CNL is an affiliate of CNL Financial Group, Inc. (“CFG”). All of the Company’s executive officers also serve as executive officers of either KKR and its affiliates or CNL and other CFG affiliates.

5. Related Party Transactions (continued)

The Advisors received distributions of $81,283 and $30,301 from the Company for the three months ended March 31, 2017 and 2016, respectively.

The Company is a party to an investment advisory agreement with CNL (the “Investment Advisory Agreement”) for the overall management of the Company’s activities. CNL is a party to a sub-advisory agreement with KKR (the “Sub-Advisory Agreement”), under which KKR is responsible for the day-to-day management of the Company’s investment portfolio. Pursuant to the Investment Advisory Agreement, CNL earns (i) a management fee equal to an annual rate of 2% of the Company’s average gross assets, and (ii) an incentive fee based on the Company’s performance. The incentive fee consists of (i) a subordinated incentive fee on income and (ii) an incentive fee on capital gains. CNL compensates KKR for advisory services that it provides to the Company with 50% of the fees that CNL receives under the Investment Advisory Agreement.

A subordinated incentive fee on income is payable to the Advisors each calendar quarter if the Company’s pre-incentive fee net investment fee income (as defined in the Investment Advisory Agreement and approved by the Company’s board of trustees) exceeds the 1.75% quarterly preference return to the Company’s shareholders (the ratio of pre-incentive fee net investment income divided by average adjusted capital). The Company did not incur any subordinated incentive fee on income during the three months ended March 31, 2017.

The annual incentive fees on capital gains recorded for GAAP purposes are equal to (i) 20% of our realized and unrealized capital gains on a cumulative basis since inception, net of all realized capital losses and unrealized depreciation on a cumulative basis from inception, less (ii) the aggregate amount of any previously paid incentive fees on capital gains. For financial reporting purposes, in accordance with GAAP, the Company includes unrealized appreciation on the investment portfolio in the calculation of incentive fees on capital gains; however, such amounts are not payable by the Company unless and until the net unrealized appreciation is actually realized. The actual amount of incentive fees on capital gains that are due and payable to the Advisors is determined at the end of the calendar year. The Company accrued $204,887 for incentive fees on capital gains as of March 31, 2017.

Under the terms of the Investment Advisory Agreement CNL (and indirectly KKR) is entitled to receive up to 1.5% of gross offering proceeds as reimbursement for organization and offering expenses incurred by the Advisors on behalf of the Company. The Advisors have incurred organization and offering costs of approximately $4.5 million as of March 31, 2017. The Advisors have waived the reimbursement of organization and offering expenses in connection with the Company’s gross capital raise received from the Offering from March 1, 2016 (the period beginning at the time the Company satisfied the minimum offering requirement) through April 30, 2017 (the “O&O Reimbursement Waiver”). Had the O&O Reimbursement Waiver not been in effect as of March 31, 2017, the Company would have been required to reimburse the Advisors approximately $1.16 million. The O&O Reimbursement Waiver does not reduce the amount of organization and offering expenses incurred by the Advisors that are eligible for reimbursement in future periods based on subsequent gross capital raised by the Company after April 30, 2017. After the O&O Reimbursement Waiver period ends, subsequent gross capital raised by the Company will be subject to the maximum organization and offering cost reimbursement of 1.5%. Organization and offering costs subject to reimbursement will expire three years from the latter of (1) commencement of operations or (2) the date such costs were incurred.

Organization and offering expenses eligible for reimbursement by the Advisors will expire as follows:


During the quarter ended
March 31, 2019	$	2.5 million
June 30, 2019		0.7 million
September 30, 2019		0.5 million
December 31, 2019		0.5 million
March 31, 2020		0.3 million

	$	4.5 million

In addition, under the terms of the Investment Advisory Agreement, the Advisors are entitled to reimbursement of certain expenses incurred on behalf of the Company including expenses incurred in connection with its investment operations and investment transactions.

5. Related Party Transactions (continued)

The Company is a party to a managing dealer agreement with CNL Securities Corp., an affiliate of CNL. CNL Securities Corp. serves as the managing dealer of the Company’s Offering and in connection therewith will receive up-front selling commissions of up to 2.00% of gross offering proceeds, up-front dealer manager fees of up to 2.75% of gross offering proceeds and ongoing distribution and shareholder servicing fees at an annualized rate of 1.25% of the Company’s most recently published net asset value per share, excluding shares issued through the distribution reinvestment plan. Shares may also be subject to a contingent deferred sales charge in the event that a stockholder tenders his or her shares of common stock prior to the fourth anniversary of the date such shares were purchased. All or any portion of these fees may be re-allowed to participating brokers. Financial Industry Regulatory Authority (“FINRA”) Rule 2310 provides that the maximum underwriting compensation payable from any source to FINRA members participating in an offering may not exceed 10% of gross offering proceeds, excluding proceeds from a distribution reinvestment plan.

On March 16, 2017, the board of trustees approved an amended and restated Managing Dealer Agreement between the Company and the Managing Dealer and approved an amended and restated Distribution and Shareholder Servicing Plan for the Company (the “Plan”). The new Managing Dealer Agreement and the Plan became effective on April 28, 2017, when the post-effective amendment to our registration statement on Form N-2 (File No. 333-199018) describing the new Managing Dealer Agreement and the Plan was declared effective by the SEC. The new Managing Dealer Agreement and the Plan lowers the ongoing distribution and shareholder servicing fee paid to the Managing Dealer from an annualized rate of 1.25% to an annualized rate of 1.00% of the Company’s net asset value per share. In addition, under the new Managing Dealer Agreement, the Company will cease paying the ongoing distribution and shareholder servicing fee when the total underwriting compensation paid from the upfront selling commissions, upfront dealer manager fees, and ongoing distribution and shareholder servicing fees attributable to our shares equals 8.5% of the aggregate gross offering proceeds from shares sold in the offering, excluding shares issued through the distribution reinvestment plan. The new Managing Dealer Agreement also removes the contingent deferred sales charge and no longer applies upon redemption of Company shares.

The Company is a party to an administrative services agreement with CNL, under which CNL performs, or oversees the performance of, various administrative services on behalf of the Company. Administrative services include investor services, general ledger accounting, fund accounting, maintaining required financial records, calculating the Company’s net asset value, filing tax returns, preparing and filing SEC reports, preparing, printing, and disseminating shareholder reports and generally overseeing the payment of the Company’s expenses and the performance of administrative and professional services rendered to the Company by others. The Company reimburses CNL for administrative expenses it incurs in performing its obligations.

The Company is a party to an Expense Support and Conditional Reimbursement Agreement, as amended (the “Expense Support Agreement”) with the Advisors pursuant to which the Advisors jointly and severally agree to pay to the Company some or all operating expenses (an “Expense Support Payment”) for each month during the Expense Support Payment Period (as defined below) in which the Company’s board of trustees declares a distribution to its shareholders. Expense Support Payments shall be made in accordance with the terms of the Expense Support Agreement. The “Expense Support Payment Period” commenced on March 1, 2016 and ends on June 30, 2017. The Advisors are entitled to be reimbursed promptly by the Company (a “Reimbursement Payment”) for Expense Support Payments made with respect to any class of common stock, subject to the limitation that no Reimbursement Payment may be made by the Company to the extent that it would cause the Company’s other operating expenses (as defined in the Expense Support Agreement) for such class of common stock to exceed the lesser of (A) 1.75% of average net assets attributable to shares of such class of common stock for the most recently completed fiscal year after taking such payment into account, and (B) the percentage of our average net assets attributable to shares of such class of common stock represented by Other Operating Expenses (as defined in the Expense Support Agreement) during the fiscal year in which such Expense Support Payment from the Advisors was made (provided, however, that this clause (B) shall not apply to any reimbursement payment which relates to an Expense Support Payment from the Advisors made during the same fiscal year). Notwithstanding anything to the contrary in the Expense Support Agreement, no Reimbursement Payment shall be made with respect to any class of common stock if the effective rate of distributions per share on such class of common stock declared by the Company at the time of such Reimbursement Payment is less than the effective rate of distributions per share on such class of common stock at the time the Expense Support Payment was made to which such Reimbursement Payment relates. For this purpose, “effective rate of distributions per share” means actual declared distribution rate per share exclusive of return of capital, if any. The Company’s obligation to reimburse each Expense Support Payment will terminate three years from the date on which such Expense Support Payment was paid or waived.

5. Related Party Transactions (continued)

Related party fees and expenses incurred on behalf of the Company during the three months ended March 31, 2017 and 2016 are summarized below:


		Three Months Ended March 31,
Related Party	Source Agreement & Description	2017		2016
CNL Securities Corp.	Managing Dealer Agreement: Up-front selling commissions and dealer manager fees Distribution and shareholder servicing fees	$	1,210,725 199,686	$	3,800 5,301
CNL and KKR	Investment Advisory Agreement: Base management fees (investment advisory fees) ⁽¹⁾ Incentive fee on capital gains ⁽²⁾		370,099 37,819		7,493 5,813
KKR	Investment Sub-Advisory Agreement: Investment expenses reimbursement⁽¹⁾		2,783		—
CNL	Administrative Services Agreement: Administrative and compliance services ⁽¹⁾		137,567		15,485

(1)	Expenses subject to Expense Support.

