Oaktree Strategic Income II, Inc. - FORM 10-Q

Oaktree Strategic Income II, Inc. - FORM 10-Q - February 11, 2020

Attached files

Attached files

Oaktree Strategic Income II, Inc. Reports

file	filename
EX-32.2 - EXHIBIT 32.2 - Oaktree Strategic Income II, Inc.	osiii-ex322_2019123110xq.htm
EX-32.1 - EXHIBIT 32.1 - Oaktree Strategic Income II, Inc.	osiii-ex321_2019123110xq.htm
EX-31.2 - EXHIBIT 31.2 - Oaktree Strategic Income II, Inc.	osiii-ex312_2019123110xq.htm
EX-31.1 - EXHIBIT 31.1 - Oaktree Strategic Income II, Inc.	osiii-ex311_2019123110xq.htm

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

Form 10-Q

(Mark One)



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

For the quarterly period ended December 31, 2019



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

COMMISSION FILE NUMBER: 000-55975

Oaktree Strategic Income II, Inc.

(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)



DELAWARE (State or jurisdiction of incorporation or organization)		83-0566439 (I.R.S. Employer Identification No.)

333 South Grand Avenue, 28th Floor Los Angeles, CA (Address of principal executive office)		90071 (Zip Code)

REGISTRANT’S TELEPHONE NUMBER, INCLUDING AREA CODE:

(213) 830-6300

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter periods as the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES x NO ¨

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). YES ¨ NO ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company" and "emerging growth company" in Rule 12b-2 of the Exchange Act. (Check one):

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act) YES ¨ NO x

Securities registered pursuant to Section 12(b) of the Act



Title of Each Class	Trading Symbol(s)	Name of Exchange on Which Registered
N/A	N/A	N/A

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.



Class		Outstanding at February 10, 2020
Common stock, $0.001 par value		8,309,861

OAKTREE STRATEGIC INCOME II, INC.

FORM 10-Q FOR THE QUARTER ENDED DECEMBER 31, 2019

TABLE OF CONTENTS




		PART I — FINANCIAL INFORMATION

Item 1.	Consolidated Financial Statements:
		Consolidated Statements of Assets and Liabilities as of December 31, 2019 (unaudited) and September 30, 2019	1
		Consolidated Statements of Operations (unaudited) for the three months ended December 31, 2019 and 2018	2
		Consolidated Statements of Changes in Net Assets (unaudited) for the three months ended December 31, 2019 and 2018	3
		Consolidated Statements of Cash Flows (unaudited) for the three months ended December 31, 2019 and 2018	4
		Consolidated Schedule of Investments as of December 31, 2019 (unaudited)	5
		Consolidated Schedule of Investments as of September 30, 2019	11
		Notes to Consolidated Financial Statements (unaudited)	17
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations		40
Item 3.	Quantitative and Qualitative Disclosures about Market Risk		53
Item 4.	Controls and Procedures		55
		PART II — OTHER INFORMATION
Item 1.	Legal Proceedings		55
Item 1A.	Risk Factors		55
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds		55
Item 3.	Defaults Upon Senior Securities		55
Item 4.	Mine Safety Disclosures		55
Item 5.	Other Information		55
Item 6.	Exhibits		56
Signatures			57

PART I — FINANCIAL INFORMATION



Item 1.	Consolidated Financial Statements.

Oaktree Strategic Income II, Inc.

Consolidated Statements of Assets and Liabilities



	December 31, 2019 (unaudited)		September 30, 2019
ASSETS
Assets:
Investments – Non-control/Non-affiliate, at fair value (cost December 31, 2019: $319,055,744; cost September 30, 2019: $289,322,834)	$	324,002,138	$	291,147,011
Cash and cash equivalents	9,506,491		11,079,015
Restricted cash	1,405,214		269,111
Interest receivable	712,034		1,005,398
Receivables from unsettled transactions	3,015,302		5,326,435
Derivative assets at fair value	17,686		77,558
Deferred financing costs	1,152,285		1,314,732
Receivable for shares sold	—		347,500
Other assets	406,088		382,727
Total assets	$	340,217,238	$	310,949,487
LIABILITIES AND NET ASSETS
Liabilities:
Accounts payable, accrued expenses and other liabilities	$	978,239	$	999,579
Base management fee and incentive fee payable	1,940,938		1,128,658
Due to affiliates	329,910		753,665
Interest payable	1,042,027		1,065,903
Payables from unsettled transactions	20,584,715		52,374,932
Deferred tax liability	5,246		—
Credit facilities payable	143,500,000		83,000,000
Total liabilities	168,381,075		139,322,737
Commitments and contingencies (Note 11)
Net assets:
Common stock, $0.001 par value per share, 250,000,000 shares authorized; 8,309,861 shares issued and outstanding at December 31, 2019 and September 30, 2019	8,310		8,310
Preferred stock, $0.001 par value per share, 100,000,000 shares authorized; none issued and outstanding at December 31, 2019 and September 30, 2019	—		—
Additional paid-in-capital	168,819,173		168,819,173
Accumulated distributable earnings (loss)	3,008,680		2,799,267
Total net assets (equivalent to $20.68 and $20.65 per common share at December 31, 2019 and September 30, 2019, respectively) (Note 10)	171,836,163		171,626,750
Total liabilities and net assets	$	340,217,238	$	310,949,487

See notes to Consolidated Financial Statements.

Oaktree Strategic Income II, Inc.

Consolidated Statements of Operations

(unaudited)



	For the three months ended December 31, 2019			For the three months ended December 31, 2018
Interest income:
Non-control/Non-affiliate investments	$	4,984,017		$	819,219
Interest on cash and cash equivalents	29,382			23,489
Total interest income	5,013,399			842,708
PIK interest income:
Non-control/Non-affiliate investments	151,232			67,946
Total PIK interest income	151,232			67,946
Fee income:
Non-control/Non-affiliate investments	129,947			255,564
Total fee income	129,947			255,564
Total investment income	5,294,578			1,166,218
Expenses:
Base management fee	786,134			120,929
Investment income incentive fee	49,915			—
Capital gains incentive fee	677,318			(42,021		)
Offering costs	—			168,269
Organization expenses	—			56,211
Professional fees	167,983			192,840
Directors fees	38,887			26,250
Interest expense	1,355,193			133,883
Administrator expense	113,917			82,045
General and administrative expenses	208,146			143,932
Total expenses	3,397,493			882,338
Net investment income before taxes	1,897,085			283,880
Excise tax expense	—			9,357
Net investment income	1,897,085			274,523
Unrealized appreciation (depreciation):
Non-control/Non-affiliate investments	3,122,217			(997,620		)
Foreign currency forward contracts	(59,686		)	34,535
Net unrealized appreciation (depreciation)	3,062,531			(963,085		)
Realized gains (losses):
Non-control/Non-affiliate investments	324,057			9,469
Net realized gains (losses)	324,057			9,469
Provision for income tax (expense) benefit	(5,246		)	—
Net realized and unrealized gains (losses)	3,381,342			(953,616		)
Net increase (decrease) in net assets resulting from operations	$	5,278,427		$	(679,093	)
Net investment income (loss) per common share — basic and diluted	$	0.23		$	0.10
Earnings (loss) per common share — basic and diluted (Note 5)	$	0.64		$	(0.25	)
Weighted average common shares outstanding — basic and diluted	8,309,861			2,682,977

See notes to Consolidated Financial Statements.

Oaktree Strategic Income II, Inc.

Consolidated Statements of Changes in Net Assets

(unaudited)



	For the three months ended December 31, 2019			For the three months ended December 31, 2018
Operations:
Net investment income	$	1,897,085		$	274,523
Net unrealized appreciation (depreciation)	3,062,531			(963,085		)
Net realized gains (losses)	324,057			9,469
Provision for income taxes	(5,246		)	—
Net increase (decrease) in net assets resulting from operations	5,278,427			(679,093		)
Capital share transactions:
Distributions to stockholders	(5,069,014		)	—
Net increase (decrease) in net assets from capital share transactions	(5,069,014		)	—
Capital share transactions:
Issuance of common stock	—			36,702,030
Net increase (decrease) in net assets from capital share transactions	—			36,702,030
Total increase (decrease) in net assets	209,413			36,022,937
Net assets at beginning of period	171,626,750			30,372,317
Net assets at end of period	$	171,836,163		$	66,395,254
Net asset value per common share	$	20.68		$	19.57
Common shares outstanding at end of period	8,309,861			3,391,900

See notes to Consolidated Financial Statements.

Oaktree Strategic Income II, Inc.

Consolidated Statements of Cash Flows

(unaudited)



	For the three months ended December 31, 2019			For the three months ended December 31, 2018
Operating activities:
Net increase (decrease) in net assets resulting from operations	$	5,278,427		$	(679,093	)
Adjustments to reconcile net increase (decrease) in net assets resulting from operations to net cash used in operating activities:
Net unrealized (appreciation) depreciation	(3,062,531		)	963,085
Net realized (gains) losses	(324,057		)	(9,469		)
PIK interest income	(151,232		)	(67,946		)
Accretion of original issue discount on investments	(312,720		)	(83,866		)
Amortization of deferred financing costs	164,692			55,482
Amortization of deferred offering costs	—			168,269
Deferred taxes	5,246			—
Purchases of investments	(67,626,246		)	(35,711,794		)
Proceeds from sales and repayments of investments	38,681,281			1,628,109
Changes in operating assets and liabilities:
(Increase) decrease in interest receivable	293,364			(137,219		)
(Increase) decrease in receivables from unsettled transactions	2,311,133			—
(Increase) decrease in other assets	(23,361		)	(4,682		)
Increase (decrease) in accounts payable, accrued expenses and other liabilities	(23,585		)	126,618
Increase (decrease) in base management fee and incentive fee payable	812,280			39,182
Increase (decrease) in due to affiliates	(423,755		)	(884,139		)
Increase (decrease) in interest payable	(23,876		)	78,401
Increase (decrease) in payables from unsettled transactions	(31,790,217		)	6,485,320
Net cash used in operating activities	(56,215,157		)	(28,033,742		)
Financing activities:
Distributions paid in cash	(5,069,014		)	—
Borrowings under the credit facilities	68,500,000			7,000,000
Repayments of borrowings under the credit facilities	(8,000,000		)	—
Proceeds from the issuance of common stock	347,500			36,742,030
Deferred financing costs paid	—			(530,405		)
Net cash provided by financing activities	55,778,486			43,211,625
Effect of exchange rate changes on foreign currency	250			31,487
Net increase (decrease) in cash and cash equivalents and restricted cash	(436,421		)	15,209,370
Cash and cash equivalents and restricted cash, beginning of period	11,348,126			10,131,268
Cash and cash equivalents and restricted cash, end of period	$	10,911,705		$	25,340,638
Supplemental information:
Cash paid for interest	$	1,214,377		$	—
Deferred offering costs incurred	$	—		$	96,748
Deferred financing costs incurred	$	(2,245	)	$	—

Reconciliation to the Consolidated Statement of Assets and Liabilities	December 31, 2019			September 30, 2019
Cash and cash equivalents	$	9,506,491		$	11,079,015
Restricted cash	1,405,214			269,111
Total cash and cash equivalents and restricted cash	$	10,911,705		$	11,348,126

See notes to Consolidated Financial Statements.

Oaktree Strategic Income II, Inc.

Consolidated Schedule of Investments

December 31, 2019

(unaudited)



Portfolio Company/Type of Investment (1)(2)(3)	Cash Interest Rate (4)		Industry	Principal (5)		Cost			Fair Value			Notes
Non-Control/Non-Affiliate Investments												(6)
Access CIG, LLC			Diversified Support Services
First Lien Term Loan, LIBOR+3.75% cash due 2/27/2025	5.44	%		$	7,532,259	$	7,467,908		$	7,538,548		(4)
						7,467,908			7,538,548
Acquia Inc.			Application Software
First Lien Term Loan, LIBOR+7.00% cash due 10/31/2025	8.91	%		4,381,994		4,296,682			4,294,354			(4)(7)
First Lien Revolver, LIBOR+7.00% cash due 10/31/2025				—		(9,107		)	(9,372		)	(4)(7)(8)
						4,287,575			4,284,982
Adient US LLC			Auto Parts & Equipment
First Lien Term Loan, LIBOR+4.25% cash due 5/6/2024	6.19	%		4,975,000		4,950,125			5,012,934			(4)(9)
						4,950,125			5,012,934
AI Sirona (Luxembourg) Acquisition S.a.r.l.			Pharmaceuticals
Second Lien Term Loan, EURIBOR+7.25% cash due 9/28/2026	7.25	%		€	2,500,000	2,862,090			2,679,969			(4)(7)(9)
						2,862,090			2,679,969
Air Medical Group Holdings, Inc.			Health Care Services
First Lien Term Loan, LIBOR+4.25% cash due 3/14/2025	6.05	%		$	1,087,134	1,065,964			1,057,237			(4)
						1,065,964			1,057,237
Aldevron, L.L.C.			Biotechnology
First Lien Term Loan, LIBOR+4.25% cash due 10/12/2026	6.19	%		4,000,000		3,960,000			4,050,000			(4)(11)
						3,960,000			4,050,000
Algeco Scotsman Global Finance Plc			Construction & Engineering
Fixed Rate Bond, 8.00% cash due 2/15/2023				816,000		831,437			796,612			(9)
						831,437			796,612
Alvogen Pharma US, Inc.			Pharmaceuticals
First Lien Term Loan, LIBOR+4.75% cash due 4/1/2022	6.55	%		1,926,753		1,663,416			1,689,121			(4)
						1,663,416			1,689,121
Alvotech Holdings S.A.			Biotechnology
Fixed Rate Bond 15% PIK Note A due 12/13/2023				2,000,000		2,281,300			2,580,079			(7)(9)(10)
Fixed Rate Bond 15% PIK Note B due 12/13/2023				2,000,000		2,281,300			2,487,521			(7)(9)(10)
						4,562,600			5,067,600
Anastasia Parent, LLC			Personal Products
First Lien Term Loan, LIBOR+3.75% cash due 8/11/2025	5.68	%		1,856,614		1,532,774			1,592,046			(4)
						1,532,774			1,592,046
Apptio, Inc.			Application Software
First Lien Term Loan, LIBOR+7.25% cash due 1/10/2025	8.96	%		7,129,297		7,008,102			6,999,544			(4)(7)
First Lien Revolver, LIBOR+7.25% cash due 1/10/2025				—		(7,732		)	(8,400		)	(4)(7)(8)
						7,000,370			6,991,144
Assembled Brands Capital LLC			Specialized Finance
First Lien Delayed Draw Term Loan, LIBOR+6.00% cash due 10/17/2023	7.94	%		604,359		604,359			604,359			(4)(7)(8)
174,131 Class A Units						82,713			99,255			(7)
100,285 Preferred Units, 6%						110,285			112,490			(7)
7,621 Class A Warrants (exercise price $3.3778) expiration date 9/9/2029						—			—			(7)
						797,357			816,104
Asurion, LLC			Property & Casualty Insurance
Second Lien Term Loan, LIBOR+6.50% cash due 8/4/2025	8.30	%		1,403,000		1,406,470			1,423,519			(4)(11)
						1,406,470			1,423,519

Oaktree Strategic Income II, Inc.

Consolidated Schedule of Investments

December 31, 2019

(unaudited)



Portfolio Company/Type of Investment (1)(2)(3)	Cash Interest Rate (4)		Industry	Principal (5)		Cost			Fair Value			Notes
Aurora Lux Finco S.À.R.L.			Airport Services
First Lien Term Loan, LIBOR+6.00% cash due 12/24/2026	7.93	%		$	7,500,000	$	7,313,160		$	7,312,500		(4)(7)(9)
						7,313,160			7,312,500
Ball Metalpack Finco, LLC			Metal & Glass Containers
First Lien Term Loan, LIBOR+4.50% cash due 7/31/2025	6.41	%		1,477,500		1,471,561			1,311,281			(4)(7)(11)
						1,471,561			1,311,281
Boxer Parent Company Inc.			Systems Software
First Lien Term Loan, LIBOR+4.25% cash due 10/2/2025	6.05	%		8,551,773		8,388,348			8,475,021			(4)
						8,388,348			8,475,021
Cadence Aerospace, LLC			Aerospace & Defense
First Lien Term Loan, LIBOR+6.50% cash due 11/14/2023	8.43	%		3,006,750		2,976,683			2,982,008			(4)(7)
						2,976,683			2,982,008
Canyon Buyer, Inc.			Application Software
First Lien Term Loan, LIBOR+4.25% cash due 2/15/2025	6.20	%		3,959,698		3,918,482			3,974,547			(4)
						3,918,482			3,974,547
Cast & Crew Payroll, LLC			Application Software
First Lien Term Loan, LIBOR+4.00% cash due 2/9/2026	5.80	%		3,970,000		3,930,300			3,994,813			(4)
						3,930,300			3,994,813
CGG Holding (U.S.) Inc.			Oil & Gas Equipment & Services
Fixed Rate Bond, 9.00% cash due 5/1/2023				352,700		364,871			375,331			(9)
						364,871			375,331
Chief Power Finance II, LLC			Independent Power Producers & Energy Traders
First Lien Term Loan, LIBOR+6.50% cash due 12/31/2022	8.36	%		8,393,750		8,195,161			8,183,906			(4)(7)
						8,195,161			8,183,906
Cincinnati Bell Inc.			Integrated Telecommunication Services
First Lien Term Loan, LIBOR+3.25% cash due 10/2/2024	5.05	%		4,974,811		4,934,359			5,011,102			(4)(11)
						4,934,359			5,011,102
CITGO Petroleum Corp.			Oil & Gas Refining & Marketing
First Lien Term Loan, LIBOR+5.00% cash due 3/28/2024	6.94	%		7,940,000		7,860,600			7,989,625			(4)(11)
						7,860,600			7,989,625
Connect U.S. Finco LLC			Alternative Carriers
First Lien Delayed Draw Term Loan, LIBOR+4.50% cash due 12/11/2026	6.29	%		3,884,984		3,695,953			3,955,474			(4)(8)(9)(11)
						3,695,953			3,955,474
Convergeone Holdings, Inc.			IT Consulting & Other Services
First Lien Term Loan, LIBOR+5.00% cash due 1/4/2026	6.80	%		5,893,455		5,685,071			5,653,503			(4)
						5,685,071			5,653,503
Corrona, LLC			Health Care Services
First Lien Term Loan, LIBOR+5.75% cash due 12/13/2025	7.49	%		3,789,176		3,723,470			3,722,865			(4)(7)(11)
First Lien Delayed Draw Term Loan, LIBOR+5.75% cash due 12/13/2025				—		(11,699		)	(11,699		)	(4)(7)(8)(11)
First Lien Revolver, LIBOR+5.75% cash due 12/13/2025				—		(11,601		)	(11,708		)	(4)(7)(8)
401 Class A2 Common Units in Corrona Group Holdings, L.P.						401,000			401,000			(7)
						4,101,170			4,100,458
Cortes NP Acquisition Corporation			Electrical Components & Equipment
First Lien Term Loan, LIBOR+4.00% cash due 11/30/2023	5.93	%		3,272,600		3,128,103			3,272,600			(4)
						3,128,103			3,272,600
CPI Holdco, LLC			Health Care Supplies
First Lien Term Loan, LIBOR+4.25% cash due 11/4/2026	6.19	%		5,000,000		4,975,000			5,021,875			(4)(11)
						4,975,000			5,021,875

Oaktree Strategic Income II, Inc.

Consolidated Schedule of Investments

December 31, 2019

(unaudited)



Portfolio Company/Type of Investment (1)(2)(3)	Cash Interest Rate (4)		Industry	Principal (5)		Cost		Fair Value		Notes
Cypress Intermediate Holdings III, Inc.			Application Software
Second Lien Term Loan, LIBOR+6.75% cash due 4/28/2025	8.55	%		$	208,000	$	208,000	$	209,352	(4)
						208,000		209,352
Dcert Buyer, Inc.			Internet Services & Infrastructure
First Lien Term Loan, LIBOR+4.00% cash due 10/16/2026	5.80	%		8,000,000		7,980,000		8,040,000		(4)(11)
						7,980,000		8,040,000
The Dun & Bradstreet Corporation			Research & Consulting Services
First Lien Term Loan, LIBOR+5.00% cash due 2/6/2026	6.79	%		2,500,000		2,508,995		2,525,000		(4)(11)
Fixed Rate Bond 6.875% cash due 8/15/2026				5,000,000		5,000,000		5,528,125
						7,508,995		8,053,125
EHR Canada, LLC			Food Retail
First Lien Term Loan, LIBOR+8.00% cash due 9/28/2020	9.94	%		457,407		454,201		466,555		(4)(7)
						454,201		466,555
Ellie Mae, Inc.			Application Software
First Lien Term Loan, LIBOR+4.00% cash due 4/17/2026	5.94	%		5,985,000		5,940,113		6,033,658		(4)(11)
						5,940,113		6,033,658
eResearch Technology, Inc.			Application Software
First Lien Term Loan, LIBOR+4.50% cash due 11/20/2026	6.39	%		4,000,000		3,960,000		4,037,500		(4)(11)
						3,960,000		4,037,500
ExGen Renewables IV, LLC			Electric Utilities
First Lien Term Loan, LIBOR+3.00% cash due 11/28/2024	4.91	%		1,251,000		1,205,207		1,239,009		(4)
						1,205,207		1,239,009
Femur Buyer, Inc.			Health Care Equipment
First Lien Term Loan, LIBOR+4.50% cash due 3/5/2026	6.44	%		4,975,000		4,925,250		4,863,063		(4)
						4,925,250		4,863,063
Financial & Risk US Holdings, Inc.			Financial Exchanges & Data
First Lien Term Loan, LIBOR+3.25% cash due 10/1/2025	5.05	%		3,111,286		3,122,423		3,141,621		(4)(11)
						3,122,423		3,141,621
Frontier Communications Corporation			Integrated Telecommunication Services
First Lien Term Loan, LIBOR+3.75% cash due 6/15/2024	5.55	%		6,755,569		6,674,066		6,802,960		(4)(9)(11)
Fixed Rate Bond, 8.50% cash due 4/1/2026				2,035,000		1,981,901		2,064,202
						8,655,967		8,867,162
Gentiva Health Services, Inc.			Health Care Services
First Lien Term Loan, LIBOR+3.75% cash due 7/2/2025	5.56	%		2,984,887		2,981,410		3,004,482		(4)(11)
						2,981,410		3,004,482
GI Chill Acquisition LLC			Managed Health Care
First Lien Term Loan, LIBOR+4.00% cash due 8/6/2025	5.94	%		1,975,000		1,965,125		1,962,755		(4)(7)
Second Lien Term Loan, LIBOR+7.50% cash due 8/6/2026	9.44	%		2,000,000		1,983,473		1,980,000		(4)(7)
						3,948,598		3,942,755
Guidehouse LLP			Research & Consulting Services
First Lien Term Loan, LIBOR+4.50% cash due 5/1/2025	6.30	%		4,488,607		4,443,721		4,463,359		(4)(11)
						4,443,721		4,463,359
Helios Software Holdings, Inc.			Systems Software
First Lien Term Loan, LIBOR+4.25% cash due 10/24/2025	6.18	%		3,000,000		2,970,000		2,984,070		(4)(11)
						2,970,000		2,984,070
HUB International Limited			Insurance Brokers
First Lien Term Loan, LIBOR+2.75% cash due 4/25/2025	4.69	%		3,959,799		3,896,541		3,963,620		(4)
						3,896,541		3,963,620

Oaktree Strategic Income II, Inc.

