10-Q 1 ocsi-123119x10xq.htm 10-Q Document
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
Form 10-Q
(Mark One)
 
 
þ
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
 
 
OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the quarterly period ended December 31, 2019
OR
 
 
o
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
 
 
OF THE SECURITIES EXCHANGE ACT OF 1934
 
COMMISSION FILE NUMBER: 1-35999
Oaktree Strategic Income Corporation
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
 
DELAWARE
(State or jurisdiction of
incorporation or organization)
 
61-1713295
(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

SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
 
 
 
 
 
Title of Each Class
 
Trading Symbol(s)
 
Name of Each Exchange
on Which Registered
Common Stock, par value $0.01 per share
 
OCSI
 
The Nasdaq Stock Market LLC
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    YES   þ     NO   ¨
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    YES   ¨   NO   ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company" and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer  o
 
Accelerated filer  þ
 
Non-accelerated filer  o
 
Smaller reporting company  o
 
 
 
 
 
 
 
Emerging growth company  o

 
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 o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act)    YES  ¨     NO  þ
The registrant had 29,466,768 shares of common stock outstanding as of February 4, 2020.







OAKTREE STRATEGIC INCOME CORPORATION
FORM 10-Q FOR THE QUARTER ENDED DECEMBER 31, 2019


TABLE OF CONTENTS
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Item 3.
Item 4.
Item 5.






 



PART I — FINANCIAL INFORMATION

Item 1.
Consolidated Financial Statements.

Oaktree Strategic Income Corporation
Consolidated Statements of Assets and Liabilities
 
 
December 31, 2019 (unaudited)
 
September 30, 2019
ASSETS
 
 
Investments at fair value:
 
 
 
 
Control investments (cost December 31, 2019: $73,168,024; cost September 30, 2019: $73,189,664)
 
$
54,169,710

 
$
54,326,418

Non-control/Non-affiliate investments (cost December 31, 2019: $538,934,038; cost September 30, 2019: $553,679,070)
 
530,284,037

 
542,778,029

Total investments at fair value (cost December 31, 2019: $612,102,062; cost September 30, 2019: $626,868,734)
 
584,453,747

 
597,104,447

Cash and cash equivalents
 
9,525,141

 
5,646,899

Restricted cash
 
8,469,933

 
8,404,733

Interest, dividends and fees receivable
 
3,031,841

 
3,813,730

Due from portfolio companies
 
806,914

 
350,597

Receivables from unsettled transactions
 
4,105,042

 
5,091,671

Deferred financing costs
 
1,923,373

 
2,139,299

Derivative asset at fair value
 

 
20,876

Other assets
 
817,916

 
761,462

Total assets
 
$
613,133,907

 
$
623,333,714

LIABILITIES AND NET ASSETS
 
 
Liabilities:
 
 
 
 
Accounts payable, accrued expenses and other liabilities
 
$
932,315

 
$
901,410

Base management fee and incentive fee payable
 
1,255,344

 
1,368,431

Due to affiliate
 
1,404,411

 
1,457,007

Interest payable
 
2,545,744

 
2,750,587

Payables from unsettled transactions
 
14,653,671

 
37,724,473

Derivative liability at fair value
 
168,712

 

Director fees payable
 

 
25,000

Credit facilities payable
 
306,156,800

 
294,656,800

Total liabilities
 
327,116,997

 
338,883,708

Commitments and contingencies (Note 14)
 
 
 
 
Net assets:
 
 
 
 
Common stock, $0.01 par value per share, 150,000,000 shares authorized; 29,466,768 shares issued and outstanding as of December 31, 2019 and September 30, 2019
 
294,668

 
294,668

Additional paid-in-capital
 
369,199,332

 
369,199,332

Accumulated overdistributed earnings
 
(83,477,090
)
 
(85,043,994
)
Total net assets (equivalent to $9.71 and $9.65 per common share as of December 31, 2019 and September 30, 2019, respectively) (Note 12)
 
286,016,910

 
284,450,006

Total liabilities and net assets
 
$
613,133,907

 
$
623,333,714

See notes to Consolidated Financial Statements.

1


Oaktree Strategic Income Corporation
Consolidated Statements of Operations
(unaudited)
 
 
Three months ended December 31, 2019
 
Three months ended December 31, 2018
Interest income:
 
 
 
 
Control investments
 
$
1,436,726

 
$
1,485,423

Non-control/Non-affiliate investments
 
9,744,449

 
9,651,149

Interest on cash and cash equivalents
 
30,710

 
66,995

Total interest income
 
11,211,885

 
11,203,567

PIK interest income:
 
 
 
 
Non-control/Non-affiliate investments
 
3,563

 
7,745

Total PIK interest income
 
3,563

 
7,745

Fee income:
 
 
 
 
Non-control/Non-affiliate investments
 
387,665

 
47,635

Total fee income
 
387,665

 
47,635

Total investment income
 
11,603,113

 
11,258,947

Expenses:
 
 
 
 
Base management fee
 
1,505,526

 
1,414,767

Part I incentive fee
 
992,138

 
854,378

Professional fees
 
373,186

 
458,612

Directors fees
 
105,000

 
105,000

Interest expense
 
3,426,891

 
3,222,954

Administrator expense
 
249,914

 
434,867

General and administrative expenses
 
273,479

 
332,226

Total expenses
 
6,926,134

 
6,822,804

Fees waived
 
(50,601
)
 
(427,394
)
Net expenses
 
6,875,533

 
6,395,410

Net investment income
 
4,727,580

 
4,863,537

Unrealized appreciation (depreciation):
 
 
 
 
Control investments
 
(135,068
)
 
(3,915,243
)
Non-control/Non-affiliate investments
 
2,251,040

 
(15,770,813
)
Foreign currency forward contract
 
(189,588
)
 
(74,568
)
Net unrealized appreciation (depreciation)
 
1,926,384

 
(19,760,624
)
Realized gains (losses):
 
 
 
 
Non-control/Non-affiliate investments
 
(277,225
)
 
1,447,306

Foreign currency forward contract
 
(242,485
)
 
249,090

Net realized gains (losses)
 
(519,710
)
 
1,696,396

Net realized and unrealized gains (losses)
 
1,406,674

 
(18,064,228
)
Net increase (decrease) in net assets resulting from operations
 
$
6,134,254

 
$
(13,200,691
)
Net investment income per common share — basic and diluted
 
$
0.16

 
$
0.17

Earnings (loss) per common share — basic and diluted (Note 5)
 
$
0.21

 
$
(0.45
)
Weighted average common shares outstanding — basic and diluted
 
29,466,768

 
29,466,768

See notes to Consolidated Financial Statements.

2


Oaktree Strategic Income Corporation
Consolidated Statements of Changes in Net Assets
(unaudited)
 
 
Three months ended
December 31, 2019
 
Three months ended
December 31, 2018
Operations:
 
 
 
 
Net investment income
 
$
4,727,580

 
$
4,863,537

Net unrealized appreciation (depreciation)
 
1,926,384

 
(19,760,624
)
Net realized gains (losses)
 
(519,710
)
 
1,696,396

Net increase (decrease) in net assets resulting from operations
 
6,134,254

 
(13,200,691
)
Stockholder transactions:
 
 
 
 
Distributions to stockholders
 
(4,567,350
)
 
(4,567,349
)
Net increase (decrease) in net assets from stockholder transactions
 
(4,567,350
)
 
(4,567,349
)
Capital share transactions:
 
 
 
 
Issuance of common stock under dividend reinvestment plan
 
64,334

 
54,111

Repurchases of common stock under dividend reinvestment plan
 
(64,334
)
 
(54,111
)
Net change in net assets from capital share transactions
 

 

Total increase (decrease) in net assets
 
1,566,904

 
(17,768,040
)
Net assets at beginning of period
 
284,450,006

 
295,745,420

Net assets at end of period
 
$
286,016,910

 
$
277,977,380

Net asset value per common share
 
$
9.71

 
$
9.43

Common shares outstanding at end of period
 
29,466,768

 
29,466,768


See notes to Consolidated Financial Statements.

3

Oaktree Strategic Income Corporation
Consolidated Statements of Cash Flows
(unaudited)

 
 
Three months ended
December 31, 2019
 
Three months ended
December 31, 2018
Operating activities:
 
 
 
 
Net increase (decrease) in net assets resulting from operations
 
$
6,134,254

 
$
(13,200,691
)
Adjustments to reconcile net increase (decrease) in net assets resulting from operations to net cash provided by (used in) operating activities:
 
 
 
 
Net unrealized (appreciation) depreciation
 
(1,926,384
)
 
19,760,624

Net realized (gains) losses
 
519,710

 
(1,696,396
)
PIK interest income
 
(3,563
)
 
(7,745
)
Accretion of original issue discount on investments
 
(305,960
)
 
(567,298
)
Amortization of deferred financing costs
 
215,926

 
139,778

Purchases of investments
 
(34,025,019
)
 
(87,049,003
)
Proceeds from the sales and repayments of investments
 
48,581,768

 
73,124,794

Changes in operating assets and liabilities:
 
 
 
 
(Increase) decrease in interest, dividends and fees receivable
 
781,889

 
64,978

(Increase) decrease in due from portfolio companies
 
(456,317
)
 
117,120

(Increase) decrease in receivables from unsettled transactions
 
986,629

 
2,204,251

(Increase) decrease in other assets
 
(56,454
)
 
(117,649
)
Increase (decrease) in accounts payable, accrued expenses and other liabilities
 
30,905

 
(97,069
)
Increase (decrease) in base management fee and incentive fee payable
 
(113,087
)
 
(776,415
)
Increase (decrease) in due to affiliate
 
(52,596
)
 
1,154,755

Increase (decrease) in interest payable
 
(204,843
)
 
1,418,694

Increase (decrease) in payables from unsettled transactions
 
(23,070,802
)
 
21,486,642

Increase (decrease) in director fees payable
 
(25,000
)
 
50,000

Net cash provided by (used in) operating activities
 
(2,988,944
)
 
16,009,370

Financing activities:
 
 
 
 
Distributions paid in cash
 
(4,503,016
)
 
(4,513,238
)
Borrowings under credit facilities
 
23,000,000

 
30,000,000

Repayments of borrowings under credit facilities
 
(11,500,000
)
 
(42,900,000
)
Repurchases of common stock under dividend reinvestment plan
 
(64,334
)
 
(54,111
)
Net cash provided by (used in) financing activities
 
6,932,650

 
(17,467,349
)
Effect of exchange rate changes on foreign currency
 
(264
)
 

Net increase (decrease) in cash and cash equivalents and restricted cash
 
3,943,442

 
(1,457,979
)
Cash and cash equivalents and restricted cash, beginning of period
 
14,051,632

 
16,431,787

Cash and cash equivalents and restricted cash, end of period
 
$
17,995,074

 
$
14,973,808

Supplemental information:
 
 
 
 
Cash paid for interest
 
$
3,415,808

 
$
1,664,482

Non-cash financing activities:
 
 
 
 
Issuance of shares of common stock under dividend reinvestment plan
 
$
64,334

 
$
54,111

 
 
 
 
 
Reconciliation to the Consolidated Statements of Assets and Liabilities
 
December 31, 2019
 
September 30, 2019
Cash and cash equivalents
 
$
9,525,141

 
$
5,646,899

Restricted cash
 
8,469,933

 
8,404,733

Total cash and cash equivalents and restricted cash
 
$
17,995,074

 
$
14,051,632

See notes to Consolidated Financial Statements.

4

Oaktree Strategic Income Corporation
Consolidated Schedule of Investments
December 31, 2019
(unaudited)



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

 
Cost
 
Fair Value
 
Notes
Control Investments
 
 
 
 
 
 
 
 
(8)
OCSI Glick JV LLC
 
Multi-Sector Holdings
 
 
 
 
 
 
(10)(11)
Subordinated Note, LIBOR+6.50% cash due 10/20/2021
8.51%
 
$
66,056,272

 
$
66,056,273

 
$
54,169,710

 
(6)(9)(14)(15)
87.5% equity interest
 
 
 
 
7,111,751

 

 
(9)(12)(14)
 
 
 
 
 
73,168,024

 
54,169,710

 
 
 Total Control Investments (18.9% of net assets)
 
 
 
 
$
73,168,024

 
$
54,169,710

 
 
 
 
 
 
 
 
 
 
 
 
Non-Control/Non-Affiliate Investments
 
 
 
 
 
 
 
 
(13)
4 Over International, LLC
 
Commercial Printing
 
 
 
 
 
 
 
First Lien Term Loan, LIBOR+6.00% cash due 6/7/2022
7.80%
 
$
5,582,267

 
$
5,518,401

 
$
5,476,761

 
(6)(15)
First Lien Revolver, PRIME+5.00% cash due 6/7/2021
9.75%
 
11,735

 
11,233

 
10,441

 
(6)(14)(15)
 
 
 
 
 
5,529,634

 
5,487,202

 
 
99 Cents Only Stores LLC
 
General Merchandise Stores
 
 
 
 
 
 
 
First Lien Term Loan, LIBOR+5.00% cash 1.50% PIK due 1/13/2022
6.94%
 
1,626,705

 
1,558,386

 
1,378,632

 
(6)
 
 
 
 
 
1,558,386

 
1,378,632

 
 
Access CIG, LLC
 
Diversified Support Services
 
 
 
 
 
 
 
First Lien Term Loan, LIBOR+3.75% cash due 2/27/2025
5.44%
 
5,448,507

 
5,405,467

 
5,453,056

 
(6)
 
 
 
 
 
5,405,467

 
5,453,056

 
 
AI Ladder (Luxembourg) Subco S.a.r.l.
 
Electrical Components & Equipment
 
 
 
 
 
 
 
First Lien Term Loan, LIBOR+4.50% cash due 7/9/2025
6.44%
 
6,497,218

 
6,342,528

 
6,505,339

 
(6)(9)
 
 
 
 
 
6,342,528

 
6,505,339

 
 
Air Medical Group Holdings, Inc.
 
Health Care Services
 
 
 
 
 
 
 
First Lien Term Loan, LIBOR+4.25% cash due 3/14/2025
6.05%
 
2,482,338

 
2,433,996

 
2,414,073

 
(6)
 
 
 
 
 
2,433,996

 
2,414,073

 
 
Airxcel, Inc.
 
Household Appliances
 
 
 
 
 
 
 
First Lien Term Loan, LIBOR+4.50% cash due 4/28/2025
6.30%
 
6,895,000

 
6,842,400

 
6,774,338

 
(6)(15)
 
 
 
 
 
6,842,400

 
6,774,338

 
 
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

 
(6)
 
 
 
 
 
3,960,000

 
4,050,000

 
 
All Web Leads, Inc.
 
Advertising
 
 
 
 
 
 
 
First Lien Term Loan, LIBOR+7.50% cash due 12/29/2020
9.41%
 
23,928,327

 
23,928,301

 
20,809,198

 
(6)(15)
 
 
 
 
 
23,928,301

 
20,809,198

 
 
Allen Media, LLC
 
Movies & Entertainment
 
 
 
 
 
 
 
First Lien Term Loan, LIBOR+6.50% cash due 8/30/2023
8.44%
 
4,745,482

 
4,657,768

 
4,626,845

 
(6)(15)
 
 
 
 
 
4,657,768

 
4,626,845

 
 
Ancile Solutions, Inc.
 
Application Software
 
 
 
 
 
 
 
First Lien Term Loan, LIBOR+7.00% cash due 6/30/2021
8.94%
 
8,181,235

 
8,076,016

 
8,033,972

 
(6)(15)
 
 
 
 
 
8,076,016

 
8,033,972

 
 
Apptio, Inc.
 
Application Software
 
 
 
 
 
 
 
First Lien Term Loan, LIBOR+7.25% cash due 1/10/2025
8.96%
 
10,693,944

 
10,512,153

 
10,499,314

 
(6)(15)
First Lien Revolver, LIBOR+7.25% cash due 1/10/2025
 
 

 
(11,597
)
 
(12,600
)
 
(6)(14)(15)
 
 
 
 
 
10,500,556

 
10,486,714

 
 
Aptos, Inc.
 
Computer & Electronics Retail
 
 
 
 
 
 
 
First Lien Term Loan, LIBOR+5.50% cash due 7/23/2025
7.70%
 
10,890,000

 
10,781,100

 
10,790,193

 
(6)(15)
 
 
 
 
 
10,781,100

 
10,790,193

 
 

5

Oaktree Strategic Income Corporation
Consolidated Schedule of Investments
December 31, 2019
(unaudited)



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

 
Cost
 
Fair Value
 
Notes
Asurion, LLC
 
Property & Casualty Insurance
 
 
 
 
 
 
 
Second Lien Term Loan, LIBOR+6.50% cash due 8/4/2025
8.30%
 
$
2,000,000

 
$
2,004,947

 
$
2,029,250

 
(6)
 
 
 
 
 
2,004,947

 
2,029,250

 
 
Avaya, Inc.
 
Communications Equipment
 
 
 
 
 
 
 
First Lien Term Loan, LIBOR+4.25% cash due 12/15/2024
5.99%
 
8,970,299

 
8,896,969

 
8,829,017

 
(6)
 
 
 
 
 
8,896,969

 
8,829,017

 
 
Ball Metalpack Finco, LLC
 
Metal & Glass Containers
 
 
 
 
 
 
 
First Lien Term Loan, LIBOR+4.50% cash due 7/31/2025
6.41%
 
8,865,000

 
8,829,369

 
7,867,688

 
(6)(15)
 
 
 
 
 
8,829,369

 
7,867,688

 
 
Blackhawk Network Holdings, Inc.
 
Data Processing & Outsourced Services
 
 
 
 
 
 
 
Second Lien Term Loan, LIBOR+7.00% cash due 6/15/2026
8.75%
 
4,375,000

 
4,337,075

 
4,375,000

 
(6)
 
 
 
 
 
4,337,075

 
4,375,000

 
 
Boxer Parent Company Inc.
 
Systems Software
 
 
 
 
 
 
 
First Lien Term Loan, LIBOR+4.25% cash due 10/2/2025
6.05%
 
6,103,350

 
6,036,624

 
6,048,572

 
(6)
 
 
 
 
 
6,036,624

 
6,048,572

 
 
Cadence Aerospace, LLC
 
Aerospace & Defense
 
 
 
 
 
 
 
First Lien Term Loan, LIBOR+6.50% cash due 11/14/2023
8.43%
 
13,479,685

 
13,376,502

 
13,368,760

 
(6)(15)
 
 
 
 
 
13,376,502

 
13,368,760

 
 
Canyon Buyer, Inc.
 
Application Software
 
 
 
 
 
 
 
First Lien Term Loan, LIBOR+4.25% cash due 2/15/2025
6.20%
 
5,916,934

 
5,855,345

 
5,939,123

 
(6)
 
 
 
 
 
5,855,345

 
5,939,123

 
 
Cast & Crew Payroll, LLC
 
Application Software
 
 
 
 
 
 
 
First Lien Term Loan, LIBOR+4.00% cash due 2/9/2026
5.80%
 
4,962,500

 
4,912,874

 
4,993,516

 
(6)
 
 
 
 
 
4,912,874

 
4,993,516

 
 
Chief Power Finance II, LLC
 
Independent Power Producers & Energy Traders
 
 
 
 
 
 
 
First Lien Term Loan, LIBOR+6.50% cash due 12/31/2022
8.36%
 
3,456,250

 
3,374,478

 
3,369,844

 
(6)(15)
 
 
 
 
 
3,374,478

 
3,369,844

 
 
Cincinnati Bell Inc.
 
Integrated Telecommunication Services
 
 
 
 
 
 
 
First Lien Term Loan, LIBOR+3.25% cash due 10/2/2024
5.05%
 
4,881,063

 
4,867,820

 
4,916,670

 
(6)(9)
 
 
 
 
 
4,867,820

 
4,916,670

 
 
CircusTrix Holdings LLC
 
Leisure Facilities
 
 
 
 
 
 
 
First Lien Term Loan, LIBOR+5.50% cash due 12/16/2021
7.30%
 
8,051,608

 
8,010,603

 
7,997,767

 
(6)(15)
First Lien Delayed Draw Term Loan, LIBOR+5.50% cash due 12/16/2021
7.30%
 
969,515

 
960,490

 
957,665

 
(6)(14)(15)
 
 
 
 
 
8,971,093

 
8,955,432

 
 
CITGO Petroleum Corp.
 
Oil & Gas Refining & Marketing
 
 
 
 
 
 
 
First Lien Term Loan, LIBOR+4.50% cash due 7/29/2021
6.44%
 
5,921,875

 
5,908,522

 
5,953,350

 
(6)
First Lien Term Loan, LIBOR+5.00% cash due 3/28/2024
6.94%
 
5,955,000

 
5,895,451

 
5,992,219

 
(6)
 
 
 
 
 
11,803,973

 
11,945,569

 
 
Connect U.S. Finco LLC
 
Alternative Carriers
 
 
 
 
 
 
 
First Lien Delayed Draw Term Loan, LIBOR+4.50% cash due 12/11/2026
6.29%
 
4,089,457

 
3,890,477

 
4,163,657

 
(6)(9)(14)
 
 
 
 
 
3,890,477

 
4,163,657

 
 
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

 
(6)
 
 
 
 
 
4,975,000

 
5,021,875

 
 

6

Oaktree Strategic Income Corporation
Consolidated Schedule of Investments
December 31, 2019
(unaudited)



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

 
Cost
 
Fair Value
 
Notes
Curium Bidco S.à.r.l.
 