(2)	Incentive fees on capital gains are included in performance-based incentive fees in the condensed statements of operations. The following table provides additional details for the incentive fee on capital gains for the three months ended March 31, 2017 and 2016:


	Three Months Ended March 31,
Incentive fee on Capital Gains for the Three Months Ended March 31,	2017			2016
Accrued incentive fee as of January 1,	$	167,068		$	—
Incentive fee on capital gains during the three months ended March 31,		37,819			5,813
Less: Incentive fee on capital gains paid to the Advisors during the three months ended March 31,		—			—

Accrued incentive fee as of March 31,		204,887			5,813
Less: Accrued incentive fee on capital gains attributable to unrealized gains as of March 31,		(204,887	)		(5,813	)

Incentive fee on capital gains earned by and payable to the advisors as of March 31,	$	—		$	—

As of March 31, 2017, the amount of Expense Support Payments provided by the Advisors since inception is $2,853,765. Management believes that Reimbursement Payments by the Company to the Advisor were not probable under the terms of the Expense Support Agreements as of March 31, 2017.

The following table reflects the Expense Support Payments that may become subject to reimbursement:


For the quarter ended	Amount of Expense Support Payment		Effective Rate of Distributions Per Share ⁽¹⁾			Reimbursement Eligibility Expiration		Lesser of Other Operating Expenses Ratio or 1.75% ⁽²⁾
March 31, 2016	$	204,420		6.0	%		March 31, 2019		1.75	%
June 30, 2016		639,585		5.9	%		June 30, 2019		1.75	%
September 30, 2016		603,584		5.9	%		September 30, 2019		1.75	%
December 31, 2016		748,202		6.0	%		December 31, 2019		1.75	%
March 31, 2017		657,974		6.0	%		March 31, 2020		1.75	%

	$	2,853,765

⁽¹⁾

The effective rate of distributions per share is expressed as a percentage equal to the projected annualized distribution amount as of the end of the applicable period (which is calculated by annualizing the regular weekly cash distribution per share as of such date without compounding), divided by the Company’s public offering price per share as of such date.

⁽²⁾	Represents the lesser of Other Operating Expenses as defined in the Expense Support Agreement or 1.75% of average net assets on an annualized basis.

5. Related Party Transactions (continued)

Indemnification - The Investment Advisory Agreement and the Sub-Advisory Agreement provide certain indemnification in favor of the Advisors, their directors, officers, persons associated with the Advisors, and their affiliates. The managing dealer agreement contains certain indemnification provisions in favor of the managing dealer and each participating broker and their respective officers, directors, partners, employees, associated persons, agents and control persons. In addition, the Company’s declaration of trust contains certain indemnifications in favor of the Company’s officers, trustees, agents, and certain other persons. As of March 31, 2017, management believed that the risk of incurring any losses for such indemnification was remote.

6. Distributions

The Company’s board of trustees declared distributions of $0.011250 per share for 13 weekly record dates beginning on January 3, 2017 through and including March 28, 2017. Distributions were paid on January 4, 2017, February 1, 2017, March 1, 2017 and March 29, 2017.

The total and the sources of declared distributions on a GAAP basis for the three months ended March 31, 2017 and 2016 are presented in the tables below.


	Three Months Ended March 31,
	2017							2016
	Per Share		Amount		Allocation			Per Share		Amount		Allocation
Total Declared Distributions	$	0.15	$	1,020,988		100	%	$	0.05	$	30,301		100.0	%
From net investment income		0.09		620,170		60.7			—		—		—
From net realized gains		0.02		163,374		16.0			—		—		—
Distributions in excess of net investment income		0.04		237,444		23.3	%		0.05		30,301		100.0	%

Net investment income includes Expense Support Payments of $657,974 and $204,420 which supported distributions of $1,020,988 and $30,301 during the three months ended March 31, 2017 and 2016, respectively. Sources of distributions, other than net investment income and realized gains on a GAAP basis, include (i) the ordinary income component of prior year tax basis undistributed earnings and (ii) required adjustments to GAAP net investment income and realized gains in the current period to determine taxable income available for distributions. The following table summarizes the primary sources of differences between (i) GAAP net investment income and realized gains and (ii) taxable income available for distributions that contribute to tax-related distributions in excess of net investment income for the three months ended March 31, 2017 and 2016.


Three Months Ended March 31,	2017		2016
Ordinary income component of tax basis undistributed earnings	$	222,589	$	—
Distribution and shareholder servicing fees		199,686		5,301
Unearned performance-based incentive fees on unrealized gains		37,819		5,813

Total ⁽¹⁾	$	460,094	$	11,114

⁽¹⁾	The above table does not represent all adjustments to calculate taxable income available for distributions.

For the three months ended March 31, 2017, the tax-related sources of distributions of $460,094 were greater than the distributions in excess of net investment income of $237,444. As a result, the Company estimates that none of the distributions declared during the three months ended March 31, 2017 would be classified as a tax basis return of capital. None of the distributions declared during the year ended December 31, 2016 were classified as a tax basis return of capital.

7. Fee Income

Fee income, which is nonrecurring, consisted of the following:


Fee Income	Three Months Ended March 31, 2017
Amendment fees	$	21,261
Consent fees		1,112

	$	22,373

8. Share Transactions

The following table summarizes the total shares issued and proceeds received in connection with the Company’s Offering and Share Purchase Agreements for the three months ended March 31, 2017 and 2016.


	Three Months Ended March 31,
	2017					2016⁽¹⁾
	Shares		Amount			Shares		Amount
Gross proceeds		2,633,597	$	25,760,948			541,755	$	4,880,000
Up-front selling commissions and dealer manager fees		—		(1,210,725	)		—		(3,800	)

Net proceeds to company		2,633,597		24,550,223			541,755		4,876,200
Reinvestment of distributions		65,902		613,698			—		—

Net proceeds		2,699,499	$	25,163,921			541,755	$	4,876,200

Average net proceeds per share		$9.32					$9.00

⁽¹⁾	Commenced operations on March 1, 2016.

As of March 31, 2017, the Company has sold or issued 8,643,702 shares of common stock through the Offering, Founder Stock Agreements and Share Purchase Agreements, including reinvestment of distributions, for total gross proceeds of $83,301,629.

As of December 31, 2016, the public offering price of our continuous public offering was $9.75 per share. On February 7, 2017, our board of trustees increased the public offering price of our continuous public offering of common stock from $9.75 per share to $9.80 per share. This increase in our public offering price is effective as of February 7, 2017. As a result of the increase in our public offering price per share, our maximum sales load per share and the net proceeds per share correspondingly increased from $0.463 to $0.466 and from $9.29 to $9.33, respectively.

9. Commitment & Contingences

Unfunded commitments to provide funds to portfolio companies are not recorded in the Company’s condensed statements of assets and liabilities. Since these commitments may expire without being drawn upon, the total commitment amount does not necessarily represent future cash requirements. The Company has sufficient liquidity to fund these commitments. As of March 31, 2017, the Company’s unfunded commitments consisted of the following:


Category / Company
Equity:
Polyconcept North America Holdings, Inc.	$	25,737

Total Unfunded Commitments	$	25,737

The Company funds its equity investments as it receives funding notices from the portfolio companies. At March 31, 2017, the Company’s unfunded commitments have a fair value of $0.

In the normal course of business, the Company may enter into guarantees on behalf of portfolio companies. Under these arrangements, the Company would be required to make payments to third parties if the portfolio companies were to default on their related payment obligations. The Company had no such guarantees outstanding at either March 31, 2017 or December 31, 2016.

10. Financial Highlights

The following is a schedule of financial highlights for one share of common stock during the three months ended March 31, 2017 and the period from March 1, 2016 (commencement of operations) through March 31, 2016.


	Three Months Ended March 31, 2017			Period Ended March 31, 2016 (1)
OPERATING PERFORMANCE PER SHARE
Net Asset Value, Beginning of Period	$	9.26		$	9.00

Net investment loss, before expense support ⁽²⁾		(0.01	)		(0.39	)
Expense support⁽²⁾		0.09			0.37

Net investment income (loss)⁽²⁾		0.08			(0.02	)
Net realized and unrealized gains⁽²⁾⁽³⁾		0.04			0.05

Net increase resulting from investment operations		0.12			0.03

Distributions from net investment income⁽⁴⁾		(0.09	)		—
Distributions from net realized gains⁽⁴⁾		(0.02	)		—
Distributions in excess of net investment income ⁽⁴⁾⁽⁵⁾		(0.04	)		(0.05	)

Net decrease resulting from distributions to common shareholders		(0.15	)		(0.05	)

Issuance of common stock above net asset value ⁽⁶⁾		0.02			—

Net increase resulting from capital share transactions		0.02			—


Net Asset Value, End of Period	$	9.25		$	8.98
OPERATING PERFORMANCE PER SHARE
Total Investment Return-Net Price⁽⁷⁾		1.17	%		0.38	%
Total Investment Return-Net Asset Value⁽⁸⁾		1.47	%		0.38	%

RATIOS/SUPPLEMENTAL DATA (all amounts in thousands except ratios)
Net assets, end of period	$	79,967		$	5,067
Average net assets⁽⁹⁾	$	65,418		$	5,006
Shares outstanding, end of period		8,644			564
Weighted average shares outstanding		7,054			556

Ratios to average net assets:⁽⁹⁾
Total operating expenses before expense support		1.94	%		4.31	%
Total operating expenses after expense support		0.94	%		0.22	%
Net investment income (loss)		0.95	%		(0.19	)%
Portfolio turnover rate		28	%		—

10. Financial Highlights (continued)

⁽¹⁾	Commenced operations on March 1, 2016.

⁽²⁾	The per share data was derived by using the weighted average shares outstanding during the period.

⁽³⁾

The amount shown at this caption is the balancing figure derived from the other figures in the schedule. The amount shown at this caption for a share outstanding throughout the period may not agree with the change in the aggregate gains and losses in portfolio securities for the period because of the timing of sales of the Company’s shares in relation to fluctuating market values for the portfolio.