Consolidated Schedule of Investments

December 31, 2019

(unaudited)



Portfolio Company/Type of Investment (1)(2)(3)	Cash Interest Rate (4)		Industry	Principal (5)		Cost			Fair Value			Notes
iCIMs, Inc.			Application Software
First Lien Term Loan, LIBOR+6.50% cash due 9/12/2024	8.29	%		$	1,671,765	$	1,645,015		$	1,644,752		(4)(7)
First Lien Revolver, LIBOR+6.50% cash due 9/12/2024				—		(1,381		)	(1,426		)	(4)(7)(8)
						1,643,634			1,643,326
KIK Custom Products Inc.			Household Products
First Lien Term Loan, LIBOR+4.00% cash due 5/15/2023	5.79	%		2,000,000		1,916,799			1,969,000			(4)(9)
						1,916,799			1,969,000
Ligand Pharmaceuticals Inc.			Biotechnology
Fixed Rate Bond, 0.75% cash due 5/15/2023				615,000		547,342			532,307			(9)
						547,342			532,307
Lightbox Intermediate, L.P.			Real Estate Services
First Lien Term Loan, LIBOR+5.00% cash due 5/9/2026	6.74	%		8,955,000		8,832,423			8,843,063			(4)(7)
						8,832,423			8,843,063
LTI Holdings, Inc.			Auto Parts & Equipment
Second Lien Term Loan, LIBOR+6.75% cash due 9/6/2026	8.55	%		1,000,000		1,000,000			765,000			(4)
						1,000,000			765,000
Maravai Intermediate Holdings, LLC			Biotechnology
First Lien Term Loan, LIBOR+4.25% cash due 8/2/2025	6.06	%		1,283,750		1,270,913			1,280,541			(4)(7)
						1,270,913			1,280,541
Mindbody, Inc.			Internet Services & Infrastructure
First Lien Revolver, LIBOR+7.00% cash due 2/14/2025				—		(13,006		)	(13,714		)	(4)(7)(8)
First Lien Term Loan, LIBOR+7.00% cash due 2/14/2025	8.79	%		7,238,095		7,114,542			7,107,810			(4)(7)
						7,101,536			7,094,096
Navicure, Inc.			Health Care Technology
First Lien Term Loan, LIBOR+4.00% cash due 10/22/2026	5.80	%		6,125,000		6,089,063			6,167,109			(4)(11)
						6,089,063			6,167,109
OEConnection LLC			Application Software
First Lien Delayed Draw Term Loan, LIBOR+4.00% cash due 9/25/2026				—		(3,978		)	5,141			(4)(8)(11)
First Lien Term Loan, LIBOR+4.00% cash due 9/25/2026	5.80	%		8,655,795		8,612,516			8,709,894			(4)(11)
						8,608,538			8,715,035
P & L Development, LLC			Pharmaceuticals
First Lien Term Loan, LIBOR+7.50% cash due 6/28/2024	9.50	%		4,099,725		4,006,761			4,079,226			(4)(7)
						4,006,761			4,079,226
PaySimple, Inc.			Data Processing & Outsourced Services
First Lien Delayed Draw Term Loan, LIBOR+5.50% cash due 8/23/2025	7.28	%		780,592		729,612			767,117			(4)(7)(8)(11)
First Lien Term Loan, LIBOR+5.50% cash due 8/23/2025	7.30	%		8,284,238		8,127,529			8,242,816			(4)(7)(11)
						8,857,141			9,009,933
ProFrac Services, LLC			Industrial Machinery
First Lien Term Loan, LIBOR+6.25% cash due 9/15/2023	8.14	%		1,325,833		1,315,990			1,292,688			(4)(7)(11)
						1,315,990			1,292,688
Project Boost Purchaser, LLC			Application Software
First Lien Term Loan, LIBOR+3.50% cash due 6/1/2026	5.30	%		2,793,000		2,765,070			2,810,023			(4)
Second Lien Term Loan, LIBOR+8.00% cash due 5/9/2027	9.80	%		1,500,000		1,500,000			1,496,250			(4)(7)
						4,265,070			4,306,273
Recorded Books Inc.			Publishing
First Lien Term Loan, LIBOR+4.50% cash due 8/29/2025	6.30	%		1,975,000		1,955,250			1,987,344			(4)(11)
						1,955,250			1,987,344
Sabert Corporation			Metal & Glass Containers
First Lien Term Loan, LIBOR+4.50% cash due 12/10/2026	6.25	%		4,350,000		4,306,500			4,395,327			(4)(11)
						4,306,500			4,395,327

Oaktree Strategic Income II, Inc.

Consolidated Schedule of Investments

December 31, 2019

(unaudited)



Portfolio Company/Type of Investment (1)(2)(3)	Cash Interest Rate (4)		Industry	Principal (5)		Cost			Fair Value			Notes
Scilex Pharmaceuticals Inc.			Pharmaceuticals
Fixed Rate Zero Coupon Bond due 8/15/2026				$	2,374,988	$	1,710,900		$	1,745,616		(7)
						1,710,900			1,745,616
Signify Health, LLC			Health Care Services
First Lien Term Loan, LIBOR+4.50% cash due 12/23/2024	6.44	%		6,946,970		6,885,215			6,938,286			(4)(11)
						6,885,215			6,938,286
Sirva Worldwide, Inc.			Diversified Support Services
First Lien Term Loan, LIBOR+5.50% cash due 8/4/2025	7.44	%		1,950,000		1,920,750			1,930,500			(4)
						1,920,750			1,930,500
Sorrento Therapeutics, Inc.			Biotechnology
First Lien Delayed Draw Term Loan, LIBOR+7.00% cash due 11/7/2023				—		(18,467		)	(22,080		)	(4)(7)(8)(9)
First Lien Term Loan, LIBOR+7.00% cash due 11/7/2023	9.00	%		9,600,000		9,039,395			9,600,000			(4)(7)(9)
503,119 Common Stock Warrants (exercise price $3.28) expiration date 5/7/2029						560,000			1,016,300			(7)(9)
106,664 Common Stock Warrants (exercise price $3.94) expiration date 11/3/2029						—			205,862			(7)(9)
160,000 Common Stock Warrants (exercise price $3.26) expiration date 6/6/2030						—			288,000			(7)(9)
						9,580,928			11,088,082
Sunshine Luxembourg VII SARL			Personal Products
First Lien Term Loan, LIBOR+4.25% cash due 10/1/2026	6.19	%		5,000,000		4,975,000			5,054,000			(4)(9)
						4,975,000			5,054,000
Supermoose Borrower, LLC			Application Software
First Lien Term Loan, LIBOR+3.75% cash due 8/29/2025	5.55	%		1,558,567		1,437,188			1,492,609			(4)
						1,437,188			1,492,609
Thunder Finco (US), LLC			Movies & Entertainment
First Lien Term Loan, LIBOR+4.25% cash due 11/26/2026	6.04	%		6,000,000		5,940,000			6,000,000			(4)(7)(9)(11)
						5,940,000			6,000,000
TIBCO Software Inc.			Application Software
First Lien Term Loan, LIBOR+4.00% cash due 6/30/2026	5.71	%		9,460,981		9,472,318			9,515,713			(4)(11)
						9,472,318			9,515,713
Transact Holdings Inc.			Application Software
First Lien Term Loan, LIBOR+4.75% cash due 4/30/2026	6.55	%		7,980,000		7,860,300			7,950,075			(4)(7)
						7,860,300			7,950,075
Uber Technologies, Inc.			Application Software
First Lien Term Loan, LIBOR+3.50% cash due 7/13/2023	5.30	%		3,959,079		3,945,222			3,962,603			(4)
First Lien Term Loan, LIBOR+4.00% cash due 4/4/2025	5.74	%		978,581		972,376			979,629			(4)
						4,917,598			4,942,232
Uniti Group LP			Specialized REITs
First Lien Term Loan, LIBOR+5.00% cash due 10/24/2022	6.80	%		4,916,017		4,777,315			4,840,236			(4)(9)(11)
						4,777,315			4,840,236
UOS, LLC			Trading Companies & Distributors
First Lien Term Loan, LIBOR+5.50% cash due 4/18/2023	7.30	%		2,962,025		2,981,796			2,991,646			(4)(11)
						2,981,796			2,991,646
Veritas US Inc.			Application Software
First Lien Term Loan, LIBOR+4.50% cash due 1/27/2023	6.30	%		4,304,086		4,105,755			4,155,896			(4)(11)
						4,105,755			4,155,896
Verscend Holding Corp.			Health Care Technology
First Lien Term Loan, LIBOR+4.50% cash due 8/27/2025	6.30	%		8,348,611		8,352,623			8,425,126			(4)(11)
						8,352,623			8,425,126
WeddingWire, Inc.			Interactive Media & Services
First Lien Term Loan, LIBOR+4.50% cash due 12/19/2025	6.30	%		2,970,000		2,957,221			2,988,563			(4)(11)
						2,957,221			2,988,563

Oaktree Strategic Income II, Inc.

Consolidated Schedule of Investments

December 31, 2019

(unaudited)



Portfolio Company/Type of Investment (1)(2)(3)	Cash Interest Rate (4)		Industry	Principal (5)		Cost		Fair Value		Notes
WP CPP Holdings, LLC			Aerospace & Defense
First Lien Term Loan, LIBOR+3.75% cash due 4/30/2025	5.68	%		$	3,959,900	$	3,936,543	$	3,940,099	(4)(11)
						3,936,543		3,940,099
Total Non-Control/Non-Affiliate Investments (188.6% of net assets)						$	319,055,744	$	324,002,138
Cash and Cash Equivalents and Restricted Cash (6.4% of net assets)						$	10,911,705	$	10,911,705
Total Portfolio Investments, Cash and Cash Equivalents and Restricted Cash (194.9% of net assets)						$	329,967,449	$	334,913,843



Derivative Instrument	Notional Amount to be Purchased		Notional Amount to be Sold		Maturity Date	Counterparty	Cumulative Unrealized Appreciation (Depreciation)
Foreign currency forward contract	$	2,798,483	€	2,475,000	1/16/2020	Bank of New York Mellon	$	17,686


(1)	All debt investments are income producing unless otherwise noted. All equity investments are non-income producing unless otherwise noted.


(2)	See Note 3 in the accompanying notes to the Consolidated Financial Statements for portfolio composition by geographic region.


(3)	Interest rates may be adjusted from period to period on certain term loans and revolvers. These rate adjustments may be either temporary in nature due to tier pricing arrangements or financial or payment covenant violations in the original credit agreements or permanent in nature per loan amendment or waiver documents.

(4)

The interest rate on the principal balance outstanding for all floating rate loans is indexed to the London Interbank Offered Rate ("LIBOR") and/or an alternate base rate (e.g., prime rate), which typically resets semi-annually, quarterly, or monthly at the borrower's option. The borrower may also elect to have multiple interest reset periods for each loan. For each of these loans, the Company has provided the applicable margin over LIBOR or the alternate based rate based on each respective credit agreement and the cash interest rate as of period end. All LIBOR shown above is in U.S. dollars unless otherwise noted. As of December 31, 2019, the reference rates for the Company's variable rate loans were the 30-day LIBOR at 1.80%, the 60-day LIBOR at 1.85%, the 90-day LIBOR at 1.94% and the 30-day Euro Interbank Offered Rate ("EURIBOR") at (0.51)%. Most loans include an interest floor, which generally ranges from 0% to 1%.


(5)	"€" signifies the investment is denominated in Euros. All other investments are denominated in U.S. dollars.

(6)

Non-Control/Non-Affiliate Investments are investments that are neither Control Investments nor Affiliate Investments. Control Investments generally are defined by the Investment Company Act of 1940, as amended (the "Investment Company Act"), as investments in companies in which the Company owns more than 25% of the voting securities and/or has the power to exercise control over the management or policies of the company. Affiliate Investments generally are defined by the Investment Company Act as investments in companies in which the Company owns between 5% and 25% of the voting securities.


(7)	As of December 31, 2019, these investments are categorized as Level 3 within the fair value hierarchy established by Financial Accounting Standards Board ("FASB") Accounting Standards Codification ("ASC") Topic 820, Fair Value Measurements and Disclosures ("ASC 820") and were valued using significant unobservable inputs.


(8)	Investment has undrawn commitments. Unamortized fees are classified as unearned income which reduces cost basis, which may result in a negative cost basis. A negative fair value may result from the unfunded commitment being valued below par.

(9)

Investment is not a qualifying asset as defined under Section 55(a) of the Investment Company Act. Under the Investment Company Act, the Company may not acquire any non-qualifying asset unless, at the time the acquisition is made, qualifying assets represent at least 70% of the Company's total assets. As of December 31, 2019, qualifying assets represented 81.8% of the Company's total assets and non-qualifying assets represented 18.2% of the Company's total assets.

(10)

Payment-in-kind ("PIK") interest income for this investment accrues at an annualized rate of 15%, however, the PIK interest is not contractually capitalized on the investment. As a result, the principal amount of the investment does not increase over time for accumulated PIK interest. As of December 31, 2019, the accumulated PIK interest balance for each of the Alvotech A notes and the B notes was $0.3 million. The fair value of this investment is inclusive of PIK.


(11)	All or a portion of this investment is pledged as collateral under the Citibank Facility (as defined in Note 6 to the accompanying notes to the Consolidated Financial Statements).

See notes to Consolidated Financial Statements.

Oaktree Strategic Income II, Inc.

Consolidated Schedule of Investments

September 30, 2019



Portfolio Company/Type of Investment (1)(2)(3)	Cash Interest Rate (4)		Industry	Principal (5)		Cost			Fair Value			Notes
Non-Control/Non-Affiliate Investments												(6)
Access CIG, LLC			Diversified Support Services
First Lien Term Loan, LIBOR+3.75% cash due 2/27/2025	6.07	%		$	7,551,410	$	7,483,710		$	7,471,214		(4)
						7,483,710			7,471,214
Adient US LLC			Auto Parts & Equipment
First Lien Term Loan, LIBOR+4.25% cash due 5/6/2024	6.46	%		4,987,500		4,962,563			4,918,922			(4)(9)
						4,962,563			4,918,922
AI Sirona (Luxembourg) Acquisition S.a.r.l.			Pharmaceuticals
Second Lien Term Loan, EURIBOR+7.25% cash due 7/10/2026	7.25	%		€	2,500,000	2,862,090			2,667,597			(4)(9)
						2,862,090			2,667,597
Air Medical Group Holdings, Inc.			Health Care Services
First Lien Term Loan, LIBOR+4.25% cash due 3/14/2025	6.29	%		$	1,089,907	1,067,643			1,023,602			(4)
						1,067,643			1,023,602
Aldevron, L.L.C.			Biotechnology
First Lien Term Loan, LIBOR+4.25% cash due 9/20/2026	6.36	%		4,000,000		3,960,000			4,020,000			(4)(11)
						3,960,000			4,020,000
Algeco Scotsman Global Finance Plc			Construction & Engineering
Fixed Rate Bond, 8.00% cash due 2/15/2023				1,000,000		1,020,274			1,002,800			(9)
						1,020,274			1,002,800
Altice France S.A.			Integrated Telecommunication Services
First Lien Term Loan, LIBOR+4.00% cash due 8/14/2026	6.03	%		4,000,000		4,000,000			3,997,500			(4)(9)
						4,000,000			3,997,500
Alvotech Holdings S.A.			Biotechnology
Fixed Rate Bond, 15.00% PIK Note A due 12/13/2023				2,000,000		2,203,231			2,444,400			(7)(9)(10)
Fixed Rate Bond, 15.00% PIK Note B due 12/13/2023				2,000,000		2,203,231			2,244,400			(7)(9)(10)
						4,406,462			4,688,800
Apptio, Inc.			Application Software
First Lien Term Loan, LIBOR+7.25% cash due 1/10/2025	9.56	%		7,129,297		7,001,960			6,997,404			(4)(7)
First Lien Revolver, LIBOR+7.25% cash due 1/10/2025				—		(8,119		)	(8,538		)	(4)(7)(8)
						6,993,841			6,988,866
Assembled Brands Capital LLC			Specialized Finance
First Lien Delayed Draw Term Loan, LIBOR+6.00% cash due 10/17/2023	8.10	%		—		604,359			604,359			(4)(7)(8)
174,131 Class A Units						82,713			84,576			(7)
110,285 Preferred Units, 6%						110,285			110,285			(7)
7,621 Class A Warrants (exercise price $3.3778) expiration date 9/9/2029						—			—			(7)
						797,357			799,220
Avantor Inc.			Health Care Distributors
Fixed Rate Bond, 9.00% cash due 10/1/2025				1,000,000		1,015,805			1,126,250
						1,015,805			1,126,250
Ball Metalpack Finco, LLC			Metal & Glass Containers
First Lien Term Loan, LIBOR+4.50% cash due 7/31/2025	6.62	%		1,481,250		1,475,024			1,397,930			(4)(7)(11)
						1,475,024			1,397,930
Boxer Parent Company Inc.			Systems Software
First Lien Term Loan, LIBOR+4.25% cash due 10/2/2025	6.29	%		8,573,368		8,404,544			8,265,456			(4)
						8,404,544			8,265,456
Canyon Buyer, Inc.			Application Software
First Lien Term Loan, LIBOR+4.25% cash due 2/15/2025	6.36	%		3,969,773		3,926,398			3,949,924			(4)
						3,926,398			3,949,924

Oaktree Strategic Income II, Inc.

Consolidated Schedule of Investments

September 30, 2019



Portfolio Company/Type of Investment (1)(2)(3)	Cash Interest Rate (4)		Industry	Principal (5)		Cost		Fair Value		Notes
Cast & Crew Payroll, LLC			Application Software
First Lien Term Loan, LIBOR+4.00% cash due 2/9/2026	6.05	%		$	3,980,000	$	3,940,200	$	4,014,825	(4)
						3,940,200		4,014,825
CGG Holding (U.S.) Inc.			Oil & Gas Equipment & Services
Fixed Rate Bond, 9.00% cash due 5/1/2023				819,000		849,160		876,330		(9)
						849,160		876,330
Cincinnati Bell Inc.			Integrated Telecommunication Services
29,443 Common Equity Shares						129,979		149,276
First Lien Term Loan, LIBOR+3.25% cash due 10/2/2024	5.29	%		4,987,406		4,944,677		4,982,543		(4)(11)
						5,074,656		5,131,819
CITGO Petroleum Corp.			Oil & Gas Refining & Marketing
First Lien Term Loan, LIBOR+5.00% cash due 3/28/2024	7.10	%		7,960,000		7,880,400		8,009,750		(4)(11)
						7,880,400		8,009,750
Connect U.S. Finco LLC			Alternative Carriers
First Lien Term Loan, LIBOR+4.50% cash due 9/23/2026	7.10	%		9,500,000		9,310,000		9,367,143		(4)(9)(11)
						9,310,000		9,367,143
Convergeone Holdings, Inc.			IT Consulting & Other Services
First Lien Term Loan, LIBOR+5.00% cash due 1/4/2026	7.04	%		5,908,300		5,690,535		5,341,103		(4)
						5,690,535		5,341,103
Dcert Buyer, Inc.			Internet Services & Infrastructure
First Lien Term Loan, LIBOR+4.00% cash due 8/8/2026	6.26	%		8,000,000		7,980,000		7,985,000		(4)(11)
						7,980,000		7,985,000
DigiCert, Inc.			Internet Services & Infrastructure
First Lien Term Loan, LIBOR+4.00% cash due 10/31/2024	6.04	%		3,922,038		3,887,944		3,921,214		(4)
						3,887,944		3,921,214
DKT Finance APS			Integrated Telecommunication Services
Fixed Rate Bond, 9.38% cash due 6/17/2023				207,000		215,982		223,250		(9)
						215,982		223,250
The Dun & Bradstreet Corporation			Research & Consulting Services
First Lien Term Loan, LIBOR+5.00% cash due 2/6/2026	7.05	%		2,500,000		2,509,371		2,518,525		(4)(11)
Fixed Rate Bond, 6.88% cash due 8/15/2026				5,000,000		5,000,000		5,459,375
						7,509,371		7,977,900
EHR Canada, LLC			Food Retail
First Lien Term Loan, LIBOR+8.00% cash due 9/28/2020	10.10	%		974,073		964,897		993,555		(4)(7)
						964,897		993,555
ExGen Renewables IV, LLC			Electric Utilities
First Lien Term Loan, LIBOR+3.00% cash due 11/28/2024	5.13	%		1,251,000		1,202,830		1,227,156		(4)
						1,202,830		1,227,156
Femur Buyer, Inc.			Health Care Equipment
First Lien Term Loan, LIBOR+4.25% cash due 3/5/2026	6.38	%		4,987,500		4,937,625		4,996,851		(4)
						4,937,625		4,996,851
Financial & Risk US Holdings, Inc.			Financial Exchanges & Data
First Lien Term Loan, LIBOR+3.75% cash due 10/1/2025	5.79	%		5,637,116		5,591,298		5,673,531		(4)(11)
						5,591,298		5,673,531

Oaktree Strategic Income II, Inc.