Biotechnology
 
 
 
 
 
 
 
First Lien Term Loan, LIBOR+4.00% cash due 7/9/2026
5.94%
 
$
3,990,000

 
$
3,960,075

 
$
4,027,426

 
(6)(9)
 
 
 
 
 
3,960,075

 
4,027,426

 
 
Curvature, Inc.
 
IT Consulting & Other Services
 
 
 
 
 
 
 
First Lien Term Loan, LIBOR+5.00% cash due 10/30/2023
6.80%
 
9,700,000

 
9,660,669

 
7,619,350

 
(6)
 
 
 
 
 
9,660,669

 
7,619,350

 
 
Dcert Buyer, Inc.
 
Internet Services & Infrastructure
 
 
 
 
 
 
 
First Lien Term Loan, LIBOR+4.00% cash due 10/16/2026
5.80%
 
9,000,000

 
8,977,500

 
9,045,000

 
(6)
 
 
 
 
 
8,977,500

 
9,045,000

 
 
Ellie Mae, Inc.
 
Application Software
 
 
 
 
 
 
 
First Lien Term Loan, LIBOR+4.00% cash due 4/17/2026
5.94%
 
7,481,250

 
7,441,350

 
7,542,073

 
(6)
 
 
 
 
 
7,441,350

 
7,542,073

 
 
EnergySolutions LLC
 
Environmental & Facilities Services
 
 
 
 
 
 
 
First Lien Term Loan, LIBOR+3.75% cash due 5/9/2025
5.69%
 
3,940,000

 
3,924,821

 
3,734,391

 
(6)
 
 
 
 
 
3,924,821

 
3,734,391

 
 
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

 
(6)
 
 
 
 
 
3,960,000

 
4,037,500

 
 
Femur Buyer, Inc.
 
Health Care Equipment
 
 
 
 
 
 
 
First Lien Term Loan, LIBOR+4.50% cash due 3/5/2026
6.44%
 
8,955,000

 
8,865,450

 
8,753,513

 
(6)
 
 
 
 
 
8,865,450

 
8,753,513

 
 
Firstlight Holdco, Inc.
 
Alternative Carriers
 
 
 
 
 
 
 
First Lien Term Loan, LIBOR+3.50% cash due 7/23/2025
5.30%
 
7,138,554

 
7,109,804

 
7,156,401

 
(6)
 
 
 
 
 
7,109,804

 
7,156,401

 
 
Frontier Communications Corporation
 
Integrated Telecommunication Services
 
 
 
 
 
 
 
First Lien Term Loan, LIBOR+3.75% cash due 6/15/2024
5.55%
 
1,484,772

 
1,446,910

 
1,495,187

 
(6)(9)
 
 
 
 
 
1,446,910

 
1,495,187

 
 
GI Chill Acquisition LLC
 
Managed Health Care
 
 
 
 
 
 
 
First Lien Term Loan, LIBOR+4.00% cash due 8/6/2025
5.94%
 
2,992,424

 
2,969,981

 
2,973,871

 
(6)(15)
 
 
 
 
 
2,969,981

 
2,973,871

 
 
GKD Index Partners, LLC
 
Specialized Finance
 
 
 
 
 
 
 
First Lien Term Loan, LIBOR+7.00% cash due 6/29/2023
8.94%
 
8,496,871

 
8,437,588

 
8,377,914

 
(6)(15)
First Lien Revolver, LIBOR+7.00% cash due 6/29/2023
8.95%
 
222,222

 
219,121

 
215,556

 
(6)(14)(15)
 
 
 
 
 
8,656,709

 
8,593,470

 
 
GoodRx, Inc.
 
Interactive Media & Services
 
 
 
 
 
 
 
First Lien Term Loan, LIBOR+2.75% cash due 10/10/2025
4.55%
 
3,915,963

 
3,907,822

 
3,946,958

 
(6)
 
 
 
 
 
3,907,822

 
3,946,958

 
 
Guidehouse LLP
 
Research & Consulting Services
 
 
 
 
 
 
 
First Lien Term Loan, LIBOR+4.50% cash due 5/1/2025
6.30%
 
2,493,671

 
2,468,734

 
2,479,644

 
(6)
Second Lien Term Loan, LIBOR+8.00% cash due 5/1/2026
9.80%
 
5,000,000

 
4,980,091

 
4,925,000

 
(6)
 
 
 
 
 
7,448,825

 
7,404,644

 
 
Helios Software Holdings, Inc.
 
Systems Software
 
 
 
 
 
 
 
First Lien Term Loan, LIBOR+4.25% cash due 10/24/2025
6.18%
 
4,000,000

 
3,960,000

 
3,978,760

 
(6)
 
 
 
 
 
3,960,000

 
3,978,760

 
 
iCIMs, Inc.
 
Application Software
 
 
 
 
 
 
 
First Lien Term Loan, LIBOR+6.50% cash due 9/12/2024
8.29%
 
5,572,549

 
5,483,381

 
5,482,508

 
(6)(15)
First Lien Revolver, LIBOR+6.50% cash due 9/12/2024
 
 

 
(4,602
)
 
(4,752
)
 
(6)(14)(15)
 
 
 
 
 
5,478,779

 
5,477,756

 
 

7

Oaktree Strategic Income Corporation
Consolidated Schedule of Investments
December 31, 2019
(unaudited)



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

 
Cost
 
Fair Value
 
Notes
Indivior Finance S.a.r.l.
 
Pharmaceuticals
 
 
 
 
 
 
 
First Lien Term Loan, LIBOR+4.50% cash due 12/19/2022
6.43%
 
$
5,345,745

 
$
5,323,772

 
$
4,953,715

 
(6)(9)
 
 
 
 
 
5,323,772

 
4,953,715

 
 
KIK Custom Products Inc.
 
Household Products
 
 
 
 
 
 
 
First Lien Term Loan, LIBOR+4.00% cash due 5/15/2023
5.79%
 
5,000,000

 
5,023,942

 
4,922,500

 
(6)(9)
 
 
 
 
 
5,023,942

 
4,922,500

 
 
Lannett Company, Inc.
 
Pharmaceuticals
 
 
 
 
 
 
 
First Lien Term Loan, LIBOR+5.38% cash due 11/25/2022
7.17%
 
7,150,600

 
7,162,035

 
7,061,217

 
(6)(9)
 
 
 
 
 
7,162,035

 
7,061,217

 
 
Lightbox Intermediate, L.P.
 
Real Estate Services
 
 
 
 
 
 
 
First Lien Term Loan, LIBOR+5.00% cash due 5/9/2026
6.74%
 
9,950,000

 
9,813,804

 
9,825,625

 
(6)(15)
 
 
 
 
 
9,813,804

 
9,825,625

 
 
Lytx Holdings, LLC
 
Research & Consulting Services
 
 
 
 
 
 
 
500 Class B Units
 
 
 
 

 
293,339

 
(15)
 
 
 
 
 

 
293,339

 
 
McAfee, LLC
 
Systems Software
 
 
 
 
 
 
 
First Lien Term Loan, LIBOR+3.75% cash due 9/30/2024
5.55%
 
6,123,189

 
6,083,958

 
6,157,632

 
(6)
 
 
 
 
 
6,083,958

 
6,157,632

 
 
MHE Intermediate Holdings, LLC
 
Diversified Support Services
 
 
 
 
 
 
 
First Lien Term Loan, LIBOR+5.00% cash due 3/8/2024
6.94%
 
11,508,508

 
11,368,941

 
11,278,337

 
(6)(15)
First Lien Revolver, PRIME+4.00% cash due 3/10/2023
8.75%
 
788,177

 
559,231

 
683,087

 
(6)(14)(15)
First Lien Delayed Draw Term Loan, LIBOR+5.00% cash due 3/8/2024
6.99%
 
2,343,482

 
2,370,184

 
2,296,612

 
(6)(15)
 
 
 
 
 
14,298,356

 
14,258,036

 
 
Mindbody, Inc.
 
Internet Services & Infrastructure
 
 
 
 
 
 
 
First Lien Term Loan, LIBOR+7.00% cash due 2/14/2025
8.79%
 
9,047,619

 
8,893,178

 
8,884,762

 
(6)(15)
First Lien Revolver, LIBOR+7.00% cash due 2/14/2025
 
 

 
(16,257
)
 
(17,143
)
 
(6)(14)(15)
 
 
 
 
 
8,876,921

 
8,867,619

 
 
Ministry Brands, LLC
 
Application Software
 
 
 
 
 
 
 
First Lien Revolver, LIBOR+5.00% cash due 12/2/2022
6.95%
 
20,000

 
19,139

 
20,000

 
(6)(14)(15)
Second Lien Term Loan, LIBOR+9.25% cash due 6/2/2023
11.08%
 
1,568,067

 
1,555,719

 
1,568,067

 
(6)(15)
Second Lien Delayed Draw Term Loan, LIBOR+9.25% cash due 6/2/2023
11.08%
 
431,933

 
428,532

 
431,933

 
(6)(15)
 
 
 
 
 
2,003,390

 
2,020,000

 
 
OEConnection LLC
 
Application Software
 
 
 
 
 
 
 
First Lien Term Loan, LIBOR+4.00% cash due 9/25/2026
5.80%
 
7,744,659

 
7,705,936

 
7,793,063

 
(6)
First Lien Delayed Draw Term Loan, LIBOR+4.00% cash due 9/25/2026
 
 

 
(3,559
)
 
4,600

 
(6)(14)
 
 
 
 
 
7,702,377

 
7,797,663

 
 
Onvoy, LLC
 
Integrated Telecommunication Services
 
 
 
 
 
 
 
First Lien Term Loan, LIBOR+4.50% cash due 2/10/2024
6.30%
 
3,850,707

 
3,839,355

 
3,494,517

 
(6)
 
 
 
 
 
3,839,355

 
3,494,517

 
 
PaySimple, Inc.
 
Data Processing & Outsourced Services
 
 
 
 
 
 
 
First Lien Term Loan, LIBOR+5.50% cash due 8/23/2025
7.30%
 
7,531,125

 
7,388,663

 
7,493,469

 
(6)(15)
First Lien Delayed Draw Term Loan, LIBOR+5.50% cash due 8/23/2025
7.28%
 
709,629

 
663,284

 
697,379

 
(6)(14)(15)
 
 
 
 
 
8,051,947

 
8,190,848

 
 
Peraton Corp.
 
Aerospace & Defense
 
 
 
 
 
 
 
First Lien Term Loan, LIBOR+5.25% cash due 4/29/2024
7.05%
 
6,337,500

 
6,317,993

 
6,337,500

 
(6)
 
 
 
 
 
6,317,993

 
6,337,500

 
 

8

Oaktree Strategic Income Corporation
Consolidated Schedule of Investments
December 31, 2019
(unaudited)



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

 
Cost
 
Fair Value
 
Notes
ProFrac Services, LLC
 
Industrial Machinery
 
 
 
 
 
 
 
First Lien Term Loan, LIBOR+6.25% cash due 9/15/2023
8.14%
 
$
8,838,889

 
$
8,773,265

 
$
8,617,917

 
(6)(15)
 
 
 
 
 
8,773,265

 
8,617,917

 
 
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

 
(6)
Second Lien Term Loan, LIBOR+8.00% cash due 5/9/2027
9.80%
 
1,500,000

 
1,500,000

 
1,496,250

 
(6)(15)
 
 
 
 
 
4,265,070

 
4,306,273

 
 
Recorded Books Inc.
 
Publishing
 
 
 
 
 
 
 
First Lien Term Loan, LIBOR+4.50% cash due 8/29/2025
6.30%
 
10,368,750

 
10,265,063

 
10,433,555

 
(6)
 
 
 
 
 
10,265,063

 
10,433,555

 
 
RevSpring, Inc.
 
Commercial Printing
 
 
 
 
 
 
 
First Lien Term Loan, LIBOR+4.00% cash due 10/11/2025
5.94%
 
9,900,000

 
9,879,368

 
9,912,375

 
(6)(15)
 
 
 
 
 
9,879,368

 
9,912,375

 
 
Sabert Corporation
 
Metal & Glass Containers
 
 
 
 
 
 
 
First Lien Term Loan, LIBOR+4.50% cash due 12/10/2026
6.25%
 
2,900,000

 
2,871,000

 
2,930,218

 
(6)
 
 
 
 
 
2,871,000

 
2,930,218

 
 
Salient CRGT, Inc.
 
Aerospace & Defense
 
 
 
 
 
 
 
First Lien Term Loan, LIBOR+6.50% cash due 2/28/2022
8.29%
 
5,691,369

 
5,642,541

 
5,406,801

 
(6)(15)
 
 
 
 
 
5,642,541

 
5,406,801

 
 
Signify Health, LLC
 
Health Care Services
 
 
 
 
 
 
 
First Lien Term Loan, LIBOR+4.50% cash due 12/23/2024
6.44%
 
10,807,500

 
10,728,925

 
10,793,991

 
(6)
 
 
 
 
 
10,728,925

 
10,793,991

 
 
Sirva Worldwide, Inc.
 
Diversified Support Services
 
 
 
 
 
 
 
First Lien Term Loan, LIBOR+5.50% cash due 8/4/2025
7.44%
 
7,800,000

 
7,683,000

 
7,722,000

 
(6)
 
 
 
 
 
7,683,000

 
7,722,000

 
 
Sophia, L.P.
 
Systems Software
 
 
 
 
 
 
 
First Lien Term Loan, LIBOR+3.25% cash due 9/30/2022
5.19%
 
1,333,213

 
1,330,957

 
1,337,979

 
(6)
 
 
 
 
 
1,330,957

 
1,337,979

 
 
Sunshine Luxembourg VII SARL
 
Personal Products
 
 
 
 
 
 
 
First Lien Term Loan, LIBOR+4.25% cash due 10/1/2026
6.19%
 
3,000,000

 
2,985,000

 
3,032,400

 
(6)(9)
 
 
 
 
 
2,985,000

 
3,032,400

 
 
Supermoose Borrower, LLC
 
Application Software
 
 
 
 
 
 
 
First Lien Term Loan, LIBOR+3.75% cash due 8/29/2025
5.55%
 
997,481

 
919,807

 
955,268

 
(6)
 
 
 
 
 
919,807

 
955,268

 
 
The Dun & Bradstreet Corporation
 
Research & Consulting Services
 
 
 
 
 
 
 
First Lien Term Loan, LIBOR+5.00% cash due 2/6/2026
6.79%
 
5,000,000

 
4,912,011

 
5,050,000

 
(6)
 
 
 
 
 
4,912,011

 
5,050,000

 
 
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

 
(6)(9)(15)
 
 
 
 
 
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%
 
7,969,821

 
7,959,343

 
8,015,926

 
(6)
 
 
 
 
 
7,959,343

 
8,015,926

 
 
Trident Topco LLC
 
Health Care Services
 
 
 
 
 
 
 
58.99 Class A Warrants (exercise price $156.164) expiration date 3/20/2021
 
 
 
 

 

 
(15)
 
 
 
 
 

 

 
 
Truck Hero, Inc.
 
Auto Parts & Equipment
 
 
 
 
 
 
 
First Lien Term Loan, LIBOR+3.75% cash due 4/22/2024
5.55%
 
5,725,200

 
5,734,522

 
5,596,383

 
(6)
 
 
 
 
 
5,734,522

 
5,596,383

 
 
Uber Technologies, Inc.
 
Application Software
 
 
 
 
 
 
 
First Lien Term Loan, LIBOR+4.00% cash due 4/4/2025
5.74%
 
2,233,654

 
2,219,490

 
2,236,044

 
(6)
 
 
 
 
 
2,219,490

 
2,236,044

 
 

9

Oaktree Strategic Income Corporation
Consolidated Schedule of Investments
December 31, 2019
(unaudited)



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

 
Cost
 
Fair Value
 
Notes
UFC Holdings, LLC
 
Movies & Entertainment
 
 
 
 
 
 
 
First Lien Term Loan, LIBOR+3.25% cash due 4/29/2026
5.05%
 
$
4,931,316

 
$
4,929,121

 
$
4,970,692

 
(6)
 
 
 
 
 
4,929,121

 
4,970,692

 
 
Uniti Group LP
 
Specialized REITs
 
 
 
 
 
 
 
First Lien Term Loan, LIBOR+5.00% cash due 10/24/2022
6.80%
 
8,825,736

 
8,636,987

 
8,689,687

 
(6)(9)
 
 
 
 
 
8,636,987

 
8,689,687

 
 
UOS, LLC
 
Trading Companies & Distributors
 
 
 
 
 
 
 
First Lien Term Loan, LIBOR+5.50% cash due 4/18/2023
7.30%
 
8,797,116

 
8,912,212

 
8,885,087

 
(6)
 
 
 
 
 
8,912,212

 
8,885,087

 
 
Veritas US Inc.
 
Application Software
 
 
 
 
 
 
 
First Lien Term Loan, LIBOR+4.50% cash due 1/27/2023
6.30%
 
12,033,285

 
12,111,272

 
11,618,979

 
(6)
 
 
 
 
 
12,111,272

 
11,618,979

 
 
Verra Mobility, Corp.
 
Data Processing & Outsourced Services
 
 
 
 
 
 
 
First Lien Term Loan, LIBOR+3.75% cash due 2/28/2025
5.55%
 
4,937,186

 
4,947,408

 
4,976,288

 
(6)(9)
 
 
 
 
 
4,947,408

 
4,976,288

 
 
Verscend Holding Corp.
 
Health Care Technology
 
 
 
 
 
 
 
First Lien Term Loan, LIBOR+4.50% cash due 8/27/2025
6.30%
 
10,947,425

 
10,870,469

 
11,047,758

 
(6)
 
 
 
 
 
10,870,469

 
11,047,758

 
 
WeddingWire, Inc.
 
Interactive Media & Services
 
 
 
 
 
 
 
First Lien Term Loan, LIBOR+4.50% cash due 12/19/2025
6.30%
 
7,920,000

 
7,885,923

 
7,969,500

 
(6)
 
 
 
 
 
7,885,923

 
7,969,500

 
 
Windstream Services, LLC
 
Integrated Telecommunication Services
 
 
 
 
 
 
 
First Lien Term Loan, PRIME+5.00% cash due 3/29/2021
9.75%
 
2,775,040

 
2,719,394

 
2,666,244

 
(6)(9)
 
 
 
 
 
2,719,394

 
2,666,244

 
 
Woodford Express LLC
 
Oil & Gas Exploration & Production
 
 
 
 
 
 
 
First Lien Term Loan, LIBOR+5.00% cash due 1/27/2025
6.80%
 
14,736,970

 
14,629,686

 
12,939,059

 
(6)
 
 
 
 
 
14,629,686

 
12,939,059

 
 
WP CPP Holdings, LLC
 
Aerospace & Defense
 
 
 
 
 
 
 
First Lien Term Loan, LIBOR+3.75% cash due 4/30/2025
5.68%
 
4,443,750

 
4,434,905

 
4,421,531

 
(6)
Second Lien Term Loan, LIBOR+7.75% cash due 4/30/2026
9.68%
 
1,000,000

 
991,774

 
988,130

 
(6)
 
 
 
 
 
5,426,679

 
5,409,661

 
 
Zep Inc.
 
Specialty Chemicals
 
 
 
 
 
 
 
First Lien Term Loan, LIBOR+4.00% cash due 8/12/2024
5.94%
 
4,643,125

 
4,672,787

 
3,614,673

 
(6)
 
 
 
 
 
4,672,787

 
3,614,673

 
 
Zephyr Bidco Limited
 
Specialized Finance
 
 
 
 
 
 
 
First Lien Term Loan, UK LIBOR+4.50% cash due 7/23/2025
5.21%
 
£
5,000,000

 
6,667,495

 
6,549,233

 
(6)(9)
 
 
 
 
 
6,667,495

 
6,549,233

 
 
 Total Non-Control/Non-Affiliate Investments (185.4% of net assets)
 
 
 
 
$
538,934,038

 
$
530,284,037

 
 
 Total Portfolio Investments (204.3% of net assets)
 
 
 
 
$
612,102,062

 
$
584,453,747

 
 
Cash and Cash Equivalents and Restricted Cash (6.3% of net assets)
 
 
 
 
$
17,995,074

 
$
17,995,074

 
 
Total Portfolio Investments, Cash and Cash Equivalents and Restricted Cash (210.6% of net assets)
 
 
 
 
$
630,097,136

 
$
602,448,821

 
 

Derivatives Instrument
 
Notional Amount to be Purchased
 
Notional Amount to be Sold
 
Maturity Date
 
Counterparty
 
Cumulative Unrealized Appreciation (Depreciation)
Foreign currency forward contract
 
$
6,250,213

 
£
4,838,750

 
2/18/2020
 
JPMorgan Chase Bank, N.A.
 