⁽⁴⁾	The per share data for distributions is the actual amount of distributions paid or payable per share of common stock outstanding during the entire period; distributions per share are rounded to the nearest $0.01.

⁽⁵⁾	See Note 6. “Distributions” for further information on the source of distributions from other than net investment income and realized gains.

⁽⁶⁾

The continuous issuance of common stock may cause an incremental increase in net asset value per share due to the sale of shares at the then prevailing public offering price and the receipt of net proceeds per share by the Company in excess of net asset value per share on each subscription closing date. The per share data was derived by computing (i) the sum of (A) the number of shares issued in connection with subscriptions and/or distribution reinvestment on each share transaction date times (B) the differences between the net proceeds per share and the net asset value per share on each share transaction date, divided by (ii) the total shares outstanding at the end of the period

⁽⁷⁾

Total investment return-net price is a measure of total return for shareholders who purchased the Company’s common stock at the beginning of the period, including distributions declared during the period. Total investment return-net price is based on (i) the purchase of one share at the public offering price, net of sales load, on the first day of the period, (ii) the sale at the net asset value per share on the last day of the period, of (A) one share plus (B) any fractional shares issued in connection with the reinvestment of monthly distributions, and (iii) distributions payable relating to one share, if any, on the last day of the period. The total investment return-net price calculation assumes that (i) monthly cash distributions are reinvested in accordance with the Company’s distribution reinvestment plan and (ii) the fractional shares issued pursuant to the distribution reinvestment plan are issued at the then current public offering price, net of sales load, on each monthly distribution payment date. Since there is no public market for the Company’s shares, the terminal sales price per share is assumed to be equal to the net asset value per share on the last day of the period presented. The Company’s performance changes over time and currently may be different than that shown above. Past performance is no guarantee of future results. Investment performance is presented without regard to sales load that may be incurred by shareholders in the purchase of the Company’s shares of common stock. Total investment return is not annualized.

⁽⁸⁾

Total investment return-net asset value is a measure of the change in total value for shareholders who held the Company’s common stock at the beginning and end of the period, including distributions declared during the period. Total investment return-net asset value is based on (i) net asset value per share on the first day of the period, (ii) the net asset value per share on the last day of the period, of (A) one share plus (B) any fractional shares issued in connection with the reinvestment of monthly distributions, and (iii) distributions payable relating to one share, if any, on the last day of the period. The total investment return-net asset value calculation assumes that (i) monthly cash distributions are reinvested in accordance with the Company’s distribution reinvestment plan and (ii) the fractional shares issued pursuant to the distribution reinvestment plan are issued at the then current public offering price, net of sales load, on each monthly distribution payment date. Since there is no public market for the Company’s shares, terminal market value per share is assumed to be equal to net asset value per share on the last day of the period presented. The Company’s performance changes over time and currently may be different than that shown above. Past performance is no guarantee of future results. Investment performance is presented without regard to sales load that may be incurred by shareholders in the purchase of the Company’s shares of common stock. Total investment return is not annualized.

⁽⁹⁾	The computation of average net assets during the period is based on the daily value of net assets. Ratios are not annualized.

11. Subsequent Events

During the period from April 1, 2017 through May 11, 2017, the Company received additional net proceeds of approximately $9.0 million from its Offering, including amounts through its distribution reinvestment plan.

On April 26, 2017, the Company’s board of trustees declared distributions of $0.011250 per share for five record dates beginning May 2, 2017 through May 31, 2017.

On April 28, 2017, the SEC declared the post-effective amendment to our registration statement on Form N-2 effective, and the Company entered into an amended and restated Managing Dealer Agreement between the Company and the Managing Dealer and approved an amended and restated Distribution and Shareholder Servicing Plan for the Company as further discussed in Note 5.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion is based on the unaudited condensed financial statements as of March 31, 2017 and December 31, 2016, and for the three months ended March 31, 2017. Amounts as of December 31, 2016 included in the unaudited condensed financial statements have been derived from the audited financial statements as of that date. This information should be read in conjunction with the accompanying unaudited condensed financial statements and the notes thereto, as well as, the audited financial statements, notes and management’s discussion and analysis of financial condition and results of operations included in our Annual Report on Form 10-K for the period ended December 31, 2016. Capitalized terms used in this Item 2 have the same meaning as in the accompanying unaudited condensed financial statements in Item 1 unless otherwise defined herein.

Statement Regarding Forward-Looking Information

The following information contains statements that constitute forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). These statements generally are characterized by the use of terms such as “may,” “should,” “plan,” “anticipate,” “estimate,” “intend,” “predict,” “believe” and “expect” or the negative of these terms or other comparable terminology. Although we believe that the expectations reflected in such forward-looking statements are based upon reasonable assumptions, our actual results could differ materially from those set forth in the forward-looking statements. Some factors that might cause such a difference include the following: persistent economic weakness at the global or national level, increased direct competition, changes in government regulations or accounting rules, changes in local, national and global capital market conditions, our ability to obtain or maintain credit lines or credit facilities on satisfactory terms, changes in interest rates, availability of proceeds from our offering of shares, our ability to identify suitable investments, our ability to close on identified investments, our ability to obtain or maintain our qualification as a regulated investment company and as a business development company, the ability of our Advisors (defined below) and their affiliates to attract and retain highly talented professionals, inaccuracies of our accounting estimates, the ability of our Advisors to locate suitable borrowers for our loans and the ability of such borrowers to make payments under their respective loans. Given these uncertainties, we caution you not to place undue reliance on such statements, which apply only as of the date hereof. We undertake no obligation to publicly release the results of any revisions to these forward-looking statements that may be made to reflect future events or circumstances or to reflect the occurrence of unanticipated events. The forward-looking statements should be read in light of the risk factors identified in the “Risk Factors” section of our Annual Report on Form 10-K filing for the period ended December 31, 2016 and Item 1A in Part II of this Quarterly Report.

The forward-looking statements and projections contained in this report are excluded from the safe harbor protection provided by Section 27A of the Securities Act and Section 21E of the Exchange Act.

Overview

The Company is a non-diversified closed-end management investment company that has elected to be treated as a business development company under the Investment Company Act of 1940. The Company commenced operations on March 1, 2016 when it satisfied its minimum offering requirement. Formed as a Delaware statutory trust on August 12, 2014, we are externally managed by CNL Fund Advisors II, LLC (“CNL”) and KKR Credit Advisors (US) LLC (“KKR”) collectively, the “Advisors”, which are collectively responsible for sourcing potential investments, conducting due diligence on prospective investments, analyzing investment opportunities, structuring investments, determining the securities and other assets that the we will purchase, retain or sell and monitoring our portfolio on an ongoing basis. Both of our Advisors are registered as investment advisers with the SEC. CNL also provides the administration services necessary for our Company to operate. The Company intends to be taxed as a registered investment company (“RIC”) under the Internal Revenue Code of 1986, as amended (the “Code”) and operated in a manner as to qualify to tax treatments applicable to RICs.

Investment Objective, Investment Program, and Primary Investment Types

Our investment objective is to provide our shareholders with current income and, to a lesser extent, long-term capital appreciation. We intend to pursue our investment objective by investing primarily in the debt of privately owned and thinly traded U.S. companies (also referred to as “portfolio companies”) with a focus on originated transactions sourced through the networks of our Advisors upon obtaining exemptive relief from the SEC allowing us to co-invest with certain affiliates of our Advisors. We define originated transactions as any investment where our Advisors negotiate the terms of the transaction beyond just the price, which, for example, may include negotiations, financial covenants, maturity date or interest rate terms. A substantial portion of our portfolio will consist of direct lending investments, which we believe offer potential opportunities for attractive risk-adjusted returns and income generation. Our debt investments may take the form of corporate loans or bonds, may be directly originated as primary market negotiated transactions or purchased on the secondary market, may be secured or unsecured and may, in some cases, be accompanied by warrants, options or other forms of equity participation. We may separately purchase common or preferred equity interests in transactions.

Our investment strategy is focused on creating and growing an investment portfolio that generates superior risk-adjusted returns by carefully selecting investments through rigorous due diligence and actively managing and monitoring our investment portfolio. When evaluating an investment and the related portfolio company, we use the resources of our Advisors to develop an investment thesis and a proprietary view of a potential portfolio company’s intrinsic value. We believe our flexible approach to investing allows us to take advantage of opportunities that offer favorable risk/reward characteristics.

We pursue our strategy by focusing on the following investment types:

•

Senior Debt. We invest in senior debt, in which we generally take a security interest in the available assets of the portfolio company, including equity interests in any of its subsidiaries. These investments generally take the form of senior secured first lien loans, senior secured second lien loans or senior secured bonds. In some circumstances, our lien could be subordinated to claims of other creditors.

•

Subordinated Debt. Our subordinated debt investments are generally subordinated to senior debt and are generally unsecured. These investments are generally structured with interest-only payments throughout the life of the security, with the principal due at maturity.

•

Equity Investments. We also make selected equity investments. In addition, when we invest in senior and subordinated debt, we may acquire warrants or options to purchase equity securities or benefit from other types of equity participation. Our goal is ultimately to dispose of these equity securities and realize gains upon our disposition of such interests.

•

Convertible Securities. We may invest in convertible securities, such as bonds, debentures, notes, preferred stocks or other securities that may be converted into, or exchanged for, a specified amount of common stock of the same or different issuer within a particular period of time at a specified price or formula.

•

Investments in Private Investment Funds. We may invest in, or wholly own, private investment funds, including hedge funds, private equity funds, limited liability companies, REITs, and other business entities. In valuing our investments in private investment funds, we rely primarily on information provided by managers of such funds. Valuations of illiquid securities, such as interests in certain private investment funds, involve various judgments and consideration of factors that may be subjective. There is a risk that inaccurate valuations provided by managers of private investment funds could adversely affect the value of our common stock. We may not be able to withdraw our investment in certain private investment funds promptly after we have made a decision to do so, which may result in a loss to us and adversely affect our investment returns.