Consolidated Schedule of Investments

September 30, 2019



Portfolio Company/Type of Investment (1)(2)(3)	Cash Interest Rate (4)		Industry	Principal (5)		Cost			Fair Value			Notes
Frontier Communications Corporation			Integrated Telecommunication Services
First Lien Term Loan, LIBOR+3.75% cash due 6/15/2024	5.80	%		$	6,772,891	$	6,691,179		$	6,770,487		(4)(9)(11)
Fixed Rate Bond, 8.50% cash due 4/1/2026				2,035,000		1,980,283			2,039,884
						8,671,462			8,810,371
Gentiva Health Services, Inc.			Health Care Services
First Lien Term Loan, LIBOR+3.75% cash due 7/2/2025	5.81	%		2,992,443		2,988,796			3,013,016			(4)(11)
						2,988,796			3,013,016
GI Chill Acquisition LLC			Managed Health Care
First Lien Term Loan, LIBOR+4.00% cash due 8/6/2025	6.10	%		1,980,000		1,970,100			1,975,050			(4)(7)
Second Lien Term Loan, LIBOR+7.50% cash due 8/6/2026	9.60	%		2,000,000		1,982,835			2,000,000			(4)(7)
						3,952,935			3,975,050
GoodRx, Inc.			Interactive Media & Services
First Lien Term Loan, LIBOR+2.75% cash due 10/10/2025	4.81	%		1,962,982		1,960,647			1,965,435			(4)
Second Lien Term Loan, LIBOR+7.50% cash due 10/12/2026	9.54	%		1,333,333		1,308,330			1,350,000			(4)(7)
						3,268,977			3,315,435
HUB International Limited			Insurance Brokers
First Lien Term Loan, LIBOR+3.00% cash due 4/25/2025	5.27	%		3,969,849		3,903,391			3,930,369			(4)
						3,903,391			3,930,369
iCIMs, Inc.			Application Software
First Lien Revolver, LIBOR+6.50% cash due 09/12/2024				—		(1,456		)	(1,478		)	(4)(7)(8)
First Lien Term Loan, LIBOR+6.50% cash due 9/12/2024	8.56	%		1,671,765		1,643,564			1,643,761			(4)(7)
						1,642,108			1,642,283
Informatica, LLC			Application Software
First Lien Term Loan, LIBOR+3.25% cash due 8/5/2022	5.29	%		3,969,612		3,955,083			3,990,293			(4)
						3,955,083			3,990,293
KIK Custom Products Inc.			Household Products
First Lien Term Loan, LIBOR+4.00% cash due 5/15/2023	6.26	%		2,000,000		1,910,503			1,902,500			(4)(9)
						1,910,503			1,902,500
Ligand Pharmaceuticals Inc.			Biotechnology
Fixed Rate Bond, 0.75% cash due 5/15/2023				1,001,000		884,224			836,788			(9)
						884,224			836,788
Lightbox Intermediate, L.P.			Real Estate Services
First Lien Term Loan, LIBOR+5.00% cash due 5/9/2026	7.05	%		8,977,500		8,849,687			8,887,725			(4)(7)
						8,849,687			8,887,725
LTI Holdings, Inc.			Auto Parts & Equipment
Second Lien Term Loan, LIBOR+6.75% cash due 9/6/2026	8.79	%		1,000,000		1,000,000			916,250			(4)
						1,000,000			916,250
Maravai Intermediate Holdings, LLC			Biotechnology
First Lien Term Loan, LIBOR+4.25% cash due 8/2/2025	6.31	%		1,287,000		1,274,130			1,279,761			(4)(7)
						1,274,130			1,279,761
McAfee, LLC			Systems Software
First Lien Term Loan, LIBOR+3.75% cash due 9/30/2024	5.79	%		4,844,529		4,833,441			4,861,315			(4)
						4,833,441			4,861,315
Mindbody, Inc.			Internet Services & Infrastructure
First Lien Revolver, LIBOR+7.00% cash due 2/15/2025				—		(13,652		)	(14,476		)	(4)(7)(8)
First Lien Term Loan, LIBOR+7.00% cash due 2/14/2025	9.06	%		7,238,095		7,108,397			7,100,571			(4)(7)
						7,094,745			7,086,095
Navicure, Inc.			Health Care Technology
First Lien Term Loan, LIBOR+4.00% cash due 9/18/2026	6.13	%		4,000,000		3,980,000			4,005,000			(4)(11)
						3,980,000			4,005,000

Oaktree Strategic Income II, Inc.

Consolidated Schedule of Investments

September 30, 2019



Portfolio Company/Type of Investment (1)(2)(3)	Cash Interest Rate (4)		Industry	Principal (5)		Cost			Fair Value			Notes
Numericable SFR SA			Integrated Telecommunication Services
Fixed Rate Bond, 7.38% cash due 5/1/2026				$	380,000	$	380,950		$	408,865		(9)
						380,950			408,865
OEConnection LLC			Application Software
First Lien Delayed Draw Term Loan, LIBOR+4.00% cash due 9/24/2026				—		(4,086		)	(1,532		)	(4)(8)(11)
First Lien Term Loan, LIBOR+4.00% cash due 9/24/2026	6.13	%		8,682,796		8,639,382			8,666,515			(4)(11)
						8,635,296			8,664,983
P & L Development, LLC			Pharmaceuticals
First Lien Term Loan, LIBOR+7.50% cash due 6/28/2024	9.55	%		4,110,000		4,011,515			4,068,900			(4)(7)
						4,011,515			4,068,900
PaySimple, Inc.			Data Processing & Outsourced Services
First Lien Delayed Draw Term Loan, LIBOR+5.50% cash due 8/23/2025				—		(53,281		)	(40,425		)	(4)(7)(8)(11)
First Lien Term Loan, LIBOR+5.50% cash due 8/23/2025	7.55	%		8,305,000		8,140,807			8,180,425			(4)(7)(11)
						8,087,526			8,140,000
ProFrac Services, LLC			Industrial Machinery
First Lien Term Loan, LIBOR+6.25% cash due 9/15/2023	8.66	%		1,409,167		1,397,985			1,380,983			(4)(7)(11)
						1,397,985			1,380,983
Project Boost Purchaser, LLC			Application Software
First Lien Term Loan, LIBOR+3.50% cash due 6/1/2026	5.54	%		2,800,000		2,772,000			2,785,650			(4)
Second Lien Term Loan, LIBOR+8.00% cash due 5/9/2027	10.14	%		1,500,000		1,500,000			1,500,000			(4)(7)
						4,272,000			4,285,650
Recorded Books Inc.			Publishing
First Lien Term Loan, LIBOR+4.50% cash due 8/29/2025	6.54	%		1,980,000		1,960,200			1,984,960			(4)(11)
						1,960,200			1,984,960
Scilex Pharmaceuticals Inc.			Pharmaceuticals
Fixed Rate Zero Coupon Bond, cash due 8/15/2026				2,381,775		1,671,956			1,702,969			(7)
						1,671,956			1,702,969
Signify Health, LLC			Health Care Services
First Lien Term Loan, LIBOR+4.50% cash due 12/23/2024	6.60	%		6,964,646		6,899,566			6,955,941			(4)(11)
						6,899,566			6,955,941
Sirva Worldwide, Inc.			Diversified Support Services
First Lien Term Loan, LIBOR+5.50% cash due 8/4/2025	7.54	%		1,962,500		1,933,062			1,903,625			(4)
						1,933,062			1,903,625
Sorrento Therapeutics, Inc.			Biotechnology
First Lien Delayed Draw Term Loan, LIBOR+7.00% cash due 11/7/2023				—		(19,689		)	(22,080		)	(4)(7)(8)(9)
First Lien Term Loan, LIBOR+7.00% cash due 11/7/2023	9.13	%		9,600,000		9,002,287			9,360,000			(4)(7)(9)
Stock Warrants (exercise price $3.28) expiration date 5/7/2029						560,000			533,306			(7)(9)
Stock Warrants (exercise price $3.94) expiration date 11/3/2029						—			102,397			(7)(9)
						9,542,598			9,973,623
StandardAero Aviation Holdings Inc.			Aerospace & Defense
First Lien Term Loan, LIBOR+4.00% cash due 4/6/2026	6.10	%		3,000,000		2,996,318			3,017,805			(4)
						2,996,318			3,017,805
Sunshine Luxembourg VII SARL			Personal Products
First Lien Term Loan, LIBOR+4.25% cash due 9/25/2026	6.59	%		5,000,000		4,975,000			5,029,700			(4)(9)
						4,975,000			5,029,700
TIBCO Software Inc.			Application Software
First Lien Term Loan, LIBOR+4.00% cash due 6/30/2026	6.07	%		9,484,693		9,496,896			9,510,397			(4)(11)
						9,496,896			9,510,397

Oaktree Strategic Income II, Inc.

Consolidated Schedule of Investments

September 30, 2019



Portfolio Company/Type of Investment (1)(2)(3)	Cash Interest Rate (4)		Industry	Principal (5)		Cost		Fair Value		Notes
Transact Holdings Inc.			Application Software
First Lien Term Loan, LIBOR+4.75% cash due 4/30/2026	7.01	%		$	8,000,000	$	7,880,000	$	7,960,000	(4)
						7,880,000		7,960,000
Tullow Oil PLC			Oil & Gas Exploration & Production
Fixed Rate Callable Bond, 6.25% cash due 4/15/2022				700,000		691,321		709,800		(9)
						691,321		709,800
Uber Technologies, Inc.			Application Software
First Lien Term Loan, LIBOR+3.50% cash due 7/13/2023	5.55	%		3,969,309		3,954,413		3,948,649		(4)
First Lien Term Loan, LIBOR+4.00% cash due 4/4/2025	6.03	%		981,065		974,542		977,185		(4)
						4,928,955		4,925,834
UFC Holdings, LLC			Movies & Entertainment
First Lien Term Loan, LIBOR+3.25% cash due 4/29/2026	5.30	%		3,491,003		3,491,003		3,504,338		(4)
						3,491,003		3,504,338
Uniti Group LP			Specialized REITs
First Lien Term Loan, LIBOR+5.00% cash due 10/24/2022	7.04	%		3,429,488		3,345,831		3,351,793		(4)(9)(11)
						3,345,831		3,351,793
UOS, LLC			Trading Companies & Distributors
First Lien Term Loan, LIBOR+5.50% cash due 4/18/2023	7.54	%		2,969,620		2,990,975		3,006,741		(4)(11)
						2,990,975		3,006,741
Veritas US Inc.			Application Software
First Lien Term Loan, LIBOR+4.50% cash due 1/27/2023	6.60	%		4,315,150		4,099,814		4,089,619		(4)(11)
						4,099,814		4,089,619
Verscend Holding Corp.			Health Care Technology
First Lien Term Loan, LIBOR+4.50% cash due 8/27/2025	6.54	%		8,369,747		8,374,824		8,413,353		(4)(11)
						8,374,824		8,413,353
WeddingWire, Inc.			Interactive Media & Services
First Lien Term Loan, LIBOR+4.50% cash due 12/19/2025	6.54	%		2,977,500		2,964,142		2,981,222		(4)(11)
						2,964,142		2,981,222
WideOpenWest Finance, LLC			Cable & Satellite
First Lien Term Loan, LIBOR+3.25% cash due 8/18/2023	5.29	%		4,383,110		4,258,195		4,246,138		(4)(9)
						4,258,195		4,246,138
WP CPP Holdings, LLC			Aerospace & Defense
First Lien Term Loan, LIBOR+3.75% cash due 4/30/2025	6.01	%		3,969,925		3,945,385		3,981,100		(4)(11)
						3,945,385		3,981,100
Zillow Group, Inc.			Interactive Media & Services
Fixed Rate Bond, 1.50% cash due 7/1/2023				497,000		471,430		438,913		(9)
						471,430		438,913
Total Non-Control/Non-Affiliate Investments (169.6% of net assets)						$	289,322,834	$	291,147,011
Cash and Cash Equivalents and Restricted Cash (6.6% of net assets)						$	11,348,126	$	11,348,126
Total Portfolio Investments, Cash and Cash Equivalents and Restricted Cash (176.3% of net assets)						$	300,670,960	$	302,495,137



Derivative Instrument	Notional Amount to be Purchased		Notional Amount to be Sold		Maturity Date	Counterparty	Cumulative Unrealized Appreciation (Depreciation)
Foreign currency forward contract	$	2,798,483	€	2,475,000	1/16/2020	Bank of New York Mellon	$	77,558

Oaktree Strategic Income II, Inc.

Consolidated Schedule of Investments

September 30, 2019


(1)	All debt investments are income producing unless otherwise noted. All equity investments are non-income producing unless otherwise noted.


(2)	See Note 3 in the accompanying notes to the Consolidated Financial Statements for portfolio composition by geographic region.


(3)	Interest rates may be adjusted from period to period on certain term loans and revolvers. These rate adjustments may be either temporary in nature due to tier pricing arrangements or financial or payment covenant violations in the original credit agreements or permanent in nature per loan amendment or waiver documents.

(4)

The interest rate on the principal balance outstanding for all floating rate loans is indexed to the LIBOR and/or an alternate base rate (e.g., prime rate), which typically resets semi-annually, quarterly, or monthly at the borrower's option. The borrower may also elect to have multiple interest reset periods for each loan. For each of these loans, the Company has provided the applicable margin over LIBOR or the alternate based rate based on each respective credit agreement and the cash interest rate as of period end. All LIBOR shown above is in U.S. dollars unless otherwise noted. As of September 30, 2019, the reference rates for the Company's variable rate loans were the 30-day LIBOR at 2.04%, the 60-day LIBOR at 2.09%, the 90-day LIBOR at 2.10% and the 30-day EURIBOR at (0.51)%. Most loans include an interest floor, which generally ranges from 0% to 1%.


(5)	"€" signifies the investment is denominated in Euros. All other investments are denominated in U.S. dollars.

(6)

Non-Control/Non-Affiliate Investments are investments that are neither Control Investments nor Affiliate Investments. Control Investments generally are defined by the Investment Company Act, as investments in companies in which the Company owns more than 25% of the voting securities and/or has the power to exercise control over the management or policies of the company. Affiliate Investments generally are defined by the Investment Company Act as investments in companies in which the Company owns between 5% and 25% of the voting securities.


(7)	As of September 30, 2019, these investments are categorized as Level 3 within the fair value hierarchy established by ASC 820 and were valued using significant unobservable inputs.


(8)	Investment has undrawn commitments. Unamortized fees are classified as unearned income which reduces cost basis, which may result in a negative cost basis. A negative fair value may result from the unfunded commitment being valued below par.

(9)

Investment is not a qualifying asset as defined under Section 55(a) of the Investment Company Act. Under the Investment Company Act, the Company may not acquire any non-qualifying asset unless, at the time the acquisition is made, qualifying assets represent at least 70% of the Company's total assets. As of September 30, 2019, qualifying assets represented 80.1% of the Company's total assets and non-qualifying assets represented 19.9% of the Company's total assets.

(10)

PIK interest income for this investment accrues at an annualized rate of 15%, however, the PIK interest is not contractually capitalized on the investment. As a result, the principal amount of the investment does not increase over time for accumulated PIK interest. As of September 30, 2019, the accumulated PIK interest balance for each of the Alvotech A notes and the B notes was $0.2 million. The fair value of this investment is inclusive of PIK.


(11)	This investment is pledged as collateral under the Citibank Facility (as defined in Note 6 to the accompanying notes to the Consolidated Financial Statements).

See notes to Consolidated Financial Statements.

OAKTREE STRATEGIC INCOME II, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 1. Organization

Oaktree Strategic Income II, Inc. (together with its consolidated subsidiaries, where applicable, the "Company") is structured as a closed-end investment company focused on lending to small- and medium-sized companies. The Company has elected to be regulated as a business development company (a "BDC") under the Investment Company Act of 1940, as amended (the "Investment Company Act") and has elected to be treated, and intends to comply with the requirements to qualify annually, as a regulated investment company ("RIC") under Subchapter M of the Internal Revenue Code of 1986, as amended (together with the rules and regulations promulgated thereunder, the "Code").

The Company was formed on April 30, 2018 as a Delaware corporation and is externally managed by Oaktree Capital Management, L.P. (the "Adviser"), a subsidiary of Oaktree Capital Group, LLC ("OCG"). In 2019, Brookfield Asset Management Inc. ("Brookfield") acquired a majority economic interest in OCG. OCG operates as an independent business within Brookfield, with its own product offerings and investment, marketing and support teams.

The Company conducts private offerings (each, a “Private Offering”) of its common stock ("Common Stock") to investors in reliance on exemptions from the registration requirements of the Securities Act of 1933, as amended (the “Securities Act”). At each closing of a Private Offering, each investor participating in that closing makes a capital commitment (each, a “Capital Commitment”) to purchase the Company's Common Stock pursuant to a subscription agreement entered into with the Company in connection with its Capital Commitment ("Subscription Agreement"). Investors are required to fund drawdowns to purchase the Company's Common Stock up to the amount of their respective Capital Commitments on an as-needed basis with a minimum of ten calendar days' prior notice (excluding the initial drawdown for each investor). On July 23, 2018, the Company was initially capitalized with a $1,000 investment by the Adviser. The initial closing of a Private Offering occurred on August 6, 2018 (the "Initial Closing"). The Company's operations commenced on August 6, 2018, and loan origination and investment activities commenced shortly after the Initial Closing. As of December 31, 2019, the Company received $337,683,996 in Capital Commitments from investors in connection with Private Offerings.

The Company seeks to invest opportunistically across asset classes and geographies, primarily in the form of senior loans, and to a lesser extent, high yield bonds, to borrowers that are in need of direct loans, rescue financings or other capital solutions or that have had challenged or unsuccessful primary offerings. The Company's investment objective is to generate current income and long-term capital appreciation. The Company seeks to achieve its investment objective without subjecting principal to undue risk of loss by lending to and investing in the debt of public and private companies, primarily in situations where a company or its owners are (a) overleveraged or facing pressure to recapitalize, (b) unable to access broadly syndicated capital markets, (c) undervalued after having recently exited bankruptcy, completed a restructuring or are in a cyclically out-of-favor industry or (d) otherwise affected by mispricings or inefficiencies in the capital markets or at different points throughout the credit cycle.

Note 2. Significant Accounting Policies

Basis of Presentation:

The consolidated financial statements of the Company have been prepared in accordance with accounting principles generally accepted in the United States of America ("GAAP") and pursuant to the requirements for reporting on Form 10-Q and Regulation S-X. All intercompany balances and transactions have been eliminated. In the opinion of management, all adjustments of a normal recurring nature considered necessary for the fair presentation of the consolidated financial statements have been made. The Company is an investment company following the accounting and reporting guidance in FASB ASC Topic 946, Financial Services - Investment Companies ("ASC 946").

Use of Estimates:

The preparation of the financial statements in conformity with GAAP requires management to make certain estimates and assumptions affecting amounts reported in the financial statements and accompanying notes. These estimates are based on the information that is currently available to the Company and on various other assumptions that the Company believes to be reasonable under the circumstances. Changes in the economic and political environments, financial markets and any other parameters used in determining these estimates could cause actual results to differ and such differences could be material. Significant estimates include the valuation of investments and revenue recognition.

OAKTREE STRATEGIC INCOME II, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Consolidation:

The accompanying consolidated financial statements include the accounts of the Company and its consolidated subsidiaries, OSI 2 AB Blocker LLC and OSI 2 Senior Lending SPV, LLC. OSI 2 AB Blocker LLC and OSI 2 Senior Lending SPV, LLC are wholly-owned and, as such, consolidated into the consolidated financial statements. Certain subsidiaries of the Company that hold investments are treated as pass through entities for tax purposes. The assets of the consolidated subsidiaries are not directly available to satisfy the claims of the creditors of the Company. As an investment company, portfolio investments held by the Company are not consolidated into the consolidated financial statements but rather are included on the Consolidated Statements of Assets and Liabilities as investments at fair value.

Fair Value Measurements:

The Company's board of directors, with the assistance of its audit committee (the “Audit Committee”) and the Adviser, determines the fair value of its assets on at least a quarterly basis, in accordance with the terms of FASB ASC Topic 820, Fair Value Measurement. The Audit Committee is comprised of independent directors. The Company's investments are valued at fair value. For purposes of periodic reporting, the Company values its assets in accordance with GAAP and based on the principles and methods of valuation summarized below. GAAP requires that a “fair value” be assigned to all assets and establishes a single authoritative definition of fair value that includes a framework for measuring fair value and enhanced disclosures about fair value measurements.

GAAP establishes a hierarchal disclosure framework, which prioritizes the inputs used in measuring financial instruments at fair value into three levels based on their market price observability. Market price observability is affected by a number of factors, including the type of instrument and the characteristics specific to the instrument. Financial instruments with readily available quoted prices from an active market or for which fair value can be measured based on actively quoted prices generally will have a higher degree of market price observability and a lesser degree of judgment inherent in measuring fair value.

Financial assets and liabilities measured and reported at fair value are classified as follows:


•	Level I - Quoted unadjusted prices for identical instruments in active markets to which the Company has access at the date of measurement.


•	Level II - Quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active; and model-derived valuations in which all significant inputs are directly or indirectly observable.

•

Level III - Valuations for which one or more significant inputs are unobservable. These inputs reflect our assessment of the assumptions that market participants use to value the investment based on the best available information. Level III inputs include prices obtained from brokers in markets for which there are few transactions, less public information exists or prices vary among broker market makers.

In some instances, an instrument may fall into different levels of the fair value hierarchy. In such instances, the instrument’s level within the fair value hierarchy is based on the lowest of the three levels (with Level III being the lowest) that is significant to the value measurement. The assessment of the significance of an input requires judgment and considers factors specific to the instrument. The transfer of assets into or out of each fair value hierarchy level as a result of changes in the observability of the inputs used in measuring fair value are accounted for as of the beginning of the reporting period. Transfers resulting from a specific event, such as a reorganization or restructuring, are accounted for as of the date of the event that caused the transfer.

In the absence of observable market prices, the Company values Level III investments using valuation methodologies applied on a consistent basis. The quarterly valuation process for Level III investments begins with each portfolio company, property or security being initially valued by the Adviser's valuation team in conjunction with the investment team. The preliminary valuations are then reviewed and approved by the valuation team, the valuation committee, which consists of senior members of the investment team, and designated investment professionals as well as the valuation officer who is independent of the investment teams. The Audit Committee reviews the preliminary valuations provided by the valuation committee and makes a recommendation to the Company's full board of directors regarding the fair value of the investments in our portfolio. The Company's board of directors ultimately determines in good faith the fair value of each investment in the Company's portfolio. Results of the valuation process are evaluated each quarter, including an assessment of whether the underlying calculations should be adjusted or recalibrated. In connection with this process, the Company evaluates changes in fair value measurements from period to period for reasonableness, considering items such as industry trends, general economic and market conditions, and factors specific to the investment.