$
(168,712
)

10

Oaktree Strategic Income Corporation
Consolidated Schedule of Investments
December 31, 2019
(unaudited)




(1)
All debt investments are income producing unless otherwise noted. All equity investments are non-income producing unless otherwise noted.
(2)
See Note 3 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)
Each of the Company's investments is pledged as collateral under one or more of its credit facilities. A single investment may be divided into parts that are individually pledged as collateral to separate credit facilities.
(5)
Equity ownership may be held in shares or units of companies related to the portfolio companies.
(6)
The interest rate on the principal balance outstanding for all floating rate loans is indexed to the London Interbank Offered Rate ("LIBOR") and/or an alternate base rate (e.g., prime rate), which typically resets semi-annually, quarterly, or monthly at the borrower's option. The borrower may also elect to have multiple interest reset periods for each loan. For each of these loans, the Company has provided the applicable margin over LIBOR or the alternate base rate based on each respective credit agreement and the cash interest rate as of period end. All LIBOR shown above is in U.S. dollars unless otherwise noted. As of December 31, 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%, the 180-day LIBOR at 1.92%, the PRIME at 4.75% and the 30-day UK LIBOR at 0.71%. Most loans include an interest floor, which generally ranges from 0% to 1%.
(7)
Principal includes accumulated payment in kind ("PIK") interest and is net of repayments, if any. “£” signifies the investment is denominated in British Pounds. All other investments are denominated in U.S. dollars.
(8)
Control Investments generally are defined by the Investment Company Act of 1940, as amended (the "Investment Company Act"), as investments in companies in which the Company owns more than 25% of the voting securities or maintains greater than 50% of the board representation.
(9)
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 79.7% of the Company's total assets and non-qualifying assets represented 20.3% of the Company's total assets.
(10)
As defined in the Investment Company Act, the Company is deemed to be both an "Affiliated Person" of and to "Control" this portfolio company as the Company owns more than 25% of the portfolio company's outstanding voting securities or has the power to exercise control over management or policies of such portfolio company (including through a management agreement). See Schedule 12-14 in the accompanying notes to the Consolidated Financial Statements for transactions during the three months ended December 31, 2019 in which the issuer was both an Affiliated Person and a portfolio company that the Company is deemed to control.
(11)
See Note 3 to the Consolidated Financial Statements for portfolio composition.
(12)
This investment was valued using net asset value as a practical expedient for fair value. Consistent with Financial Accounting Standards Board ("FASB") guidance under Accounting Standards Codification ("ASC") Topic 820, Fair Value Measurements and Disclosure ("ASC 820"), these investments are excluded from the hierarchical levels.
(13)
Non-Control/Non-Affiliate Investments are investments that are neither Control Investments nor Affiliate Investments. 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.
(14)
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.
(15)
As of December 31, 2019, these investments are categorized as Level 3 within the fair value hierarchy established by ASC 820.




See notes to Consolidated Financial Statements.

11

Oaktree Strategic Income Corporation
Consolidated Schedule of Investments
September 30, 2019

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

 
Cost
 
Fair Value
 
Notes
Control Investments
 
 
 
 
 
 
 
 
(8)
OCSI Glick JV LLC
 
Multi-sector holdings
 
 
 
 
 
 
(10)(11)
Subordinated Note, LIBOR+6.50% cash due 10/20/2021
8.89%
 
$
66,077,912

 
$
66,077,913

 
$
54,326,418

 
(6)(9)(14)(15)
87.5% equity interest
 
 
 
 
7,111,751

 

 
(9)(12)(14)
 
 
 
 
 
73,189,664

 
54,326,418

 
 
 Total Control Investments (19.1% of net assets)
 
 
 
 
$
73,189,664

 
$
54,326,418

 
 
 
 
 
 
 
 
 
 
 
 
Non-Control/Non-Affiliate Investments
 
 
 
 
 
 
 
 
(13)
4 Over International, LLC
 
Commercial printing
 
 
 
 
 
 
 
First Lien Term Loan, LIBOR+6.00% cash due 6/7/2022
8.04%
 
$
5,612,060

 
$
5,547,000

 
$
5,504,869

 
(6)(15)
First Lien Revolver, PRIME+5.00% cash due 6/7/2021
10.00%
 
7,823

 
7,321

 
6,516

 
(6)(14)(15)
 
 
 
 
 
5,554,321

 
5,511,385

 
 
99 Cents Only Stores LLC
 
General merchandise stores
 
 
 
 
 
 
 
First Lien Term Loan, LIBOR+5.00% cash 1.50% PIK due 1/13/2022
7.10%
 
1,626,953

 
1,549,641

 
1,425,618

 
(6)
 
 
 
 
 
1,549,641

 
1,425,618

 
 
Access CIG, LLC
 
Diversified support services
 
 
 
 
 
 
 
First Lien Term Loan, LIBOR+3.75% cash due 2/27/2025
6.07%
 
5,462,360

 
5,417,080

 
5,404,350

 
(6)
 
 
 
 
 
5,417,080

 
5,404,350

 
 
AI Ladder (Luxembourg) Subco S.a.r.l.
 
Electrical components & equipment
 
 
 
 
 
 
 
First Lien Term Loan, LIBOR+4.50% cash due 7/9/2025
6.60%
 
6,525,584

 
6,363,049

 
6,009,639

 
(6)(9)
 
 
 
 
 
6,363,049

 
6,009,639

 
 
Air Medical Group Holdings, Inc.
 
Healthcare services
 
 
 
 
 
 
 
First Lien Term Loan, LIBOR+4.25% cash due 3/14/2025
6.29%
 
2,488,670

 
2,437,830

 
2,337,272

 
(6)
 
 
 
 
 
2,437,830

 
2,337,272

 
 
Airxcel, Inc.
 
Household appliances
 
 
 
 
 
 
 
First Lien Term Loan, LIBOR+4.50% cash due 4/28/2025
6.54%
 
6,912,500

 
6,857,242

 
6,661,922

 
(6)
 
 
 
 
 
6,857,242

 
6,661,922

 
 
AL Midcoast Holdings LLC
 
Oil & gas storage & transportation
 
 
 
 
 
 
 
First Lien Term Loan, LIBOR+5.50% cash due 8/1/2025
7.60%
 
564,300

 
558,657

 
556,541

 
(6)
 
 
 
 
 
558,657

 
556,541

 
 
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

 
(6)
 
 
 
 
 
3,960,000

 
4,020,000

 
 
All Web Leads, Inc.
 
Advertising
 
 
 
 
 
 
 
First Lien Term Loan, LIBOR+7.50% cash due 12/29/2020
9.62%
 
24,102,647

 
24,102,621

 
20,960,795

 
(6)(15)
 
 
 
 
 
24,102,621

 
20,960,795

 
 
Allen Media, LLC
 
Movies & entertainment
 
 
 
 
 
 
 
First Lien Term Loan, LIBOR+6.50% cash due 8/30/2023
8.60%
 
4,809,488

 
4,714,403

 
4,653,180

 
(6)(15)
 
 
 
 
 
4,714,403

 
4,653,180

 
 
Ancile Solutions, Inc.
 
Application software
 
 
 
 
 
 
 
First Lien Term Loan, LIBOR+7.00% cash due 6/30/2021
9.10%
 
8,299,803

 
8,184,777

 
8,133,807

 
(6)(15)
 
 
 
 
 
8,184,777

 
8,133,807

 
 
Apptio, Inc.
 
Application software
 
 
 
 
 
 
 
First Lien Term Loan, LIBOR+7.25% cash due 1/10/2025
9.56%
 
10,693,944

 
10,502,939

 
10,496,106

 
(6)(15)
First Lien Revolver, LIBOR+7.25% cash due 1/10/2025
 
 

 
(12,179
)
 
(12,808
)
 
(6)(14)(15)
 
 
 
 
 
10,490,760

 
10,483,298

 
 

12

Oaktree Strategic Income Corporation
Consolidated Schedule of Investments
September 30, 2019

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

 
Cost
 
Fair Value
 
Notes
Aptos, Inc.
 
Computer & electronics retail
 
 
 
 
 
 
 
First Lien Term Loan, LIBOR+5.50% cash due 7/23/2025
7.70%
 
$
10,917,500

 
$
10,808,325

 
$
10,781,031

 
(6)(15)
 
 
 
 
 
10,808,325

 
10,781,031

 
 
Avaya, Inc.
 
Communications equipment
 
 
 
 
 
 
 
First Lien Term Loan, LIBOR+4.25% cash due 12/15/2024
6.28%
 
9,825,000

 
9,740,555

 
9,361,407

 
(6)
 
 
 
 
 
9,740,555

 
9,361,407

 
 
Ball Metalpack Finco, LLC
 
Metal & glass containers
 
 
 
 
 
 
 
First Lien Term Loan, LIBOR+4.50% cash due 7/31/2025
6.62%
 
8,887,500

 
8,850,147

 
8,387,578

 
(6)(15)
 
 
 
 
 
8,850,147

 
8,387,578

 
 
Blackhawk Network Holdings, Inc.
 
Data processing & outsourced services
 
 
 
 
 
 
 
Second Lien Term Loan, LIBOR+7.00% cash due 6/15/2026
9.06%
 
4,375,000

 
4,335,578

 
4,380,491

 
(6)
 
 
 
 
 
4,335,578

 
4,380,491

 
 
Boxer Parent Company Inc.
 
Systems software
 
 
 
 
 
 
 
First Lien Term Loan, LIBOR+4.25% cash due 10/2/2025
6.29%
 
6,118,763

 
6,051,218

 
5,899,007

 
(6)
 
 
 
 
 
6,051,218

 
5,899,007

 
 
Cadence Aerospace LLC
 
Aerospace & defense
 
 
 
 
 
 
 
First Lien Term Loan, LIBOR+6.50% cash due 11/14/2023
8.54%
 
13,514,012

 
13,406,773

 
13,277,761

 
(6)(15)
 
 
 
 
 
13,406,773

 
13,277,761

 
 
Canyon Buyer, Inc.
 
Application software
 
 
 
 
 
 
 
First Lien Term Loan, LIBOR+4.25% cash due 2/15/2025
6.36%
 
8,931,990

 
8,834,396

 
8,887,330

 
(6)
 
 
 
 
 
8,834,396

 
8,887,330

 
 
Cast & Crew Payroll, LLC
 
Application software
 
 
 
 
 
 
 
First Lien Term Loan, LIBOR+4.00% cash due 2/9/2026
6.05%
 
4,975,000

 
4,925,250

 
5,018,531

 
(6)
 
 
 
 
 
4,925,250

 
5,018,531

 
 
Cincinnati Bell Inc.
 
Integrated telecommunication services
 
 
 
 
 
 
 
First Lien Term Loan, LIBOR+3.25% cash due 10/2/2024
5.29%
 
4,893,420

 
4,879,432

 
4,888,649

 
(6)(9)
 
 
 
 
 
4,879,432

 
4,888,649

 
 
CircusTrix Holdings LLC
 
Leisure facilities
 
 
 
 
 
 
 
First Lien Term Loan, LIBOR+5.50% cash due 12/16/2021
7.54%
 
8,072,229

 
8,025,765

 
8,014,503

 
(6)(15)
First Lien Delayed Draw Term Loan, LIBOR+5.50% cash due 12/16/2021
7.54%
 
971,967

 
966,372

 
965,016

 
(6)(15)
 
 
 
 
 
8,992,137

 
8,979,519

 
 
CITGO Petroleum Corp.
 
Oil & gas refining & marketing
 
 
 
 
 
 
 
First Lien Term Loan, LIBOR+4.50% cash due 7/29/2021
6.60%
 
5,937,500

 
5,921,943

 
5,963,505

 
(6)
First Lien Term Loan, LIBOR+5.00% cash due 3/28/2024
7.10%
 
5,970,000

 
5,910,301

 
6,007,313

 
(6)
 
 
 
 
 
11,832,244

 
11,970,818

 
 
Connect U.S. Finco LLC
 
Alternative carriers
 
 
 
 
 
 
 
First Lien Term Loan, LIBOR+4.50% cash due 9/23/2026
7.10%
 
10,000,000

 
9,800,000

 
9,860,150

 
(6)(9)
 
 
 
 
 
9,800,000

 
9,860,150

 
 
Curium Bidco S.à r.l.
 
Biotechnology
 
 
 
 
 
 
 
First Lien Term Loan, LIBOR+4.00% cash due 7/9/2026
6.10%
 
4,000,000

 
3,970,000

 
4,020,000

 
(6)(9)
 
 
 
 
 
3,970,000

 
4,020,000

 
 
Curvature, Inc.
 
IT consulting & other services
 
 
 
 
 
 
 
First Lien Term Loan, LIBOR+5.00% cash due 10/30/2023
7.04%
 
9,725,000

 
9,683,496

 
7,974,500

 
(6)
 
 
 
 
 
9,683,496

 
7,974,500

 
 

13

Oaktree Strategic Income Corporation
Consolidated Schedule of Investments
September 30, 2019

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

 
Cost
 
Fair Value
 
Notes
Dcert Buyer, Inc.
 
Internet services & infrastructure
 
 
 
 
 
 
 
First Lien Term Loan, LIBOR+4.00% cash due 8/8/2026
6.26%
 
$
9,000,000

 
$
8,977,500

 
$
8,983,125

 
(6)
 
 
 
 
 
8,977,500

 
8,983,125

 
 
DigiCert, Inc.
 
Internet services & infrastructure
 
 
 
 
 
 
 
First Lien Term Loan, LIBOR+4.00% cash due 10/31/2024
6.04%
 
10,631,986

 
10,611,348

 
10,629,753

 
(6)
 
 
 
 
 
10,611,348

 
10,629,753

 
 
Ellie Mae, Inc.
 
Application software
 
 
 
 
 
 
 
First Lien Term Loan, LIBOR+4.00% cash due 4/17/2026
6.04%
 
6,500,000

 
6,467,500

 
6,518,980

 
(6)
 
 
 
 
 
6,467,500

 
6,518,980

 
 
EnergySolutions LLC
 
Environmental & facilities services
 
 
 
 
 
 
 
First Lien Term Loan, LIBOR+3.75% cash due 5/9/2025
5.85%
 
3,950,000

 
3,934,058

 
3,703,125

 
(6)
 
 
 
 
 
3,934,058

 
3,703,125

 
 
Femur Buyer, Inc.
 
Healthcare equipment
 
 
 
 
 
 
 
First Lien Term Loan, LIBOR+4.25% cash due 3/5/2026
6.38%
 
8,977,500

 
8,887,725

 
8,994,333

 
(6)
 
 
 
 
 
8,887,725

 
8,994,333

 
 
Firstlight Holdco, Inc.
 
Alternative carriers
 
 
 
 
 
 
 
First Lien Term Loan, LIBOR+3.50% cash due 7/23/2025
5.54%
 
7,156,627

 
7,126,483

 
7,098,479

 
(6)
 
 
 
 
 
7,126,483

 
7,098,479

 
 
Frontier Communications Corporation
 
Integrated telecommunication services
 
 
 
 
 
 
 
First Lien Term Loan, LIBOR+3.75% cash due 6/15/2024
5.80%
 
1,488,579

 
1,450,620

 
1,488,050

 
(6)(9)
 
 
 
 
 
1,450,620

 
1,488,050

 
 
Gentiva Health Services, Inc.
 
Healthcare services
 
 
 
 
 
 
 
First Lien Term Loan, LIBOR+3.75% cash due 7/2/2025
5.81%
 
3,989,924

 
3,985,062

 
4,017,355

 
(6)
 
 
 
 
 
3,985,062

 
4,017,355

 
 
GKD Index Partners, LLC
 
Specialized finance
 
 
 
 
 
 
 
First Lien Term Loan, LIBOR+7.25% cash due 6/29/2023
9.35%
 
8,616,315

 
8,551,811

 
8,503,011

 
(6)(15)
First Lien Revolver, LIBOR+7.25% cash due 6/29/2023
 
 

 
(3,327
)
 
(5,844
)
 
(6)(14)(15)
 
 
 
 
 
8,548,484

 
8,497,167

 
 
GoodRx, Inc.
 
Interactive media & services
 
 
 
 
 
 
 
First Lien Term Loan, LIBOR+2.75% cash due 10/10/2025
4.81%
 
3,925,963

 
3,917,442

 
3,930,871

 
(6)
 
 
 
 
 
3,917,442

 
3,930,871

 
 
Guidehouse LLP
 
Research & consulting services
 
 
 
 
 
 
 
Second Lien Term Loan, LIBOR+7.50% cash due 5/1/2026
9.54%
 
5,000,000

 
4,979,290

 
4,937,500

 
(6)
 
 
 
 
 
4,979,290

 
4,937,500

 
 
iCIMs, Inc.
 
Application software
 
 
 
 
 
 
 
First Lien Term Loan, LIBOR+6.50% cash due 9/12/2024
8.56%
 
5,572,549

 
5,478,546

 
5,479,203

 
(6)(15)
First Lien Revolver, LIBOR+6.50% cash due 9/12/2024
 
 

 
(4,852
)
 
(4,927
)
 
(6)(14)(15)
 
 
 
 
 
5,473,694

 
5,474,276

 
 
Indivior Finance S.a.r.l.
 
Pharmaceuticals
 
 
 
 
 
 
 
First Lien Term Loan, LIBOR+4.50% cash due 12/19/2022
6.76%
 
5,368,935

 
5,344,971

 
4,943,903

 
(6)(9)
 
 
 
 
 
5,344,971

 
4,943,903

 
 
Kellermeyer Bergensons Services, LLC
 
Environmental & facilities services
 
 
 
 
 
 
 
Second Lien Term Loan, LIBOR+8.50% cash due 4/29/2022
10.77%
 
280,000

 
280,000

 
272,300

 
(6)(15)
 
 
 
 
 
280,000

 
272,300

 
 
KIK Custom Products Inc.
 
Household products
 
 
 
 
 
 
 
First Lien Term Loan, LIBOR+4.00% cash due 5/15/2023
6.26%
 
5,000,000

 
5,025,753

 
4,756,250

 
(6)(9)
 
 
 
 
 
5,025,753

 
4,756,250

 
 
Lannett Company, Inc.
 
Pharmaceuticals
 
 
 
 
 
 
 
First Lien Term Loan, LIBOR+5.38% cash due 11/25/2022
7.42%
 
7,269,303

 
7,281,949

 
7,138,455

 
(6)(9)
 
 
 
 
 
7,281,949

 
7,138,455

 
 

14

Oaktree Strategic Income Corporation
Consolidated Schedule of Investments
September 30, 2019

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

 
Cost
 
Fair Value
 
Notes
Lightbox Intermediate, L.P.
 
Real estate services
 
 
 
 
 
 
 
First Lien Term Loan, LIBOR+5.00% cash due 5/9/2026
7.05%
 
$
9,975,000

 
$
9,832,986

 
$
9,875,250

 
(6)(15)
 
 
 
 
 
9,832,986

 
9,875,250

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

 
293,339

 
(15)
 
 
 
 
 

 
293,339

 
 
McAfee, LLC
 
Systems software
 
 
 
 
 
 
 
First Lien Term Loan, LIBOR+3.75% cash due 9/30/2024
5.79%
 
8,138,690

 
8,082,911

 
8,166,891

 
(6)
 
 
 
 
 
8,082,911

 
8,166,891

 
 
McDermott Technology (Americas), Inc.
 
Oil & gas equipment & services
 
 
 
 
 
 
 
First Lien Term Loan, LIBOR+5.00% cash due 5/9/2025
7.10%
 
642,238

 
631,923

 
410,497

 
(6)(9)
 
 
 
 
 
631,923

 
410,497

 
 
MHE Intermediate Holdings, LLC
 
Diversified support services
 
 
 
 
 
 
 
First Lien Term Loan, LIBOR+5.00% cash due 3/8/2024
7.10%
 
11,538,092

 
11,389,771

 
11,307,331

 
(6)(15)
First Lien Revolver, LIBOR+5.00% cash due 3/10/2023
7.09%
 
788,177

 
559,231

 
683,087

 
(6)(14)(15)
First Lien Delayed Draw Term Loan, LIBOR+5.00% cash due 3/8/2024
7.10%
 
2,349,480

 
2,376,251

 
2,302,490

 
(6)(15)
 
 
 
 
 
14,325,253

 
14,292,908

 
 
Mindbody, Inc.
 
Internet services & infrastructure
 
 
 
 
 
 
 
First Lien Term Loan, LIBOR+7.00% cash due 2/14/2025
9.06%
 
9,047,619

 
8,885,497

 
8,875,714

 
(6)(15)
First Lien Revolver, LIBOR+7.00% cash due 2/14/2025
 
 

 
(17,065
)
 
(18,095
)
 
(6)(14)(15)
 
 
 
 
 
8,868,432

 
8,857,619

 
 
Ministry Brands, LLC
 
Application software
 
 
 
 
 
 
 
Second Lien Term Loan, LIBOR+9.25% cash due 6/2/2023
11.34%
 
1,568,067

 
1,554,797

 
1,568,067

 
(6)(15)
Second Lien Delayed Draw Term Loan, LIBOR+9.25% cash due 6/2/2023
11.34%
 
431,933

 
428,278

 
431,933

 
(6)(15)
First Lien Revolver, LIBOR+5.00% cash due 12/2/2022
7.04%
 
20,000

 
19,139

 
20,000

 
(6)(14)(15)
 
 
 
 
 
2,002,214

 
2,020,000

 
 
New Trident Holdcorp, Inc.
 