•

Derivatives. We may invest in various types of derivatives, including total return swaps, interest rate swaps and foreign currency forward contracts and options.

The level of our investment activity can and will vary substantially from period to period depending on many factors, including: the amount of capital we have available for investment, the availability of credit to finance investment transactions, the demand for debt from creditworthy privately owned U.S. companies, the level of merger, acquisition and refinancing activity involving private companies, the general economic environment and the competitive investment environment for the types of investments we intend to make. Based on prevailing market conditions, we anticipate that we will invest the proceeds from the periodic sale of our common stock within 30-90 days. The precise timing will depend on the availability of investment opportunities that are consistent with our investment objective and strategies. Any distributions we make during such period may be substantially lower than the distributions that we expect to pay when our portfolio is fully invested.

As a business development company, we are required to comply with certain regulatory requirements. For instance, we may not acquire any assets other than “qualifying assets” as specified in the 1940 Act unless at least 70% of our total assets are qualifying assets as determined at the end of the prior quarter (with certain limited exceptions). Qualifying assets include investments in “eligible portfolio companies.” Under the relevant SEC rules, the term “eligible portfolio company” includes all U.S. private companies, U.S. companies whose securities are not listed on a national securities exchange, and certain U.S. public companies that have listed their securities on a national securities exchange and have a market capitalization of less than $250 million. These rules also permit us to include as qualifying assets certain follow-on investments in companies that were eligible portfolio companies at the time of initial investment but no longer meet the definition of eligible portfolio company at the time of the follow-on investment.

Revenues

We generate revenue primarily in the form of interest on the debt securities of portfolio companies that we acquire and hold for investment purposes. We expect that our investments in debt securities will generally have an expected maturity of three to ten years, although we have no lower or upper constraint on maturity, and we expect to earn interest at a fixed or floating rates.

Interest on our debt securities is generally payable to us quarterly or semi-annually. In some cases, the debt investments may partially defer cash interest payments with payment-in-kind provisions. Any outstanding principal amount of our debt securities and any accrued but unpaid interest will generally become due at the maturity date. In addition, we may generate revenue in the form of prepayment fees, commitment fees, origination fees, and fees for providing significant managerial assistance.

Operating Expenses

Our primary operating expenses include an investment advisory fee and, depending on our operating results, performance-based incentive fees, administrative expenses, custodian and accounting fees and other third-party professional services and expenses. The investment advisory fee and performance-based incentive fees compensate the Advisors for their services in identifying, evaluating, negotiating, closing and monitoring our investments.

Financial and Operating Highlights

The following table presents financial and operating highlights as of March 31, 2017 and December 31, 2016, and for the three months ended March 31, 2017 and 2016:


As of	March 31, 2017		December 31, 2016
Total assets	$	94,451,071	$	63,292,295
Adjusted total assets (Total assets, net of payable for investments purchased)	$	80,151,274	$	56,044,176
Investments in portfolio companies	$	78,949,591	$	56,192,783
Net assets	$	79,967,493	$	55,017,291
Net asset value per share	$	9.25	$	9.26

	March 31,
Activity for the three months ended	2017		2016
Average net assets	$	65,418,297	$	5,006,011
Purchases of investments	$	40,946,950	$	3,845,510
Sales, principal payments and other exits	$	18,538,252	$	—
Net investment income (loss)	$	620,170	$	(9,621	)
Net realized gains on investments and foreign currency transactions	$	163,374	$	—
Net change in unrealized appreciation on investments and foreign currency translation	$	23,725	$	29,067
Net increase in net assets resulting from operations	$	807,269	$	19,446
Total distributions declared	$	1,020,988	$	30,301
Net investment income (loss) before unearned incentive fees per share	$	0.09	$	(0.01	)
Net investment income (loss) per share	$	0.09	$	(0.02	)
Earnings per share	$	0.11	$	0.03
Distributions declared per share outstanding for the entire period	$	0.15	$	0.05

	March 31,
Summary of Common Stock Offering for the three months ended	2017		2016
Gross proceeds, excluding reinvestment of distributions	$	25,760,948	$	4,880,000
Net proceeds to Company, excluding reinvestments of distributions	$	24,550,223	$	4,876,200
Reinvestment of distributions	$	613,698	$	—
Average net proceeds per share	$	9.32	$	9.00
Shares issued in connection with Offering, excluding reinvestments of distributions		2,633,597		541,755
Shares issued in connection with reinvestment of distributions		65,902		—

Business Environment

The opportunity set in credit is still dominated by the search for yield as central banks in Japan, Europe and the UK continue their asset purchase programs. Total net issuance by the G4 central banks continues to be negative. This glut of capital is resulting in significant inflows into sub-investment grade credit from investors seeking higher spreads as investment grade and highly rated sub-investment grade credit trade at close-to-historically tight levels.

Despite the influx of capital, the propensity for market volatility in traded credit remains high. We believe this is being caused by the growth of mutual funds and other vehicles offering daily liquidity to investors. These offerings are being made despite overall market liquidity remaining fragile due to low levels of inventory at investment bank dealing desks. In effect, there is a mismatch between the liquidity of debt investments and demand for investment vehicles with daily liquidity. This market dynamic is resulting in traded credit prices being determined more by market sentiment (i.e. inflows and outflows of daily liquidity funds) than by credit quality.

We have also noted that current high yield bonds spreads are trading between 20% and 35% tighter than long term median spread levels for securities with a duration of between three and six years. We believe duration risk is largely being discounted by investors in favor of higher yields.

In this environment, we believe attractive risk-adjusted returns are available from investments that are (i) isolated from the spread compression in traded markets (i.e. credits requiring deep understanding of the credit story or originated credit); (ii) accessible through a vehicle that is immune from pressure to sell assets as market sentiment changes (i.e. closed-end); and (iii) predominantly floating rate. Against this backdrop, we believe that the Company meets these three criteria and is well placed to generate attractive returns for investors. In addition, we believe the Company is well-placed to benefit from our sub-advisor’s approach to underwriting credit that can source and underwrite credit opportunities that are typically not favored by retail investment vehicles.

Portfolio and Investment Activity

Portfolio Investment Activity for the three months ended March 31, 2017 and 2016

The following table summarizes our investment activity as of March 31, 2017 and December 31, 2016 and for the three months ended March 31, 2017 and 2016:


	Investment Portfolio
	March 31, 2017			December 31, 2016
Total fair value	$	78,949,591		$	56,192,783
No. portfolio companies		56			55
No. debt investments		61			58
No. equity investments		1			1
Weighted average annual yield of debt investments ⁽¹⁾		8.4	%		8.3	%

⁽¹⁾

The weighted average annual yield for our debt investments is computed as (i) the sum of (a) the annual interest rate of each accruing debt investment multiplied by its par amount as of the end of the applicable reporting period, plus (b) the annual amortization of the purchase or original issue discount or premium of accruing each debt investment, if any; divided by (ii) the total amortized cost of all accruing debt investments included in the calculated group as of the end of the applicable reporting period. The yield on the Company’s investments does not represent the return to the Company’s shareholders.


Activity for three months ended March 31,	2017			2016
Purchases of investments:
Senior secured loans – first lien	$	27,513,076		$	2,032,234
Senior secured loans – second lien		6,029,194			1,548,301
Subordinated debt		7,404,680			264,975

Total	$	40,946,950		$	3,845,510

Sales, principal payments and other exits:
Senior secured loans – first lien	$	15,390,108		$	—
Senior secured loans – second lien		2,035,800			—
Subordinated debt		1,112,344			—

Total	$	18,538,252		$	—

Portfolio Company Additions		8			21
Portfolio Company Exits		(7	)		—
Debt Investment Additions		13			23
Debt Investment Exits		(10	)		—

The changes in the fair value of our investment portfolio are directly related to (i) the changes in their cost basis as a result of incremental purchases and (ii) the changes in fair value for assets held at the beginning and end of the period. The net change in unrealized appreciation for the three months ended March 31, 2017 was $23,725. See “Results of Operations – Net Change in Unrealized Appreciation or Depreciation” below for further details relating to the changes.


	March 31, 2017				December 31, 2016
Asset Category	Amortized Cost		Fair Value		Amortized Cost		Fair Value
Senior debt
Senior secured loans - first lien	$	51,560,103	$	51,963,827	$	39,078,146	$	39,685,517
Senior secured loans - second lien		14,415,945		14,659,806		10,433,488		10,571,654

Total senior debt		65,976,048		66,623,633		49,511,634		50,257,171
Subordinated debt		12,151,577		12,270,870		5,881,541		5,878,064
Equity		62,424		55,088		62,424		57,548

Total	$	78,190,049	$	78,949,591	$	55,455,599	$	56,192,783

The weighted average yield on debt investments at amortized cost and fair value held in our investment portfolio as of March 31, 2017 and December 31, 2016 were as follows:


	March 31, 2017			December 31, 2016
Asset Category	Investment Portfolio at Amortized Cost ⁽²⁾			Investment Portfolio at Amortized Cost ⁽²⁾
Senior debt ⁽¹⁾
Senior secured loans - first lien		8.6	%		8.4	%
Senior secured loans - second lien		9.5	%		9.1	%
Subordinated debt⁽¹⁾		6.4	%		6.4	%

⁽¹⁾

The weighted average yield on debt investments is based on amortized cost as of the end of the applicable period. The weighted average yield for our debt investments is computed as, (i) the sum of (a) the annual interest rate of each accruing debt investment multiplied by its par amount as of the end of the applicable reporting period, plus (b) the annual amortization of the purchase or original issue discount or premium of each accruing debt investment, if any; divided by (ii) the total amortized cost of all accruing debt investments included in the calculated group as of the end of the applicable reporting period.