OAKTREE STRATEGIC INCOME II, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

subject or similar securities, typically from pricing vendors. If the Company is unable to obtain two quotes from pricing vendors, or if the prices obtained from pricing vendors are not within the Company's set threshold, the Company seeks to obtain a quote directly from a broker making a market for the asset. However, given the nature of our portfolio, the Company does not expect that all of our Level III assets will be valued at least annually using prices obtained from pricing vendors or brokers. Generally, the Company does not adjust any of the prices received from these sources, and all prices are reviewed by the Company. The Company evaluates the prices obtained from pricing vendors or brokers based on available market information, including trading activity of the subject or similar securities, or by performing a comparable security analysis to ensure that fair values are reasonably estimated. The Adviser also performs back-testing of valuation information obtained from pricing vendors and brokers against actual prices received in transactions. In addition to ongoing monitoring and back-testing, the Adviser performs due diligence procedures over pricing vendors to understand their methodology and controls to support their use in the valuation process.

Non-publicly traded debt and equity securities and other securities or instruments for which reliable market quotations are not available are valued by the Company using valuation methodologies applied on a consistent basis. These securities may initially be valued at the acquisition price as the best indicator of fair value. The Company reviews the significant unobservable inputs, valuations of comparable investments and other similar transactions for investments valued at acquisition price to determine whether another valuation methodology should be utilized. Subsequent valuations will depend on facts and circumstances known as of the valuation date and the application of valuation methodologies further described below under “– Non-Exchange-Traded Investments.” The fair value may also be based on a pending transaction expected to close after the valuation date. These valuation methodologies involve a significant degree of management judgment. Accordingly, valuations do not necessarily represent the amounts which may eventually be realized from sales or other dispositions of investments in the future. Fair values may differ from the values that would have been used had a ready market for the investment existed, and the differences could be material to the consolidated financial statements.

Exchange-Traded Investments

Securities listed on one or more national securities exchanges are valued at their last reported sales price on the date of valuation. If no sale occurred on the valuation date, the security is valued at the mean of the last “bid” and “ask” prices on the valuation date. Securities that are not marketable due to legal restrictions that may limit or restrict transferability are generally valued at a discount from quoted market prices. The discount would reflect the amount market participants would require due to the risk relating to the inability to access a public market for the security for the specified period and would vary depending on the nature and duration of the restriction and the risk and volatility of the underlying securities. Securities with longer duration restrictions or higher volatility are generally valued at a higher discount. Such discounts are generally estimated based on put option models or analysis of market studies. Instances where discounts have been applied to quoted prices of restricted listed securities have been infrequent. The impact of such discounts is not material to the consolidated financial statements.

Non-Exchange-Traded Investments

Investments in corporate and government debt which are not listed or admitted to trading on any securities exchange are valued at the mean of the last bid and ask prices on the valuation date based on quotations supplied by recognized quotation services or by reputable broker dealers.

If the quotations obtained from pricing vendors or brokers are determined to not be reliable or are not readily available, the Company values such investments using different valuation techniques. One valuation technique is the transaction precedent technique, which utilizes recent or expected future transactions of the investment to determine fair value, to the extent applicable. The market yield technique is considered in the valuation of non-publicly traded debt investments, utilizing expected future cash flows, discounted using estimated current market rates. Discounted cash flow calculations may be adjusted to reflect current market conditions and/or the perceived credit risk of the borrowers. Consideration is also given to a borrower’s ability to meet principal and interest obligations; this may include an evaluation of collateral or the underlying value of the borrower, utilizing either the market or income techniques. A market technique utilizes valuations of comparable public companies or transactions and generally seeks to establish the enterprise value of the portfolio company using a market multiple technique. This technique takes into account a specific financial measure (such as earnings before interest, taxes, depreciation and amortization ("EBITDA"), adjusted EBITDA, free cash flow, net operating income, net income, book value or net asset value) believed to be most relevant for the given company. Consideration may also be given to such factors as acquisition price of the security, historical and projected operational and financial results for the portfolio company, the strengths and weaknesses of the portfolio company relative to its comparable companies, industry trends, general economic and market conditions and other factors deemed relevant. The income technique is typically a discounted cash flow method that incorporates expected timing and level of cash flows. It incorporates assumptions in determining growth rates, income and expense projections, discount rates, capital structure, terminal values and other factors. The applicability and weight assigned to market and income techniques are determined based on the availability of reliable projections and comparable companies and transactions.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(including the transaction pursuant to which the investment was made and the period of time elapsed from the date of the investment to the valuation date) and applicable restrictions on the transferability of the securities.

Investments made by the Company are, by nature, generally considered to be long-term investments and are not intended to be liquidated on a short-term basis. Additionally, these valuation methodologies involve a significant degree of management judgment. Accordingly, valuations by the Company do not necessarily represent the amounts which may eventually be realized from sales or other dispositions of investments in the future. Estimated fair values may differ from the values that would have been used had a ready market for the investment existed, and the differences could be material to the consolidated financial statements.

The Company may estimate the fair value of privately held warrants using a Black Scholes pricing model, which includes an analysis of various factors and subjective assumptions, including the current stock price (by using an enterprise value analysis as described above), the expected period until exercise, expected volatility of the underlying stock price, expected dividends and the risk-free rate. Changes in the subjective input assumptions can materially affect the fair value estimates.

With the exception of the line items entitled "deferred financing costs," "deferred offering costs," "other assets," and "credit facilities payable," which are reported at amortized cost, all assets and liabilities on the Consolidated Statements of Assets and Liabilities approximate fair value. The carrying value of the line items titled "interest receivable," "receivables from unsettled transactions," "receivable for shares sold," "accounts payable, accrued expenses and other liabilities," "base management fee and incentive fee payable," "due to affiliates," "interest payable," "director fees payable," "deferred tax liability" and "payables from unsettled transactions" approximate fair value due to their short maturities.

Foreign Currency Translation:

The accounting records of the Company are maintained in U.S. dollars. All assets and liabilities denominated in foreign currencies are translated into U.S. dollars based on the prevailing foreign exchange rate on the reporting date. The Company does not isolate that portion of the results of operations resulting from changes in foreign exchange rates on investments from the fluctuations arising from changes in market prices of securities held. The Company’s investments in foreign securities may involve certain risks, including foreign exchange restrictions, expropriation, taxation or other political, social or economic risks, all of which could affect the market and/or credit risk of the investment. In addition, changes in the relationship of foreign currencies to the U.S. dollar can significantly affect the value of these investments and therefore the earnings of the Company.

Derivative Instruments

The Company does not utilize hedge accounting and as such values its derivative instruments at fair value with the unrealized gains or losses recorded in “net unrealized appreciation (depreciation)” in the Company’s Consolidated Statements of Operations.

Investment Income:

Interest Income

Interest income, adjusted for accretion of original issue discount ("OID"), is recorded on an accrual basis to the extent that such amounts are expected to be collected. The Company stops accruing interest on investments when it is determined that interest is no longer collectible. Investments that are expected to pay regularly scheduled interest in cash are generally placed on non-accrual status when there is reasonable doubt that principal or interest cash payments will be collected. Cash interest payments received on investments may be recognized as income or a return of capital depending upon management’s judgment. A non-accrual investment is restored to accrual status if past due principal and interest are paid in cash, and the portfolio company, in management’s judgment, is likely to continue timely payment of its remaining obligations.

In connection with its investment in a portfolio company, the Company sometimes receives nominal cost equity that is valued as part of the negotiation process with the portfolio company. When the Company receives nominal cost equity, the Company allocates its cost basis in the investment between debt securities and the nominal cost equity at the time of origination. Any resulting discount from recording the loan, or otherwise purchasing a security at a discount, is accreted into interest income over the life of the loan.

PIK Interest Income

The Company's investments in debt securities may contain payment-in-kind ("PIK") interest provisions. PIK interest, which generally represents contractually deferred interest added to the loan balance that is generally due at the end of the loan term, is generally recorded on the accrual basis to the extent such amounts are expected to be collected. The Company generally ceases accruing PIK interest if there is insufficient value to support the accrual or if the Company does not expect the portfolio company to be able to pay all principal and interest due. The Company's decision to cease accruing PIK interest on a loan or debt security involves

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

subjective judgments and determinations based on available information about a particular portfolio company, including whether the portfolio company is current with respect to its payment of principal and interest on its loans and debt securities; financial statements and financial projections for the portfolio company; the Company's assessment of the portfolio company's business development success; information obtained by the Company in connection with periodic formal update interviews with the portfolio company's management and, if appropriate, the private equity sponsor; and information about the general economic and market conditions in which the portfolio company operates. The Company's determination to cease accruing PIK interest is generally made well before the Company's full write-down of a loan or debt security. In addition, if it is subsequently determined that the Company will not be able to collect any previously accrued PIK interest, the fair value of the loans or debt securities would be reduced by the amount of such previously accrued, but uncollectible, PIK interest. The accrual of PIK interest on the Company’s debt investments increases the recorded cost bases of these investments in the consolidated financial statements including for purposes of computing the capital gains incentive fee payable by the Company to the Adviser. To maintain its status as a RIC, certain income from PIK interest may be required to be distributed to the Company’s stockholders, even though the Company has not yet collected the cash and may never do so.

Fee Income

The Adviser may provide financial advisory services to portfolio companies in connection with structuring a transaction and in return the Company may receive fees for capital structuring services. These fees are generally nonrecurring and are recognized by the Company upon the investment closing date. The Company may also receive additional fees in the ordinary course of business, including servicing, amendment, and prepayment fees, which are classified as fee income and recognized as they are earned or the services are rendered.

The Company may structure exit fees across certain of its portfolio investments to be received upon the future exit of those investments. These fees are typically paid to the Company upon the earliest to occur of (i) a sale of the borrower or substantially all of the assets of the borrower, (ii) the maturity date of the loan or (iii) the date when full prepayment of the loan occurs. The receipt of such fees is contingent upon the occurrence of one of the events listed above for each of the investments. These fees are included in net investment income over the life of the loan.

Cash and Cash Equivalents and Restricted Cash:

Cash and cash equivalents and restricted cash consist of demand deposits and highly liquid investments with maturities of three months or less, when acquired. The Company places its cash and cash equivalents and restricted cash with financial institutions and, at times, cash held in bank accounts may exceed the Federal Deposit Insurance Corporation ("FDIC") insurance limit. Cash and cash equivalents and restricted cash are included on the Company's Consolidated Schedule of Investments and cash equivalents are classified as Level 1 assets.

As of December 31, 2019 and September 30, 2019, included in restricted cash was $1,405,214 and $269,111, respectively, which was held at Deutsche Bank Trust Company Americas in connection with the Company's Citibank Facility (defined in Note 6 – Borrowings). The Company was restricted in terms of access to the $1,405,214 and $269,111 until the occurrence of the periodic distribution dates and, in connection therewith, the Company’s submission of its required periodic reporting schedules and verifications of the Company’s compliance with the terms of the credit agreement.

Organization and Offering Expenses:

Costs incurred to organize the Company were expensed as incurred. There were no organizational costs incurred during the three months ended December 31, 2019. For the three months ended December 31, 2018, the Company incurred organizational costs of $56,211.

Offering costs incurred in connection with Private Offerings were recognized as a deferred cost and amortized on a straight line basis over twelve months beginning on August 6, 2018 (commencement of operations). For the three months ended December 31, 2019, no additional offering costs were incurred. For the three months ended December 31, 2018, the Company capitalized additional offering costs of $96,748 and amortized $168,269 of deferred offering costs. Deferred offering costs were fully amortized as of August 6, 2019.

Receivables/Payables from Unsettled Transactions:

Receivables/payables from unsettled transactions consist of amounts receivable to or payable by the Company for transactions that have not settled at the reporting date.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Deferred Financing Costs:

Deferred financing costs consist of fees and expenses paid in connection with the closing or amending of credit facilities. Deferred financing costs incurred in connection with credit facilities are capitalized as an asset when incurred. Deferred financing costs incurred in connection with all other debt arrangements are a direct deduction from the related debt liability when incurred. Deferred financing costs are amortized using the effective interest method over the term of the respective debt arrangement. This amortization expense is included in interest expense in the Company's Consolidated Statements of Operations. Upon early termination or modification of a credit facility, all or a portion of unamortized fees related to such facility may be accelerated into interest expense.

Income Taxes:

The Company has elected to be subject to tax as a RIC under Subchapter M of the Code and intends to operate in a manner so as to qualify for the tax treatment applicable to RICs. In order to be subject to tax as a RIC, among other things, the Company is required to meet certain source of income and asset diversification requirements and timely distribute dividends to its stockholders of an amount generally at least equal to 90% of investment company taxable income, as defined by the Code and determined without regard to any deduction for dividends paid, for each tax year. As a RIC, the Company is not subject to federal income tax on the portion of its taxable income and gains distributed currently to stockholders as a dividend. Depending on the level of taxable income earned during a tax year, the Company may choose to retain taxable income in excess of current year dividend distributions and would distribute such taxable income in the next tax year. The Company would then incur a 4% excise tax on such income, as required. To the extent that the Company determines that its estimated current year annual taxable income, determined on a calendar year basis, could exceed estimated current calendar year dividend distributions, the Company accrues excise tax, if any, on estimated excess taxable income as taxable income is earned. The Company anticipates timely distribution of its taxable income within the tax rules under Subchapter M of the Code. The Company incurred a U.S. federal excise tax of $14,515 for calendar year 2018 and did not incur a U.S. federal excise tax for calendar year 2019.

The Company holds certain portfolio investments through taxable subsidiaries. The purpose of the Company's taxable subsidiaries is to permit the Company to hold equity investments in portfolio companies which are "pass through" entities for U.S. federal income tax purposes in order to comply with the RIC tax requirements. The taxable subsidiaries are consolidated for financial reporting purposes, and portfolio investments held by them are included in the Company’s consolidated financial statements as portfolio investments and recorded at fair value. The taxable subsidiaries are not consolidated with the Company for U.S. federal income tax purposes and may generate income tax expense, or benefit, and the related tax assets and liabilities, as a result of their ownership of certain portfolio investments. This income tax expense, if any, would be reflected in the Company's Consolidated Statements of Operations. The Company uses the liability method to account for its taxable subsidiaries' income taxes. Using this method, the Company recognizes deferred tax assets and liabilities for the estimated future tax effects attributable to temporary differences between financial reporting and tax bases of assets and liabilities. In addition, the Company recognizes deferred tax benefits associated with net operating loss carry forwards that it may use to offset future tax obligations. The Company measures deferred tax assets and liabilities using the enacted tax rates expected to apply to taxable income in the years in which it expects to recover or settle those temporary differences.

FASB ASC Topic 740, Accounting for Uncertainty in Income Taxes ("ASC 740"), provides guidance for how uncertain tax positions should be recognized, measured, presented, and disclosed in the Company's consolidated financial statements. ASC 740 requires the evaluation of tax positions taken or expected to be taken in the course of preparing the Company's tax returns to determine whether the tax positions are "more-likely-than-not" of being sustained by the applicable tax authority. Tax positions not deemed to meet the more-likely-than-not threshold are recorded as a tax benefit or expense in the current year. Management's determinations regarding ASC 740 may be subject to review and adjustment at a later date based upon factors including an ongoing analysis of tax laws, regulations and interpretations thereof. The Company recognizes the tax benefits of uncertain tax positions only where the position is "more likely than not" to be sustained assuming examination by tax authorities. Management has analyzed the Company's tax positions and has concluded that no liability for unrecognized tax benefits should be recorded related to uncertain tax positions taken on returns filed for open tax year 2018. The Company identifies its major tax jurisdictions as U.S. Federal and California, and the Company is not aware of any tax positions for which it is reasonably possible that the total amounts of unrecognized tax benefits will change materially in the next 12 months.

Recent Accounting Pronouncements:

In August 2018, the FASB issued ASU 2018-13, Disclosure Framework – Changes to the Disclosure Requirements for Fair Value Measurement, which changes the fair value disclosure requirements. The new guidance includes new, eliminated and modified fair value disclosures. Among other requirements, the guidance requires disclosure of the range and weighted average of the significant unobservable inputs for Level 3 fair value measurements and the way it is calculated. The guidance also eliminated the following disclosures: (i) amount and reason for transfers between Level 1 and Level 2, (ii) policy for timing of transfers between levels of the

OAKTREE STRATEGIC INCOME II, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

fair value hierarchy and (iii) valuation processes for Level 3 fair value measurement. The guidance is effective for all entities for interim and annual periods beginning after December 15, 2019. Early adoption is permitted upon issuance of the guidance. The Company has elected to early adopt ASU 2018-13 in the current interim period. No significant changes were made to the Company's fair value disclosures in the Consolidated Financial Statements in order to comply with ASU 2018-13.

Note 3. Portfolio Investments

Portfolio Composition

As of December 31, 2019, the fair value of the Company's investment portfolio was $324.0 million and was comprised of investments in 74 portfolio companies. As of September 30, 2019, the fair value of the Company's investment portfolio was $291.1 million and was comprised of investments in 69 portfolio companies.

As of December 31, 2019 and September 30, 2019, the Company's investment portfolio consisted of the following:



	December 31, 2019				September 30, 2019
Cost:			% of Total Investments				% of Total Investments
Senior secured debt	$	314,447,196	98.56	%	$	281,238,755	97.20	%
Subordinated debt	3,454,550		1.08	%	7,201,102		2.49	%
Common equity & warrants	1,043,713		0.33	%	772,692		0.27	%
Preferred equity	110,285		0.03	%	110,285		0.04	%
Total	$	319,055,744	100.00	%	$	289,322,834	100.00	%



	December 31, 2019						September 30, 2019
Fair Value:			% of Total Investments		% of Net Assets				% of Total Investments		% of Net Assets
Senior secured debt	$	318,429,365	98.29	%	185.31	%	$	282,841,206	97.14	%	164.80	%
Subordinated debt	3,449,866		1.06	%	2.01	%	7,325,965		2.52	%	4.27	%
Common equity & warrants	2,010,417		0.62	%	1.17	%	869,555		0.30	%	0.51	%
Preferred equity	112,490		0.03	%	0.07	%	110,285		0.04	%	0.06	%
Total	$	324,002,138	100.00	%	188.56	%	$	291,147,011	100.00	%	169.64	%

The composition of the Company's debt investments as of December 31, 2019 and September 30, 2019 by floating rates and fixed rates was as follows:



	December 31, 2019				September 30, 2019
	Fair Value		% of Debt Investments		Fair Value		% of Debt Investments
Floating rate	$	305,769,438	95.00	%	$	270,653,147	93.27	%
Fixed rate	16,109,793		5.00	%	19,514,024		6.73	%
Total	$	321,879,231	100.00	%	$	290,167,171	100.00	%

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The geographic composition of the Company's portfolio is determined by the location of the corporate headquarters of the portfolio company, which may not be indicative of the primary source of the portfolio company's business. The following tables show the portfolio composition by geographic region at cost as a percentage of total investments and at fair value as a percentage of total investments and net assets:



	December 31, 2019				September 30, 2019
Cost:			% of Total Investments				% of Total Investments
United States	$	286,139,633	89.68	%	$	257,736,195	89.08	%
United Kingdom	11,840,550		3.71	%	11,021,595		3.81	%
Luxembourg	7,837,090		2.46	%	7,837,090		2.71	%
Australia	5,940,000		1.86	%	—		—	%
Iceland	4,562,600		1.43	%	4,406,462		1.52	%
Canada	2,371,000		0.74	%	2,875,400		0.99	%
France	364,871		0.12	%	5,230,110		1.81	%
Denmark	—		—	%	215,982		0.08	%
Total	$	319,055,744	100.00	%	$	289,322,834	100.00	%



	December 31, 2019						September 30, 2019
Fair Value:			% of Total Investments		% of Net Assets				% of Total Investments		% of Net Assets
United States	$	290,325,097	89.61	%	168.96	%	$	259,279,171	89.06	%	151.07	%
United Kingdom	12,064,586		3.72	%	7.02	%	11,079,743		3.81	%	6.46	%
Luxembourg	7,733,969		2.39	%	4.50	%	7,697,297		2.64	%	4.48	%
Australia	6,000,000		1.85	%	3.49	%	—		—	%	—	%
Iceland	5,067,600		1.56	%	2.95	%	4,688,800		1.61	%	2.73	%
Canada	2,435,555		0.75	%	1.42	%	2,896,055		0.99	%	1.69	%
France	375,331		0.12	%	0.22	%	5,282,695		1.81	%	3.08	%
Denmark	—		—	%	—	%	223,250		0.08	%	0.13	%
Total	$	324,002,138	100.00	%	188.56	%	$	291,147,011	100.00	%	169.64	%

OAKTREE STRATEGIC INCOME II, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The composition of the Company's portfolio by industry at cost as a percentage of total investments and at fair value as a percentage of total investments and net assets as of December 31, 2019 and September 30, 2019 was as follows:



	December 31, 2019				September 30, 2019
Cost:			% of Total Investments				% of Total Investments
Application Software	$	71,555,241	22.44	%	$	59,770,591	20.64	%
Biotechnology	19,921,783		6.24	%	20,067,414		6.94	%
Internet Services & Infrastructure	15,081,536		4.73	%	18,962,689		6.55	%
Health Care Services	15,033,759		4.71	%	10,956,005		3.79	%
Health Care Technology	14,441,686		4.53	%	12,354,824		4.27	%
Integrated Telecommunication Services	13,590,326		4.26	%	18,343,050		6.34	%
Research & Consulting Services	11,952,716		3.75	%	7,509,371		2.60	%
Systems Software	11,358,348		3.56	%	13,237,985		4.58	%
Pharmaceuticals	10,243,167		3.21	%	8,545,561		2.95	%
Diversified Support Services	9,388,658		2.94	%	9,416,772		3.25	%
Data Processing & Outsourced Services	8,857,141		2.78	%	8,087,526		2.80	%
Real Estate Services	8,832,423		2.77	%	8,849,687		3.06	%
Independent Power Producers & Energy Traders	8,195,161		2.57	%	—		—	%
Oil & Gas Refining & Marketing	7,860,600		2.46	%	7,880,400		2.72	%
Airport Services	7,313,160		2.29	%	—		—	%
Aerospace & Defense	6,913,226		2.17	%	6,941,703		2.40	%
Personal Products	6,507,774		2.04	%	4,975,000		1.72	%
Auto Parts & Equipment	5,950,125		1.86	%	5,962,563		2.06	%
Movies & Entertainment	5,940,000		1.86	%	3,491,003		1.21	%
Metal & Glass Containers	5,778,061		1.81	%	1,475,024		0.51	%
IT Consulting & Other Services	5,685,071		1.78	%	5,690,535		1.97	%
Health Care Supplies	4,975,000		1.56	%	—		—	%
Health Care Equipment	4,925,250		1.54	%	4,937,625		1.71	%
Specialized REITs	4,777,315		1.50	%	3,345,831		1.16	%
Managed Health Care	3,948,598		1.24	%	3,952,935		1.37	%
Insurance Brokers	3,896,541		1.22	%	3,903,391		1.35	%
Alternative Carriers	3,695,953		1.16	%	9,310,000		3.22	%
Electrical Components & Equipment	3,128,103		0.98	%	—		—	%
Financial Exchanges & Data	3,122,423		0.98	%	5,591,298		1.93	%
Trading Companies & Distributors	2,981,796		0.93	%	2,990,975		1.03	%
Interactive Media & Services	2,957,221		0.93	%	6,704,549		2.32	%
Publishing	1,955,250		0.61	%	1,960,200		0.68	%
Household Products	1,916,799		0.60	%	1,910,503		0.66	%
Property & Casualty Insurance	1,406,470		0.44	%	—		—	%
Industrial Machinery	1,315,990		0.41	%	1,397,985		0.48	%
Electric Utilities	1,205,207		0.38	%	1,202,830		0.42	%
Construction & Engineering	831,437		0.26	%	1,020,274		0.35	%
Specialized Finance	797,357		0.25	%	797,357		0.28	%
Food Retail	454,201		0.14	%	964,897		0.33	%
Oil & Gas Equipment & Services	364,871		0.11	%	849,160		0.29	%
Cable & Satellite	—		—	%	4,258,195		1.47	%
Health Care Distributors	—		—	%	1,015,805		0.35	%
Oil & Gas Exploration & Production	—		—	%	691,321		0.24	%
Total	$	319,055,744	100.00	%	$	289,322,834	100.00	%

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



	December 31, 2019						September 30, 2019
Fair Value:			% of Total Investments		% of Net Assets				% of Total Investments		% of Net Assets
Application Software	$	72,247,155	22.31	%	42.06	%	$	60,022,674	20.64	%	34.97	%
Biotechnology	22,018,530		6.80	%	12.81	%	20,798,972		7.14	%	12.12	%
Internet Services & Infrastructure	15,134,096		4.67	%	8.81	%	18,992,309		6.52	%	11.07	%
Health Care Services	15,100,463		4.66	%	8.79	%	10,992,559		3.78	%	6.40	%
Health Care Technology	14,592,235		4.50	%	8.49	%	12,418,353		4.27	%	7.24	%
Integrated Telecommunication Services	13,878,264		4.28	%	8.08	%	18,571,805		6.38	%	10.82	%
Research & Consulting Services	12,516,484		3.86	%	7.28	%	7,977,900		2.74	%	4.65	%
Systems Software	11,459,091		3.54	%	6.67	%	13,126,771		4.51	%	7.65	%
Pharmaceuticals	10,193,932		3.15	%	5.93	%	8,439,466		2.90	%	4.92	%
Diversified Support Services	9,469,048		2.92	%	5.51	%	9,374,839		3.22	%	5.46	%
Data Processing & Outsourced Services	9,009,933		2.78	%	5.24	%	8,140,000		2.80	%	4.74	%
Real Estate Services	8,843,063		2.73	%	5.15	%	8,887,725		3.05	%	5.18	%
Independent Power Producers & Energy Traders	8,183,906		2.53	%	4.76	%	—		—	%	—	%
Oil & Gas Refining & Marketing	7,989,625		2.47	%	4.65	%	8,009,750		2.75	%	4.67	%
Airport Services	7,312,500		2.26	%	4.26	%	—		—	%	—	%
Aerospace & Defense	6,922,107		2.14	%	4.03	%	6,998,905		2.40	%	4.08	%
Personal Products	6,646,046		2.05	%	3.87	%	5,029,700		1.73	%	2.93	%
Movies & Entertainment	6,000,000		1.85	%	3.49	%	3,504,338		1.20	%	2.04	%
Auto Parts & Equipment	5,777,934		1.78	%	3.36	%	5,835,172		2.00	%	3.40	%
Metal & Glass Containers	5,706,608		1.76	%	3.32	%	1,397,930		0.48	%	0.81	%
IT Consulting & Other Services	5,653,503		1.74	%	3.29	%	5,341,103		1.83	%	3.11	%
Health Care Supplies	5,021,875		1.55	%	2.92	%	—		—	%	—	%
Health Care Equipment	4,863,063		1.50	%	2.83	%	4,996,851		1.72	%	2.91	%
Specialized REITs	4,840,236		1.49	%	2.82	%	3,351,793		1.15	%	1.95	%
Insurance Brokers	3,963,620		1.22	%	2.31	%	3,930,369		1.35	%	2.29	%
Alternative Carriers	3,955,474		1.22	%	2.30	%	9,367,143		3.22	%	5.46	%
Managed Health Care	3,942,755		1.22	%	2.29	%	3,975,050		1.37	%	2.32	%
Electrical Components & Equipment	3,272,600		1.01	%	1.90	%	—		—	%	—	%
Financial Exchanges & Data	3,141,621		0.97	%	1.83	%	5,673,531		1.95	%	3.31	%
Trading Companies & Distributors	2,991,646		0.92	%	1.74	%	3,006,741		1.03	%	1.75	%
Interactive Media & Services	2,988,563		0.92	%	1.74	%	6,735,570		2.31	%	3.92	%
Publishing	1,987,344		0.61	%	1.16	%	1,984,960		0.68	%	1.16	%
Household Products	1,969,000		0.61	%	1.15	%	1,902,500		0.65	%	1.11	%
Property & Casualty Insurance	1,423,519		0.44	%	0.83	%	—		—	%	—	%
Industrial Machinery	1,292,688		0.40	%	0.75	%	1,380,983		0.47	%	0.80	%
Electric Utilities	1,239,009		0.38	%	0.72	%	1,227,156		0.42	%	0.72	%
Specialized Finance	816,104		0.25	%	0.47	%	799,220		0.27	%	0.47	%
Construction & Engineering	796,612		0.25	%	0.46	%	1,002,800		0.34	%	0.58	%
Food Retail	466,555		0.14	%	0.27	%	993,555		0.34	%	0.58	%
Oil & Gas Equipment & Services	375,331		0.12	%	0.22	%	876,330		0.30	%	0.51	%
Cable & Satellite	—		—	%	—	%	4,246,138		1.46	%	2.47	%
Health Care Distributors	—		—	%	—	%	1,126,250		0.39	%	0.66	%
Oil & Gas Exploration & Production	—		—	%	—	%	709,800		0.24	%	0.41	%
Total	$	324,002,138	100.00	%	188.56	%	$	291,147,011	100.00	%	169.64	%

OAKTREE STRATEGIC INCOME II, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Fair Value Measurements

The following table presents the financial instruments carried at fair value as of December 31, 2019 on the Company's Consolidated Statements of Assets and Liabilities for each of the three levels of hierarchy established by ASC 820:



	Level 1		Level 2		Level 3		Total
Senior secured debt	$	—	$	212,635,730	$	105,793,635	$	318,429,365
Subordinated debt	—		1,704,250		1,745,616		3,449,866
Common equity & warrants	—		—		2,010,417		2,010,417
Preferred equity	—		—		112,490		112,490
Total investments at fair value	—		214,339,980		109,662,158		324,002,138
Derivative assets	—		17,686		—		17,686
Total assets at fair value	$	—	$	214,357,666	$	109,662,158	$	324,019,824

The following table presents the financial instruments carried at fair value as of September 30, 2019 on the Company's Consolidated Statements of Assets and Liabilities for each of the three levels of hierarchy established by ASC 820:



	Level 1		Level 2		Level 3		Total
Senior secured debt	$	—	$	219,518,979	$	63,322,227	$	282,841,206
Subordinated debt	—		5,622,996		1,702,969		7,325,965
Common equity & warrants	149,276		—		720,279		869,555
Preferred equity	—		—		110,285		110,285
Total investments at fair value	149,276		225,141,975		65,855,760		291,147,011
Derivative assets	—		77,558		—		77,558
Total assets at fair value	$	149,276	$	225,219,533	$	65,855,760	$	291,224,569

When a determination is made to classify a financial instrument within Level 3 of the valuation hierarchy, the determination is based upon the fact that the unobservable factors are significant to the overall fair value measurement. However, Level 3 financial instruments typically have both unobservable or Level 3 components and observable components (i.e. components that are actively quoted and can be validated by external sources). Accordingly, the appreciation (depreciation) in the tables below includes changes in fair value due in part to observable factors that are part of the valuation methodology.

The principal value of the Company's credit facilities approximates fair value due to their variable rates and are included in Level 3 of the hierarchy.

OAKTREE STRATEGIC INCOME II, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The following table provides a roll-forward of the changes in fair value from September 30, 2019 to December 31, 2019, for all investments for which the Company determined fair value using unobservable (Level 3) factors:



	Senior Secured Debt			Subordinated Debt			Preferred Equity		Common Equity & Warrants		Total
Fair value as of September 30, 2019	$	63,322,227		$	1,702,969		$	110,285	$	720,279	$	65,855,760
Purchases	33,291,131			—			—		401,000		33,692,131
Sales and repayments	(2,134,613		)	(6,787		)	—		—		(2,141,400		)
Transfers in (a)	10,627,597			—			—		—		10,627,597
PIK interest income	151,232			—			—		—		151,232
Accretion of OID	130,175			45,731			—		—		175,906
Net unrealized appreciation (depreciation)	405,886			3,703			2,205		889,138		1,300,932
Fair value as of December 31, 2019	$	105,793,635		$	1,745,616		$	112,490	$	2,010,417	$	109,662,158
Net unrealized appreciation (depreciation) relating to Level 3 assets still held at December 31, 2019 and reported within net unrealized appreciation (depreciation) in the Consolidated Statement of Operations for the three months ended December 31, 2019	$	447,553		$	3,703		$	2,205	$	889,138	$	1,342,599

__________

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

The following table provides a roll-forward in the changes in fair value from September 30, 2018 to December 31, 2018, for all investments for which the Company determined fair value using unobservable (Level 3) factors:



	Senior Secured debt			Subordinated Debt		Common Equity			Total
Fair value as of September 30, 2018	$	11,655,202		$	1,500,000	$	—		$	13,155,202
Purchases	13,654,560			—		642,713			14,297,273
Sales and repayments	(20,750		)	—		—			(20,750		)
Transfers in (a)	1,514,018			—		—			1,514,018
Capitalized PIK interest income	39,054			—		—			39,054
Accretion of OID	30,582			55,567		—			86,149
Net unrealized appreciation (depreciation)	(115,003		)	4,433		(112,224		)	(222,794		)
Fair value as of December 31, 2018	$	26,757,663		$	1,560,000	$	530,489		$	28,848,152
Net unrealized appreciation (depreciation) relating to Level 3 assets still held at December 31, 2018 and reported within net unrealized appreciation (depreciation) in the Consolidated Statement of Operations for the three months ended December 31, 2018	$	(115,003	)	$	4,433	$	(112,224	)	$	(222,794	)

__________

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

OAKTREE STRATEGIC INCOME II, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Significant Unobservable Inputs for Level 3 Investments

The following table provides quantitative information related to the significant unobservable inputs for Level 3 investments, which are carried at fair value as of December 31, 2019:

Asset

Fair Value

Valuation Technique

Unobservable Input

Range

Weighted

Average (a)

Senior secured debt

38,711,990

Market Yield

(b)

8.0%

18.0%

11.2%

19,195,864

Transactions Precedent

Transaction Price

(e)

N/A

47,885,781

Broker Quotations

Broker Quoted Price

(c)

N/A

Subordinated debt

1,745,616

Market Yield

(b)

13.0%

15.0%

14.0%

Common equity & warrants & preferred equity

1,721,907

Enterprise Value

Asset Multiple

(d)

0.7x

0.9x

0.8x

401,000

Transactions Precedent

Transaction Price

(e)

N/A

Total

109,662,158

_____________________

(a) Weighted averages are calculated based on fair value of investments.

(b) Used when market participant would take into account market yield when pricing the investment.

(c) The Company generally uses prices provided by an independent pricing service which are non-binding indicative prices on or near the valuation date as the primary basis for the fair value determinations for quoted senior secured debt investments. Since these prices are non-binding, they may not be indicative of fair value. The Company evaluates the quotations provided by pricing vendors and brokers based on available market information, including trading activity of the subject or similar securities, or by performing a comparable security analysis to ensure that fair values are reasonably estimated. Each quoted price is evaluated by the Audit Committee of the Company's Board of Directors in conjunction with additional information compiled by the Adviser.

(d) Used when market participant would use such multiple when pricing the investment.

(e) Used when there is an observable transaction or pending event for the investment.

The following table provides quantitative information related to the significant unobservable inputs for Level 3 investments, which are carried at fair value as of September 30, 2019:

Asset

Fair Value

Valuation Technique

Unobservable Input

Range

Weighted

Average (a)

Senior secured debt

31,341,878

Market Yield

(b)

8.0%

18.0%

11.0%

30,480,349

Broker Quotations

Broker Quoted Price

(c)

N/A

1,500,000

Transactions Precedent

Transaction Price

(e)

N/A

Subordinated debt

1,702,969

Market Yield

(b)

13.0%

15.0%

14.0%

Common equity & warrants & preferred equity

830,564

Enterprise Value

Asset Multiple

(d)

0.7x

0.9x

0.8x

Total

65,855,760

_____________________

(a) Weighted averages are calculated based on fair value of investments.

(b) Used when market participant would take into account market yield when pricing the investment.

(d) Used when market participant would use such multiple when pricing the investment.

(e) Used when there is an observable transaction or pending event for the investment.

Under the market yield technique, the significant unobservable input used in the fair value measurement of the Company's investments in debt securities is the market yield. Increases or decreases in the market yield may result in a lower or higher fair value measurement, respectively.

OAKTREE STRATEGIC INCOME II, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Under the enterprise value technique, the significant unobservable input used in the fair value measurement of the Company's investments is the EBITDA, revenue or asset multiple, as applicable. Increases or decreases in the valuation multiples in isolation may result in a higher or lower fair value measurement, respectively.

Note 4. Fee Income

For the three months ended December 31, 2019, the Company recorded total fee income of $129,947, of which $16,914 was recurring in nature. For the three months ended December 31, 2018, the Company recorded total fee income of $255,564, of which $11,063 was recurring in nature.

Note 5. Share Data and Distributions

Earnings per Share

The following table sets forth the computation of basic and diluted earnings per share, pursuant to FASB ASC Topic 260-10, Earnings per Share, for the three months ended December 31, 2019 and 2018:



	Three months ended December 31, 2019		Three months ended December 31, 2018
Earnings (loss) per common share — basic and diluted:
Net increase (decrease) in net assets resulting from operations	$	5,278,427	$	(679,093	)
Weighted average common shares outstanding	8,309,861		2,682,977
Earnings (loss) per common share — basic and diluted	$	0.64	$	(0.25	)

OAKTREE STRATEGIC INCOME II, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Changes in Net Assets

The following table presents the changes in net assets for the three months ended December 31, 2019:



	Common Stock
	Shares	Par Value		Additional Paid-in-Capital		Accumulated Distributable Earnings (Loss)			Total Net Assets
Balance at September 30, 2019	8,309,861	$	8,310	$	168,819,173	$	2,799,267		$	171,626,750
Net investment income	—	—		—		1,897,085			1,897,085
Net unrealized appreciation (depreciation)	—	—		—		3,062,531			3,062,531
Net realized gains (losses)	—	—		—		324,057			324,057
Provision for income taxes	—	—		—		(5,246		)	(5,246		)
Distributions to stockholders	—	—		—		(5,069,014		)	(5,069,014		)
Balance at December 31, 2019	8,309,861	$	8,310	$	168,819,173	$	3,008,680		$	171,836,163

The following table presents the changes in net assets for the three months ended December 31, 2018:



	Common Stock
	Shares	Par Value		Additional Paid-in-Capital		Accumulated Distributable Earnings (Loss)			Total Net Assets
Balance at September 30, 2018	1,541,738	$	1,542	$	30,833,227	$	(462,452	)	$	30,372,317
Net investment income	—	—		—		274,523			274,523
Net unrealized appreciation (depreciation)	—	—		—		(963,085		)	(963,085		)
Net realized gains (losses)	—	—		—		9,469			9,469
Issuance of common stock	1,850,162	1,850		36,700,180		—			36,702,030
Balance at December 31, 2018	3,391,900	$	3,392	$	67,533,407	$	(1,141,545	)	$	66,395,254

Capital Activity

As of December 31, 2019, the Company received $337,683,996 in Capital Commitments from investors in connection with Private Offerings, of which $3,854,346 in Capital Commitments were made by one or more affiliates of the Adviser. As of December 31, 2019, the Company completed drawdowns of $168,841,998, or 50.0%, of such Capital Commitments.

The Company has the authority to issue 250,000,000 shares of Common Stock, $0.001 per share par value and 100,000,000 shares of preferred stock, $0.001 per share par value. The following table summarizes total shares issued and proceeds related to capital drawdowns delivered pursuant to the Subscription Agreements for the Company’s Common Stock through December 31, 2019:



	Shares Issued	Price per Share		Proceeds
August 6, 2018 (1)	770,869	$	20.00	$	15,417,385
September 17, 2018	770,869	20.00		15,417,384
October 29, 2018	1,060,964	19.85		21,060,130
November 15, 2018	789,198	19.82		15,641,900
April 29, 2019	1,655,314	20.40		33,768,400
August 30, 2019	1,631,324	20.70		33,768,400
September 23, 2019	1,631,323	20.70		33,768,399
Total	8,309,861			$	168,841,998

__________________


(1)	Includes 50 shares issued to one or more affiliates of the Adviser on July 23, 2018.

OAKTREE STRATEGIC INCOME II, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Distributions

Distributions to common stockholders are recorded on the ex-dividend date. The Company is required to distribute dividends each tax year to its stockholders of an amount generally at least equal to 90% of its investment company taxable income, determined without regard to any deduction for dividends paid, in order to be eligible for tax benefits allowed to a RIC under Subchapter M of the Code. The Company anticipates paying out as a distribution all or substantially all of those amounts. The amount to be paid out as a dividend is determined by the board of directors and is based on management’s estimate of the Company’s annual taxable income. Net realized capital gains, if any, may be distributed to stockholders or retained for reinvestment.

The following table reflects the distributions per share that the Company has paid on its common stock during the three months ended December 31, 2019:



Record Date	Payment Date	Amount per Share		Cash Distribution
November 7, 2019	November 21, 2019	$	0.29	$	2,409,859
December 13, 2019	December 30, 2019	0.32		2,659,155
		$	0.61	$	5,069,014

No distributions were paid by the Company to stockholders during the three months ended December 31, 2018.

Note 6. Borrowings

CNB Facility

On October 16, 2018, the Company entered into a revolving credit agreement (the “Credit Agreement”) between the Company, as borrower, and City National Bank (“CNB”), as lender. As of December 31, 2019, the Credit Agreement provides for a senior secured revolving credit facility (the “CNB Facility”) of up to $100 million (the “Maximum Commitment”) in aggregate principal amount, subject to (i) the lesser of a percentage of unfunded commitments from certain classes of eligible investors in the Company and (ii) the Maximum Commitment. The maturity date of the CNB Facility is October 15, 2020. Borrowings under the CNB Facility bear interest at a rate equal to (a) the London Interbank Offered Rate ("LIBOR") for the selected period plus 1.65% for LIBOR loans or (b) the prime rate of CNB minus 0.25% for prime rate loans. There is a non-usage fee of 25 basis points per year on the unused portion of the CNB Facility, payable quarterly.

The CNB Facility is secured by a first priority security interest, subject to customary exceptions, in (i) all Capital Commitments, (ii) the Company's right to make capital calls, receive payment of capital contributions from investors and enforce payment of capital commitments and capital contributions under the Subscription Agreements with investors and other operative documents and (iii) a cash collateral account into which the capital contributions from investors are made. The Company has made customary representations and warranties and is required to comply with various affirmative and negative covenants, reporting requirements and other customary requirements for similar credit facilities. The Company's borrowings, including under the CNB Facility, are subject to the leverage restrictions contained in the Investment Company Act.

As of December 31, 2019 and September 30, 2019, the Company had $76.0 million and $65.0 million outstanding under the CNB Facility, respectively. The Company’s borrowings under the CNB Facility bore interest at a weighted average interest rate of 3.58% and 4.03% for the three months ended December 31, 2019 and 2018, respectively. For the three months ended December 31, 2019 and 2018, the Company recorded interest expense (inclusive of fees) of $790,573 and $133,883 related to the CNB Facility, respectively.

Citibank Facility

On July 26, 2019 (the “Closing Date”), the Company and OSI 2 Senior Lending SPV, LLC (“OSI 2 SPV”), a wholly-owned and consolidated subsidiary of the Company, entered into a loan and security agreement (the “Loan Agreement”) with the lenders from time to time party thereto and the other parties referenced below. Under the terms of the Loan Agreement, the Company serves as the collateral manager and seller and OSI 2 SPV serves as borrower with Citibank, N.A., as administrative agent, and Deutsche Bank Trust Company Americas, as collateral agent.

The Loan Agreement provides for a senior secured revolving credit facility (the “Citibank Facility”) of up to $100 million (the “Maximum Commitment”) in aggregate principal amount, subject to the lesser of (i) the borrowing base, which is an amount based on advance rates that vary depending on the class of assets and the value assigned to such assets under the Loan Agreement

OAKTREE STRATEGIC INCOME II, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

and (ii) the Maximum Commitment. The Citibank Facility has a three year reinvestment period (the “Reinvestment Period”) during which advances may be made and matures five years from the Closing Date. Following the Reinvestment Period, OSI 2 SPV will be required to make certain mandatory amortization payments. Borrowings under the Citibank Facility bear interest payable quarterly at a rate per year equal to (a) in the case of a lender that is identified as a conduit lender under the Loan Agreement, the lesser of (i) the applicable commercial paper rate for such conduit lender and (ii) the LIBOR for a three month maturity and (b) for all other lenders under the Citibank Facility, LIBOR, plus, in each case, an applicable spread. During the Reinvestment Period, the applicable spread is the greater of (i) a weighted average rate of (x) 1.65% per year for broadly syndicated loans and (y) 2.25% per year for all other eligible loans and (ii) 1.85%. After the Reinvestment Period, the applicable spread is 3.00% per year. There is also a non-usage fee of (i) 0.40% per year for the first six months following the Closing Date (the “Ramp-Up Period”) and (ii) 0.50% per year thereafter, in each case, on the unused portion of the Citibank Facility, payable quarterly; provided that if after the Ramp-Up Period the unused portion of the Citibank Facility is greater than 30% of the commitments under the Citibank Facility, the non-usage fee will be based on an unused portion of 30% of the commitments under the Citibank Facility.