Healthcare services
 
 
 
 
 
 
 
58.99 Class A Warrants (exercise price $156.164) expiration date 3/20/2021
 
 
 
 

 

 
(15)
 
 
 
 
 

 

 
 
OCI Beaumont LLC
 
Commodity chemicals
 
 
 
 
 
 
 
First Lien Term Loan, LIBOR+4.00% cash due 3/13/2025
6.10%
 
4,925,000

 
4,920,165

 
4,931,156

 
(6)(9)
 
 
 
 
 
4,920,165

 
4,931,156

 
 
OEConnection LLC
 
Application software
 
 
 
 
 
 
 
First Lien Term Loan, LIBOR+4.00% cash due 9/24/2026
6.13%
 
7,768,817

 
7,729,973

 
7,754,251

 
(6)
First Lien Delayed Draw Term Loan, LIBOR+4.00% cash due 9/24/2026
 
 

 
(3,656
)
 
(1,371
)
 
(6)(14)
 
 
 
 
 
7,726,317

 
7,752,880

 
 
Onvoy, LLC
 
Integrated telecommunication services
 
 
 
 
 
 
 
First Lien Term Loan, LIBOR+4.50% cash due 2/10/2024
6.54%
 
3,860,606

 
3,848,514

 
3,238,083

 
(6)
 
 
 
 
 
3,848,514

 
3,238,083

 
 
PaySimple, Inc.
 
Data processing & outsourced services
 
 
 
 
 
 
 
First Lien Term Loan, LIBOR+5.50% cash due 8/23/2025
7.55%
 
7,550,000

 
7,400,733

 
7,436,750

 
(6)(15)
First Lien Delayed Draw Term Loan, LIBOR+5.50% cash due 8/23/2025
 
 

 
(48,438
)
 
(36,750
)
 
(6)(14)(15)
 
 
 
 
 
7,352,295

 
7,400,000

 
 
Peraton Corp.
 
Aerospace & defense
 
 
 
 
 
 
 
First Lien Term Loan, LIBOR+5.25% cash due 4/29/2024
7.30%
 
6,353,750

 
6,333,030

 
6,306,097

 
(6)
 
 
 
 
 
6,333,030

 
6,306,097

 
 

15

Oaktree Strategic Income Corporation
Consolidated Schedule of Investments
September 30, 2019

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

 
Cost
 
Fair Value
 
Notes
ProFrac Services, LLC
 
Industrial machinery
 
 
 
 
 
 
 
First Lien Term Loan, LIBOR+6.25% cash due 9/15/2023
8.66%
 
$
9,394,444

 
$
9,319,898

 
$
9,206,556

 
(6)(15)
 
 
 
 
 
9,319,898

 
9,206,556

 
 
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

 
(6)
Second Lien Term Loan, LIBOR+8.00% cash due 5/9/2027
10.14%
 
1,500,000

 
1,500,000

 
1,500,000

 
(6)(15)
 
 
 
 
 
4,272,000

 
4,285,650

 
 
PSI Services LLC
 
Human resource & employment services
 
 
 
 
 
 
 
First Lien Term Loan, LIBOR+5.00% cash due 1/20/2023
7.04%
 
6,601,580

 
6,545,627

 
6,555,342

 
(6)(15)
 
 
 
 
 
6,545,627

 
6,555,342

 
 
Recorded Books Inc.
 
Publishing
 
 
 
 
 
 
 
First Lien Term Loan, LIBOR+4.50% cash due 8/29/2025
6.54%
 
10,395,000

 
10,291,050

 
10,421,039

 
(6)
 
 
 
 
 
10,291,050

 
10,421,039

 
 
RevSpring, Inc.
 
Commercial printing
 
 
 
 
 
 
 
First Lien Term Loan, LIBOR+4.00% cash due 10/11/2025
6.04%
 
9,925,000

 
9,903,404

 
9,866,095

 
(6)(15)
 
 
 
 
 
9,903,404

 
9,866,095

 
 
Salient CRGT, Inc.
 
Aerospace & defense
 
 
 
 
 
 
 
First Lien Term Loan, LIBOR+6.00% cash due 2/28/2022
8.05%
 
5,731,994

 
5,676,942

 
5,445,395

 
(6)(15)
 
 
 
 
 
5,676,942

 
5,445,395

 
 
Signify Health, LLC
 
Healthcare services
 
 
 
 
 
 
 
First Lien Term Loan, LIBOR+4.50% cash due 12/23/2024
6.60%
 
10,835,000

 
10,752,193

 
10,821,456

 
(6)
 
 
 
 
 
10,752,193

 
10,821,456

 
 
Sirva Worldwide, Inc.
 
Diversified support services
 
 
 
 
 
 
 
First Lien Term Loan, LIBOR+5.50% cash due 8/4/2025
7.54%
 
7,850,000

 
7,732,250

 
7,614,500

 
(6)
 
 
 
 
 
7,732,250

 
7,614,500

 
 
Sophia, L.P.
 
Systems software
 
 
 
 
 
 
 
First Lien Term Loan, LIBOR+3.25% cash due 9/30/2022
5.35%
 
1,398,788

 
1,396,201

 
1,400,830

 
(6)
 
 
 
 
 
1,396,201

 
1,400,830

 
 
StandardAero Aviation Holdings Inc.
 
Aerospace & defense
 
 
 
 
 
 
 
First Lien Term Loan, LIBOR+4.00% cash due 4/6/2026
6.10%
 
2,000,000

 
1,997,545

 
2,011,870

 
(6)
 
 
 
 
 
1,997,545

 
2,011,870

 
 
Sunshine Luxembourg VII SARL
 
Personal products
 
 
 
 
 
 
 
First Lien Term Loan, LIBOR+4.25% cash due 9/25/2026
6.59%
 
3,000,000

 
2,985,000

 
3,017,820

 
(6)(9)
 
 
 
 
 
2,985,000

 
3,017,820

 
 
The Dun & Bradstreet Corporation
 
Research & consulting services
 
 
 
 
 
 
 
First Lien Term Loan, LIBOR+5.00% cash due 2/6/2026
7.05%
 
5,000,000

 
4,908,337

 
5,037,050

 
(6)
 
 
 
 
 
4,908,337

 
5,037,050

 
 
TIBCO Software Inc.
 
Application software
 
 
 
 
 
 
 
First Lien Term Loan, LIBOR+4.00% cash due 6/30/2026
6.07%
 
7,989,795

 
7,979,663

 
8,011,448

 
(6)
 
 
 
 
 
7,979,663

 
8,011,448

 
 
Tribe Buyer LLC
 
Human resources & employment services
 
 
 
 
 
 
 
First Lien Term Loan, LIBOR+4.50% cash due 2/16/2024
6.54%
 
1,556,998

 
1,554,180

 
1,453,201

 
(6)(15)
 
 
 
 
 
1,554,180

 
1,453,201

 
 
Truck Hero, Inc.
 
Auto parts & equipment
 
 
 
 
 
 
 
First Lien Term Loan, LIBOR+3.75% cash due 4/22/2024
5.79%
 
5,739,880

 
5,749,771

 
5,385,930

 
(6)
 
 
 
 
 
5,749,771

 
5,385,930

 
 

16

Oaktree Strategic Income Corporation
Consolidated Schedule of Investments
September 30, 2019

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

 
Cost
 
Fair Value
 
Notes
Uber Technologies, Inc.
 
Application software
 
 
 
 
 
 
 
First Lien Term Loan, LIBOR+4.00% cash due 4/4/2025
6.03%
 
$
2,239,323

 
$
2,224,436

 
$
2,230,467

 
(6)
 
 
 
 
 
2,224,436

 
2,230,467

 
 
UFC Holdings, LLC
 
Movies & entertainment
 
 
 
 
 
 
 
First Lien Term Loan, LIBOR+3.25% cash due 4/29/2026
5.30%
 
4,944,058

 
4,941,992

 
4,962,945

 
(6)
 
 
 
 
 
4,941,992

 
4,962,945

 
 
Uniti Group LP
 
Specialized REITs
 
 
 
 
 
 
 
First Lien Term Loan, LIBOR+5.00% cash due 10/24/2022
7.04%
 
8,848,483

 
8,642,094

 
8,648,021

 
(6)(9)
 
 
 
 
 
8,642,094

 
8,648,021

 
 
UOS, LLC
 
Trading companies & distributors
 
 
 
 
 
 
 
First Lien Term Loan, LIBOR+5.50% cash due 4/18/2023
7.54%
 
8,819,673

 
8,943,835

 
8,929,919

 
(6)
 
 
 
 
 
8,943,835

 
8,929,919

 
 
Veritas US Inc.
 
Application software
 
 
 
 
 
 
 
First Lien Term Loan, LIBOR+4.50% cash due 1/27/2023
6.60%
 
12,811,879

 
12,902,946

 
12,142,266

 
(6)
 
 
 
 
 
12,902,946

 
12,142,266

 
 
Verra Mobility, Corp.
 
Data processing & outsourced services
 
 
 
 
 
 
 
First Lien Term Loan, LIBOR+3.75% cash due 2/28/2025
5.79%
 
4,949,749

 
4,960,502

 
4,976,552

 
(6)(9)
 
 
 
 
 
4,960,502

 
4,976,552

 
 
Verscend Holding Corp.
 
Healthcare technology
 
 
 
 
 
 
 
First Lien Term Loan, LIBOR+4.50% cash due 8/27/2025
6.54%
 
10,975,140

 
10,897,989

 
11,032,320

 
(6)
 
 
 
 
 
10,897,989

 
11,032,320

 
 
WeddingWire, Inc.
 
Interactive media & services
 
 
 
 
 
 
 
First Lien Term Loan, LIBOR+4.50% cash due 12/19/2025
6.54%
 
7,940,000

 
7,904,378

 
7,949,925

 
(6)
 
 
 
 
 
7,904,378

 
7,949,925

 
 
Windstream Services, LLC
 
Integrated telecommunication services
 
 
 
 
 
 
 
First Lien Term Loan, PRIME+5.00% cash due 3/29/2021
10.00%
 
7,384,828

 
7,227,936

 
7,524,069

 
(6)(9)
 
 
 
 
 
7,227,936

 
7,524,069

 
 
Woodford Express LLC
 
Oil & gas exploration & production
 
 
 
 
 
 
 
First Lien Term Loan, LIBOR+5.00% cash due 1/27/2025
7.04%
 
14,775,000

 
14,662,039

 
13,947,600

 
(6)
 
 
 
 
 
14,662,039

 
13,947,600

 
 
WP CPP Holdings, LLC
 
Aerospace & defense
 
 
 
 
 
 
 
First Lien Term Loan, LIBOR+3.75% cash due 4/30/2025
6.01%
 
4,455,000

 
4,445,709

 
4,467,541

 
(6)
Second Lien Term Loan, LIBOR+7.75% cash due 4/30/2026
10.01%
 
1,000,000

 
991,442

 
995,830

 
(6)
 
 
 
 
 
5,437,151

 
5,463,371

 
 
Zep Inc.
 
Specialty chemicals
 
 
 
 
 
 
 
First Lien Term Loan, LIBOR+4.00% cash due 8/12/2024
6.04%
 
4,655,000

 
4,686,365

 
3,687,132

 
(6)
 
 
 
 
 
4,686,365

 
3,687,132

 
 
Zephyr Bidco Limited
 
Specialized finance
 
 
 
 
 
 
 
First Lien Term Loan, UK LIBOR+4.50% cash due 7/23/2025
5.21%
 
£
5,000,000

 
6,667,495

 
5,976,039

 
(6)(9)
 
 
 
 
 
6,667,495

 
5,976,039

 
 
 Total Non-Control/Non-Affiliate Investments (190.8% of net assets)
 
 
 
 
$
553,679,070

 
$
542,778,029

 
 
 Total Portfolio Investments (209.9% of net assets)
 
 
 
 
$
626,868,734

 
$
597,104,447

 
 
Cash and Cash Equivalents and Restricted Cash
 
 
 
 
 
 
 
 
 
JP Morgan Prime Money Market Fund, Institutional Shares
 
 
 
 
$
228,653

 
$
228,653

 
 
Other cash accounts
 
 
 
 
13,822,979

 
13,822,979

 
 
 Total Cash and Cash Equivalents and Restricted Cash (4.9% of net assets)
 
 
 
 
$
14,051,632

 
$
14,051,632

 
 
Total Portfolio Investments, Cash and Cash Equivalents and Restricted Cash (214.9% of net assets)
 
 
 
 
$
640,920,366

 
$
611,156,079

 
 




17

Oaktree Strategic Income Corporation
Consolidated Schedule of Investments
September 30, 2019

Derivatives Instrument
 
Notional Amount to be Purchased
 
Notional Amount to be Sold
 
Maturity Date
 
Counterparty
 
Cumulative Unrealized Appreciation (Depreciation)
Foreign currency forward contract
 
$
6,106,199

 
£
4,934,900

 
10/15/2019
 
JPMorgan Chase Bank, N.A.
 
$
20,876


(1)
All debt investments are income producing unless otherwise noted. All equity investments are non-income producing unless otherwise noted.
(2)
See Note 3 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)
Each of the Company's investments is pledged as collateral under one or more of its credit facilities. A single investment may be divided into parts that are individually pledged as collateral to separate credit facilities.
(5)
Equity ownership may be held in shares or units of companies related to the portfolio companies.
(6)
The interest rate on the principal balance outstanding for all floating rate loans is indexed to LIBOR and/or an alternate base rate (e.g., prime rate), which typically resets semi-annually, quarterly, or monthly at the borrower's option. The borrower may also elect to have multiple interest reset periods for each loan. For each of these loans, the Company has provided the applicable margin over LIBOR or the alternate base rate based on each respective credit agreement and the cash interest rate as of period end. All LIBOR shown above is in U.S. dollars unless otherwise noted. As of September 30, 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%, the 180-day LIBOR at 2.06%, the PRIME at 5.00% and the 30-day UK LIBOR at 0.71%. Most loans include an interest floor, which generally ranges from 0% to 1%.
(7)
Principal includes accumulated PIK interest and is net of repayments, if any. “£” signifies the investment is denominated in British Pounds. All other investments are denominated in U.S. dollars.
(8)
Control Investments generally are defined by the Investment Company Act as investments in companies in which the Company owns more than 25% of the voting securities or maintains greater than 50% of the board representation.
(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 78.6% of the Company's total assets and non-qualifying assets represented 21.4% of the Company's total assets.
(10)
As defined in the Investment Company Act, the Company is deemed to be both an "Affiliated Person" of and to "Control" this portfolio company as the Company owns more than 25% of the portfolio company's outstanding voting securities or has the power to exercise control over management or policies of such portfolio company (including through a management agreement). See Schedule 12-14 in the Company's annual report on Form 10-K for the year ended September 30, 2019 for transactions in which the issuer was both an Affiliated Person and a portfolio company that the Company is deemed to control.
(11)
See Note 3 to the Consolidated Financial Statements for portfolio composition.
(12)
This investment was valued using net asset value as a practical expedient for fair value. Consistent with ASC 820, these investments are excluded from the hierarchical levels.
(13)
Non-Control/Non-Affiliate Investments are investments that are neither Control Investments nor Affiliate Investments. 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.
(14)
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.
(15)
As of September 30, 2019, these investments are categorized as Level 3 within the fair value hierarchy established by ASC 820.


See notes to Consolidated Financial Statements.

18

OAKTREE STRATEGIC INCOME CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 1. Organization
Oaktree Strategic Income Corporation (together with its consolidated subsidiaries, the "Company") is a specialty finance company that looks to provide customized capital solutions for middle-market companies in both the syndicated and private placement markets. The Company was formed in May 2013 and operates as a closed-end, externally managed, non-diversified management investment company that has elected to be regulated as a Business Development Company under the Investment Company Act. The Company has qualified and elected to be treated as a regulated investment company ("RIC") under the Internal Revenue Code of 1986, as amended (the "Code"), for tax purposes.
The Company seeks to generate a stable source of current income while minimizing the risk of principal loss and, to a lesser extent, capital appreciation by providing innovative first-lien financing solutions to companies across a wide variety of industries. To a lesser extent, the Company may also invest in unsecured loans, including subordinated loans and bonds, issued by private middle-market companies, senior and subordinated loans and bonds issued by public companies and equity investments.
The Company is externally managed by Oaktree Capital Management, L.P. (“Oaktree”), a subsidiary of Oaktree Capital Group, LLC (“OCG”), pursuant to an investment advisory agreement between the Company and Oaktree, as amended from time to time (the “Investment Advisory Agreement”). Oaktree Fund Administration, LLC (“Oaktree Administrator”), a subsidiary of Oaktree, provides certain administrative and other services necessary for the Company to operate pursuant to an administration agreement between the Company and Oaktree Administrator, as amended from time to time (the “Administration Agreement”). See Note 11. 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.  
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. Certain prior-period financial information has been reclassified to conform to current period presentation. The Company is an investment company following the accounting and reporting guidance in FASB ASC Topic 946, Financial Services - Investment Companies ("ASC 946").
Use of Estimates:
The preparation of the financial statements in conformity with GAAP requires management to make certain estimates and assumptions affecting amounts reported in the financial statements and accompanying notes. These estimates are based on the information that is currently available to the Company and on various other assumptions that the Company believes to be reasonable under the circumstances. Changes in the economic and political environments, financial markets and any other parameters used in determining these estimates could cause actual results to differ and such differences could be material. Significant estimates include the valuation of investments and revenue recognition.
Consolidation:
The accompanying Consolidated Financial Statements include the accounts of Oaktree Strategic Income Corporation and its consolidated subsidiaries. Each consolidated subsidiary is wholly-owned and, as such, consolidated into the Consolidated Financial Statements. Certain subsidiaries that hold investments are treated as pass through entities for tax purposes. The assets of certain of the consolidated subsidiaries are not directly available to satisfy the claims of the creditors of Oaktree Strategic Income Corporation or any of its other subsidiaries. As of December 31, 2019, the consolidated subsidiaries were OCSI Senior Funding II LLC and OCSI Senior Funding Ltd.
As an investment company, portfolio investments held by the Company are not consolidated into the Consolidated Financial Statements but rather are included on the Statements of Assets and Liabilities as investments at fair value.

19

OAKTREE STRATEGIC INCOME CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


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

20

OAKTREE STRATEGIC INCOME CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

valuation date. The third valuation technique is a market yield technique, which is typically performed for non-credit impaired debt investments. In the market yield technique, a current price is imputed for the investment based upon an assessment of the expected market yield for a similarly structured investment with a similar level of risk, and the Company considers the current contractual interest rate, the capital structure and other terms of the investment relative to risk of the company and the specific investment. A key determinant of risk, among other things, is the leverage through the investment relative to the EV of the portfolio company. As debt investments held by the Company are substantially illiquid with no active transaction market, the Company depends on primary market data, including newly funded transactions and industry specific market movements, as well as secondary market data with respect to high yield debt instruments and syndicated loans, as inputs in determining the appropriate market yield, as applicable.
In accordance with ASC 820-10, certain investments that qualify as investment companies in accordance with ASC 946 may be valued using net asset value as a practical expedient for fair value. Consistent with FASB guidance under ASC 820, these investments are excluded from the hierarchical levels. These investments are generally not redeemable.
The Company estimates the fair value of privately held warrants using a Black Scholes pricing model, which includes an analysis of various factors and subjective assumptions, including the current stock price (by using an EV analysis as described above), the expected period until exercise, expected volatility of the underlying stock price, expected dividends and the risk free rate. Changes in the subjective input assumptions can materially affect the fair value estimates.
The Company's Board of Directors undertakes a multi-step valuation process each quarter in connection with determining the fair value of the Company's investments:
The quarterly valuation process begins with each portfolio company or investment being initially valued by Oaktree's valuation team in conjunction with Oaktree's portfolio management team and investment professionals responsible for each portfolio investment;
Preliminary valuations are then reviewed and discussed with management of Oaktree;
Separately, independent valuation firms engaged by the Board of Directors prepare valuations of the Company's investments, on a selected basis, for which market quotations are not readily available or are readily available but deemed not reflective of the fair value of the investment, and submit the reports to the Company and provide such reports to Oaktree and the Audit Committee of the Board of Directors;
Oaktree compares and contrasts its preliminary valuations to the valuations of the independent valuation firms and prepares a valuation report for the Audit Committee;
The Audit Committee reviews the preliminary valuations with Oaktree, and Oaktree responds and supplements the preliminary valuations to reflect any discussions between Oaktree and the Audit Committee;
The Audit Committee makes a recommendation to the full Board of Directors regarding the fair value of the investments in the Company's portfolio; and
The Board of Directors discusses valuations and determines the fair value of each investment in the Company's portfolio.
The fair value of the Company's investments as of December 31, 2019 and September 30, 2019 was determined in good faith by the Board of Directors. The Board of Directors has and will continue to engage independent valuation firms to provide assistance regarding the determination of the fair value of a portion of the Company's portfolio securities for which market quotations are not readily available or are readily available but deemed not reflective of the fair value of the investment each quarter, and the Board of Directors may reasonably rely on that assistance. However, the Board of Directors is responsible for the ultimate valuation of the portfolio investments at fair value as determined in good faith pursuant to the Company's valuation policy and a consistently applied valuation process.
Due to the inherent uncertainty of determining the fair value of investments that do not have a readily available market value, the fair value of the Company’s investments may fluctuate from period to period. Because of the inherent uncertainty of valuation, these estimated values may differ significantly from the values that would have been reported had a ready market for the investments existed, and it is reasonably possible that the difference could be material.
With the exception of the line items entitled "deferred financing costs," "other assets," and "credit facilities payable," which are reported at amortized cost, all assets and liabilities approximate fair value on the Consolidated Statements of Assets and Liabilities. The carrying value of the line items titled "interest, dividends and fees receivable," "due from portfolio companies," "receivables from unsettled transactions," "accounts payable, accrued expenses and other liabilities," "base management fee and incentive fee payable," "due to affiliate," "interest payable," "payables from unsettled transactions" and "director fees payable" approximate fair value due to their short maturities.