⁽²⁾	The yield on the Company’s investments does not represent the return to the Company’s shareholders.

The following table presents a summary of interest rate and maturity statistics for the debt investments, based on par value, in our investment portfolio as of March 31, 2017 and December 31, 2016:


Floating interest rate debt investments:	March 31, 2017			December 31, 2016
Percent of debt portfolio		83.9	%		89.8	%
Percent of floating rate debt investments with interest rate floors		100.0	%		100.0	%
Weighted average interest rate floor		1.0	%		1.0	%
Weighted average coupon spread to base rate		544 bps			572 bps
Weighted average years to maturity		4.8			5.2

Fixed interest rate debt investments:
Percent of debt portfolio		16.1	%		10.2	%
Weighted average coupon rate		7.89	%		7.43	%
Weighted average years to maturity		5.6			5.3

All of our floating interest rate debt investments have base rate reset frequencies of less than twelve months with the majority resetting at least quarterly. The three-month LIBOR, the most prevalent index employed among our floating interest rate debt investments, ranged between 1.00% and 1.16%, and 0.61% and 0.64% during the three months ended March 31, 2017 and 2016, respectively, and was 1.15% and 1.00% on March 31, 2017 and December 31, 2016, respectively. Base rate resets for floating interest rate investments will only result in interest income increases when the reset base interest rate exceeds the associated interest rate floor.

Our weighted forward looking annual yield on debt investments was 8.4% and 8.3% as of March 31, 2017 and December 31, 2016, respectively. Total investment return -net price and total investment return-net asset value were 1.17% and 1.47%, respectively, for the three months ended through March 31, 2017. See Note 10. “Financial Highlights” in our unaudited condensed financial statements.

The following table shows the credit ratings of the investments in our investment portfolio, based upon the rating scale of Standard & Poor’s Ratings Services, as of March 31, 2017 and December 31, 2016:


	March 31, 2017					December 31, 2016
Standard & Poor’s rating	Fair Value		Percentage of Portfolio			Fair Value		Percentage of Portfolio
BB+	$	1,395,308		1.8	%	$	—		—	%
BB		—		—			1,399,495		2.5
BB-		1,278,977		1.6			993,992		1.8
B+		14,459,389		18.3			11,455,615		20.4
B		24,808,467		31.4			18,309,957		32.5
B-		14,043,946		17.8			10,978,083		19.5
CCC+		17,464,108		22.1			8,887,616		15.8
CCC		1,311,777		1.7			2,445,781		4.4
CCC-		4,132,531		5.2			1,664,696		3.0
Not Rated		55,088		0.1			57,548		0.1

Total	$	78,949,591		100.0	%	$	56,192,783		100.0	%

The following table presents a summary of our investment portfolio arranged by industry classifications of the portfolio companies as of March 31, 2017 and December 31, 2016:


	March 31, 2017					December 31, 2016
Industry Classification	Fair Value		Percentage of Portfolio			Fair Value		Percentage of Portfolio
Capital Goods	$	18,221,603		23.1	%	$	12,571,442		22.5	%
Retailing		12,660,689		16.0			7,443,502		13.2
Software & Services		10,806,803		13.7			7,657,545		13.6
Health Care Equipment & Services		9,466,901		12.0			5,777,348		10.3
Materials		8,829,140		11.2			2,292,220		4.1
Commercial & Professional Services		4,414,272		5.6			4,673,366		8.3
Consumer Services		3,377,374		4.3			3,387,303		6.0
Utilities		2,925,293		3.7			995,115		1.8
Technology Hardware & Equipment		2,185,617		2.8			2,264,964		4.0
Food, Beverage & Tobacco		1,613,175		2.0			1,561,466		2.8
Media		1,541,368		2.0			1,914,534		3.4
Food & Staples Retailing		1,128,525		1.4			2,263,161		4.0
Consumer Durables & Apparel		1,006,277		1.3			1,012,382		1.8
Transportation		509,427		0.6			526,795		0.9
Pharmaceuticals, Biotechnology & Life Sciences		263,127		0.3			262,572		0.5
Telecommunications Services		—		—			1,589,068		2.8

Total	$	78,949,591		100.0	%	$	56,192,783		100.0	%

All portfolio companies held at March 31, 2017 and December 31, 2016 were denominated in U.S. dollars.

Capital Resources and Liquidity

Sources and Uses of Capital

Our capital resources and liquidity are primarily derived from (i) equity capital proceeds from our Offering, (ii) cash flows from operations, including sales and repayments, (iii) our distribution reinvestment plan, and (iv) Expense Support Payments received from our Advisors. Our primary uses of funds include (i) investments in debt of portfolio companies, (ii) distributions to our shareholders, (iii) advisory fees and (iv) operating expenses. We expect to use proceeds from the turnover of our investment portfolio and equity capital proceeds from our Offering to finance our investment activities.

We may borrow funds to make investments, including before we have fully invested the proceeds of our Offering, to the extent we determine that leveraging our portfolio would be appropriate. We have not decided to what extent we will finance portfolio investments using debt or the specific form that any such financing would take. Accordingly, we cannot predict with certainty what terms any such financing would have or the costs we would incur in connection with any such arrangement.

Liquidity

During the three months ended March 31, 2017, proceeds from sales of investments and principal payments totaled $18.5 million. In addition, distributions reinvested in the Company as a percentage of total distributions and distributions reinvested for the three months ended March 31, 2017 was 60% and $0.61 million. As of March 31, 2017, we had approximately $14.1 million of cash.

In addition to liquidity derived from cash flows from operations, including investment sales and repayments, our distribution reinvestment plan and Expense Support Payments received from our Advisors, we continue to raise capital through our Offering. As of March 31, 2017, we had approximately 267 million additional shares of common stock available for sale through the Offering. In the event we are able to sell these remaining shares, the proceeds from any sales will provide us additional liquidity. During the period from April 1, 2017 through May 11, 2017, the Company received additional net proceeds of approximately $9.0 million from its Offering, including amounts through its distribution reinvestment plan.

Commitments and Contingencies

See Note 9 “Commitments and Contingencies” in our unaudited condensed financial statements for information on our commitments and contingencies as of March 31, 2017.

Distributions to Shareholders

We pay monthly distributions to our shareholders in the form of cash. Shareholders may elect to reinvest their distributions as additional shares of our common stock under our distribution reinvestment plan. Dividends are taxable to our shareholders even if they are reinvested in additional shares of our common stock. The following table reflects the cash distributions per share and the total amount of distributions that we have declared on our common stock during the three months ended March 31, 2017 and 2016:


	Three Months Ended
	Per Share		Amount
March 31, 2017 (13 record dates)	$	0.146250	$	1,020,988
March 31, 2016 (5 record dates)	$	0.054520	$	30,301

Approximately 60% of the distributions declared during the three months ended March 31, 2017 were reinvested in shares of our common stock by participants in our dividend reinvestment plan and the reinvested distributions represent an additional source of capital to us. See Note 6 “Distributions” in our unaudited condensed financial statements for additional disclosures on distributions.

We had sufficient income to support 100% of our declared distributions during the year ended December 31, 2016. We do not expect to use equity capital to pay distributions to shareholders in the future nor do we expect any portion of our distributions paid in 2017 to be treated as a return of capital for tax purposes. We routinely disclose the sources of funds used to pay distributions to our shareholders in periodic reports that accompany (i) quarterly account statements and (ii) monthly distribution checks that are prepared and sent directly by our transfer agent to our shareholders. See Note 6 “Distributions” in our unaudited condensed financial statements for a discussion of the sources of funds used to pay distributions on a GAAP basis for the periods presented.

Expense Waiver and Reimbursement Arrangements with Our Advisors

The Advisors have incurred on our behalf organization and offering expenses totaling approximately $4.5 million as of March 31, 2017. Under the terms of the investment advisory and sub-advisory agreements between us and CNL and KKR, respectively, upon satisfaction of the minimum offering requirement, CNL and KKR are entitled to receive up to 1.50% of gross proceeds raised in our continuous public offering until all organization and offering costs funded by CNL and KKR or its affiliates have been recovered. The offering expenses consist of costs incurred by CNL and KKR and their affiliates on the Company’s behalf for legal, accounting, printing and other offering expenses, including costs associated with technology integration between the Company’s systems and those of our participating broker-dealers, permissible due diligence reimbursements, marketing expenses, salaries and direct expenses of CNL’s and KKR’s employees, employees of their affiliates and others while engaged in registering and marketing the shares, which will include development of marketing materials and marketing presentations and training and educational meetings and generally coordinating the marketing process for the Company. Any such reimbursements will not exceed actual expenses incurred by CNL and KKR and their affiliates. CNL and KKR are responsible for the payment of our organization and offering expenses to the extent that these expenses exceed 1.5% of the gross proceeds from the Offering, without recourse against or reimbursement by us.

The Advisors each provided written notice to us of their agreement to waive all reimbursement of organizational and offering expenses to which they are entitled to from March 1, 2016 (the date the Company satisfied the “minimum offering requirement”) through April 30, 2017. The waiver of the reimbursement requirements did not reduce the amount of organization and offering expenses incurred by the Advisors that is eligible for reimbursement in future periods. The Advisor’s waiver of organization and offering expense reimbursement will temporarily reduce our operating expenses. We expect to implement the reimbursement of organization and offering expenses in 2017 after the expiration of the waiver period.