The Citibank Facility is secured by a first priority security interest in substantially all of OSI 2 SPV’s assets.

As part of the Citibank Facility, OSI 2 SPV is subject to certain limitations as to how borrowed funds may be used and the types of loans that are eligible to be acquired by OSI 2 SPV including, but not limited to, restrictions on sector concentrations, loan size, tenor and minimum investment ratings (or estimated ratings). The Citibank Facility also contains certain requirements relating to interest coverage, collateral quality and portfolio performance, certain violations of which could result in the acceleration of the amounts due under the Citibank Facility.

Under the Citibank Facility, the Company and OSI 2 SPV, as applicable, have made customary representations and warranties, and are required to comply with various affirmative and negative covenants, reporting requirements and other customary requirements for similar credit facilities.

OSI 2 SPV’s borrowings are non-recourse to the Company but are considered borrowings of the Company for purposes of complying with the asset coverage requirements under the Investment Company Act.

As of December 31, 2019 and September 30, 2019, the Company had $67.5 million and $18.0 million outstanding under the Citibank Facility, respectively. The Company’s borrowings under the Citibank Facility bore interest at a weighted average interest rate of 3.87% for the three months ended December 31, 2019. For the three months ended December 31, 2019, the Company recorded interest expense (inclusive of fees) of $564,620 related to the Citibank Facility.

Note 7. Taxable/Distributable Income and Dividend Distributions

Taxable income differs from net increase (decrease) in net assets resulting from operations primarily due to: (1) unrealized appreciation (depreciation) on investments, as gains and losses are not included in taxable income until they are realized, (2) organizational and deferred offering costs and (3) the capital gains incentive fee accrual.

Listed below is a reconciliation of net increase (decrease) in net assets resulting from operations to taxable income for the three months ended December 31, 2019 and 2018:



	Three months ended December 31, 2019			Three months ended December 31, 2018
Net increase (decrease) in net assets resulting from operations	$	5,278,427		$	(679,093	)
Net unrealized (appreciation) depreciation	(3,062,531		)	963,085
Book/tax differences due to capital gains incentive fee	677,318			—
Book/tax difference due to organizational and deferred offering costs	(7,602		)	216,878
Other book/tax differences	5,246			(32,664		)
Taxable income (1)	$	2,890,858		$	468,206

__________________


(1)	The Company's taxable income for the three months ended December 31, 2019 is an estimate and will not be finally determined until the Company files its tax return for the fiscal year ending September 30, 2020. Therefore, the final taxable income may be different than the estimate.

For the three months ended December 31, 2019, the Company recognized a total provision for income taxes of $5,246, which was comprised of deferred income tax expense that resulted from unrealized appreciation on an investment held by a wholly-owned taxable subsidiary.

OAKTREE STRATEGIC INCOME II, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

As of September 30, 2019, the Company's tax year end, the components of accumulated undistributed income on a tax basis were as follows:



Undistributed ordinary income, net	$	1,793,055
Net realized capital gains	$	642,220
Unrealized gains, net	$	363,992

The aggregate cost of investments for income tax purposes was $290,860,578 as of September 30, 2019. As of September 30, 2019, the aggregate gross unrealized appreciation for all investments in which there was an excess of value over cost for income tax purposes was $3,314,337. As of September 30, 2019, the aggregate gross unrealized depreciation for all investments in which there was an excess of cost for income tax purposes over value was $2,950,345. As of September 30, 2019, net unrealized appreciation based on the aggregate cost of investments for income tax purposes was $363,992.

Note 8. Concentration of Credit Risks

The Company deposits its cash with financial institutions and at times such balances may be in excess of the FDIC insurance limit. The Company limits its exposure to credit loss by depositing its cash with high credit quality financial institutions and monitoring their financial stability.

Note 9. Related Party Transactions

The Company has entered into an Investment Advisory Agreement with the Adviser. Pursuant to the Investment Advisory Agreement, the Company pays the Adviser a fee for investment advisory and management services consisting of two components - the Management Fee and the Incentive Fee (each as defined below).

Management Fee

Prior to (i) the listing of the Company’s Common Stock on a national securities exchange or (ii) an initial public offering of the Company’s Common Stock that results in gross proceeds to the Company of at least $50 million and a listing of the Common Stock on a national securities exchange (each of (i) and (ii), a “Qualified Listing”), if any, the Adviser is entitled to receive quarterly in arrears a management fee (the “Management Fee”) equal to 1.00% per annum (the “Applicable Management Fee Percentage”) of the Company’s Gross Asset Value (as defined below); provided, that prior to a Qualified Listing, the Management Fee does not exceed 1.75% per annum of the Unleveraged Asset Value (as defined below). From and after the date of a Qualified Listing, if any, the Applicable Management Fee Percentage will increase to 1.50% per annum of the Company’s Gross Asset Value.

For purposes of calculating the Management Fee, the Gross Asset Value is determined by the Company’s board of directors (including any committee thereof). Until August 6, 2019, the Management Fee for each quarter was calculated based on the Company’s average Gross Asset Value at the end of each month during such calendar quarter (prior to taking into account any Incentive Fee); provided, that the Management Fee for the Company’s first calendar quarter was calculated based on the Company’s Gross Asset Value at the end of such calendar quarter (prior to taking into account any Incentive Fee). Following August 6, 2019, the Management Fee for each quarter is calculated based on the Company’s average Gross Asset Value at the end of such quarter and at the end of the preceding quarter (in each case, prior to taking into account any Incentive Fee); provided, that the Management Fee for the calendar quarter in which the Company consummates a Qualified Listing will be calculated based on the Company’s Gross Asset Value at the end of such calendar quarter (prior to taking into account any Incentive Fee). For the three months ended December 31, 2019 and 2018, base management fees were $786,134 and $120,929, respectively.

The term “Gross Asset Value” means the value of the Company’s gross assets, determined on a consolidated basis in accordance with GAAP, including portfolio investments purchased with borrowed funds and other forms of leverage, but excluding cash and cash equivalents.

The term “Unleveraged Asset Value” means the Gross Asset Value less the Company’s borrowings for investment purposes determined on a consolidated basis in accordance with GAAP (other than borrowings under the Company’s investor subscription credit facility that are repaid within 180 days following incurrence).

OAKTREE STRATEGIC INCOME II, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Incentive Fee

The Incentive Fee consists of two parts: the Investment Income Incentive Fee and the Capital Gains Incentive Fee (each defined below).

Investment Income Incentive Fee

The Investment Income Incentive Fee is calculated and payable quarterly in arrears based on the Company’s Pre-Incentive Fee Net Investment Income, which means consolidated interest income, dividend income and any other income (including any other fees (other than fees for providing managerial assistance), such as commitment, origination, structuring, diligence and consulting fees or other fees that the Company receives from portfolio companies) accrued during the calendar quarter, minus the operating expenses accrued for the quarter (including the Management Fee, Company expenses and any interest expense or fees on any credit facilities or outstanding debt, but excluding the Incentive Fee). The Pre-Incentive Fee Net Investment Income includes, in the case of investments with a deferred interest feature (such as OID, debt instruments with PIK interest and zero coupon securities), accrued income that has not yet been received in cash. For the avoidance of doubt, the Pre-Incentive Fee Net Investment Income does not include any realized capital gains, realized capital losses or unrealized capital appreciation or depreciation. The Pre-Incentive Fee Net Investment Income, expressed as a rate of return on the value of the Company’s net assets at the end of the immediately preceding calendar quarter, is compared to a hurdle of 1.50% per quarter (6% annualized) (the “Hurdle Rate”). The Company pays the Adviser an Investment Income Incentive Fee each quarter as follows:


(a)	Hurdle Rate Return: No Investment Income Incentive Fee in any calendar quarter in which the Pre-Incentive Fee Net Investment Income does not exceed the Hurdle Rate;

(b)

Catch-Up: 100% of the Pre-Incentive Fee Net Investment Income, if any, that exceeds the Hurdle Rate but is less than a 1.875% (7.5% annualized) rate of return on the value of the Company’s net assets in such calendar quarter (the “Catch-Up”), which is intended to provide the Adviser with 20% of the Pre-Incentive Fee Net Investment Income as if the Hurdle Rate did not apply, if the Pre-Incentive Fee Net Investment Income exceeds the Hurdle Rate in such calendar quarter; and


(c)	80/20 Split: 20% of the Pre-Incentive Fee Net Investment Income, if any, that exceeds a 1.875% (7.5% annualized) rate of return on the value of the Company’s net assets in such calendar quarter, so that once the Hurdle Rate is reached and the Catch-Up in (b) immediately above is achieved, 20% of the Pre-Incentive Fee Net Investment Income thereafter is allocated to the Adviser.

The foregoing calculations will be appropriately prorated for any period of less than three months and adjusted for any issuances or repurchases of Common Stock during a quarter. For the three months ended December 31, 2019, Investment Income Incentive Fees were $49,915. For the three months ended December 31, 2018, there was no Investment Income Incentive Fee.

Capital Gains Incentive Fee

In addition to the Investment Income Incentive Fee described above, the Adviser is entitled to receive a Capital Gains Incentive Fee (as defined below). The Capital Gains Incentive Fee is determined and payable in arrears as of the end of each calendar year. The Capital Gains Incentive Fee is equal to 20% of the realized capital gains, if any, on a cumulative basis from the date of the Initial Closing through the end of each calendar year, computed net of all realized capital losses on a cumulative basis and unrealized capital depreciation, less the aggregate amount of any previously paid Capital Gains Incentive Fee with respect to each of the investments in the Company’s portfolio, provided that the Capital Gains Incentive Fee determined as of December 31, 2018 was calculated for a period of shorter than 12 calendar months to take into account any realized capital gains computed net of all realized capital losses and unrealized capital depreciation from the date of the Initial Closing through the end of 2018 (the “Capital Gains Incentive Fee,” and together with the Investment Income Incentive Fee, the “Incentive Fee”).

Although the Capital Gains Incentive Fee due to the Adviser is not payable until it is contractually due based on the Investment Advisory Agreement, the Company accrues this component at the end of each reporting period based on the Company’s realized capital gains, if any, on a cumulative basis from the date of the Initial Closing through the end of each reporting period, computed net of all realized capital losses on a cumulative basis and unrealized capital depreciation, less the aggregate amount of any previously paid Capital Gains Incentive Fee, as contractually included in the calculation of the Capital Gains Incentive Fee, plus the cumulative amount of unrealized capital appreciation. If such amount is positive at the end of a period, then the Company will accrue an incentive fee equal to 20% of such amount. If such amount is negative, then there will be no accrual for such period or an appropriate reduction in any

OAKTREE STRATEGIC INCOME II, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

amount previously accrued. U.S. GAAP requires that the Capital Gains Incentive Fee accrual consider cumulative unrealized capital appreciation in the calculation, as a Capital Gains Incentive Fee would be payable if such unrealized capital appreciation were realized. There can be no assurance that such unrealized capital appreciation will be realized in the future. For the three months ended December 31, 2019, the Company accrued $677,318 of Capital Gains Incentive Fee. For the three months ended December 31, 2018, the Company reversed $42,021 of previously accrued Capital Gains Incentive Fee. As of December 31, 2019, there was $1,104,889 of Capital Gains Incentive Fee accrued on a cumulative basis. As of December 31, 2019, the Company has not paid any capital gains incentive fees, and no amount is currently payable under the terms of the Investment Advisory Agreement.

As of December 31, 2019 and September 30, 2019, the Company had a liability on its Consolidated Statements of Assets and Liabilities in the amount of $1,940,938 and $1,128,658, respectively, reflecting the unpaid portion of the Base Management Fee and Incentive Fee payable to the Adviser.

Administration Agreement

The Company entered into an administration agreement (the “Administration Agreement”) with Oaktree Fund Administration, LLC (the “Administrator”), an affiliate of the Adviser. Pursuant to the Administration Agreement, the Administrator furnishes the Company with office facilities (certain of which are located in buildings owned by a Brookfield affiliate), equipment and clerical, bookkeeping and recordkeeping services at such facilities. Under the Administration Agreement, the Administrator also performs, or oversees the performance of, the Company’s required administrative services, which include, among other things, providing assistance in accounting, legal, compliance, operations, technology and investor relations, and being responsible for the financial records that the Company is required to maintain and preparing reports to stockholders and reports filed with the SEC. In addition, the Administrator assists the Company in determining and publishing the net asset value, overseeing the preparation and filing of tax returns and the printing and dissemination of reports to the Company’s stockholders, and generally overseeing the payment of the Company’s expenses and the performance of administrative and professional services rendered to the Company by others.

Payments under the Administration Agreement are equal to an amount that reimburses the Administrator for its costs and expenses incurred in performing its obligations under the Administration Agreement and providing personnel and facilities. The Administration Agreement may be terminated by either party without penalty upon 60 days’ written notice to the other party, by the vote of a majority of the Company’s outstanding voting securities, or by the vote of the Company’s directors or by the Administrator. In addition, our Administrator entered into a sub-administration agreement (the “Sub-Administration Agreement”) with State Street Bank and Trust Company (“State Street”), pursuant to which State Street provides certain administrative and professional services. The Company bears all of the costs and expenses of any sub-administration agreements that the Administrator enters into.

For the avoidance of doubt, the Company bears its allocable portion of the costs of the compensation, benefits, and related administrative expenses (including travel expenses) of the Company’s officers who provide operational and administrative services under the Administration Agreement, their respective staffs and other professionals who provide services to the Company (including, in each case, employees of the Administrator or an affiliate) who assist with the preparation, coordination, and administration of the foregoing or provide other “back office” or “middle office” financial or operational services to the Company. The Company reimburses the Adviser (or its affiliates) for an allocable portion of the compensation paid by the Adviser (or its affiliates) to such individuals (based on a percentage of time such individuals devote, on an estimated basis, to the Company’s business and affairs and to acting on the Company’s behalf). Our board of directors reviews the fees payable under the Administration Agreement to determine that these fees are reasonable and comparable to administrative services charged by unaffiliated third parties.

For the three months ended December 31, 2019, the Company incurred $133,664 of expenses under the Administration Agreement, of which $113,917 was included in administrator expense and the remaining $19,747 was included in general and administrative expenses on the Consolidated Statements of Operations. For the three months ended December 31, 2018, the Company incurred $217,608 of expenses under the Administration Agreement, of which $82,045 was included in administrator expense and the remaining $135,563 was included across general and administrative expenses, offering costs and organization expenses on the Consolidated Statements of Operations. As of December 31, 2019 and September 30, 2019, $329,910 and $753,665, respectively, was included in “Due to affiliates” in the Consolidated Statements of Assets and Liabilities, reflecting the unpaid portion of administrative expenses and other reimbursable expenses.

Placement Agent Agreement

The Company has entered into a Placement Agent Agreement with OCM Investments, LLC (the “Placement Agent”), an affiliate of the Adviser, which may require investors (other than investors sourced by the Company, the Adviser, the Placement Agent or their respective affiliates) to pay a distribution fee to the Placement Agent for its services. Although the Company does not pay any fees to the Placement Agent, the Company indemnifies the Placement Agent in connection with its activities.

OAKTREE STRATEGIC INCOME II, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 10. Financial Highlights



	Three months ended December 31, 2019			Three months ended December 31, 2018
Net asset value at beginning of period	$	20.65		$	19.70
Net investment income (1)	0.23			0.10
Net unrealized appreciation (depreciation) (1)(2)	0.37			(0.32		)
Net realized gains (losses) (1)	0.04			—
Distributions to stockholders	(0.61		)	—
Effect of sale price of drawdowns (3)	—			0.09
Net asset value at end of period	$	20.68		$	19.57
Total return (4)	3.13		%	(0.66		)%
Common stock outstanding at beginning of period	8,309,861			1,541,738
Common stock outstanding at end of period	8,309,861			3,391,900
Net assets at beginning of period	$	171,626,750		$	30,372,317
Net assets at end of period	$	171,836,163		$	66,395,254
Average net assets (5)	$	172,331,212		$	52,674,266
Ratio of net investment income to average net assets (6)	1.10		%	0.52		%
Ratio of total expenses to average net assets (6)	1.97		%	1.69		%
Ratio of portfolio turnover to average investments at fair value (6)	12.58		%	3.77		%
Weighted average outstanding debt	$	119,500,000		$	2,619,565
Average debt per share (1)	$	14.38		$	0.98
Asset coverage ratio (7)	219.75		%	1,048.50		%



(1)	Calculated based upon weighted average shares outstanding for the period.
(2)	For the three months ended December 30, 2018, the amount shown does not correspond with net unrealized appreciation (depreciation) for the period as it includes the effect of the timing of equity issuances.
(3)	Increase is due to drawdowns during the period that were executed at a sale price at a premium to net asset value in order to effect a reallocation of organizational costs to subsequent investors.
(4)	Total return is calculated as the change in net asset value (“NAV”) per share during the period, plus distributions per share or capital activity, if any, divided by the beginning NAV per share, assuming a dividend reinvestment price equal to the NAV per share at the beginning of the period. The total return has not been annualized.
(5)	Calculated based upon the weighted average net assets for the period.
(6)	Financial results for the three months ended December 31, 2019 and 2018 have not been annualized for purposes of this ratio.
(7)	Based on outstanding senior securities of $143.5 million and $7.0 million as of December 31, 2019 and 2018, respectively.

OAKTREE STRATEGIC INCOME II, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 11. Commitments and Contingencies

Off-Balance Sheet Arrangements

The Company is a party to financial instruments with off-balance sheet risk in the normal course of business to meet the financial needs of its portfolio companies. As indicated in the table below, as of December 31, 2019 and September 30, 2019, off-balance sheet arrangements consisted of $18,345,235 and $11,030,903, respectively, of unfunded commitments to provide debt financing to certain of the Company's portfolio companies. Such commitments are subject to the portfolio company's satisfaction of certain financial and nonfinancial covenants and may involve, to varying degrees, elements of credit risk in excess of the amount recognized in the Consolidated Statements of Assets and Liabilities.



	December 31, 2019		September 30, 2019
Connect U.S. Finco LLC	$	5,615,016	$	—
Assembled Brands Capital LLC	3,807,021		3,807,021
Sorrento Therapeutics, Inc.	2,400,000		2,400,000
Corrona, LLC	2,006,000		—
PaySimple, Inc.	1,914,408		2,695,000
OEConnection LLC	822,511		817,204
Mindbody, Inc.	761,905		761,905
Acquia Inc.	468,601		—
Apptio, Inc.	461,538		461,538
iCIMs, Inc.	88,235		88,235
	$	18,345,235	$	11,030,903

Note 12. Derivative Instruments

The Company enters into forward currency contracts from time to time to help mitigate the impact that an adverse change in foreign exchange rates would have on the value of the Company’s investments denominated in foreign currencies. As of December 31, 2019, the counterparty to these forward currency contracts was The Bank of New York Mellon. Net unrealized gains or losses on foreign currency contracts are included in “net unrealized appreciation (depreciation)” and net realized gains or losses on forward currency contracts are included in “net realized gains (losses)” in the accompanying Consolidated Statement of Operations. Forward currency contracts are considered undesignated derivative instruments.

Certain information related to the Company’s foreign currency forward contracts is presented below as of December 31, 2019.



Description	Notional Amount to be Purchased		Notional Amount to be Sold		Maturity Date	Gross Amount of Recognized Assets		Gross Amount of Recognized Liabilities		Balance Sheet Location of Net Amounts
Foreign currency forward contract	$	2,798,483	€	2,475,000	1/16/2020	$	17,686	$	—	Derivative assets

Certain information related to the Company’s foreign currency forward contracts is presented below as of September 30, 2019.



Description	Notional Amount to be Purchased		Notional Amount to be Sold		Maturity Date	Gross Amount of Recognized Assets		Gross Amount of Recognized Liabilities		Balance Sheet Location of Net Amounts
Foreign currency forward contract	$	2,798,483	€	2,475,000	1/16/2020	$	77,558	$	—	Derivative assets

OAKTREE STRATEGIC INCOME II, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 13. Subsequent Events

The Company's management evaluated subsequent events through the date of issuance of the consolidated financial statements. There have been no subsequent events that occurred during such period that would require disclosure in, or would be required to be recognized in, the consolidated financial statements as of and for the three months ended December 31, 2019, except as discussed below.

Distribution Declaration

On February 7, 2020, the Company's board of directors approved a quarterly distribution not to exceed $2.7 million, payable in cash on March 31, 2020 in an amount per share based on the outstanding number of shares held by the Company's stockholders as of the close of business on March 13, 2020.

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

The following discussion and analysis should be read in conjunction with the Consolidated Financial Statements and the notes thereto included elsewhere in this quarterly report on Form 10-Q.

Some of the statements in this quarterly report on Form 10-Q constitute forward-looking statements because they relate to future events or our future performance or financial condition. The forward-looking statements contained in this quarterly report on Form 10-Q may include statements as to:


•	our future operating results and distribution projections;


•	the ability of our Adviser to implement its future plans with respect to our business and to achieve our investment objective;


•	the ability of Oaktree to attract and retain highly talented professionals;


•	our business prospects and the prospects of our portfolio companies;


•	the impact of the investments that we expect to make;


•	the ability of our portfolio companies to achieve their objectives;


•	our expected financings and investments and additional leverage we may seek to incur in the future;


•	the adequacy of our cash resources and working capital; and


•	the timing of cash flows, if any, from the operations of our portfolio companies.

In addition, words such as “anticipate,” “believe,” “expect,” “seek,” “plan,” “should,” “estimate,” “project” and “intend” indicate forward-looking statements, although not all forward-looking statements include these words. The forward-looking statements contained in this quarterly report on Form 10-Q involve risks and uncertainties. Our actual results could differ materially from those implied or expressed in the forward-looking statements for any reason, including the factors set forth in “Item 1A. Risk Factors” in our annual report on Form 10-K for the year ended September 30, 2019 and elsewhere in this quarterly report on Form 10-Q.