21

OAKTREE STRATEGIC INCOME CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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 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 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 Oaktree. To maintain its status as a RIC, certain income from PIK interest may be required to be distributed to the Company’s stockholders, even though the Company has not yet collected the cash and may never do so.
Fee Income
Oaktree may provide financial advisory services to portfolio companies, and in return, the Company may receive fees for capital structuring services. These fees are generally nonrecurring and are recognized by the Company upon the investment closing date. The Company may also receive additional fees in the ordinary course of business, including servicing, amendment, and prepayment fees, which are classified as fee income and recognized as they are earned or the services are rendered.

22

OAKTREE STRATEGIC INCOME CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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.
Dividend Income
The Company generally recognizes dividend income on the ex-dividend date. Distributions received from equity investments are evaluated to determine if the distribution should be recorded as dividend income or a return of capital. Generally, the Company will not record distributions from equity investments as dividend income unless there are sufficient earnings at the portfolio company prior to the distribution. Distributions that are classified as a return of capital are recorded as a reduction in the cost basis of the investment.
Cash and Cash Equivalents and Restricted Cash:
Cash and cash equivalents and restricted cash consist of demand deposits and highly liquid investments with maturities of three months or less when acquired. The Company places its cash and cash equivalents and restricted cash with financial institutions and, at times, cash held in bank accounts may exceed the Federal Deposit Insurance Corporation ("FDIC") insurance limit. Cash and cash equivalents 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, included in restricted cash was $7.7 million that was held at Wells Fargo Bank, N.A. in connection with the Company's Citibank Facility and Deutsche Bank Facility (each as defined in Note 6 – Borrowings) and $0.8 million held at East West Bank in connection with the Company's East West Bank Facility (as defined in Note 6 – Borrowings). Of the $7.7 million of restricted cash held at Wells Fargo Bank, N.A., pursuant to the terms of the Citibank Facility, the Company was restricted in terms of access to $3.3 million of that amount 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. As of December 31, 2019, the remaining $4.4 million of cash held at Wells Fargo Bank, N.A. was restricted due to the obligation to pay interest under the terms of the Deutsche Bank Facility. As of December 31, 2019, $0.8 million held at East West Bank was restricted due to minimum balance requirements under the East West Bank Facility.
As of September 30, 2019, included in restricted cash was $7.6 million that was held at Wells Fargo Bank, N.A. in connection with the Company's Citibank Facility and Deutsche Bank Facility (each as defined in Note 6 – Borrowings) and $0.8 million held at East West Bank in connection with the Company's East West Bank Facility (as defined in Note 6 – Borrowings). Of the $7.6 million of restricted cash held at Wells Fargo Bank, N.A., pursuant to the terms of the Citibank Facility, the Company was restricted in terms of access to $3.4 million of that amount 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. As of September 30, 2019, the remaining $4.3 million of cash held at Wells Fargo Bank, N.A. was restricted due to the obligation to pay interest under the terms of the Deutsche Bank Facility. As of September 30, 2019, $0.8 million held at East West Bank was restricted due to minimum balance requirements under the East West Bank Facility.
Due from Portfolio Companies:
Due from portfolio companies consists of amounts payable to the Company from its portfolio companies, including proceeds from the sale of portfolio companies not yet received or being held in escrow, and excluding those amounts attributable to interest, dividends or fees receivable. These amounts are recognized as they become payable to the Company (e.g., principal payments on the scheduled amortization payment date).
Receivables/Payables from Unsettled Transactions:
Receivables/payables from unsettled transactions consist of amounts receivable to or payable by the Company for transactions that have not settled at the reporting date.
Deferred Financing Costs:
Deferred financing costs consist of fees and expenses paid in connection with the closing or amending of credit facilities and debt offerings. Deferred financing costs in connection with credit facilities are capitalized as an asset when incurred. Deferred financing costs 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.

23

OAKTREE STRATEGIC INCOME CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Income Taxes:
The Company has elected to be subject to tax as a RIC under Subchapter M of the Code and operates in a manner so as to qualify for the tax treatment applicable to RICs. In order to be subject to tax as a RIC, among other things, the Company is required to meet certain source of income and asset diversification requirements and timely distribute dividends to its stockholders of an amount generally at least equal to 90% of investment company taxable income, as defined by the Code and determined without regard to any deduction for dividends paid, for each taxable year. As a RIC, the Company is not subject to federal income tax on the portion of its taxable income and gains distributed currently to stockholders as a dividend. Depending on the level of taxable income earned during a taxable year, the Company may choose to retain taxable income in excess of current year dividend distributions and would distribute such taxable income in the next taxable year. The Company would then incur a 4% excise tax on such income, as required. To the extent that the Company determines that its estimated current year annual taxable income, determined on a calendar year basis, could exceed estimated current calendar year dividend distributions, the Company accrues excise tax, if any, on estimated excess taxable income as taxable income is earned. The Company anticipates timely distribution of its taxable income within the tax rules under Subchapter M of the Code. The Company did not incur a U.S. federal excise tax for calendar years 2018 and 2019.
The Company may hold certain portfolio investments through taxable subsidiaries. The purpose of a taxable subsidiary is to permit the Company to hold equity investments in portfolio companies which are "pass through" entities for U.S. federal income tax purposes in order to comply with the RIC tax requirements. The taxable subsidiaries are consolidated for financial reporting purposes, and portfolio investments held by them are included in the Company’s Consolidated Financial Statements as portfolio investments and recorded at fair value. The taxable subsidiaries are not consolidated with the Company for U.S. federal income tax purposes and may generate income tax expense, or benefit, and the related tax assets and liabilities, as a result of their ownership of certain portfolio investments. This income tax expense, if any, would be reflected in the Company's Consolidated Statements of Operations. The Company uses the liability method to account for its taxable subsidiaries' income taxes. Using this method, the Company recognizes deferred tax assets and liabilities for the estimated future tax effects attributable to temporary differences between financial reporting and tax bases of assets and liabilities. In addition, the Company recognizes deferred tax benefits associated with net operating loss carry forwards that it may use to offset future tax obligations. The Company measures deferred tax assets and liabilities using the enacted tax rates expected to apply to taxable income in the years in which it expects to recover or settle those temporary differences.
FASB ASC Topic 740, Accounting for Uncertainty in Income Taxes ("ASC 740"), provides guidance for how uncertain tax positions should be recognized, measured, presented, and disclosed in the Company's Consolidated Financial Statements. ASC 740 requires the evaluation of tax positions taken or expected to be taken in the course of preparing the Company's tax returns to determine whether the tax positions are "more-likely-than-not" of being sustained by the applicable tax authority. Tax positions not deemed to meet the more-likely-than-not threshold are recorded as a tax benefit or expense in the current year. Management's determinations regarding ASC 740 may be subject to review and adjustment at a later date based upon factors including an ongoing analysis of tax laws, regulations and interpretations thereof. The Company recognizes the tax benefits of uncertain tax positions only where the position is "more likely than not" to be sustained assuming examination by tax authorities. Management has analyzed the Company's tax positions, and has concluded that no liability for unrecognized tax benefits should be recorded related to uncertain tax positions taken on returns filed for open tax years 2016, 2017 or 2018. The Company identifies its major tax jurisdictions as U.S. Federal and California, and the Company is not aware of any tax positions for which it is reasonably possible that the total amounts of unrecognized tax benefits will change materially in the next 12 months.
Recent Accounting Pronouncements:
In August 2018, the FASB issued ASU 2018-13, Disclosure Framework – Changes to the Disclosure Requirements for Fair Value Measurement, which changes the fair value disclosure requirements. The new guidance includes new, eliminated and modified fair value disclosures. Among other requirements, the guidance requires disclosure of the range and weighted average of the significant unobservable inputs for Level 3 fair value measurements and the way it is calculated. The guidance also eliminated the following disclosures: (i) amount and reason for transfers between Level 1 and Level 2, (ii) policy for timing of transfers between levels of the fair value hierarchy and (iii) valuation processes for Level 3 fair value measurement. The guidance is effective for all entities for interim and annual periods beginning after December 15, 2019. Early adoption is permitted upon issuance of the guidance. The 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
As of December 31, 2019, 204.3% of net assets at fair value, or $584.5 million, was invested in 84 portfolio companies, including 18.9% of net assets, or $54.2 million, in subordinated notes and limited liability company ("LLC") equity interests of OCSI Glick JV LLC (together with its consolidated subsidiaries, the "OCSI Glick JV") at fair value, and 6.3% of net assets, or $18.0 million, was invested in cash and cash equivalents (including $8.5 million of restricted cash). In comparison, as of September 30, 2019, 209.9% of net assets at fair

24

OAKTREE STRATEGIC INCOME CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

value, or $597.1 million, was invested in 84 portfolio companies, including 19.1% of net assets, or $54.3 million, in subordinated notes and LLC equity interests of the OCSI Glick JV at fair value, and 4.9% of net assets, or $14.1 million, was invested in cash and cash equivalents (including $8.4 million of restricted cash). As of December 31, 2019, 90.7% of the Company's portfolio at fair value consisted of senior secured debt investments that bore interest at floating rates and 9.3% consisted of investments in the subordinated notes of the OCSI Glick JV that bore interest at floating rates. As of September 30, 2019, 90.9% of the Company's portfolio at fair value consisted of senior secured debt investments that bore interest at floating rates and 9.1% consisted of investments in the subordinated notes of the OCSI Glick JV that bore interest at floating rates.
As of December 31, 2019 and September 30, 2019, the Company's equity investments consisted of LLC equity interests in portfolio companies and warrants. These instruments generally do not produce a current return but are held for potential investment appreciation and capital gain.
During the three months ended December 31, 2019 and 2018, the Company recorded net realized gains (losses) of $(0.5) million and $1.7 million, respectively. During the three months ended December 31, 2019 and 2018, the Company recorded net unrealized appreciation (depreciation) of $1.9 million and $(19.8) million, respectively.
The composition of the Company's investments as of December 31, 2019 and September 30, 2019 at cost and fair value was as follows:
 
 
December 31, 2019
 
September 30, 2019
 
 
Cost
 
Fair Value
 
Cost
 
Fair Value
Senior secured loans
 
$
538,934,038

 
$
529,990,698

 
$
553,679,070

 
$
542,484,690

Equity securities, excluding the OCSI Glick JV
 

 
293,339

 

 
293,339

OCSI Glick JV subordinated notes
 
66,056,273

 
54,169,710

 
66,077,913

 
54,326,418

OCSI Glick JV equity interests
 
7,111,751

 

 
7,111,751

 

Total
 
$
612,102,062

 
$
584,453,747

 
$
626,868,734

 
$
597,104,447

The following table presents the financial instruments carried at fair value as of December 31, 2019 on the Company's Consolidated Statement of Assets and Liabilities for each of the three levels of hierarchy established by ASC 820:
 
 
Level 1
 
Level 2
 
Level 3
 
Total
Senior secured loans
 
$

 
$
337,779,944

 
$
192,210,754

 
$
529,990,698

OCSI Glick JV subordinated notes
 

 

 
54,169,710

 
54,169,710

Equity securities
 

 

 
293,339

 
293,339

Total investments at fair value
 
$

 
$
337,779,944

 
$
246,673,803

 
$
584,453,747

Derivative liability at fair value
 
$

 
$
168,712

 
$

 
$
168,712

Total liabilities at fair value
 
$

 
$
168,712

 
$

 
$
168,712

The following table presents the financial instruments carried at fair value as of September 30, 2019 on the Company's Consolidated Statement of Assets and Liabilities for each of the three levels of hierarchy established by ASC 820:
 
 
Level 1
 
Level 2
 
Level 3
 
Total
Senior secured loans
 
$

 
$
360,600,227

 
$
181,884,463

 
$
542,484,690

OCSI Glick JV subordinated notes
 

 

 
54,326,418

 
54,326,418

Equity securities
 

 

 
293,339

 
293,339

Total investments at fair value
 
$

 
$
360,600,227

 
$
236,504,220

 
$
597,104,447

Cash equivalents
 
$
228,653

 
$

 
$

 
$
228,653

Derivative asset
 

 
20,876

 

 
20,876

Total assets at fair value
 
$
228,653

 
$
360,621,103

 
$
236,504,220

 
$
597,353,976

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

25

OAKTREE STRATEGIC INCOME CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The following table provides a roll-forward in 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:
 
 
Investments
 
 
 
 
 
 
 
 
 
 
 
Senior Secured Loans
 
OCSI Glick JV Subordinated Notes
 
Equity Securities
 
Total Investments
Fair value as of September 30, 2019
 
$
181,884,463

 
$
54,326,418

 
$
293,339

 
$
236,504,220

Purchases
 
15,315,401

 

 

 
15,315,401

Sales and repayments
 
(11,579,014
)
 
(21,640
)
 

 
(11,600,654
)
Transfers in (a)
 
6,661,922

 

 

 
6,661,922

Accretion of OID
 
160,497

 

 

 
160,497

Net unrealized appreciation (depreciation)
 
57,006

 
(135,068
)
 

 
(78,062
)
Net realized gains (losses)
 
(289,521
)
 

 

 
(289,521
)
Fair value as of December 31, 2019
 
$
192,210,754

 
$
54,169,710

 
$
293,339

 
$
246,673,803

Net unrealized appreciation (depreciation) relating to Level 3 assets still held as of December 31, 2019 and reported within net unrealized appreciation (depreciation) in the Consolidated Statement of Operations for the three months ended December 31, 2019
 
$
(41,958
)
 
$
(135,068
)
 
$

 
$
(177,026
)
__________ 
(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 change in the number of market quotes available and/or a change in 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:
 
 
Investments
 
 
 
 
 
 
 
 
 
 
 
Senior Secured Debt
 
OCSI Glick JV Subordinated Notes
 
Equity Securities
 
Total Investments
Fair value as of September 30, 2018
 
$
182,756,067

 
$
58,512,170

 
$
1,962,245

 
$
243,230,482

Purchases
 
16,529,814

 

 

 
16,529,814

Sales and repayments
 
(17,092,919
)
 
(61,619
)
 
(1,875,587
)
 
(19,030,125
)
Transfers in (a)
 
15,067,020

 

 

 
15,067,020

Accretion of OID
 
255,666

 

 

 
255,666

Net unrealized appreciation (depreciation)
 
(2,450,047
)
 
(3,915,242
)
 
(1,252,591
)
 
(7,617,880
)
Net realized gains (losses)
 

 

 
1,375,587

 
1,375,587

Fair value as of December 31, 2018
 
$
195,065,601

 
$
54,535,309

 
$
209,654

 
$
249,810,564

Net unrealized appreciation (depreciation) relating to Level 3 assets still held as of December 31, 2018 and reported within net unrealized appreciation (depreciation) in the Consolidated Statement of Operations for the three months ended December 31, 2018
 
$
(2,376,135
)
 
$
(3,915,242
)
 
$
6,359

 
$
(6,285,018
)
__________ 
(a)
There were transfers into Level 3 from Level 2 for certain investments during the three months ended December 31, 2018 as a result of a change in the number of market quotes available and/or a change in market liquidity.

26

OAKTREE STRATEGIC INCOME CORPORATION
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 Loans
 
$
85,548,961

 
Market Yield
 
Market Yield
 
(b)
6.7%
-
13.0%
 
9.4%
 
 
82,482,751

 
Broker Quotations
 
Broker Quoted Price
 
(c)
N/A
-
N/A
 
N/A
 
 
20,809,198

 
Enterprise Value
 
EBITDA Multiple
 
(d)
5.6x
-
7.6x
 
6.6x
 
 
3,369,844

 
Transactions Precedent
 
Transaction Price
 
(e)
N/A
-
N/A
 
N/A
OCSI Glick JV Subordinated Notes
 
54,169,710

 
Enterprise Value
 
N/A
 
(f)
N/A
-
N/A
 
N/A
Equity Securities
 
293,339

 
Enterprise Value
 
EBITDA Multiple
 
(d)
16.0x
-
18.0x
 
17.0x
Total
 
$
246,673,803

 
 
 
 
 
 
 
 
 
 
 
_____________________
(a) Weighted averages are calculated based on fair value of investments.
(b) Used when market participants 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 Oaktree.
(d) Used when market participants would use such multiples when pricing the investment.
(e) Used when there is an observable transaction or pending event for the investment.
(f) The Company determined the value of its subordinated notes of the OCSI Glick JV based on the total assets less the total liabilities senior to the subordinated notes held at the OCSI Glick JV in an amount not exceeding par under the EV technique.
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 Loans
 
$
92,083,082

 
Market Yield
 
Market Yield
 
(b)
6.7%
-
13.0%
 
8.9%
 
 
67,340,586

 
Broker Quotations
 
Broker Quoted Price
 
(c)
N/A
-
N/A
 
N/A
 
 
20,960,795

 
Enterprise Value
 
EBITDA Multiple
 
(d)
4.2x
-
6.2x
 
5.2x
 
 
1,500,000

 
Transactions Precedent
 
Transaction Price
 
(e)
N/A
-
N/A
 
N/A
OCSI Glick JV Subordinated Notes
 
54,326,418

 
Enterprise Value
 
N/A
 
(f)
N/A
-
N/A
 
N/A
Equity Securities
 
293,339

 
Enterprise Value
 
EBITDA Multiple
 
(d)
16.0x
-
18.0x
 
17.0x
Total
 
$
236,504,220

 
 
 
 
 
 
 
 
 
 
 
_____________________
(a) Weighted averages are calculated based on fair value of investments.
(b) Used when market participants 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 Oaktree.
(d) Used when market participants would use such multiples when pricing the investment.
(e) Used when there is an observable transaction or pending event for the investment.

27

OAKTREE STRATEGIC INCOME CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(f) The Company determined the value of its subordinated notes of the OCSI Glick JV based on the total assets less the total liabilities senior to the subordinated notes held at the OCSI Glick JV in an amount not exceeding par under the EV technique.
Under the market yield technique, the significant unobservable input used in the fair value measurement of the Company's investments in debt securities is the market yield. Increases or decreases in the market yield may result in a lower or higher fair value measurement, respectively.
Under the enterprise value technique, the significant unobservable input used in the fair value measurement of the Company's investments in debt or equity securities is the earnings before interest, taxes, depreciation and amortization ("EBITDA"), revenue or asset multiple, as applicable. Increases or decreases in the valuation multiples in isolation may result in a higher or lower fair value measurement, respectively.
Financial Instruments Disclosed, But Not Carried, At Fair Value
The following table presents the carrying value and fair value of the Company’s financial liabilities disclosed, but not carried, at fair value as of December 31, 2019 and the level of each financial liability within the fair value hierarchy: 
 
 
Carrying
 Value
 
Fair Value
 
Level 1
 
Level 2
 
Level 3
Citibank Facility payable
 
$
126,056,800

 
$
126,056,800

 
$

 
$

 
$
126,056,800

East West Bank Facility payable
 
15,500,000

 
15,500,000

 

 

 
15,500,000

Deutsche Bank Facility payable
 
164,600,000

 
164,600,000

 

 

 
164,600,000

Total
 
$
306,156,800

 
$
306,156,800

 
$

 
$


$
306,156,800


The following table presents the carrying value and fair value of the Company’s financial liabilities disclosed, but not carried, at fair value as of September 30, 2019 and the level of each financial liability within the fair value hierarchy:
 
 
Carrying
 Value
 
Fair Value
 
Level 1
 
Level 2
 
Level 3
Citibank Facility payable
 
$
126,056,800

 
$
126,056,800

 
$

 
$

 
$
126,056,800

East West Bank Facility payable
 
11,000,000

 
11,000,000

 

 

 
11,000,000

Deutsche Bank Facility payable
 
157,600,000

 
157,600,000

 

 

 
157,600,000

Total
 
$
294,656,800

 
$
294,656,800

 
$

 
$

 
$
294,656,800

The principal values of the credit facilities payable approximate their fair values due to their variable interest rates and are included in Level 3 of the hierarchy.