The Company has entered into an Expense Support and Conditional Reimbursement Agreement, as amended (the “Expense Support Agreement”) with CNL and KKR (the “Advisors”) pursuant to which the Advisors jointly and severally agree to pay to the Company some or all operating expenses (an “Expense Support Payment”) for each month during the Expense Support Payment Period (as defined below) in which the Company’s board of trustees declares a distribution to its shareholders. The “Expense Support Payment Period” began on March 1, 2016, the date the Company’s minimum offering requirement was satisfied and ends on June 30, 2017. The Advisors are entitled to be reimbursed promptly by the Company (a “Reimbursement Payment”) for Expense Support Payments made with respect to any class of common stock, subject to the limitation that no Reimbursement Payment may be made by the Company to the extent that it would cause the Company’s Other Operating Expenses (as defined in the Expense Support Agreement) for such class of common stock to exceed the lesser of (A) 1.75% of average net assets attributable to shares of such class of common stock for the most recently completed fiscal year after taking such payment into account and (B) the percentage of our average net assets attributable to shares of such class of common stock represented by Other Operating Expenses on an annualized basis (as defined in the Expense Support Agreement) during the fiscal year in which such Expense Support Payment from the Advisors was made (provided, however, that this clause (B) shall not apply to any reimbursement payment which relates to an Expense Support Payment from the Advisors made during the same fiscal year). Notwithstanding anything to the contrary in the Expense Support Agreement, no Reimbursement Payment shall be made with respect to any class of common stock if the effective rate of distributions per share on such class of common stock declared by the Company at the time of such Reimbursement Payment is less than the effective rate of distributions per share on such class of common stock at the time the Expense Support Payment was made to which such Reimbursement Payment relates. For this purpose, “effective rate of distributions per share” means actual declared distribution rate per share exclusive of return of capital, if any. The eligibility for reimbursement by the Company of Expense Support Payments will terminate three years from the date on which such Expense Support Payment was paid or waived. As of March 31, 2017, the amount of Expense Support Payments provided by the Advisors since inception is $2,853,765.

Results of Operations

As of March 31, 2017, the fair value of our investment portfolio totaled $78.9 million. Our investments at March 31, 2017 consisted solely of debt investments. See the section entitled “Portfolio and Investment Activity” above for a discussion of the general terms and characteristics of our investments, and for information regarding investment activities during the three months ended March 31, 2017 and 2016.

The following is a summary of our operating results for the three months ended March 31, 2017 and 2016:


	Three Months Ended March 31,
	2017		2016
Total investment income	$	1,233,086	$	1,493
Net operating expense ⁽¹⁾		612,916		11,114

Net investment income (loss)		620,170		(9,621	)

Net realized gains		163,374		—
Net change in unrealized appreciation		23,725		29,067

Net increase in net assets resulting from operations	$	807,269	$	19,446

⁽¹⁾	Net of expense support of $657,974 and $204,420 for the three months ended March 31, 2017 and 2016, respectively.

Investment income

Investment income consisted of the following for the three months ended March 31, 2017 and 2016:


	2017		2016
Interest income	$	1,210,713	$	1,493
Fee income		22,373		—

Total investment income	$	1,233,086	$	1,493

As of March 31, 2017, our weighted average annual yield on our accruing debt investments was 8.4% based on amortized cost, as defined above in “Portfolio and Investment Activity.” The weighted average annual yield on debt investments is higher than what investors in our Company will realize because it does not reflect expenses of the Company or any sales load. As of March 31, 2017, approximately 83.9% of our debt investments had floating rate interest; therefore, changes in interest rates could have a material impact on our interest income in the future. Our fee income consists of transaction-based fees and is non-recurring. See Note 7. “Fee Income” in our unaudited condensed financial statements for additional information on fee income. See Item 3. “Quantitative and Qualitative Disclosures about Market Risk” for further information on the impact interest rate changes could have on our results of operations.

We commenced investment operations on March 1, 2016. Interest income for the three months ended March 31, 2017 and March 31, 2016 was $1,210,713 and $1,493, respectively. We believe that our interest income is not representative of either our stabilized performance or our future performance. We expect an increase in interest income in future periods due to an increasing base of investments that we expect to result from the expected increase in capital available for investment as related to our Offering.

Operating expenses

Our operating expenses for the three months ended March 31, 2017 and 2016 were as follows:


	Three Months Ended March 31,
	2017		2016
Investment advisory fees	$	370,099	$	7,493
Professional services		236,392		132,534
Distribution and shareholder servicing fees		199,686		5,301
Administrative services		185,889		28,206
Other		80,744		3,524
Custodian and accounting fees		69,986		16,148
Trustee fees and expenses		50,958		16,515
Insurance		39,317		—
Performance-based incentive fees		37,819		5,813

Total operating expenses	$	1,270,890	$	215,534

Total operating expenses were $1,270,890 and $215,534 for the three months ended March 31, 2017 and 2016, respectively. Operating expenses were offset partially by the Advisors’ Expense Support Payments. We consider the following expense categories to be relatively fixed in the near term: administrative services, trustee fees and expenses and custodian and accounting fees. Variable operating expenses include professional services, investment advisory fees, performance–based incentive fees, distribution and shareholder servicing fees, and a component of other operating expenses related to transfer agency services and shareholder services. We expect these variable operating expenses to increase either in connection with the growth in the asset base (investment advisory fees, performance-based incentive fees, and interest expense), the number of shareholders and open accounts (transfer agency services and shareholder services, distribution and shareholder servicing fees) and the complexity of our investment processes and capital structure (professional services).

Investment advisory fees and performance-based incentive fee

Our investment advisory fees are calculated at an annual rate of 2% of our average gross assets.

Our Advisors are also eligible to receive incentive fees based on our performance. Our performance-based incentive fees, which are comprised of two parts, consisted of the following for the three months ended March 31, 2017 and 2016:


	Three Months Ended March 31,
	2017		2016
Subordinated incentive fee on income	$	—	$	—
Incentive fee on capital gains		37,819		5,813

Total performance-based incentive fees	$	37,819	$	5,813

A subordinated incentive fee on income is payable to our Advisors each calendar quarter if our pre-incentive fee net investment fee income (as defined in the Investment Advisory Agreement and approved by our board of trustees) exceeds the 1.75% quarterly preference return to our shareholders (the ratio of pre-incentive fee net investment income divided by average adjusted capital). We did not incur any subordinated incentive fee on income during the three months ended March 31, 2017.

The annual incentive fees on capital gains recorded for GAAP purposes is equal to (i) 20% of our realized and unrealized capital gains on a cumulative basis since inception, net of all realized capital losses and unrealized depreciation on a cumulative basis from inception, less (ii) the aggregate amount of any previously paid incentive fees on capital gains. For financial reporting purposes, in accordance with GAAP, we include unrealized appreciation on our investment portfolio in the calculation of incentive fees on capital gains; however, such amounts are not payable by us unless and until the net unrealized appreciation is actually realized. A significant portion of incentive fees on capital gains is accrued with respect to net unrealized appreciation in our investment portfolio, although no such incentive fee is actually payable by us with respect to such net unrealized appreciation unless and until the net unrealized appreciation is actually realized in a cumulative amount that exceeds any unrealized depreciation in our portfolio. The actual amount of incentive fees on capital gains that are due and payable to the Advisors is determined at the end of the calendar year. As of March 31, 2017, the cumulative realized gains were $0.26 million and the unrealized depreciation on our investment portfolio was $0.40 million, therefore the Advisors have not received, nor earned, any payment of incentive fees on capital gains since inception of the Company.

See “—Contractual Obligations —Investment Advisory Agreements,” below for further details about the performance-based incentive fees.

Net realized gains

For the three months ended March 31, 2017 and 2016, the Company had proceeds from sales of investments of $14,735,508 and $0 and recognized $163,353 and $0 in realized gains from the sale of investments, respectively.

Net change in unrealized appreciation or depreciation

For the three months ended March 31, 2017 and 2016, net unrealized appreciation consisted of the following:


	Three Months Ended March 31,
	2017		2016
Investments	$	22,358	$	29,067
Foreign currency translation		1,367		—

Total net unrealized appreciation	$	23,725	$	29,067

Net change in unrealized appreciation or depreciation

For the three months ended March 31, 2017 and 2016, net unrealized appreciation and depreciation on investments consisted of the following:


	Three Months Ended March 31,
	2017			2016
Net change in unrealized appreciation (depreciation) on investments:
Unrealized appreciation	$	193,868		$	43,550
Unrealized depreciation		(171,510	)		(14,483	)

Total net unrealized appreciation (depreciation)	$	22,358		$	29,067

We are not aware of any material trends or uncertainties, favorable or unfavorable, that may be reasonably anticipated to have a material impact on either capital resources or the revenues or income to be derived from our investments, other than those described above, the risk factors, if any, identified in Part II, Item 1A of this report, and the “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Risk Factors” sections of our Annual Report on Form 10-K for the period ended December 31, 2016.

Adjusted net investment income

Our net investment income (loss) totaled $620,170 (or $0.09 per share) and $(9,621) (($0.02) per share) for the three months ended March 31, 2017 and 2016, respectively. As described above in “- Investment advisory fees and performance-based incentive fees,” we accrue estimated performance-based incentive fees with respect to any net realized and unrealized appreciation in our investment portfolio. The performance-based incentive fees are treated as an operating expense and therefore are a deduction in calculating our net investment income on a GAAP basis. However, our net realized and unrealized appreciation on our investment portfolio that partly determine these fees are not included in net investment income. Therefore, in order to evaluate our net investment income without regard to realized and unrealized appreciation in our investment portfolio, including the impact of related accrued performance-based fees, we have developed a supplemental, non-GAAP measure, which we refer to as “adjusted net investment income,” which presents net investment income before the effects of unearned performance-based incentive fees. Adjusted net investment income is also impacted by the Expense Support Payments and reimbursements.