Other factors that could cause actual results to differ materially include:


•	changes or potential disruptions in our operations, the economy, financial markets or political environment;


•	future changes in laws or regulations (including the interpretation of these laws and regulations by regulatory authorities) and conditions in our operating areas, particularly with respect to business development companies or RICs; and


•	other considerations that may be disclosed from time to time in our publicly disseminated documents and filings.

We have based the forward-looking statements included in this quarterly report on Form 10-Q on information available to us on the date of this quarterly report, and we assume no obligation to update any such forward-looking statements. Although we undertake no obligation to revise or update any forward-looking statements, whether as a result of new information, future events or otherwise, you are advised to consult any additional disclosures that we may make directly to you or through reports that we in the future may file with the SEC, including annual reports on Form 10-K, quarterly reports on Form 10-Q and current reports on Form 8-K.

Business Overview

We are structured as a closed-end investment company focused on lending to small-and medium-sized companies. We have elected to be regulated as a BDC under the Investment Company Act and have elected to be treated, and intend to comply with the requirements to qualify annually, as a RIC under Subchapter M of the Code.

We were formed on April 30, 2018 as a Delaware corporation and are externally managed by our Adviser. We seek to invest opportunistically across asset classes and geographies, primarily in the form of senior loans, and to a lesser extent, high yield bonds, to borrowers that are in need of direct loans, rescue financings or other capital solutions or that have had challenged or unsuccessful primary offerings. Our investment objective is to generate current income and long-term capital appreciation. We seek to achieve our investment objective without subjecting principal to undue risk of loss by investing primarily in situations where a company or its owners (a) are overleveraged or facing pressures to recapitalize, (b) are unable to access broadly syndicated capital markets, (c) are undervalued after having recently exited bankruptcy or completed a restructuring or (d) are otherwise affected by mispricings or inefficiencies in the capital markets or at different points throughout the credit cycle. We seek to generate revenues primarily in the form of interest income from the investments we hold.

We conduct Private Offerings of shares of our Common Stock to investors in reliance on exemptions from the registration requirements of the Securities Act. At each Closing of a Private Offering, each investor participating in that closing makes a Capital Commitment to purchase our Common Stock pursuant to a Subscription Agreement entered into with us in connection with its Capital Commitment. Investors are required to fund drawdowns to purchase our Common Stock up to the amount of their respective Capital Commitments on an as-needed basis with a minimum of ten calendar days' prior notice (excluding the initial drawdown for each investor). The Initial Closing occurred on August 6, 2018. Loan origination and investment activities commenced shortly after the Initial

Closing. As of December 31, 2019, we received $337,683,996 in Capital Commitments from investors in connection with Private Offerings.

We commenced our loan origination and investment activities shortly after the Initial Closing. The proceeds from the Initial Closing provided us with the necessary seed capital to commence operations. As of December 31, 2019, we completed drawdowns of $168,841,998, or 50.0%, on Capital Commitments. As of December 31, 2019, we held $324,002,138 of investments at fair value, up from $291,147,011 held at September 30, 2019, primarily driven by additional borrowings under our credit facilities and unrealized appreciation on our investment portfolio.

Business Environment and Developments

We believe that the shift of commercial banks away from lending to middle-market companies following the 2008 financial crisis, including as a result of the passage of the Dodd-Frank Wall Street Reform and Consumer Protection Act, and the adoption of the Basel III Accord continues to create opportunities for non-bank lenders such as us. We believe middle-market companies represent a significant opportunity for direct lending as there are nearly 200,000 middle-market businesses, representing one-third of private sector gross domestic product and accounting for approximately 48 million jobs according to the National Center for the Middle Market. In addition, according to the S&P Global Market Intelligence LCD Middle Market Review, there was a total of $5.7 billion of syndicated middle market loan issuance in the calendar year 2019.

We believe that quantitative easing and other similar monetary policies implemented by central banks worldwide in reaction to the 2008 financial crisis have created significant inflows of capital, including from private equity sponsors, focused on yield-driven products such as sub-investment grade debt. While we believe that private equity sponsors continue to have a large pool of available capital and will continue to pursue acquisitions in the middle market, increased competition from other lenders to middle-market companies together with increased capital focused on the sector have led to spread compression and higher leverage multiples across the middle market, resulting in spreads near historically low levels, and average debt levels near historically high levels.

Despite the heightened competition, we believe that the fundamentals of middle-market companies remain strong. In this environment, we believe attractive risk-adjusted returns can be achieved by investing in companies that cannot efficiently access traditional debt capital markets. We believe that we have the resources and experience to source, diligence and structure investments in these companies and are well placed to generate attractive returns for investors.

As of December 31, 2019, 95.0% of our debt investment portfolio (at fair value) and 95.3% of our debt investment portfolio (at cost) bore interest at floating rates indexed to the London Interbank Offered Rate ("LIBOR"), and/or an alternate base rate (e.g., prime rate), which typically resets semi-annually, quarterly or monthly at the borrower’s option. In July 2017, the head of the United Kingdom Financial Conduct Authority announced the desire to phase out the use of LIBOR by the end of 2021. The U.S. Federal Reserve, in conjunction with the Alternative Reference Rates Committee, a steering committee comprised of large U.S. financial institutions, is considering replacing U.S.-dollar LIBOR with the Secured Overnight Financing Rate ("SOFR"), a new index calculated by short-term repurchase agreements, backed by Treasury securities. Although there have been a few issuances utilizing SOFR or the Sterling Over Night Index Average, an alternative reference rate that is based on transactions, it remains unknown whether these alternative reference rates will attain market acceptance as replacements for LIBOR. If LIBOR ceases to exist, we may need to renegotiate any credit agreements extending beyond 2021 with our prospective portfolio companies that utilize LIBOR as a factor in determining the interest rate and may also need to renegotiate the terms of our borrowing facilities. Certain of the loan agreements with our portfolio companies have included fallback language in the event that LIBOR becomes unavailable. This language generally provides that the administrative agent may identify a replacement reference rate, typically with the consent of (or prior consultation with) the borrower. In certain cases, the administrative agent will be required to obtain the consent of either a majority of the lenders under the facility, or the consent of each lender, prior to identifying a replacement reference rate. Certain of the loan agreements with our portfolio companies do not include any fallback language providing a mechanism for the parties to negotiate a new reference interest rate and will instead revert to the base rate in the event LIBOR ceases to exist.

Critical Accounting Policies

Basis of Presentation

Our accompanying consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America, or GAAP, and pursuant to the requirements for reporting on Form 10-Q and Regulation S-X. All intercompany balances and transactions have been eliminated. In the opinion of management, all adjustments of a normal recurring nature considered necessary for the fair presentation of the consolidated financial statements have been made. We are an investment company following the accounting and reporting guidance in Financial Accounting Standards Board ("FASB"), Accounting Standards Codification ("ASC"), Topic 946, Financial Services – Investment Companies, or ASC 946.

Fair Value Measurements

Our board of directors, with the assistance of our audit committee (the “Audit Committee”) and the Adviser, determines the fair value of our assets on at least a quarterly basis, in accordance with the terms of FASB ASC Topic 820, Fair Value Measurement. The Audit Committee is comprised of independent directors. Our investments are valued at fair value. For purposes of periodic reporting, the Company values its assets in accordance with GAAP and based on the principles and methods of valuation summarized below. GAAP requires that a “fair value” be assigned to all assets and establishes a single authoritative definition of fair value that includes a framework for measuring fair value and enhanced disclosures about fair value measurements.

Financial assets and liabilities measured and reported at fair value are classified as follows:


•	Level I - Quoted unadjusted prices for identical instruments in active markets to which we have access at the date of measurement. The types of investments in Level I include exchange traded equities, debt and derivatives with quoted prices.

•

Level II - Quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active; and model-derived valuations in which all significant inputs are directly or indirectly observable. Level II inputs include interest rates, yield curves, volatilities, prepayment risks, loss severities, credit risks and default rates. The types of investments in Level II generally include corporate bonds and loans, government and agency securities, less liquid and restricted equity investments, over-the-counter traded derivatives and other investments where the fair value is based on observable inputs.

•

In the absence of observable market prices, we value Level III investments using valuation methodologies applied on a consistent basis. The quarterly valuation process for Level III investments begins with each portfolio company, property or security being initially valued by the Adviser's valuation team in conjunction with the investment team. The preliminary valuations are then reviewed and approved by the valuation team, the valuation committee, which consists of senior members of the investment team, and designated investment professionals as well as the valuation officer who is independent of the investment teams. The Audit Committee reviews the preliminary valuations provided by the valuation committee and makes a recommendation to our full board of directors regarding the fair value of the investments in our portfolio. Our board of directors ultimately determines in good faith the fair value of each investment in our portfolio. Results of the valuation process are evaluated each quarter, including an assessment of whether the underlying calculations should be adjusted or recalibrated. In connection with this process, we evaluate changes in fair value measurements from period to period for reasonableness, considering items such as industry trends, general economic and market conditions, and factors specific to the investment.

Certain Level III assets are valued using prices obtained from pricing vendors or brokers. These investments are classified as Level III because the quoted prices may be indicative in nature for securities that are in an inactive market, may be for similar securities or may require adjustment for investment-specific factors or restrictions. We seek to obtain at least two quotations for the subject or similar securities, typically from pricing vendors. If we are unable to obtain two quotes from pricing vendors, or if the prices obtained from pricing vendors are not within our set threshold, we seek to obtain a quote directly from a broker making a market for the asset. However, given the nature of our portfolio, we do not expect that all of our Level III assets will be valued at least annually using prices obtained from pricing vendors or brokers. Generally, we do not adjust any of the prices received from these sources, and all prices are reviewed by us. We evaluate the prices obtained from pricing vendors or brokers based on available market information, including trading activity of the subject or similar securities, or by performing a comparable security analysis to ensure that fair values are

reasonably estimated. The Adviser also performs back-testing of valuation information obtained from pricing vendors and brokers against actual prices received in transactions. In addition to ongoing monitoring and back-testing, the Adviser performs due diligence procedures over pricing vendors to understand their methodology and controls to support their use in the valuation process.

Non-publicly traded debt and equity securities and other securities or instruments for which reliable market quotations are not available are valued by us using valuation methodologies applied on a consistent basis. These securities may initially be valued at the acquisition price as the best indicator of fair value. We review the significant unobservable inputs, valuations of comparable investments and other similar transactions for investments valued at acquisition price to determine whether another valuation methodology should be utilized. Subsequent valuations will depend on facts and circumstances known as of the valuation date and the application of valuation methodologies further described below under “–Non-Exchange-Traded Investments.” The fair value may also be based on a pending transaction expected to close after the valuation date. These valuation methodologies involve a significant degree of management judgment. Accordingly, valuations do not necessarily represent the amounts which may eventually be realized from sales or other dispositions of investments in the future. Fair values may differ from the values that would have been used had a ready market for the investment existed, and the differences could be material to the consolidated financial statements.

Exchange-Traded Investments

Non-Exchange-Traded Investments

If the quotations obtained from pricing vendors or brokers are determined to not be reliable or are not readily available, we value such investments using different valuation techniques. One valuation technique is the transaction precedent technique, which utilizes recent or expected future transactions of the investment to determine fair value, to the extent applicable. The market yield technique is considered in the valuation of non-publicly traded debt investments, utilizing expected future cash flows, discounted using estimated current market rates. Discounted cash flow calculations may be adjusted to reflect current market conditions and/or the perceived credit risk of the borrowers. Consideration is also given to a borrower’s ability to meet principal and interest obligations; this may include an evaluation of collateral or the underlying value of the borrower, utilizing either the market or income techniques. A market technique utilizes valuations of comparable public companies or transactions and generally seeks to establish the enterprise value of the portfolio company using a market multiple technique. This technique takes into account a specific financial measure (such as earnings before interest, taxes, depreciation and amortization ("EBITDA"), adjusted EBITDA, free cash flow, net operating income, net income, book value or net asset value) believed to be most relevant for the given company. Consideration may also be given to such factors as acquisition price of the security, historical and projected operational and financial results for the portfolio company, the strengths and weaknesses of the portfolio company relative to its comparable companies, industry trends, general economic and market conditions and other factors deemed relevant. The income technique is typically a discounted cash flow method that incorporates expected timing and level of cash flows. It incorporates assumptions in determining growth rates, income and expense projections, discount rates, capital structure, terminal values and other factors. The applicability and weight assigned to market and income techniques are determined based on the availability of reliable projections and comparable companies and transactions.

The valuation of securities may be impacted by expectations of investors’ receptiveness to a public offering of the securities, the size of the holding of the securities and any associated control, information with respect to transactions or offers for the securities (including the transaction pursuant to which the investment was made and the period of time elapsed from the date of the investment to the valuation date) and applicable restrictions on the transferability of the securities.

Investments made by us are, by nature, generally considered to be long-term investments and are not intended to be liquidated on a short-term basis. Additionally, these valuation methodologies involve a significant degree of management judgment. Accordingly, valuations by us do not necessarily represent the amounts which may eventually be realized from sales or other dispositions of investments in the future. Estimated fair values may differ from the values that would have been used had a ready market for the investment existed, and the differences could be material to the consolidated financial statements.

We may estimate the fair value of privately held warrants using a Black Scholes pricing model, which includes an analysis of various factors and subjective assumptions, including the current stock price (by using an enterprise value analysis as described above),

the expected period until exercise, expected volatility of the underlying stock price, expected dividends and the risk-free rate. Changes in the subjective input assumptions can materially affect the fair value estimates.

Revenue Recognition

We generate revenues in the form of interest income on debt investments and, to a lesser extent, capital gains and distributions, if any, on equity securities that we may acquire in portfolio companies. Some of our investments provide for deferred interest payments or payment-in-kind ("PIK") interest. The principal amount of the debt investments and any accrued but unpaid interest generally becomes due at the maturity date.

Interest Income

Interest income, adjusted for accretion of original issue discount ("OID"), is recorded on an accrual basis to the extent that such amounts are expected to be collected. We stop accruing interest on investments when it is determined that interest is no longer collectible. Investments that are expected to pay regularly scheduled interest in cash are generally placed on non-accrual status when there is reasonable doubt that principal or interest cash payments will be collected. Cash interest payments received on investments may be recognized as income or a return of capital depending upon management’s judgment. A non-accrual investment is restored to accrual status if past due principal and interest are paid in cash, and the portfolio company, in management’s judgment, is likely to continue timely payment of its remaining obligations. As of December 31, 2019, there were no investments on which we had stopped accruing cash interest and/or PIK interest or OID income.

In connection with our investment in a portfolio company, we sometimes receive nominal cost equity that is valued as part of the negotiation process with the portfolio company. When we receive nominal cost equity, we allocate our cost basis in the investment between debt securities and the nominal cost equity at the time of origination. Any resulting discount from recording the loan, or otherwise purchasing a security at a discount, is accreted into interest income over the life of the loan.

Fee Income

The Adviser may provide financial advisory services to portfolio companies in connection with structuring a transaction and in return we may receive fees for capital structuring services. These fees are generally nonrecurring and are recognized by us upon the investment closing date. We may also receive additional fees in the ordinary course of business, including servicing, amendment, and prepayment fees, which are classified as fee income and recognized as they are earned or the services are rendered.

We have also structured exit fees across certain of our portfolio investments to be received upon the future exit of those investments. Exit fees are payable upon the exit of a debt security. These fees are to be paid to us upon the sooner to occur of (i) a sale of the borrower or substantially all of the assets of the borrower, (ii) the maturity date of the loan or (iii) the date when full prepayment of the loan occurs. The receipt of such fees is contingent upon the occurrence of one of the events listed above for each of the investments. These fees are included in net investment income over the life of the loan.

PIK Interest Income

Our investments in debt securities may contain PIK interest provisions. PIK interest, which generally represents contractually deferred interest added to the loan balance that is generally due at the end of the loan term, is generally recorded on the accrual basis to the extent such amounts are expected to be collected. We generally cease accruing PIK interest if there is insufficient value to support the accrual or if we do not expect the portfolio company to be able to pay all principal and interest due. Our decision to cease accruing PIK interest on a loan or debt security involves subjective judgments and determinations based on available information about a particular portfolio company, including whether the portfolio company is current with respect to its payment of principal and interest on its loans and debt securities; financial statements and financial projections for the portfolio company; our assessment of the portfolio company's business development success; information obtained by us in connection with periodic formal update interviews with the portfolio company's management and, if appropriate, the private equity sponsor; and information about the general economic and market conditions in which the portfolio company operates. Our determination to cease accruing PIK interest is generally made well before our full write-down of a loan or debt security. In addition, if it is subsequently determined that we will not be able to collect any previously accrued PIK interest, the fair value of the loans or debt securities would be reduced by the amount of such previously accrued, but uncollectible, PIK interest. The accrual of PIK interest on our debt investments increases the recorded cost bases of these investments in our consolidated financial statements including for purposes of computing the capital gains incentive fee payable by us to the Adviser.

To maintain our status as a RIC, certain income from PIK interest may be required to be distributed to our stockholders even though we have not yet collected the cash and may never do so.

Portfolio Composition

As of December 31, 2019, the fair value of our investment portfolio was $324.0 million and was comprised of investments in 74 portfolio companies. As of September 30, 2019, the fair value of our investment portfolio was $291.1 million and was comprised of investments in 69 portfolio companies.

As of December 31, 2019 and September 30, 2019, our investment portfolio consisted of the following:



	December 31, 2019		September 30, 2019
Cost:
Senior secured debt	$	314,447,196	$	281,238,755
Subordinated debt	3,454,550		7,201,102
Common equity & warrants	1,043,713		772,692
Preferred equity	110,285		110,285
Total	$	319,055,744	$	289,322,834



	December 31, 2019		September 30, 2019
Fair Value:
Senior secured debt	$	318,429,365	$	282,841,206
Subordinated debt	3,449,866		7,325,965
Common equity & warrants	2,010,417		869,555
Preferred equity	112,490		110,285
Total	$	324,002,138	$	291,147,011

The table below describes investments by industry composition based on fair value as a percentage of total investments:



	December 31, 2019		September 30, 2019
Fair Value:
Application Software	22.31	%	20.64	%
Biotechnology	6.80	%	7.14	%
Internet Services & Infrastructure	4.67	%	6.52	%
Health Care Services	4.66	%	3.78	%
Health Care Technology	4.50	%	4.27	%
Integrated Telecommunication Services	4.28	%	6.38	%
Research & Consulting Services	3.86	%	2.74	%
Systems Software	3.54	%	4.51	%
Pharmaceuticals	3.15	%	2.90	%
Diversified Support Services	2.92	%	3.22	%
Data Processing & Outsourced Services	2.78	%	2.80	%
Real Estate Services	2.73	%	3.05	%
Independent Power Producers & Energy Traders	2.53	%	—	%
Oil & Gas Refining & Marketing	2.47	%	2.75	%
Airport Services	2.26	%	—	%
Aerospace & Defense	2.14	%	2.40	%
Personal Products	2.05	%	1.73	%
Movies & Entertainment	1.85	%	1.20	%
Auto Parts & Equipment	1.78	%	2.00	%
Metal & Glass Containers	1.76	%	0.48	%
IT Consulting & Other Services	1.74	%	1.83	%
Health Care Supplies	1.55	%	—	%
Health Care Equipment	1.50	%	1.72	%
Specialized REITs	1.49	%	1.15	%
Insurance Brokers	1.22	%	1.35	%
Alternative Carriers	1.22	%	3.22	%
Managed Health Care	1.22	%	1.37	%
Electrical Components & Equipment	1.01	%	—	%
Financial Exchanges & Data	0.97	%	1.95	%
Trading Companies & Distributors	0.92	%	1.03	%
Interactive Media & Services	0.92	%	2.31	%
Publishing	0.61	%	0.68	%
Household Products	0.61	%	0.65	%
Property & Casualty Insurance	0.44	%	—	%
Industrial Machinery	0.40	%	0.47	%
Electric Utilities	0.38	%	0.42	%
Specialized Finance	0.25	%	0.27	%
Construction & Engineering	0.25	%	0.34	%
Food Retail	0.14	%	0.34	%
Oil & Gas Equipment & Services	0.12	%	0.30	%
Cable & Satellite	—	%	1.46	%
Health Care Distributors	—	%	0.39	%
Oil & Gas Exploration & Production	—	%	0.24	%
Total	100.00	%	100.00	%

The table below describes investments by geographic composition at fair value as a percentage of total investments:



	December 31, 2019		September 30, 2019
Fair Value:
United States	89.61	%	89.06	%
United Kingdom	3.72	%	3.81	%
Luxembourg	2.39	%	2.64	%
Australia	1.85	%	—	%
Iceland	1.56	%	1.61	%
Canada	0.75	%	0.99	%
France	0.12	%	1.81	%
Denmark	—	%	0.08	%
Total	100.00	%	100.00	%

See the Schedule of Investments as of December 31, 2019 in our consolidated financial statements in Part I, Item 1, of this Form 10-Q for more information on these investments, including a list of companies and the type, cost and fair value of investments.

Discussion and Analysis of Results and Operations

Results of Operations

The principal measure of our financial performance is the net increase (decrease) in net assets resulting from operations, which includes net investment income (loss), net realized gains (losses) and net unrealized appreciation (depreciation). Net investment income (loss) is the difference between our income from interest income and fee income and excise taxes and total expenses. Net realized gains (losses) on investments is the difference between the proceeds received from dispositions of portfolio investments and their stated costs. Net unrealized appreciation (depreciation) is the net change in the fair value of our investment portfolio during the reporting period, including the reversal of previously recorded unrealized appreciation (depreciation) when gains or losses are realized. The net increase or decrease in net assets from operations may vary substantially from period to period as a result of various factors, including the recognition of realized gains and losses and net change in unrealized appreciation and depreciation.

Comparison of the three months ended December 31, 2019 and December 31, 2018

Investment Income

Total investment income for the three months ended December 31, 2019 was $5,294,578 and consisted of $5,164,631 of interest income primarily from portfolio investments (including $151,232 of PIK interest income) and $129,947 of fee income. Total investment income for the three months ended December 31, 2018 was $1,166,218 and consisted of $910,654 of interest income primarily from portfolio investments (including $67,946 of PIK interest income) and $255,564 of fee income. The increase in total investment income was primarily due to an increase in the size of our investment portfolio as compared to the prior year comparable quarter. Based on fair value as of December 31, 2019, the weighted average yield on our debt investments was 7.1%, compared to 9.0% as of December 31, 2018.