Portfolio Composition
 Summaries of the composition of the Company's portfolio at cost as a percentage of total investments and at fair value as a percentage of total investments and net assets are shown in the following tables:
 
 
 
December 31, 2019
 
September 30, 2019
Cost:
 
 
 
 % of Total Investments
 
 
 
 % of Total Investments
Senior secured loans
 
$
538,934,038

 
88.05
%
 
$
553,679,070

 
88.33
%
OCSI Glick JV subordinated notes
 
66,056,273

 
10.79
%
 
66,077,913

 
10.54
%
OCSI Glick JV equity interests
 
7,111,751

 
1.16
%
 
7,111,751

 
1.13
%
Equity securities, excluding the OCSI Glick JV
 

 

 

 

Total
 
$
612,102,062

 
100.00
%
 
$
626,868,734

 
100.00
%
 
 
December 31, 2019
 
September 30, 2019
Fair Value:
 
 
 
 % of Total Investments
 
% of Net Assets
 
 
 
 % of Total Investments
 
% of Net Assets
Senior secured loans
 
$
529,990,698

 
90.68
%
 
185.30
%
 
$
542,484,690

 
90.85
%
 
190.70
%
OCSI Glick JV subordinated notes
 
54,169,710

 
9.27
%
 
18.94
%
 
54,326,418

 
9.10
%
 
19.10
%
Equity securities, excluding the OCSI Glick JV
 
293,339

 
0.05
%
 
0.10
%
 
293,339

 
0.05
%
 
0.10
%
OCSI Glick JV equity interests
 

 

 

 

 

 

Total
 
$
584,453,747

 
100.00
%
 
204.34
%
 
$
597,104,447

 
100.00
%
 
209.90
%


28

OAKTREE STRATEGIC INCOME CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The geographic composition is determined by the location of the corporate headquarters of the portfolio company, which may not be indicative of the primary source of the portfolio company's business. The following tables show the composition of the Company's portfolio 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
Northeast
 
$
177,116,603

 
28.92
%
 
$
163,840,735

 
26.13
%
West
 
137,088,963

 
22.40
%
 
156,427,384

 
24.95
%
Midwest
 
92,986,539

 
15.19
%
 
90,085,074

 
14.37
%
Southwest
 
86,100,091

 
14.07
%
 
94,396,340

 
15.06
%
Southeast
 
62,139,397

 
10.15
%
 
65,420,955

 
10.44
%
International
 
40,133,289

 
6.56
%
 
40,156,268

 
6.41
%
Northwest
 
10,500,556

 
1.72
%
 
10,490,760

 
1.67
%
South
 
6,036,624

 
0.99
%
 
6,051,218

 
0.97
%
Total
 
$
612,102,062

 
100.00
%
 
$
626,868,734

 
100.00
%
 
 
December 31, 2019
 
September 30, 2019
Fair Value:
 
 
 
 % of Total Investments
 
% of Net Assets
 
 
 
 % of Total Investments
 
% of Net Assets
Northeast
 
$
158,787,289

 
27.19
%
 
55.50
%
 
$
145,176,830

 
24.31
%
 
51.04
%
West
 
136,086,115

 
23.28
%
 
47.58
%
 
154,984,247

 
25.95
%
 
54.46
%
Midwest
 
92,592,118

 
15.84
%
 
32.39
%
 
88,834,091

 
14.88
%
 
31.24
%
Southwest
 
81,427,080

 
13.93
%
 
28.47
%
 
90,401,243

 
15.14
%
 
31.78
%
Southeast
 
58,871,589

 
10.07
%
 
20.58
%
 
62,741,930

 
10.51
%
 
22.06
%
International
 
40,154,270

 
6.87
%
 
14.04
%
 
38,583,801

 
6.46
%
 
13.56
%
Northwest
 
10,486,714

 
1.79
%
 
3.67
%
 
10,483,298

 
1.76
%
 
3.69
%
South
 
6,048,572

 
1.03
%
 
2.11
%
 
5,899,007

 
0.99
%
 
2.07
%
Total
 
$
584,453,747

 
100.00
%
 
204.34
%
 
$
597,104,447

 
100.00
%
 
209.90
%



29

OAKTREE STRATEGIC INCOME CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The following tables show 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:
 
December 31, 2019
 
September 30, 2019
Cost:
 
 
 % of Total Investments
 
 
 
 % of Total Investments
Application Software
$
83,405,669

 
13.62
%
 
$
81,483,953

 
12.98
%
Multi-Sector Holdings (1)
73,168,024

 
11.95

 
73,189,664

 
11.68

Aerospace & Defense
30,763,715

 
5.03

 
32,851,441

 
5.24

Diversified Support Services
27,386,823

 
4.47

 
27,474,583

 
4.38

Advertising
23,928,301

 
3.91

 
24,102,621

 
3.84

Internet Services & Infrastructure
17,854,421

 
2.92

 
28,457,280

 
4.54

Systems Software
17,411,539

 
2.84

 
15,530,330

 
2.48

Data Processing & Outsourced Services
17,336,430

 
2.83

 
16,648,375

 
2.66

Movies & Entertainment
15,526,889

 
2.54

 
9,656,395

 
1.54

Commercial Printing
15,409,002

 
2.52

 
15,457,725

 
2.47

Specialized Finance
15,324,204

 
2.50

 
15,215,979

 
2.43

Oil & Gas Exploration & Production
14,629,686

 
2.39

 
14,662,039

 
2.34

Health Care Services
13,162,921

 
2.15

 
17,175,085

 
2.74

Integrated Telecommunication Services
12,873,479

 
2.10

 
17,406,502

 
2.78

Pharmaceuticals
12,485,807

 
2.04

 
12,626,920

 
2.01

Research & Consulting Services
12,360,836

 
2.02

 
9,887,627

 
1.58

Oil & Gas Refining & Marketing
11,803,973

 
1.93

 
11,832,244

 
1.89

Interactive Media & Services
11,793,745

 
1.93

 
11,821,820

 
1.89

Metal & Glass Containers
11,700,369

 
1.91

 
8,850,147

 
1.41

Alternative Carriers
11,000,281

 
1.80

 
16,926,483

 
2.70

Health Care Technology
10,870,469

 
1.78

 
10,897,989

 
1.74

Computer & Electronics Retail
10,781,100

 
1.76

 
10,808,325

 
1.72

Publishing
10,265,063

 
1.68

 
10,291,050

 
1.64

Real Estate Services
9,813,804

 
1.60

 
9,832,986

 
1.57

IT Consulting & Other Services
9,660,669

 
1.58

 
9,683,496

 
1.54

Leisure Facilities
8,971,093

 
1.47

 
8,992,137

 
1.43

Trading Companies & Distributors
8,912,212

 
1.46

 
8,943,835

 
1.43

Communications Equipment
8,896,969

 
1.45

 
9,740,555

 
1.55

Health Care Equipment
8,865,450

 
1.45

 
8,887,725

 
1.42

Industrial Machinery
8,773,265

 
1.43

 
9,319,898

 
1.49

Specialized REITs
8,636,987

 
1.41

 
8,642,094

 
1.38

Biotechology
7,920,075

 
1.29

 
7,930,000

 
1.27

Household Appliances
6,842,400

 
1.12

 
6,857,242

 
1.09

Electrical Components & Equipment
6,342,528

 
1.04

 
6,363,049

 
1.02

Auto Parts & Equipment
5,734,522

 
0.94

 
5,749,771

 
0.92

Household Products
5,023,942

 
0.82

 
5,025,753

 
0.80

Health Care Supplies
4,975,000

 
0.81

 

 

Specialty Chemicals
4,672,787

 
0.76

 
4,686,365

 
0.75

Environmental & Facilities Services
3,924,821

 
0.64

 
4,214,058

 
0.67

Independent Power Producers & Energy Traders
3,374,478

 
0.55

 

 

Personal Products
2,985,000

 
0.49

 
2,985,000

 
0.48

Managed Health Care
2,969,981

 
0.49

 

 

Property & Casualty Insurance
2,004,947

 
0.33

 

 

General Merchandise Stores
1,558,386

 
0.25

 
1,549,641

 
0.25

Human Resource & Employment Services

 

 
8,099,807

 
1.29

Commodity Chemicals

 

 
4,920,165

 
0.78

Oil & Gas Equipment & Services

 

 
631,923

 
0.10

Oil & Gas Storage & Transportation

 

 
558,657

 
0.09

Total
$
612,102,062

 
100.00
%

$
626,868,734

 
100.00
%

30

OAKTREE STRATEGIC INCOME CORPORATION
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
$
83,460,807

 
14.28
%
 
29.16
%
 
$
80,958,933

 
13.52
%
 
28.46
%
Multi-Sector Holdings (1)
54,169,710

 
9.27

 
18.94

 
54,326,418

 
9.10

 
19.10

Aerospace & Defense
30,522,722

 
5.22

 
10.69

 
32,504,494

 
5.44

 
11.42

Diversified Support Services
27,433,092

 
4.69

 
9.59

 
27,311,758

 
4.57

 
9.62

Advertising
20,809,198

 
3.56

 
7.28

 
20,960,795

 
3.51

 
7.37

Internet Services & Infrastructure
17,912,619

 
3.06

 
6.26

 
28,470,497

 
4.77

 
10.01

Data Processing & Outsourced Services
17,542,136

 
3.00

 
6.13

 
16,757,043

 
2.81

 
5.89

Systems Software
17,522,943

 
3.00

 
6.12

 
15,466,728

 
2.59

 
5.43

Movies & Entertainment
15,597,537

 
2.67

 
5.46

 
9,616,125

 
1.61

 
3.38

Commercial Printing
15,399,577

 
2.63

 
5.38

 
15,377,480

 
2.58

 
5.41

Specialized Finance
15,142,703

 
2.59

 
5.30

 
14,473,206

 
2.42

 
5.09

Health Care Services
13,208,064

 
2.26

 
4.61

 
17,176,083

 
2.88

 
6.03

Oil & Gas Exploration & Production
12,939,059

 
2.21

 
4.52

 
13,947,600

 
2.34

 
4.90

Research & Consulting Services
12,747,983

 
2.18

 
4.46

 
10,267,889

 
1.72

 
3.61

Integrated Telecommunication Services
12,572,618

 
2.15

 
4.39

 
17,138,851

 
2.87

 
6.03

Pharmaceuticals
12,014,932

 
2.06

 
4.20

 
12,082,358

 
2.02

 
4.25

Oil & Gas Refining & Marketing
11,945,569

 
2.04

 
4.18

 
11,970,818

 
2.00

 
4.21

Interactive Media & Services
11,916,458

 
2.04

 
4.17

 
11,880,796

 
1.99

 
4.17

Alternative Carriers
11,320,058

 
1.94

 
3.96

 
16,958,629

 
2.84

 
5.97

Health Care Technology
11,047,758

 
1.89

 
3.86

 
11,032,320

 
1.85

 
3.88

Metal & Glass Containers
10,797,906

 
1.85

 
3.77

 
8,387,578

 
1.40

 
2.95

Computer & Electronics Retail
10,790,193

 
1.85

 
3.77

 
10,781,031

 
1.81

 
3.79

Publishing
10,433,555

 
1.79

 
3.65

 
10,421,039

 
1.75

 
3.66

Real Estate Services
9,825,625

 
1.68

 
3.44

 
9,875,250

 
1.65

 
3.47

Leisure Facilities
8,955,432

 
1.53

 
3.13

 
8,979,519

 
1.50

 
3.16

Trading Companies & Distributors
8,885,087

 
1.52

 
3.11

 
8,929,919

 
1.50

 
3.14

Communications Equipment
8,829,017

 
1.51

 
3.09

 
9,361,407

 
1.57

 
3.29

Health Care Equipment
8,753,513

 
1.50

 
3.06

 
8,994,333

 
1.51

 
3.16

Specialized REITs
8,689,687

 
1.49

 
3.04

 
8,648,021

 
1.45

 
3.04

Industrial Machinery
8,617,917

 
1.47

 
3.01

 
9,206,556

 
1.54

 
3.24

Biotechnology
8,077,426

 
1.38

 
2.83

 
8,040,000

 
1.35

 
2.82

IT Consulting & Other Services
7,619,350

 
1.30

 
2.66

 
7,974,500

 
1.34

 
2.80

Household Appliances
6,774,338

 
1.16

 
2.37

 
6,661,922

 
1.12

 
2.34

Electrical Components & Equipment
6,505,339

 
1.11

 
2.27

 
6,009,639

 
1.01

 
2.11

Auto Parts & Equipment
5,596,383

 
0.96

 
1.96

 
5,385,930

 
0.90

 
1.89

Health Care Supplies
5,021,875

 
0.86

 
1.76

 

 

 

Household Products
4,922,500

 
0.84

 
1.72

 
4,756,250

 
0.80

 
1.67

Environmental & Facilities Services
3,734,391

 
0.64

 
1.31

 
3,975,425

 
0.67

 
1.40

Specialty Chemicals
3,614,673

 
0.62

 
1.26

 
3,687,132

 
0.62

 
1.30

Independent Power Producers & Energy Traders
3,369,844

 
0.58

 
1.18

 

 

 

Personal Products
3,032,400

 
0.52

 
1.06

 
3,017,820

 
0.51

 
1.06

Managed Health Care
2,973,871

 
0.51

 
1.04

 

 

 

Property & Casualty Insurance
2,029,250

 
0.35

 
0.71

 

 

 

General Merchandise Stores
1,378,632

 
0.24

 
0.48

 
1,425,618

 
0.24

 
0.50

Human Resource & Employment Services

 

 

 
8,008,543

 
1.34

 
2.81

Commodity Chemicals

 

 

 
4,931,156

 
0.83

 
1.73

Oil & Gas Storage & Transportation

 

 

 
556,541

 
0.09

 
0.20

Oil & Gas Equipment & Services

 

 

 
410,497

 
0.07

 
0.14

Total
$
584,453,747

 
100.00
%
 
204.34
%
 
$
597,104,447

 
100.00
%
 
209.90
%
___________________
(1)
This industry includes the Company's investment in the OCSI Glick JV.





31

OAKTREE STRATEGIC INCOME CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



No investment represented greater than 10% of the total investment portfolio at fair value as of each of December 31, 2019 and September 30, 2019. Income, consisting of interest, dividends, fees, other investment income and realization of gains or losses, can fluctuate upon repayment or sale of an investment and in any given period can be highly concentrated among several investments.

OCSI Glick JV
In October 2014, the Company entered into a limited liability company, or LLC agreement with GF Equity Funding 2014 LLC ("GF Equity Funding") to form the OCSI Glick JV. On April 21, 2015, the OCSI Glick JV began investing primarily in senior secured loans of middle-market companies. The Company co-invests in these securities with GF Equity Funding through the OCSI Glick JV. The OCSI Glick JV is managed by a four person Board of Directors, two of whom are selected by the Company and two of whom are selected by GF Equity Funding. The OCSI Glick JV is capitalized as transactions are completed, and portfolio decisions and investment decisions in respect of the OCSI Glick JV must be approved by the OCSI Glick JV investment committee, which consists of one representative selected by the Company and one representative selected by GF Equity Funding (with approval from a representative of each required). Since the Company does not have a controlling financial interest in the OCSI Glick JV, the Company does not consolidate the OCSI Glick JV. The members provide capital to the OCSI Glick JV in exchange for LLC equity interests, and the Company and GF Debt Funding 2014 LLC ("GF Debt Funding"), an entity advised by affiliates of GF Equity Funding, provide capital to the OCSI Glick JV in exchange for subordinated notes (the "Subordinated Notes"). As of December 31, 2019 and September 30, 2019, the Company and GF Equity Funding owned 87.5% and 12.5%, respectively, of the outstanding LLC equity interests, and the Company and GF Debt Funding owned 87.5% and 12.5%, respectively, of the Subordinated Notes. The OCSI Glick JV is not an "eligible portfolio company" as defined in section 2(a)(46) of the Investment Company Act.
The OCSI Glick JV's portfolio consisted of middle-market and other corporate debt securities of 42 and 39 portfolio companies as of December 31, 2019 and September 30, 2019, respectively. The portfolio companies in the OCSI Glick JV are in industries similar to those in which the Company may invest directly.
The OCSI Glick JV entered into a senior revolving credit facility with Deutsche Bank AG, New York Branch (the "JV Deutsche Bank Facility"), which, as of December 31, 2019, had a reinvestment period end date and maturity date of September 29, 2020 and March 29, 2024, respectively, and permitted borrowings of up to $125.0 million. Borrowings under the JV Deutsche Bank Facility are secured by all of the assets of the OCSI Glick JV and all of the equity interests in the OCSI Glick JV and, as of December 31, 2019, bore interest at a rate equal to 3-month LIBOR plus 1.95% per annum with no LIBOR floor. Under the JV Deutsche Bank Facility, $99.4 million and $91.9 million of borrowings were outstanding as of December 31, 2019 and September 30, 2019, respectively.
As of December 31, 2019 and September 30, 2019, the OCSI Glick JV had total assets of $171.4 million and $179.7 million, respectively. As of December 31, 2019, the Company's investment in the OCSI Glick JV consisted of LLC equity interests and Subordinated Notes of $54.2 million in the aggregate at fair value. As of September 30, 2019, the Company's investment in the OCSI Glick JV consisted of LLC equity interests and Subordinated Notes of $54.3 million in the aggregate at fair value. The Subordinated Notes are junior in right of payment to the repayment of temporary contributions made by the Company to fund investments of the OCSI Glick JV that are repaid when GF Equity Funding and GF Debt Funding make their capital contributions and fund their Subordinated Notes, respectively.
As of December 31, 2019 and September 30, 2019, the OCSI Glick JV had total capital commitments of $100.0 million, $87.5 million of which was from the Company and the remaining $12.5 million of which was from GF Equity Funding and GF Debt Funding. Approximately $84.0 million in aggregate commitments were funded as of each of December 31, 2019 and September 30, 2019, of which $73.5 million was from the Company. As of each of December 31, 2019 and September 30, 2019, the Company had commitments to fund Subordinated Notes to the OCSI Glick JV of $78.8 million, of which $12.4 million were unfunded as of each such date. As of each of December 31, 2019 and September 30, 2019, the Company had commitments to fund LLC equity interests in the OCSI Glick JV of $8.7 million, of which $1.6 million were unfunded.

32

OAKTREE STRATEGIC INCOME CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Below is a summary of the OCSI Glick JV's portfolio, followed by a listing of the individual loans in the OCSI Glick JV's portfolio as of December 31, 2019 and September 30, 2019:
 
 
December 31, 2019
 
September 30, 2019
Senior secured loans (1)
 
$163,491,961
 
$177,911,560
Weighted average current interest rate on senior secured loans (2)
 
6.69%
 
6.92%
Number of borrowers in the OCSI Glick JV
 
42
 
39
Largest loan exposure to a single borrower (1)
 
$6,912,500
 
$7,425,000
Total of five largest loan exposures to borrowers (1)
 
$32,167,329
 
$34,662,500
__________
(1) At principal amount.
(2) Computed using the weighted average annual interest rate on accruing senior secured loans at fair value.