We believe that adjusted net investment income is useful to assess the sustainability of our distributions and operating performance. Adjusted net investment income is not necessarily indicative of cash flows available to fund cash needs and should not be considered as an alternative to net investment income as an indication of our performance, as an alternative to cash flows from operations as an indication of our liquidity, or indicative of funds available to fund our cash needs including our ability to make future distributions to our shareholders. Adjusted net investment income should not be construed as an historic performance measure or as more relevant or accurate than the current GAAP methodology in calculating net investment income and its applicability in evaluating our operating performance.

The following table presents a reconciliation of our net investment income to adjusted net investment income for the three months ended March 31, 2017 and 2016.


	Three Months Ended March 31,
	2017			2016
Net investment income (loss) (GAAP)	$	620,170		$	(9,621	)
Deduct: Expense Support		(657,974	)		(204,420	)
Add: Estimated unearned performance-based incentive fees		37,819			5,813

Adjusted net investment income (loss) (non-GAAP)	$	15		$	(208,228	)

Net investment income (loss) per share (GAAP)	$	0.11		$	(0.02	)

Adjusted net investment income (loss) per share (non-GAAP)	$	0.00		$	(0.37	)

Net Assets, Net Asset Value per Share and Annual Investment Return and Total Return Since Inception

Net assets increased $24.95 million and $4.87 million during the three months ended March 31, 2017 and 2016, respectively. The most significant increase in net assets during the three months ended March 31, 2017 was attributable to capital transactions including the issuance of shares of common stock of $24.55 million. Our operations resulted in net assets increasing $807 thousand and $19 thousand during the three months ended March 31, 2017 and 2016, respectively. Our overall increase in net assets was partially offset by distributions to shareholders in the amount of $1.0 million and $30 thousand during the three months ended March 31, 2017 and 2016, respectively.

Our net asset value per share was $9.25 and $8.98 on March 31, 2017 and 2016, respectively. After considering (i) the overall changes in net asset value per share, (ii) distributions paid of approximately $0.15 and $0.05 per share during the three months ended March 31, 2017 and 2016, respectively, and (iii) the assumed reinvestment of those distributions at 95.25% of the prevailing offering price per share, the total investment return was 1.47% and 0.38% (not annualized) for shareholders who held our shares over the entire three months ended March 31, 2017 and 2016, respectively.

Initial shareholders who subscribed to the Initial Offering in March 2016 with an initial investment of $10,000 and an initial purchase price equal to $9.45 per share (public offering price including all sales loads) have seen the value of their investment grow by 4.8% (see charts below). Initial shareholders who subscribed to the Initial Offering in March 2016 with an initial investment of $10,000 and an initial purchase price equal to $9.00 per share (the initial public offering price excluding all sales loads) have registered a total investment return of 11.52% (see charts below). The S&P/LSTA Leveraged Loan Index, a primary measure of senior debt covering the U.S. leveraged loan market, which currently consists of approximately 1,100 credit facilities throughout numerous industries, and the Merrill Lynch US High Yield Master II Index, a primary measure of subordinated debt consisting of approximately 2,000 high yield corporate bonds, registered cumulative total returns of approximately 12.7% and 21.0%, respectively, in the period from March 1, 2016 to March 31, 2017.

LOGO

(1)	Cumulative performance: March 1, 2016 to March 31, 2017

(2)	Excludes upfront sales load and distribution and shareholder serving fee.

(3)

Includes upfront sales load and distribution and shareholder servicing fee but excludes contingent deferred sales charges. See Note 11. “Subsequent Events” in Item 1. “Financial Statements” which discloses that the Company entered into an amended and restated Managing Dealer Agreement and Distribution and Shareholders Servicing Plan, which will remove contingent deferred sales charges.

The calculations for the Growth of $10,000 Initial Investment in the shares of our common stock are based upon (i) an initial investment of $10,000 in our common stock at the beginning of the period at a share price of $9.45 per share (including sales load) and $9.00 per share (excluding sales load), (ii) assumed reinvestment of monthly distributions in accordance with our distribution reinvestment plan, (iii) the sale of the entire investment position at the net asset value per share on the last day of the period; and (iv) distributions payable, if any, on the last day of the period.

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	Since Inception (March 1, 2016)		Trailing 12 Months
Public Offering Price/Share	$	9.45	$	9.50
Net Offering Price/Share	$	9.00	$	9.05
Distributions/Share	$	0.63	$	0.58
Terminal Value/Share (NAV)	$	9.25	$	9.25

In the chart above, we also present the average annual returns for the trailing 12 months, assuming (i) the purchase of shares of common stock at the public offering price and net offering price (95.25% of public offering price) at the beginning of the period, (ii) reinvestment of distributions in the common stock, (iii) a terminal value at March 31, 2017 equal to net asset value of $9.25 per share and (iv) distributions payable to shareholders as of March 31, 2017.

Our shares are illiquid investments for which there is currently not a secondary market. You should not expect to be able to resell your shares regardless of how we perform. If you are able to sell your shares, you will likely receive less than your purchase price. Our net asset value and annualized returns — which are based in part upon determinations of fair value of Level 3 investments by our board of trustees, not active market quotations — are inherently uncertain. Past performance is not a guarantee of future results.

Critical Accounting Policies and Estimates

Our discussion and analysis of our financial condition and results of operations are based upon our unaudited condensed financial statements which have been prepared in accordance with GAAP. The preparation of our unaudited condensed financial statements requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses. Note 2 “Significant Accounting Policies” to our unaudited condensed financial statements describes the significant accounting policies and methods used in the preparation of our financial statements. We consider the accounting policies listed below to be critical because they involve management judgments and assumptions, require estimates about matters that are inherently uncertain and are important for understanding and evaluating our reported financial results. These judgments affect (i) the reported amounts of assets and liabilities, (ii) our disclosure of contingent assets and liabilities as of the dates of the financial statements and (iii) the reported amounts of revenue and expenses during the reporting periods. With different estimates or assumptions, materially different amounts could be reported in our financial statements. Changes in the economic environment, financial markets and any other parameters used in determining such estimates could cause actual results to differ materially from the amounts reported based on these policies.

Valuation of Investments and Unrealized Gain (Loss) – Our investments consist primarily of investments in senior and subordinated debt of private U.S. companies and are presented in our financial statements at fair value. See Note 3 “Investments,” in our unaudited condensed financial statements for more information on our investments. As described more fully in Note 2 “Significant Accounting Policies” and Note 4 “Fair Value of Financial Instruments” in our unaudited condensed financial statements, a valuation hierarchy based on the level of independent, objective evidence available regarding value is used to measure the fair value of our investments. Investments for which market quotations are readily available are valued using market quotations, which are generally obtained from independent pricing services, broker-dealers or market makers. With respect to our portfolio investments for which market quotations are not readily available, our board of trustees is responsible for determining in good faith the fair value of our portfolio investments in accordance with, and the consistent application of, the valuation policy and procedures approved by the board of trustees, based on, among other things, the input of our Advisors, audit committee and independent third-party valuation firms.

We utilize several valuation techniques that use unobservable inputs and assumptions in determining the fair value of our Level 3 investments. For senior debt, subordinated debt and structured products categorized as Level 3 investments, we initially value the investment at its transaction price and subsequently value using (i) market data for similar instruments (e.g., recent transactions or indicative broker quotes), (ii) comparisons to benchmark derivative indices and/or (iii) valuation models. Valuation models are based on yield analysis and discounted cash flow techniques, where the key inputs are based on relative value analyses and the assignment of risk-adjusted discounted rates derived from the analysis of similar credit investments from similar issuers. In addition, an illiquidity discount is applied where appropriate. The valuation techniques used by us for other types of assets and liabilities that are classified as Level 3 investments are described in Note 2 to our financial statements. The unobservable inputs and assumptions may differ by asset and in the application of our valuation methodologies. The reported fair value estimates could vary materially if we had chosen to incorporate different unobservable inputs and other assumptions.

We and our board of trustees conduct our fair value determination process on a quarterly basis and any other time when a decision regarding the fair value of our portfolio investments is required. A determination of fair value involves subjective judgments and estimates. Due to the inherent uncertainty of determining the fair value of portfolio investments that do not have a readily available market value, the fair value of the our portfolio investments may differ significantly from the values that would have been determined had a readily available market value existed for such investments, and the differences could be material. Further, such investments are generally less liquid than publicly traded securities. If we were required to liquidate a portfolio investment that does not have a readily available market value in a forced or liquidation sale, we could realize significantly less than the fair value recorded by us.

The table below presents information on investments classified as Level 3 as of March 31, 2017:


As of	March 31, 2017			December 31, 2016
Fair value of investments classified as Level 3	$	1,316,092		$	673,164
Total fair value of investments	$	78,949,591		$	56,192,783
% of fair value classified as Level 3		1.7	%		1.2	%
Number of positions classified as Level 3		3			2
Total number of positions		62			59
% of positions classified as Level 3		0.5	%		3.4	%
Fair value of individual positions classified as Level 3:
Highest fair value	$	646,930		$	615,616
Lowest fair value	$	55,088		$	57,548
Average fair value	$	438,697		$	336,582

The ranges of unobservable inputs used in the fair value measurement of the Company’s Level 3 investments as of March 31, 2017 are described in Note 5. “Fair Value of Financial Instruments” in our financial statements, as well as the directional impact to the valuation from an increase in various unobservable inputs.

Organization and Offering Expenses

When recorded by the Company, organization expenses and other operating expenses relating to the formation of the Company will be expensed on our statement of operations. Offering expenses will be capitalized on our statements of assets and liabilities as deferred offering expenses and expensed to our statement of operations over a 12-month period, noting, however, the deferral period will not exceed 12 months from the date the Advisors incurred the offering expenses.