Expenses

Total expenses for the three months ended December 31, 2019 and December 31, 2018 were $3,397,493 and $882,338, respectively. The increase in total expenses was primarily due to (1) an increase in the size of our investment portfolio as compared to the prior year quarter, which drove a $665,205 increase in base management fees and an increase in borrowings, which contributed to a $1,221,310 increase in interest expense, and (2) an increase of $719,339 in capital gains incentive fees primarily driven by unrealized appreciation across our investment portfolio.



	Three months ended December 31, 2019		Three months ended December 31, 2018
Expenses:
Base management fee	$	786,134	$	120,929
Investment income incentive fee	49,915		—
Capital gains incentive fee	677,318		(42,021		)
Offering costs	—		168,269
Organization expenses	—		56,211
Professional fees	167,983		192,840
Directors fees	38,887		26,250
Interest expense	1,355,193		133,883
Administrator expense	113,917		82,045
General and administrative expenses	208,146		143,932
Total expenses	$	3,397,493	$	882,338

Net Unrealized Appreciation (Depreciation)

Net unrealized appreciation was $3,062,531 for the three months ended December 31, 2019, and was primarily driven by unrealized appreciation across various investments in the portfolio, including $1.1 million of unrealized appreciation on our investment in Sorrento Therapeutics, Inc. Net unrealized depreciation on investments was $963,085 for the three months ended December 31, 2018 and was primarily driven by volatility experienced in the broadly syndicated loan market during the quarter which ultimately caused spreads to widen and prices to decline.

Net Realized Gains (Losses)

Net realized gains were $324,057 for the three months ended December 31, 2019, primarily driven by realized gains resulting from exits of various investments in the portfolio. Net realized gains were $9,469 for the three months ended December 31, 2018.

Financial Condition, Liquidity and Capital Resources

We generate cash from (1) the cash proceeds from Private Offerings and any other future offerings of securities, (2) cash flows from operations, including earnings on investments, as well as interest earned from the temporary investment of cash in cash-equivalents, U.S. government securities and other high-quality debt investments that mature in one year or less, and (3) borrowings from banks and issuances of senior securities, including before we have fully invested the cash proceeds of the Private Offerings.

Our primary use of cash is for (1) investments in portfolio companies and other investments to comply with certain portfolio diversification requirements, (2) the cost of operations (including our expenses, the Management Fee and the Incentive Fee), (3) debt service of borrowings under our credit facilities, and (4) cash distributions to the stockholders.

For the three months ended December 31, 2019, we experienced a net decrease in cash and cash equivalents of $436,421. During that period, $56,215,157 of cash was used in operating activities, primarily consisting of cash used to fund new investments, partially offset by cash proceeds from the sales and repayments of investments. During the same period, cash provided by financing activities was $55,778,486, primarily consisting of $60,500,000 of net borrowings under our credit facilities and $347,500 of net proceeds from Private Offerings, partially offset by distributions to stockholders of $5,069,014.

For the three months ended December 31, 2018, we experienced a net increase in cash and cash equivalents of $15,209,370. During that period, $28,033,742 of cash was used in operating activities, primarily consisting of cash used to fund new investments. During the same period, cash provided by financing activities was $43,211,625, consisting of $36,742,030 of net proceeds from Private Offerings and $7,000,000 of borrowings under our credit facility.

As of December 31, 2019, we had $10,911,705 of cash and cash equivalents (including $1,405,214 of restricted cash), portfolio investments (at fair value) of $324,002,138, $712,034 of interest receivable, $17,569,413 of net payables from unsettled transactions and unfunded commitments of $18,345,235.

As of September 30, 2019, we had $11,348,126 of cash and cash equivalents (including $269,111 of restricted cash), portfolio investments (at fair value) of $291,147,011, $1,005,398 of interest receivable, $47,048,497 of net payables from unsettled transactions and unfunded commitments of 11,030,903.

Equity Activity

As of December 31, 2019, we received $337,683,996 in Capital Commitments from investors in connection with Private Offerings, of which $3,854,346 in Capital Commitments were made by one or more affiliates of the Adviser. As of December 31, 2019, we completed drawdowns of $168,841,998, or 50.0%, of such Capital Commitments.

We have the authority under our organizational documents to issue 250,000,000 shares of Common Stock, $0.001 per share par value and 100,000,000 shares of preferred stock, $0.001 per share par value. The following table summarizes total shares issued and proceeds related to capital drawdowns delivered pursuant to the Subscription Agreements for our Common Stock through December 31, 2019:



	Shares Issued	Price per Share		Proceeds
August 6, 2018 (1)	770,869	$	20.00	$	15,417,385
September 17, 2018	770,869	20.00		15,417,384
October 29, 2018	1,060,964	19.85		21,060,130
November 15, 2018	789,198	19.82		15,641,900
April 29, 2019	1,655,314	20.40		33,768,400
August 30, 2019	1,631,324	20.70		33,768,400
September 23, 2019	1,631,323	20.70		33,768,399
Total	8,309,861			$	168,841,998

__________________


(1)	Includes 50 shares issued to one or more affiliates of the Adviser on July 23, 2018.

Leverage

On July 9, 2018, our sole stockholder approved our becoming subject to a minimum asset coverage ratio of 150% as set forth in Section 61(a)(2) of the Investment Company Act. As a result of this approval, we are permitted to borrow amounts so long as our asset coverage ratio, as defined in the Investment Company Act, is at least 150% after such borrowing (if certain requirements are met). As of December 31, 2019, our asset coverage ratio, as defined in the Investment Company Act, was 219.7%, and aggregate outstanding principal amount of indebtedness was $143.5 million.

We may issue debt securities or preferred stock and/or borrow additional money from banks or other financial institutions, which we refer to collectively as "senior securities," up to the maximum amount permitted by the Investment Company Act. We have securitized and may in the future securitize a portion of our investments to the extent permitted by applicable law and regulation. To securitize investments, we typically create a wholly-owned subsidiary and contribute a pool of loans to the subsidiary. We then typically sell interests in the subsidiary on a non-recourse basis to purchasers and we would retain all or a portion of the equity in the subsidiary. Our primary uses of funds are investments in our targeted asset classes and cash distributions to holders of our common stock.

CNB Facility

On October 16, 2018, we entered into the Credit Agreement between us, as borrower, and City National Bank ("CNB"), as lender. As of December 31, 2019, the Credit Agreement provides for a senior secured revolving credit facility (the "CNB Facility"), of up to $100 million (the "Maximum Commitment"), in aggregate principal amount, subject to (i) the lesser of a percentage of unfunded commitments from certain classes of eligible investors in the Company and (ii) the Maximum Commitment. The maturity date of the CNB Facility is October 15, 2020. Borrowings under the CNB Facility bear interest at a rate equal to (a) the LIBOR for the selected period plus 1.65% for LIBOR loans or (b) the prime rate of CNB minus 0.25% for prime rate loans. There is a non-usage fee of 25 basis points per year on the unused portion of the CNB Facility, payable quarterly.

The CNB Facility is secured by a first priority security interest, subject to customary exceptions, in (i) all Capital Commitments, (ii) our right to make capital calls, receive payment of capital contributions from investors and enforce payment of capital commitments and capital contributions under our Subscription Agreements with investors and other operative documents and (iii) a cash collateral

account into which the capital contributions from investors are made. We have made customary representations and warranties and are required to comply with various affirmative and negative covenants, reporting requirements and other customary requirements for similar credit facilities. Our borrowings, including under the CNB Facility, are subject to the leverage restrictions contained in the Investment Company Act.

As of December 31, 2019 and September 30, 2019, we had $76.0 million and $65.0 million outstanding under the CNB Facility, respectively. Our borrowings under the CNB Facility bore interest at a weighted average interest rate of 3.58% and 4.03% for the three months ended December 31, 2019 and 2018, respectively. For the three months ended December 31, 2019 and 2018, we recorded interest expense (inclusive of fees) of $790,573 and $133,883 related to the CNB Facility, respectively.

Citibank Facility

On July 26, 2019 (the "Closing Date"), we and OSI 2 Senior Lending SPV, LLC ("OSI 2 SPV"), a wholly-owned and consolidated subsidiary of us, entered into a loan and security agreement (the "Loan Agreement"), with the lenders from time to time party thereto and the other parties referenced below. Under the terms of the Loan Agreement, we serve as the collateral manager and seller and OSI 2 SPV serves as borrower with Citibank, N.A., as administrative agent, and Deutsche Bank Trust Company Americas, as collateral agent.

The Loan Agreement provides for a senior secured revolving credit facility (the "Citibank Facility"), of up to $100 million (the "Maximum Commitment"), in aggregate principal amount, subject to the lesser of (i) the borrowing base, which is an amount based on advance rates that vary depending on the class of assets and the value assigned to such assets under the Loan Agreement and (ii) the Maximum Commitment. The Citibank Facility has a three year reinvestment period (the "Reinvestment Period"), during which advances may be made; and matures five years from the Closing Date. Following the Reinvestment Period, OSI 2 SPV will be required to make certain mandatory amortization payments. Borrowings under the Citibank Facility bear interest payable quarterly at a rate per year equal to (a) in the case of a lender that is identified as a conduit lender under the Loan Agreement, the lesser of (i) the applicable commercial paper rate for such conduit lender and (ii) the LIBOR for a three month maturity and (b) for all other lenders under the Citibank Facility, LIBOR, plus, in each case, an applicable spread. During the Reinvestment Period, the applicable spread is the greater of (i) a weighted average rate of (x) 1.65% per year for broadly syndicated loans and (y) 2.25% per year for all other eligible loans and (ii) 1.85%. After the Reinvestment Period, the applicable spread is 3.00% per year. There is also a non-usage fee of (i) 0.40% per year for the first six months following the Closing Date (the "Ramp-Up Period"), and (ii) 0.50% per year thereafter, in each case, on the unused portion of the Citibank Facility, payable quarterly; provided that if after the Ramp-Up Period the unused portion of the Citibank Facility is greater than 30% of the commitments under the Citibank Facility, the non-usage fee will be based on an unused portion of 30% of the commitments under the Citibank Facility.

The Citibank Facility is secured by a first priority security interest in substantially all of OSI 2 SPV’s assets.

Under the Citibank Facility, we and OSI 2 SPV, as applicable, have made customary representations and warranties, and are required to comply with various affirmative and negative covenants, reporting requirements and other customary requirements for similar credit facilities.

OSI 2 SPV’s borrowings are non-recourse to us but are considered borrowings of us for purposes of complying with the asset coverage requirements under the Investment Company Act.

As of December 31, 2019 and September 30, 2019, we had $67.5 million and $18.0 million outstanding under the Citibank Facility, respectively. Our borrowings under the Citibank Facility bore interest at a weighted average interest rate of 3.87% for the three months ended December 31, 2019. For the three months ended December 31, 2019, we recorded interest expense (inclusive of fees) of $564,620 related to the Citibank Facility.

Contractual Obligations



	Payments due by period as of December 31, 2019
	Total		< 1 year		1-3 years		3-5 years		> 5 years
CNB Facility	$	76,000,000	$	76,000,000	—		$	—	$	—
Interest due on CNB Facility	2,017,458		2,017,458		—		—		—
Citibank Facility	67,500,000		—		—		67,500,000		—
Interest due on Citibank Facility	11,478,565		2,510,291		5,020,583		3,947,691		—
Total	$	156,996,023	$	80,527,749	$	5,020,583	$	71,447,691	$	—

Off-Balance Sheet Arrangements

We may be a party to financial instruments with off-balance sheet risk in the normal course of business to meet the financial needs of our portfolio companies. As indicated in the table below, as of December 31, 2019 and September 30, 2019, off-balance sheet arrangements consisted of $18,345,235 and $11,030,903, respectively, of unfunded commitments to provide debt financing to certain of our portfolio companies. Such commitments are subject to the portfolio company's satisfaction of certain financial and nonfinancial covenants and may involve, to varying degrees, elements of credit risk in excess of the amount recognized in our Consolidated Statements of Assets and Liabilities.



	December 31, 2019		September 30, 2019
Connect U.S. Finco LLC	$	5,615,016	$	—
Assembled Brands Capital LLC	3,807,021		3,807,021
Sorrento Therapeutics, Inc.	2,400,000		2,400,000
Corrona, LLC	2,006,000		—
PaySimple, Inc.	1,914,408		2,695,000
OEConnection LLC	822,511		817,204
Mindbody, Inc.	761,905		761,905
Acquia Inc.	468,601		—
Apptio, Inc.	461,538		461,538
iCIMs, Inc.	88,235		88,235
	$	18,345,235	$	11,030,903

Regulated Investment Company Status and Distributions

We anticipate that we will make quarterly distributions of at least 90% of our realized net ordinary income and net short-term capital gains in excess of our net long-term capital losses, if any, then available for distribution, each as determined by our board of directors in accordance with applicable law and the terms of the Governing Documents. Any distributions will be declared out of assets legally available for distribution. We expect quarterly distributions to be paid from income primarily generated by interest earned on our investments, although distributions to stockholders may also include a return of capital.

We have elected to be treated, and intend to qualify annually, as a RIC under Subchapter M of the Code. To maintain RIC qualification, we must distribute to our stockholders, for each tax year, at least 90% of our “investment company taxable income” for that year. In order to avoid certain excise taxes imposed on RICs, we intend to distribute during each calendar year an amount at least equal to the sum of: (1) 98% of our ordinary income for the calendar year; (2) 98.2% of our capital gain net income (both long-term and short-term) for the one-year period ending on October 31 of the calendar year; and, (3) any undistributed ordinary income and capital gain net income for preceding years on which we paid no U.S. federal income tax less certain over-distributions in prior years. In addition, although we currently intend to distribute realized net capital gains (i.e., net long term capital gains in excess of short term capital losses), if any, at least annually, we may in the future decide to retain such capital gains for investment, pay U.S. federal income tax on such amounts at regular corporate tax rates, and elect to treat such gains as deemed distributions to stockholders. We can offer no assurance that we will achieve results that will permit the payment of any cash distributions and, to the extent that we issue senior securities, we will be prohibited from making distributions if doing so causes us to fail to maintain the asset coverage ratios stipulated by the Investment Company Act or if distributions are limited by the terms of any of our borrowings.

Depending on the level of taxable income and net capital gain earned in a year, we may choose to carry forward taxable income or net capital gain for distribution in the following year and pay the applicable U.S. federal excise tax. Distributions will be appropriately adjusted for any taxes payable by us or any direct or indirect subsidiary through which it invests (including any corporate, state, local, non-U.S. and withholding taxes). Any Incentive Fee to be paid to our Adviser will not be reduced to take into account any such taxes.

We may generate qualified net interest income or qualified net short-term capital gains that may be exempt from U.S. withholding tax when distributed to foreign stockholders. A RIC is permitted to designate distributions of qualified net interest income and qualified short-term capital gains as exempt from U.S. withholding tax when paid to non-U.S. shareholders with proper documentation. The following table, which may be subject to change as we finalize our annual tax filings, lists the percentage of qualified net interest income and qualified short-term capital gains for the year ended September 30, 2019, our most recently completed tax year end.



Year Ended	Qualified Net Interest Income		Qualified Short-Term Capital Gains
September 30, 2019	96.0	%	—

The following table reflects the distributions per share that we have paid on our common stock during the three months ended December 31, 2019:



Record Date	Payment Date	Amount per Share		Cash Distribution
November 7, 2019	November 21, 2019	$	0.29	$	2,409,859
December 13, 2019	December 30, 2019	0.32		2,659,155
		$	0.61	$	5,069,014

No distributions were paid to our stockholders during the three months ended December 31, 2018.

Related Party Transactions

We have entered into the Investment Advisory Agreement with the Adviser and the Administration Agreement with the Administrator, a wholly-owned subsidiary of the Adviser. The Adviser is a registered investment adviser under the Investment Advisers Act of 1940, as amended, that is partially and indirectly owned by Oaktree Capital Group, LLC.

Recent Developments

Distribution Declaration

On February 7, 2020, our board of directors approved a quarterly distribution not to exceed $2.7 million, which is payable in cash on March 31, 2020 to our stockholders of record as of the close of business on March 13, 2020.

Item 3. Quantitative and Qualitative Disclosures about Market Risk

We are subject to financial market risks, including changes in the valuations of our investment portfolio and interest rates.

Valuation Risk

Our investments often do not have a readily available market price, and we value these investments at fair value as determined in good faith by our board of directors, with the assistance of the Audit Committee and the Adviser. There is no single standard for determining fair value in good faith and valuation methodologies involve a significant degree of management judgment. In addition, our valuation methodology utilizes discount rates in part in valuing our investments, and changes in those discount rates may have an impact on the valuation of our investments. Accordingly, valuations by us do not necessarily represent the amounts which may eventually be realized from sales or other dispositions of investments. Estimated fair values may differ from the values that would have been used had a ready market for the investment existed, and the differences could be material to our consolidated financial statements.

Interest Rate Risk

We are subject to financial market risks, including changes in interest rates. Changes in interest rates may affect both our cost of funding and our interest income from portfolio investments, cash and cash equivalents and idle funds investments. Our risk management systems and procedures are designed to identify and analyze our risk, to set appropriate policies and limits and to continually monitor these risks and limits by means of reliable administrative and information systems and other policies and programs. Our investment income will be affected by changes in various interest rates, including LIBOR and prime rates, to the extent our debt investments include floating interest rates.

As of December 31, 2019, 95.0% of our debt investment portfolio at fair value bore interest at floating rates. The composition of our floating rate debt investments by cash interest rate floor (excluding PIK interest) as of December 31, 2019 and September 30, 2019 was as follows:



	December 31, 2019				September 30, 2019
($ in thousands)	Fair Value		% of Floating Rate Portfolio		Fair Value		% of Floating Rate Portfolio
Under 1%	$	177,245,986	57.97	%	$	155,679,055	57.52	%
1% to 2%	124,444,226		40.70		114,974,092		42.48
2% and over	4,079,226		1.33		—		—
Total	$	305,769,438	100.00	%	$	270,653,147	100.00	%

Based on our Consolidated Statements of Assets and Liabilities as of December 31, 2019, the following table shows the approximate annualized net increase (decrease) in net assets resulting from operations of hypothetical base rate changes in interest rates, assuming no changes in our investment and capital structure. However, there can be no assurances our portfolio companies will be able to meet their contractual obligations at any or all levels of increases in interest rates.



Basis point increase	Increase in Interest Income		(Increase) in Interest Expense			Net increase (decrease) in net assets resulting from operations
300	$	9,237,040	$	(4,305,000	)	$	4,932,040
200	6,158,026		(2,870,000		)	3,288,026
100	3,079,013		(1,435,000		)	1,644,013



Basis point decrease (1)	(Decrease) in Interest Income			Decrease in Interest Expense		Net increase (decrease) in net assets resulting from operations
100	$	(2,821,207	)	$	1,435,000	$	(1,386,207	)
200	(4,200,522		)	2,188,291		(2,012,231		)

__________

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

We regularly measure exposure to interest rate risk. We assess interest rate risk and manage our interest rate exposure on an ongoing basis by comparing our interest rate sensitive assets to our interest rate sensitive liabilities. Based on this review, we determine whether or not any hedging transactions are necessary to mitigate exposure to changes in interest rates. The interest rate on the principal balance outstanding for all floating rate loans is indexed to the LIBOR and/or an alternate base rate (e.g., prime rate), which typically resets semi-annually, quarterly, or monthly at the borrower's option. The borrower may also elect to have multiple interest reset periods for each loan. The following table shows a comparison of the interest rate base for our outstanding debt investments, at principal, and our outstanding borrowings as of December 31, 2019 and September 30, 2019:



	December 31, 2019				September 30, 2019
	Debt Investments		Borrowings		Debt Investments		Borrowings
LIBOR:
30 day	$	201,945,257	$	76,000,000	$	177,185,974	$	65,000,000
60 day	8,393,750		—		—		—
90 day	93,430,232		67,500,000		92,053,874		18,000,000
180 day	1,325,833		—		1,409,167		—
EURIBOR:
30 day	2,806,250		—		2,725,500		—
Fixed rate	15,193,688		—		19,020,775		—
Total	$	323,095,010	$	143,500,000	$	292,395,290	$	83,000,000

Item 4. Controls and Procedures

As of the end of the period covered by this report, management, with the participation of the Company’s Chief Executive Officer (principal executive officer) and Chief Financial Officer (principal financial officer), evaluated the effectiveness of our disclosure controls and procedures as of December 31, 2019. The term “disclosure controls and procedures,” as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended, or the Exchange Act, means controls and other procedures of a company that are designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the company’s management, including its chief executive officer and chief financial officer, as appropriate to allow timely decisions regarding required disclosure. Management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives, and management necessarily applies its judgment in evaluating the benefits of possible controls and procedures relative to their costs. Based on the evaluation of our disclosure controls and procedures as of December 31, 2019, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective, at the reasonable assurance level, in timely identifying, recording, processing, summarizing and reporting any material information relating to us that is required to be disclosed in the reports we file or submit under the Exchange Act.

There were no changes in our internal control over financial reporting that occurred during the three months ended December 31, 2019 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II — OTHER INFORMATION

Item 1. Legal Proceedings

From time to time, we may be a party to certain legal proceedings in the ordinary course of business, including proceedings relating to the enforcement of our rights under loans to or other contracts with our portfolio companies. We are not currently subject to any material legal proceedings, and, to our knowledge, no material legal proceeding is threatened against us.

Item 1A. Risk Factors

There have been no material changes during the three months ended December 31, 2019 to the risk factors discussed in Item 1A. Risk Factors in our Annual Report on Form 10-K for the year ended September 30, 2019.

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 following exhibits are filed as part of this report or hereby incorporated by reference to exhibits previously filed with the SEC:



Exhibit		Description
31.1		Certification of Chief Executive Officer (Principal Executive Officer) Pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934, as amended.*
31.2		Certification of Chief Financial Officer (Principal Financial Officer) Pursuant to Rule 13a-14 of the Securities Exchange Act of 1934, as amended.*
32.1		Certification of Chief Executive Officer (Principal Executive Officer) Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.*
32.2		Certification of Chief Financial Officer (Principal Financial Officer) Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.*



*	Filed herewith.

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.




OAKTREE STRATEGIC INCOME II, INC.

By:		/s/ Armen Panossian
		Armen Panossian
		Chairman, Chief Executive Officer and Chief Investment Officer

By:		/s/ Mel Carlisle
		Mel Carlisle
		Chief Financial Officer and Treasurer

Date: February 11, 2020

Large accelerated filer o

Accelerated filer o

Non-accelerated filer x

Smaller reporting company o

Emerging growth company x

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 x