OCSI Glick JV Portfolio as of December 31, 2019
Portfolio Company
Investment Type
 Cash Interest Rate (1)(2)
Industry
Principal
 
Cost
 
Fair Value (3)
Notes
AI Ladder (Luxembourg) Subco S.a.r.l.
First Lien Term Loan, LIBOR+4.50% cash due 7/9/2025
6.44%
Electrical Components & Equipment
$
2,707,174

 
$
2,642,720

 
$
2,710,558

(4)
Altice France S.A.
First Lien Term Loan, LIBOR+4.00% cash due 8/14/2026
5.74%
Integrated Telecommunication Services
2,970,000

 
2,907,864

 
2,981,449

 
Alvogen Pharma US, Inc.
First Lien Term Loan, LIBOR+4.75% cash due 4/1/2022
6.55%
Pharmaceuticals
6,619,829

 
6,436,801

 
5,803,384


Anastasia Parent, LLC
First Lien Term Loan, LIBOR+3.75% cash due 8/11/2025
5.68%
Personal Products
1,697,405

 
1,389,320

 
1,455,525

 
Ancile Solutions, Inc.
First Lien Term Loan, LIBOR+7.00% cash due 6/30/2021
8.94%
Application Software
3,346,869

 
3,331,897

 
3,286,625

(4)
Aptos, Inc.
First Lien Term Loan, LIBOR+5.50% cash due 7/23/2025
7.70%
Computer & Electronics Retail
2,970,000

 
2,940,300

 
2,942,780

(4)
Aurora Lux Finco S.À.R.L.
First Lien Term Loan, LIBOR+6.00% cash due 12/24/2026
7.93%
Airport Services
3,750,000

 
3,656,580

 
3,656,250

 
Brazos Delaware II, LLC
First Lien Term Loan, LIBOR+4.00% cash due 5/21/2025
5.79%
Oil & Gas Equipment & Services
4,925,000

 
4,906,037

 
4,235,500

 
California Pizza Kitchen, Inc.
First Lien Term Loan, LIBOR+6.00% cash due 8/23/2022
7.91%
Restaurants
4,837,500

 
4,825,848

 
4,221,323


CITGO Petroleum Corp.
First Lien Term Loan, LIBOR+5.00% cash due 3/28/2024
6.94%
Oil & Gas Refining & Marketing
3,970,000

 
3,930,300

 
3,994,813

(4)
Connect U.S. Finco LLC
First Lien Delayed Draw Term Loan, LIBOR+4.50% cash due 12/11/2026
6.29%
Alternative Carriers
2,044,728

 
1,945,239

 
2,081,828

(4)(5)
Cortes NP Acquisition Corporation
First Lien Term Loan, LIBOR+4.00% cash due 11/30/2023
5.93%
Electrical Components & Equipment
2,970,000

 
2,821,487

 
2,970,000

 
Covia Holdings Corporation
First Lien Term Loan, LIBOR+4.00% cash due 6/1/2025
6.04%
Oil & Gas Equipment & Services
6,912,500

 
6,912,500

 
5,366,381


Curium Bidco S.à.r.l.
First Lien Term Loan, LIBOR+4.00% cash due 7/9/2026
5.94%
Biotechnology
4,987,500

 
4,950,094

 
5,034,283

(4)
Ellie Mae, Inc.
First Lien Term Loan, LIBOR+4.00% cash due 4/17/2026
5.94%
Application Software
997,500

 
992,513

 
1,005,610

(4)
eResearch Technology, Inc.
First Lien Term Loan, LIBOR+4.50% cash due 11/20/2026
6.39%
Application Software
2,500,000

 
2,475,000

 
2,523,438

(4)
Falmouth Group Holdings Corp.
First Lien Term Loan, LIBOR+6.75% cash due 12/14/2021
8.55%
Specialty Chemicals
4,658,544

 
4,626,032

 
4,631,329


Frontier Communications Corporation
First Lien Term Loan, LIBOR+3.75% cash due 6/15/2024
5.55%
Integrated Telecommunication Services
3,958,074

 
3,893,812

 
3,985,839

(4)
Gigamon, Inc.
First Lien Term Loan, LIBOR+4.25% cash due 12/27/2024
6.04%
Systems Software
5,880,000

 
5,837,894

 
5,828,550


Guidehouse LLP
Second Lien Term Loan, LIBOR+8.00% cash due 5/1/2026
9.80%
Research & Consulting Services
5,000,000

 
4,980,091

 
4,925,000

(4)

33

OAKTREE STRATEGIC INCOME CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Portfolio Company
Investment Type
 Cash Interest Rate (1)(2)
Industry
Principal
 
Cost
 
Fair Value (3)
Notes
Helios Software Holdings, Inc.
First Lien Term Loan, LIBOR+4.25% cash due 10/24/2025
6.18%
Systems Software
$
1,000,000

 
$
990,000

 
$
994,690

(4)
Houghton Mifflin Harcourt Publishers Inc.
First Lien Term Loan, LIBOR+6.25% cash due 11/22/2024
8.04%
Education Services
3,000,000

 
2,880,933

 
3,000,000

 
Indivior Finance S.a.r.l.
First Lien Term Loan, LIBOR+4.50% cash due 12/19/2022
6.43%
Pharmaceuticals
4,322,191

 
4,309,272

 
4,005,223

(4)
Integro Parent, Inc.
First Lien Term Loan, LIBOR+5.75% cash due 10/31/2022
7.55%
Insurance Brokers
3,315,762

 
3,273,903

 
3,266,026


Intelsat Jackson Holdings S.A.
First Lien Term Loan, LIBOR+3.75% cash due 11/27/2023
5.68%
Alternative Carriers
4,000,000

 
3,958,925

 
4,013,920


MHE Intermediate Holdings, LLC
First Lien Term Loan, LIBOR+5.00% cash due 3/8/2024
6.94%
Diversified Support Services
4,133,125

 
4,081,354

 
4,050,463

(4)
 
First Lien Delayed Draw Term Loan, LIBOR+5.00% cash due 3/8/2024
6.99%
Diversified Support Services
834,991

 
824,712

 
818,291

(4)
 Total MHE Intermediate Holdings, LLC
 
 
 
4,968,116

 
4,906,066

 
4,868,754

 
Navicure, Inc.
First Lien Term Loan, LIBOR+4.00% cash due 10/22/2026
5.80%
Health Care Technology
4,000,000

 
3,980,000

 
4,027,500


Northern Star Industries Inc.
First Lien Term Loan, LIBOR+4.50% cash due 3/31/2025
6.56%
Electrical Components & Equipment
5,403,750

 
5,383,467

 
5,322,694


Novetta Solutions, LLC
First Lien Term Loan, LIBOR+5.00% cash due 10/17/2022
6.80%
Application Software
5,853,384

 
5,811,162

 
5,767,047


OEConnection LLC
First Lien Term Loan, LIBOR+4.00% cash due 9/25/2026
5.80%
Application Software
3,644,545

 
3,626,323

 
3,667,324

(4)
 
First Lien Delayed Draw Term Loan, LIBOR+4.00% cash due 9/25/2026
 
Application Software

 
(1,675
)
 
2,165

(4)(5)
 Total OEConnection LLC
 
 
 
3,644,545

 
3,624,648

 
3,669,489

 
Red Ventures, LLC
First Lien Term Loan, LIBOR+3.00% cash due 11/8/2024
4.80%
Interactive Media & Services
3,979,849

 
3,961,607

 
4,013,240


Sabert Corporation
First Lien Term Loan, LIBOR +4.50% cash due 12/10/2026
6.25%
Metal & Glass Containers
2,900,000

 
2,871,000

 
2,930,218

(4)
SHO Holding I Corporation
First Lien Term Loan, LIBOR+5.00% cash due 10/27/2022
6.93%
Footwear
6,240,000

 
6,214,046

 
5,584,800


Signify Health, LLC
First Lien Term Loan, LIBOR+4.50% cash due 12/23/2024
6.44%
Health Care Services
5,895,000

 
5,852,206

 
5,887,631

(4)
Sunshine Luxembourg VII SARL
First Lien Term Loan, LIBOR+4.25% cash due 10/1/2026
6.19%
Personal Products
6,500,000

 
6,467,500

 
6,570,200

(4)
Supermoose Borrower, LLC
First Lien Term Loan, LIBOR+3.75% cash due 8/29/2025
5.55%
Application Software
2,771,770

 
2,560,038

 
2,654,468

(4)
Thunder Finco (US), LLC
First Lien Term Loan, LIBOR +4.25% cash due 11/26/2026
6.04%
Movies & Entertainment
3,000,000

 
2,970,000

 
3,000,000

(4)
Tribe Buyer LLC
First Lien Term Loan, LIBOR+4.50% cash due 2/16/2024
6.30%
Human Resource & Employment Services
1,617,579

 
1,614,811

 
1,362,811


Triple Royalty Sub LLC
Fixed Rate Bond 144A 9.00% cash due 4/15/2033
 
Pharmaceuticals
2,972,808

 
2,972,808

 
3,076,856

 
UFC Holdings, LLC
First Lien Term Loan, LIBOR+3.25% cash due 4/29/2026
5.05%
Movies & Entertainment
2,487,147

 
2,487,147

 
2,507,006

(4)
Verra Mobility, Corp.
First Lien Term Loan, LIBOR+3.75% cash due 2/28/2025
5.55%
Data Processing & Outsourced Services
4,917,437

 
4,901,740

 
4,956,383

(4)
WP CPP Holdings, LLC
Second Lien Term Loan, LIBOR+7.75% cash due 4/30/2026
9.68%
Aerospace & Defense
3,000,000

 
2,975,327

 
2,964,390

(4)
 Total Portfolio Investments
 
 
 
$
163,491,961

 
$
161,368,935

 
$
158,083,811

 
__________
(1) Represents the current interest rate as of December 31, 2019. All interest rates are payable in cash, unless otherwise noted.
(2) The interest rate on the principal balance outstanding for all floating rate loans is indexed to LIBOR and/or an alternate base rate (e.g., prime rate), which typically resets semi-annually, quarterly, or monthly at the borrower's option. The borrower may also elect to have multiple interest reset periods for each loan. For each of these loans, the Company has provided the applicable margin over LIBOR or the alternate base rate based on each respective credit agreement and the cash interest rate as of period end. All LIBOR shown above is in U.S. dollars. As of December 31, 2019, the reference rates for the OCSI Glick JV'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 180-day LIBOR at 1.92%. Most loans include an interest floor, which generally ranges from 0% to 1%.

34

OAKTREE STRATEGIC INCOME CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(3) Represents the current determination of fair value as of December 31, 2019 utilizing a similar technique as the Company in accordance with ASC 820. However, the determination of such fair value is not included in the Company's Board of Directors' valuation process described elsewhere herein.
(4) This investment is held by both the Company and the OCSI Glick JV as of December 31, 2019.
(5) 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.


OCSI Glick JV Portfolio as of September 30, 2019
Portfolio Company
Investment Type
 Cash Interest Rate (1)(2)
Industry
Principal
 
Cost
 
Fair Value (3)
Notes
AI Ladder (Luxembourg) Subco S.a.r.l.
First Lien Term Loan, LIBOR+4.50% cash due 7/9/2025
6.60%
Electrical components & equipment
$
2,718,993

 
$
2,651,270

 
$
2,504,016

(4)
Air Newco LP
First Lien Term Loan, LIBOR+4.75% cash due 5/31/2024
6.79%
IT consulting & other services
7,425,000

 
7,406,438

 
7,437,400

 
AL Midcoast Holdings LLC
First Lien Term Loan, LIBOR+5.50% cash due 8/1/2025
7.60%
Oil & gas storage & transportation
6,930,000

 
6,860,699

 
6,834,712

(4)
Altice France S.A.
First Lien Term Loan, LIBOR+4.00% cash due 8/14/2026
6.03%
Integrated telecommunication services
2,977,500

 
2,912,809

 
2,975,639

 
Alvogen Pharma US, Inc.
First Lien Term Loan, LIBOR+4.75% cash due 4/1/2022
6.79%
Pharmaceuticals
5,359,286

 
5,359,286

 
4,874,270

 
Ancile Solutions, Inc.
First Lien Term Loan, LIBOR+7.00% cash due 6/30/2021
9.10%
Application software
3,395,374

 
3,377,463

 
3,327,467

(4)
Aptos, Inc.
First Lien Term Loan, LIBOR+5.50% cash due 7/23/2025
7.70%
Computer & electronics retail
2,977,500

 
2,947,725

 
2,940,281

(4)
Brazos Delaware II, LLC
First Lien Term Loan, LIBOR+4.00% cash due 5/21/2025
6.05%
Oil & gas equipment & services
4,937,500

 
4,917,589

 
4,570,273

 
California Pizza Kitchen, Inc.
First Lien Term Loan, LIBOR+6.00% cash due 8/23/2022
8.53%
Restaurants
4,850,000

 
4,838,318

 
4,349,868

 
CITGO Petroleum Corp.
First Lien Term Loan, LIBOR+5.00% cash due 3/28/2024
7.10%
Oil & gas refining & marketing
3,980,000

 
3,940,200

 
4,004,875

(4)
Connect U.S. Finco LLC
First Lien Term Loan, LIBOR+4.50% cash due 9/23/2026
7.10%
Alternative Carriers
5,000,000

 
4,900,000

 
4,930,075

(4)
Covia Holdings Corporation
First Lien Term Loan, LIBOR+4.00% cash due 6/1/2025
6.31%
Oil & gas equipment & services
6,912,500

 
6,912,500

 
5,673,745

 
Curium Bidco S.à r.l.
First Lien Term Loan, LIBOR+4.00% cash due 7/9/2026
6.10%
Biotechnology
5,000,000

 
4,962,500

 
5,025,000

(4)
Ellie Mae, Inc.
First Lien Term Loan, LIBOR+4.00% cash due 4/17/2026
6.04%
Application software
1,000,000

 
995,000

 
1,002,920

(4)
Falmouth Group Holdings Corp.
First Lien Term Loan, LIBOR+6.75% cash due 12/14/2021
8.95%
Specialty chemicals
4,658,544

 
4,626,032

 
4,632,004

 
Frontier Communications Corporation
First Lien Term Loan, LIBOR+3.75% cash due 6/15/2024
5.80%
Integrated telecommunications services
5,468,222

 
5,365,594

 
5,466,281

(4)
Gigamon, Inc.
First Lien Term Loan, LIBOR+4.25% cash due 12/27/2024
6.29%
Systems software
5,895,000

 
5,850,631

 
5,732,888

 
Guidehouse LLP
Second Lien Term Loan, LIBOR+7.50% cash due 5/1/2026
9.54%
Research & consulting services
5,000,000

 
4,979,290

 
4,937,500

(4)
Indivior Finance S.a.r.l.
First Lien Term Loan, LIBOR+4.50% cash due 12/19/2022
6.76%
Pharmaceuticals
4,340,941

 
4,326,851

 
3,997,290

(4)
Integro Parent, Inc.
First Lien Term Loan, LIBOR+5.75% cash due 10/31/2022
7.80%
Insurance brokers
4,813,924

 
4,744,243

 
4,681,541

 
Intelsat Jackson Holdings S.A.
First Lien Term Loan, LIBOR+3.75% cash due 11/27/2023
5.80%
Alternative Carriers
5,000,000

 
4,939,169

 
5,021,100

 
McDermott Technology (Americas), Inc.
First Lien Term Loan, LIBOR+5.00% cash due 5/9/2025
7.10%
Oil & gas equipment & services
1,429,306

 
1,406,187

 
913,565

(4)
MHE Intermediate Holdings, LLC
First Lien Term Loan, LIBOR+5.00% cash due 3/8/2024
7.10%
Diversified support services
4,143,750

 
4,089,029

 
4,060,875

(4)
 
First Lien Delayed Draw Term Loan, LIBOR+5.00% cash due 3/8/2024
7.10%
Diversified support services
837,128

 
826,823

 
820,385

(4)
 Total MHE Intermediate Holdings, LLC
 
 
 
4,980,878

 
4,915,852

 
4,881,260

 
Navicure, Inc.
First Lien Term Loan, LIBOR+4.00% cash due 9/18/2026
6.13%
Healthcare technology
4,000,000

 
3,980,000

 
4,005,000

 

35

OAKTREE STRATEGIC INCOME CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Portfolio Company
Investment Type
 Cash Interest Rate (1)(2)
Industry
Principal
 
Cost
 
Fair Value (3)
Notes
Northern Star Industries Inc.
First Lien Term Loan, LIBOR+4.50% cash due 3/31/2025
6.56%
Electrical components & equipment
$
5,417,500

 
$
5,396,178

 
$
5,336,238

 
Novetta Solutions, LLC
First Lien Term Loan, LIBOR+5.00% cash due 10/17/2022
7.05%
Application software
5,868,628

 
5,824,577

 
5,760,440

 
OCI Beaumont LLC
First Lien Term Loan, LIBOR+4.00% cash due 3/13/2025
6.10%
Commodity chemicals
6,895,000

 
6,888,231

 
6,903,619

(4)
OEConnection LLC
First Lien Delayed Draw Term Loan, LIBOR+4.00% cash due 9/24/2026
 
Application software

 
(1,720
)
 
(645
)
(4)(5)
 
First Lien Term Loan, LIBOR+4.00% cash due 9/24/2026
6.13%
Application software
3,655,914

 
3,637,634

 
3,649,059

(4)
 Total OEConnection LLC
 
 
 
3,655,914

 
3,635,914

 
3,648,414

 
Red Ventures, LLC
First Lien Term Loan, LIBOR+3.00% cash due 11/8/2024
5.04%
Interactive media & services
3,989,924

 
3,970,677

 
4,010,712

 
RSC Acquisition, Inc.
First Lien Term Loan, LIBOR+4.25% cash due 11/30/2022
6.29%
Trading companies & distributors
3,849,574

 
3,835,594

 
3,820,702

 
Servpro Borrower, LLC
First Lien Term Loan, PRIME+2.50% cash due 3/26/2026
7.50%
Specialized consumer services
3,980,000

 
3,970,050

 
3,984,975

 
SHO Holding I Corporation
First Lien Term Loan, LIBOR+5.00% cash due 10/27/2022
7.26%
Footwear
6,256,250

 
6,227,881

 
5,943,438

 
Signify Health, LLC
First Lien Term Loan, LIBOR+4.50% cash due 12/23/2024
6.60%
Healthcare services
5,910,000

 
5,864,902

 
5,902,613

(4)
Sunshine Luxembourg VII SARL
First Lien Term Loan, LIBOR+4.25% cash due 9/25/2026
6.59%
Personal products
6,500,000

 
6,467,500

 
6,538,610

(4)
Tribe Buyer LLC
First Lien Term Loan, LIBOR+4.50% cash due 2/16/2024
6.54%
Human resources & employment services
3,114,779

 
3,109,120

 
2,907,133

(4)
Triple Royalty Sub LLC
Fixed Rate Bond 144A 9.0% Toggle PIK cash due 4/15/2033
 
Pharmaceuticals
3,000,000

 
3,000,000

 
3,105,000

 
UFC Holdings, LLC
First Lien Term Loan, LIBOR+3.25% cash due 4/29/2026
5.30%
Movies & entertainment
2,493,573

 
2,493,573

 
2,503,099

(4)
Verra Mobility, Corp.
First Lien Term Loan, LIBOR+3.75% cash due 2/28/2025
5.79%
Data processing & outsourced services
4,929,950

 
4,913,436

 
4,956,645

(4)
WP CPP Holdings, LLC
Second Lien Term Loan, LIBOR+7.75% cash due 4/30/2026
10.01%
Aerospace & defense
3,000,000

 
2,974,333

 
2,987,490

(4)
 Total Portfolio Investments
 
 
 
$
177,911,560

 
$
176,687,612

 
$
173,028,098

 
 
________
(1) Represents the current interest rate as of September 30, 2019. All interest rates are payable in cash, unless otherwise noted.
(2) The interest rate on the principal balance outstanding for all floating rate loans is indexed to LIBOR and/or an alternate base rate (e.g., prime rate), which typically resets semi-annually, quarterly, or monthly at the borrower's option. The borrower may also elect to have multiple interest reset periods for each loan. For each of these loans, the Company has provided the applicable margin over LIBOR or the alternate base rate based on each respective credit agreement and the cash interest rate as of period end. All LIBOR shown above is in U.S. dollars. As of September 30, 2019, the reference rates for the OCSI Glick JV'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%, the 180-day LIBOR at 2.06% and the PRIME at 5.00%. Most loans include an interest floor, which generally ranges from 0% to 1%.
(3) Represents the current determination of fair value as of September 30, 2019 utilizing a similar technique as the Company in accordance with ASC 820. However, the determination of such fair value is not included in the Company's Board of Directors' valuation process described elsewhere herein.
(4) This investment is held by both the Company and the OCSI Glick JV as of September 30, 2019.
(5) Investment had 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.


The cost and fair value of the Company's aggregate investment in the OCSI Glick JV was $73.2 million and $54.2 million, respectively, as of December 31, 2019 and $73.2 million and $54.3 million, respectively, as of September 30, 2019. As of December 31, 2019 and September 30, 2019, the Subordinated Notes bore a weighted average interest rate of LIBOR plus 6.5% per annum. For the three months ended December 31, 2019 and 2018, the Company earned interest income of $1.4 million and $1.5 million, respectively, on its investment in the Subordinated Notes. The Company did not earn any dividend income for the three months ended December 31, 2019 and 2018 with respect to its investment in the LLC equity interests of the OCSI Glick JV. The LLC equity interests of the OCSI Glick JV are income producing to the extent there is residual cash to be distributed on a quarterly basis.

36

OAKTREE STRATEGIC INCOME CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Below is certain summarized financial information for the OCSI Glick JV as of December 31, 2019 and September 30, 2019 and for the three months ended December 31, 2019 and 2018:
 
 
December 31, 2019
 
September 30, 2019
Selected Balance Sheet Information:
 
 
 
 
Investments at fair value (cost December 31, 2019: $161,368,935; cost September 30, 2019: $176,687,612)
 
$
158,083,811

 
$
173,028,098

Cash and cash equivalents
 
5,524,662

 
1,096,498

Restricted cash
 
2,515,205

 
2,616,125

Due from portfolio companies
 
94,175

 

Other assets
 
5,210,898

 
2,937,681

Total assets
 
$
171,428,751

 
$
179,678,402

 
 
 
 
 
Senior credit facility payable
 
$
99,381,939

 
$
91,881,939

Subordinated notes payable at fair value (proceeds December 31, 2019: $75,492,882; proceeds September 30, 2019: $75,517,614)
 
61,907,548

 
62,087,348

Other liabilities
 
10,139,264

 
25,709,115

Total liabilities
 
$
171,428,751

 
$
179,678,402

Members' equity
 

 

Total liabilities and members' equity
 
$
171,428,751

 
$
179,678,402

 
 
Three months ended
December 31, 2019
 
Three months ended
December 31, 2018
Selected Statements of Operations Information:
 
 
 
 
Interest income
 
$
2,857,253

 
$
3,079,856

Fee income
 
27,710

 

Total investment income
 
2,884,963

 
3,079,856

Interest expense
 
2,702,956

 
2,912,745

Other expenses
 
67,268

 
43,112

Total expenses (1)
 
2,770,224

 
2,955,857

Net unrealized appreciation (depreciation)
 
529,458

 
(128,702
)
Realized gain (loss)
 
(644,197
)
 
4,703

Net income (loss)
 
$

 
$

__________
(1) There are no management fees or incentive fees charged at the OCSI Glick JV.
The OCSI Glick JV has elected to fair value the Subordinated Notes issued to the Company and GF Debt Funding under FASB ASC Topic 825, Financial Instruments - Fair Value Option. The Subordinated Notes are valued based on the total assets less the liabilities senior to the Subordinated Notes in an amount not exceeding par under the EV technique.
During the three months ended December 31, 2019 and 2018, the Company did not sell any debt investments to the OCSI Glick JV.
Note 4. Fee Income
For the three months ended December 31, 2019, the Company recorded total fee income of $0.4 million, of which $0.1 million, was recurring in nature. For the three months ended December 31, 2018, the Company recorded total fee income of less than $0.1 million. Recurring fee income primarily consists of servicing fees and exit fees.