Off-Balance Sheet Arrangements

We had no off-balance sheet arrangements as of March 31, 2017.

Contractual Obligations

Investment Advisory Agreements – We have entered into the Investment Advisory Agreement with CNL for the overall management of our investment activities. We and CNL have also entered into the Sub-Advisory Agreement with KKR, under which KKR is responsible for the day-to-day management of our investment portfolio. CNL compensates KKR for advisory services that it provides to us with 50% of the base management fees and performance-based incentive fees that CNL receives under the Investment Advisory Agreement. Pursuant to the Investment Advisory Agreement, CNL earns a base management fee equal to an annual rate of 2% of our average gross assets and an incentive fee based on our performance. The incentive fee will comprise the following two parts:

•

An incentive fee on net investment income, which we refer to as the subordinated incentive fee on income, is calculated and payable quarterly in arrears and is based upon our pre-incentive fee net investment income for the calendar quarter. The quarterly incentive fee on net investment income is (a) 100% of the pre-incentive fee net investment income between 1.75% and 2.1875% of average adjusted capital, plus (b) 20% of pre-incentive fee net investment income in excess of 2.1875% of average adjusted capital. Adjusted capital is defined as cumulative proceeds generated from sales of our common stock, including proceeds from our distribution reinvestment plan, net of sales load (upfront sales commissions and upfront dealer manager fees) reduced for (i) distributions paid to our shareholders that represent return of capital on a tax basis and (ii) amounts paid for share repurchases pursuant to our share repurchase program. Average adjusted capital is computed on the daily adjusted capital for the actual number of days in the quarter. The quarterly preference return of 1.75% and upper level breakpoint of 2.1875% are also adjusted for the actual number of days in each calendar quarter. For purposes of computing the subordinated incentive fee on income, net interest, if any, associated with a derivative or swap, (which represents the difference between (i) the interest income and fees received in respect of the reference assets of the derivative or swap and (ii) the interest expense paid by us to the derivative or swap counterparty) is included in pre-incentive fee net investment income for purposes of the subordinated incentive fee on income.

•

An incentive fee on capital gains is calculated and payable in arrears as of the end of each calendar year. It is equal to 20% of our realized capital gains on a cumulative basis from inception through the end of such calendar year, computed net of all realized capital losses and unrealized capital depreciation on a cumulative basis, less the aggregate amount of any previously

paid incentive fees on capital gains. For purposes of computing the incentive fee on capital gains, realized gains and realized losses on the disposition of any reference assets, if any, as well as unrealized depreciation on reference assets retained in the derivative or swap, if any, is included on a cumulative basis in the calculation of the incentive fee on capital gains that may be payable annually to our Advisors.

As of March 31, 2017, we had accrued an incentive fee on capital gains of $204,887. See Note 5 “Related Party Transactions” in our financial statements for expanded discussion of the Investment Advisory Agreement and Sub-Advisory Agreement.

The terms of the Investment Advisory Agreement entitle CNL (and indirectly KKR) to receive up to 1.5% of gross proceeds in connection with the Offering as reimbursement for organization and offering expenses incurred by the Advisors on our behalf. The Advisors waived the reimbursement of organization and offering expenses in connection with the Company’s gross capital raised before April 30, 2017. After the O&O Reimbursement Waiver period ends, subsequent gross capital raised by the Company will be subject to the maximum organization and offering cost reimbursement of 1.5%. The O&O Reimbursement Waiver does not reduce the amount of organization and offering expenses incurred by the Advisors that are eligible for reimbursement in future periods.

Unfunded Commitments

Unfunded commitments to provide funds to portfolio companies are not recorded on our statements of assets and liabilities. Because these commitments may expire without being drawn upon, the total commitment amount does not necessarily represent future cash requirements. As of March 31, 2017, our unfunded investment commitments totaled $0.03 million. We estimate that we have sufficient liquidity to fund such unfunded loan commitments should the need arise.

Related Party Transactions

We have entered into agreements with our Advisors and certain of their affiliates, whereby we agree to pay certain fees to, or reimburse certain expenses of, our Advisors and their affiliates for investment and advisory services, selling commissions, ongoing distribution and shareholder servicing fees and marketing fees in connection with our Offering, and reimbursement of offering and administrative and operating fees and costs. See Note 5 “Related Party Transactions” in our unaudited condensed financial statements and Part III—Item 13. “Certain Relationships and Related Transactions, and Trustee Independence” in our Form 10-K for the period ended December 31, 2016 for a discussion of the various related party transactions, agreements and fees.

Impact of Recent Accounting Pronouncements

We do not believe that any recently issued, but not yet effective accounting pronouncements, if adopted, would have a material effect on the financial statements.

Item 3.

Quantitative and Qualitative Disclosures about Market Risk

Interest Rate Risk

We are subject to financial market risks, in particular changes in interest rates. Future changes in interest rates will likely have effects on the interest income we earn on our portfolio investments, the fair value of our fixed income investments, the interest rates and interest expense associated with the money we borrow and the fair value of loan balances.

Subject to the requirements of the 1940 Act, we may hedge against interest rate fluctuations by using standard hedging instruments such as futures, options and forward contracts. Although hedging activities may insulate us against adverse changes in interest rates, they may also limit our ability to participate in the benefits of lower interest rates.

As of March 31, 2017, approximately 83.9% of our portfolio of debt investments, or approximately $67.1 million measured at par value, featured floating or variable interest rates. The variable interest rate debt investments usually provide for interest payments based on three-month LIBOR (the base rate) and typically have durations of three months after which the base rates are reset to then prevailing three-month LIBOR. As of March 31, 2017, 100% of our portfolio of variable interest rate debt investments, or approximately $67.1 million measured at par value, featured minimum base rates, or base rate floors, and the weighted average base rate floor for such investments was 1.0%. Variable interest rate investments that feature a base rate floor generally reset to the then prevailing three-month LIBOR only if the reset base rate exceeds the base rate floor on the applicable interest rate reset date, in which cases we may benefit through an increase in interest income from such interest rate adjustments.

Approximately 16.1% of our debt investment portfolio was invested in fixed interest rate, high yield corporate debt investments as of March 31, 2017. Rising market interest rates will most likely lead to fair value declines for high yield corporate bonds and a decline in the net asset value of our common stock, while declining market interest rates will most likely lead to an increase in bond values.

As of March 31, 2017, 98% of our debt investments had prices that are generally available from third party pricing services. We consider these debt investments to be liquid since these types of assets are generally broadly syndicated and owned by a wide group of institutional investors, business development companies, mutual funds and other investment funds. Additionally, this group of assets is susceptible to revaluation, or changes in bid-ask values, in response to sudden changes in expected rates of return associated with these investments.

Foreign Currency Risk

In addition, any investments we make that are denominated in a foreign currency will be subject to risks associated with changes in currency exchange rates. These risks include the possibility of significant fluctuations in the foreign currency markets, the imposition or modification of foreign exchange controls and potential illiquidity in the secondary market. These risks will vary depending upon the currency or currencies involved.

We may hedge against interest rate and currency exchange rate fluctuations by using standard hedging instruments such as futures, options and forward contracts subject to the requirements of the 1940 Act. While hedging activities may insulate us against adverse changes in interest rates, they may also limit our ability to participate in benefits of lower interest rates with respect to our portfolio of investments with fixed interest rates.

Item 4.

Controls and Procedures

Evaluation of Disclosure Controls and Procedures

Our management, including our principal executive officer and principal financial officer, evaluated the effectiveness of our disclosure controls and procedures as of the end of the period covered by this report. Based upon that evaluation, our management, including our principal executive officer and principal financial officer, concluded that our disclosure controls and procedures are effective as of the end of the period covered by this report to provide reasonable assurance that information required to be disclosed by us in the reports we file under the Securities Exchange Act of 1934, as amended is recorded, processed, summarized and reported within the time periods specified in the relevant SEC rules and forms.

Changes in Internal Control over Financial Reporting

During the most recent fiscal quarter, there was no change in our internal controls over financial reporting (as defined under Rule 13a-15(f) under the Exchange Act) that has materially affected, or is reasonably likely to materially affect, our internal controls over financial reporting.

PART II.

OTHER INFORMATION

Item 1.

Legal Proceedings – None

Item 1A.

Risk Factors – There have been no material changes to the risk factors previously disclosed in response to Item 1A. to Part I. of our Annual Report on Form 10-K for the fiscal period ended December 31, 2016.

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

Item 6.

Exhibits – The exhibits required by this item are set forth in the Exhibit Index attached hereto and are filed or incorporated as part of this report.

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, on the 12th day of May 2017.


CORPORATE CAPITAL TRUST II

By:		/s/ Thomas K. Sittema
		THOMAS K. SITTEMA
		Chief Executive Officer
		(Principal Executive Officer)

By:		/s/ Chirag J. Bhavsar
		CHIRAG J. BHAVSAR
		Chief Financial Officer
		(Principal Financial and Accounting Officer)

EXHIBIT INDEX

The following exhibits are filed or incorporated as part of this report


31.1		Certification of Chief Executive Officer of Corporate Capital Trust II, Pursuant to Rule 13a-14(a), as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. (Filed herewith.)

31.2		Certification of Chief Financial Officer of Corporate Capital Trust II, Pursuant to Rule 13a-14(a), as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. (Filed herewith.)

32.1		Certification of Chief Executive Officer and Chief Financial Officer of Corporate Capital Trust II, Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. (Filed herewith.)

Corporate Capital Trust II - FORM 10-Q - May 12, 2017

Attached files

Corporate Capital Trust II Reports