37

OAKTREE STRATEGIC INCOME CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


Note 5. Share Data and Net Assets
Earnings per Share
The following table sets forth the computation of basic and diluted earnings per share, pursuant to FASB ASC Topic 260-10, Earnings per Share, for the three 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
 
$
6,134,254

 
$
(13,200,691
)
Weighted average common shares outstanding
 
29,466,768

 
29,466,768

Earnings (loss) per common share — basic and diluted
 
$
0.21

 
$
(0.45
)
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 Overdistributed Earnings
 
Total Net Assets
Balance at September 30, 2019
 
29,466,768

 
$
294,668

 
$
369,199,332

 
$
(85,043,994
)
 
$
284,450,006

Net investment income
 

 

 

 
4,727,580

 
4,727,580

Net unrealized appreciation (depreciation)
 

 

 

 
1,926,384

 
1,926,384

Net realized gains (losses)
 

 

 

 
(519,710
)
 
(519,710
)
Distributions to stockholders
 

 

 

 
(4,567,350
)
 
(4,567,350
)
Issuance of common stock under dividend reinvestment plan
 
7,793

 
78

 
64,256

 

 
64,334

Repurchases of common stock under dividend reinvestment plan
 
(7,793
)
 
(78
)
 
(64,256
)
 

 
(64,334
)
Balance at December 31, 2019
 
29,466,768

 
$
294,668

 
$
369,199,332

 
$
(83,477,090
)
 
$
286,016,910


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 Overdistributed Earnings
 
Total Net Assets
Balance at September 30, 2018
 
29,466,768

 
$
294,668

 
$
370,751,389

 
$
(75,300,637
)
 
$
295,745,420

Net investment income
 

 

 

 
4,863,537

 
4,863,537

Net unrealized appreciation (depreciation)
 

 

 

 
(19,760,624
)
 
(19,760,624
)
Net realized gains (losses)
 

 

 

 
1,696,396

 
1,696,396

Distributions to stockholders
 

 

 

 
(4,567,349
)
 
(4,567,349
)
Issuance of common stock under dividend reinvestment plan
 
6,888

 
69

 
54,042

 

 
54,111

Repurchases of common stock under dividend reinvestment plan
 
(6,888
)
 
(69
)
 
(54,042
)
 

 
(54,111
)
Balance at December 31, 2018
 
29,466,768

 
$
294,668

 
$
370,751,389

 
$
(93,068,677
)
 
$
277,977,380


Distributions
Distributions to common stockholders are recorded on the ex-dividend date. The amount to be paid out as a dividend is determined by the Board of Directors and is based on management’s estimate of the Company’s annual taxable income. Net realized capital gains, if any, may be distributed to stockholders or retained for reinvestment.
The Company has adopted a dividend reinvestment plan (“DRIP”) that provides for reinvestment of any distributions the Company declares in cash on behalf of its stockholders, unless a stockholder elects to receive cash. As a result, if the Company’s Board

38

OAKTREE STRATEGIC INCOME CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

of Directors declares a cash distribution, then the Company’s stockholders who have not “opted out” of the Company’s DRIP will have their cash distribution automatically reinvested in additional shares of the Company’s common stock, rather than receiving the cash distribution. If the Company’s shares are trading at a premium to net asset value, the Company typically issues new shares to implement the DRIP with such shares issued at the greater of the most recently computed net asset value per share of common stock or 95% of the current market price per share of common stock on the payment date for such distribution. If the Company’s shares are trading at a discount to net asset value, the Company typically purchases shares in the open market in connection with the Company’s obligations under the DRIP.
For income tax purposes, the Company has reported its distributions for the 2019 calendar year as ordinary income. The character of such distributions was appropriately reported to the Internal Revenue Service and stockholders for the 2019 calendar year. To the extent the Company’s taxable earnings for a fiscal and taxable year fall below the amount of distributions paid for the fiscal and taxable year, a portion of the total amount of the Company’s distributions for the fiscal and taxable year is deemed a return of capital for tax purposes to the Company’s stockholders.
The following table reflects the quarterly distributions per share that the Company has paid, including shares issued under the DRIP, on its common stock during the three months ended December 31, 2019 and 2018:
Date Declared
 
Record Date
 
Payment Date
 
Amount
per Share
 
Cash Distribution
 
DRIP Shares Issued (1)
 
DRIP Shares Value
November 12, 2019
 
December 13, 2019
 
December 31, 2019
 
$
0.155

 
$
4,503,016

 
7,793
 
$
64,334

Total for the three months ended December 31, 2019
 
$
0.155

 
$
4,503,016

 
7,793
 
$
64,334

Date Declared
 
Record Date
 
Payment Date
 
Amount
per Share
 
Cash Distribution
 
DRIP Shares Issued (1)
 
DRIP Shares Value
November 19, 2018
 
December 17, 2018
 
December 28, 2018
 
$
0.155

 
$
4,513,238

 
6,888
 
$
54,111

Total for the three months ended December 31, 2018
 
$
0.155

 
$
4,513,238

 
6,888
 
$
54,111

 __________
(1) Shares were purchased on the open market and distributed.
Common Stock Offering
There were no common stock offerings during the three months ended December 31, 2019 and 2018.
Note 6. Borrowings
Citibank Facility
On January 15, 2015, OCSI Senior Funding II LLC (formerly FS Senior Funding II LLC), the Company's wholly-owned, special purpose financing subsidiary, entered into a revolving credit facility (as amended, the "Citibank Facility") with the lenders referred to therein, Citibank, N.A., as administrative agent, and Wells Fargo Bank, N.A., as collateral agent and custodian.
As of December 31, 2019 and September 30, 2019, the Company was able to borrow $180 million under the Citibank Facility.  As of December 31, 2019, the reinvestment period under the Citibank Facility is scheduled to expire on July 19, 2021 and the maturity date for the Citibank Facility is July 18, 2023. 
As of December 31, 2019, borrowings under the Citibank Facility are subject to certain customary advance rates and accrue interest at a rate equal to LIBOR plus 1.70% per annum on broadly syndicated loans and LIBOR plus 2.25% per annum on all other eligible loans during the reinvestment period. Following termination of the reinvestment period, borrowings under the Citibank Facility will accrue interest at rates equal to LIBOR plus 3.50% per annum during the first year after the reinvestment period and LIBOR plus 4.00% per annum during the subsequent two years, respectively. In addition, as of December 31, 2019, for the duration of the reinvestment period there is a non-usage fee payable of 0.50% per annum on the undrawn amount under the Citibank Facility. As of December 31, 2019, the minimum asset coverage ratio applicable to the Company under the Citibank Facility is 150% as determined in accordance with the requirements of the Investment Company Act.
As of each of December 31, 2019 and September 30, 2019, the Company had $126.1 million outstanding under the Citibank Facility. Borrowings under the Citibank Facility are secured by all of the assets of OCSI Senior Funding II and all of the Company's equity interests in OCSI Senior Funding II. The Company may use the Citibank Facility to fund a portion of its loan origination activities and for general corporate purposes. Each loan origination under the Citibank Facility is subject to the satisfaction of certain conditions. The Company's borrowings under the Citibank Facility bore interest at a weighted average interest rate of 3.878% and 4.684% for the three months ended December 31, 2019, and 2018, respectively. For the three months ended December 31, 2019 and

39

OAKTREE STRATEGIC INCOME CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

2018, the Company recorded interest expense of $1.4 million (inclusive of fees) and $1.5 million (inclusive of fees), respectively, related to the Citibank Facility.
East West Bank Facility
On January 6, 2016, the Company entered into a five-year $25 million senior secured revolving credit facility with the lenders referenced therein, U.S. Bank National Association, as Custodian, and East West Bank as Secured Lender (as amended, the "East West Bank Facility"). As of December 31, 2019, the East West Bank Facility bears an interest rate of either LIBOR plus 2.85% per annum or East West Bank’s prime rate, in each case with a 3.5% floor. As of December 31, 2019, the minimum asset coverage ratio applicable to the Company under the East West Bank Facility was 150% as determined in accordance with the requirements of the Investment Company Act. The East West Bank Facility matures on January 6, 2021. The East West Bank Facility requires the Company to comply with certain affirmative and negative covenants and other customary requirements for similar credit facilities.
As of December 31, 2019 and September 30, 2019, the Company had $15.5 million and $11.0 million outstanding under the East West Bank Facility, respectively. Borrowings under the East West Bank Facility are secured by the loans pledged as collateral thereunder from time to time as well as certain other assets of the Company. The Company may use the East West Bank Facility to fund a portion of its loan origination activities and for general corporate purposes. The Company’s borrowings under the East West Bank Facility bore interest at a weighted average interest rate of 4.799% and 5.697% 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 of $0.2 million (inclusive of fees) and $0.1 million (inclusive of fees), respectively, related to the East West Bank Facility.
Deutsche Bank Facility
On September 24, 2018, OCSI Senior Funding Ltd., a wholly-owned subsidiary of the Company, entered into a loan financing and servicing agreement (as amended, the “Deutsche Bank Facility”) with the Company as equityholder and as servicer, the lenders from time to time parties thereto, Deutsche Bank AG, New York Branch, as facility agent, the other agents parties thereto and Wells Fargo Bank, National Association, as collateral agent and as collateral custodian.
Under the Deutsche Bank Facility, as of December 31, 2019, OCSI Senior Funding Ltd. could borrow an aggregate principal amount of up to $250 million, which can be increased to $300 million in the sole discretion of Deutsche Bank AG, New York Branch in connection with certain milestones in the marketing of a collateralized loan obligation. The period during which OCSI Senior Funding Ltd. may request drawdowns under the Deutsche Bank Facility (the “revolving period”) will continue through March 31, 2020 unless there is an earlier termination or event of default. The Deutsche Bank Facility will mature on the earliest of June 30, 2020, the occurrence of an event of default or completion of a securitization transaction.
As of September 30, 2019 and prior to December 31, 2019, borrowings under the Deutsche Bank Facility bore interest at a rate equal to the three-month LIBOR plus 2.00%, following which the interest rate reset to three-month LIBOR plus 2.10% for the remaining term of the Deutsche Bank Facility. No up-front commitment fees were paid by the Company in connection with the Deutsche Bank Facility. There was a non-usage fee of 0.25% per annum payable on the undrawn amount under the Deutsche Bank Facility through December 24, 2018, following which the non-usage fee increased to 0.50% per annum for the remaining term of the Deutsche Bank Facility.
The Deutsche Bank Facility is secured by all of the assets held by OCSI Senior Funding Ltd. OCSI Senior Funding Ltd. 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 borrowings of the Company, including indirectly under the Deutsche Bank 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 $164.6 million and $157.6 million outstanding under the Deutsche Bank Facility, respectively. For the three months ended December 31, 2019 and 2018, the Company’s borrowings under the Deutsche Bank Facility bore interest at a weighted average interest rate of 4.127% and 4.413%, respectively, and the Company recorded interest expense of $1.8 million (inclusive of fees) and $1.6 million (inclusive of fees), respectively.
Note 7. Interest and Dividend Income
    
As of each of December 31, 2019 and September 30, 2019, there were no investments on which the Company had stopped accruing cash and/or PIK interest or OID income.
Note 8. Taxable/Distributable Income and Dividend Distributions
Taxable income differs from net increase (decrease) in net assets resulting from operations primarily due to: (1) unrealized appreciation (depreciation) on investments and foreign currency, as gains and losses are not included in taxable income until they are realized; (2) exit fees received in connection with investments in portfolio companies; (3) origination fees received in connection with

40

OAKTREE STRATEGIC INCOME CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

investments in portfolio companies; (4) recognition of interest income on certain loans; and (5) income or loss recognition on exited investments.
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
 
$
6,134,254

 
$
(13,200,691
)
Net unrealized (appreciation) depreciation
 
(1,926,384
)
 
19,760,624

Book/tax difference due to capital losses not recognized (recognized)
 
735,505

 
(1,852,700
)
Other book/tax differences
 
(463,275
)
 

Taxable/Distributable Income (1)
 
$
4,480,100

 
$
4,707,233

 
__________________
(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.
As of September 30, 2019, the Company had a net capital loss carryforward of $60,782,648, which can be used to offset future capital gains and is not subject to expiration. Of the net capital loss carryforward, $7,293,950 is available to offset future short-term capital gains and $53,488,698 is available to offset future long-term capital gains.
As of September 30, 2019, the Company's last tax year end, the components of accumulated overdistributed earnings on a tax basis were as follows:
Undistributed ordinary income, net
$
1,512,863

Net realized capital losses
(60,782,648
)
Unrealized losses, net
(25,774,209
)
The aggregate cost of investments for income tax purposes was $622.9 million 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 $24.6 million. 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 $50.4 million. Net unrealized depreciation based on the aggregate cost of investments for income tax purposes was $25.8 million.
Note 9. Realized Gains or Losses and Net Unrealized Appreciation or Depreciation
Realized Gains or Losses
Realized gains or losses are measured by the difference between the net proceeds from the sale or redemption and the cost basis of the investment without regard to unrealized appreciation or depreciation previously recognized, and include investments written-off during the period, net of recoveries. Realized losses may also be recorded in connection with the Company's determination that certain investments are considered worthless securities and/or meet the conditions for loss recognition per the applicable tax rules.
During the three months ended December 31, 2019, the Company recorded net realized losses of $0.5 million in connection with the exit of various investments.
During the three months ended December 31, 2018, the Company recorded net realized gains of $1.7 million, of which $1.4 million was attributable to the exit of the Company's investment in BeyondTrust Holdings, LLC.
Net Unrealized Appreciation or Depreciation
Net unrealized appreciation or depreciation reflects the net change in the valuation of the portfolio pursuant to the Company's valuation guidelines and the reclassification of any prior period unrealized appreciation or depreciation.
For the three months ended December 31, 2019, the Company recorded net unrealized appreciation of $1.9 million. This consisted of $1.9 million of unrealized appreciation of debt investments and $0.2 million of net unrealized appreciation from exited investments (a portion of which resulted in a reclassification to realized losses), offset by $0.2 million of unrealized depreciation on foreign currency forward contracts.

41

OAKTREE STRATEGIC INCOME CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

For the three months ended December 31, 2018, the Company recorded net unrealized depreciation of $19.8 million. This consisted of $18.3 million of unrealized depreciation of debt investments and $1.5 million of net unrealized depreciation related to exited investments (a portion of which resulted in a reclassification to realized gains).
Note 10. Concentration of Credit Risks
The Company deposits its cash with financial institutions and at times such balances may be in excess of the FDIC insurance limit. The Company limits its exposure to credit loss by depositing its cash with high credit quality financial institutions and monitoring their financial stability.

Note 11. Related Party Transactions
As of December 31, 2019 and September 30, 2019, the Company had a liability on its Consolidated Statements of Assets and Liabilities in the amount of $1.3 million and $1.4 million, respectively, reflecting the unpaid portion of the base management fees and incentive fees payable to Oaktree.

Investment Advisory Agreement
The Company is party to the Investment Advisory Agreement. Under the Investment Advisory Agreement, the Company pays Oaktree a fee for its services under the Investment Advisory Agreement consisting of two components: a base management fee and an incentive fee. The cost of both the base management fee payable to Oaktree and any incentive fees earned by Oaktree is ultimately borne by common stockholders of the Company.
Prior to October 17, 2017, the Company was externally managed by Fifth Street Management LLC (the "Former Adviser”), an indirect, partially-owned subsidiary of Fifth Street Asset Management Inc., pursuant to an investment advisory agreement between the Company and the Former Adviser (the "Former Investment Advisory Agreement"), which was terminated on October 17, 2017.
Unless earlier terminated as described below, the Investment Advisory Agreement will remain in effect until September 30, 2021 and thereafter from year-to-year if approved annually by the Company's Board of Directors or by the affirmative vote of the holders of a majority of the outstanding voting securities of the Company, including, in either case, approval by a majority of the directors of the Company who are not interested persons. The Investment Advisory Agreement will automatically terminate in the event of its assignment. The Investment Advisory Agreement may be terminated by either party without penalty upon 60 days’ written notice to the other. The Investment Advisory Agreement may also be terminated, without penalty, upon the vote of a majority of the outstanding voting securities of the Company.
Base Management Fee
Under the Investment Advisory Agreement, the base management fee is calculated at an annual rate of 1.00% of total gross assets, including any investment made with borrowings, but excluding cash and cash equivalents. The base management fee is payable quarterly in arrears and the fee for any partial month or quarter is appropriately prorated.
For the three months ended December 31, 2019, the base management fee incurred under the Investment Advisory Agreement was $1.5 million. For the three months ended December 31, 2018, the base management fee incurred under the Investment Advisory Agreement was $1.4 million.
Incentive Fee
The incentive fee consists of two parts. Under the Investment Advisory Agreement, the first part of the incentive fee (the “incentive fee on income" or "Part I incentive fee") is calculated and payable quarterly in arrears based upon the “pre-incentive fee net investment income” of the Company for the immediately preceding quarter. The payment of the incentive fee on income is subject to payment of a preferred return to investors each quarter (i.e., a “hurdle rate”), expressed as a rate of return on the value of the Company’s net assets at the end of the most recently completed quarter, of 1.50%, subject to a “catch up” feature.
For this purpose, “pre-incentive fee net investment income” means interest income, dividend income and any other income (including any other fees such as commitment, origination, structuring, diligence and consulting fees or other fees that the Company receives from portfolio companies, other than fees for providing managerial assistance) accrued during the fiscal quarter, minus the Company’s operating expenses for the quarter (including the base management fee, expenses payable under the Administration Agreement and any interest expense and dividends paid on any issued and outstanding preferred stock, but excluding the incentive

42

OAKTREE STRATEGIC INCOME CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

fee). Pre-incentive fee net investment income includes, in the case of investments with a deferred interest feature (such as OID, debt instruments with PIK interest and zero coupon securities), accrued income that the Company has not yet received in cash. Pre-incentive fee net investment income does not include any realized capital gains, realized capital losses or unrealized capital appreciation or depreciation.
Under the Investment Advisory Agreement, the calculation of the incentive fee on income for each quarter is as follows:
No incentive fee is payable to Oaktree in any quarter in which the Company’s pre-incentive fee net investment income does not exceed the preferred return rate of 1.50% (the “preferred return”) on net assets;
100% of the Company’s pre-incentive fee net investment income, if any, that exceeds the preferred return but is less than or equal to 1.8182% in any fiscal quarter is payable to Oaktree. This portion of the incentive fee on income is referred to as the “catch-up” provision, and it is intended to provide Oaktree with an incentive fee of 17.5% on all of the Company’s pre-incentive fee net investment income when the Company’s pre-incentive fee net investment income exceeds 1.8182% on net assets in any fiscal quarter; and
For any quarter in which the Company’s pre-incentive fee net investment income exceeds 1.8182% on net assets, the incentive fee on income is equal to 17.5% of the amount of the Company’s pre-incentive fee net investment income, as the preferred return and catch-up will have been achieved.
There is no accumulation of amounts on the hurdle rate from quarter to quarter and accordingly there is no clawback of amounts previously paid if subsequent quarters are below the quarterly hurdle.
For the three months ended December 31, 2019, the Part I incentive fee (net of waivers) incurred under the Investment Advisory Agreement was $0.9 million. For the three months ended December 31, 2018, the Part I incentive fee (net of waivers) incurred under the Investment Advisory Agreement was $0.4 million.
Under the Investment Advisory Agreement, the second part of the incentive fee (the "capital gains incentive fee") is determined and payable in arrears as of the end of each fiscal year (or upon termination of the Investment Advisory Agreement, as of the termination date) commencing with the fiscal year ended September 30, 2019 and equals 17.5% of the Company’s realized capital gains, if any, on a cumulative basis from the beginning of the fiscal year ended September 30, 2019 through the end of each subsequent fiscal year, computed net of all realized capital losses and unrealized capital depreciation on a cumulative basis, less the aggregate amount of any previously paid capital gains incentive fees under the Investment Advisory Agreement. Any realized capital gains, realized capital losses, unrealized capital appreciation and unrealized capital depreciation with respect to the Company’s portfolio as of the end of the fiscal year ended September 30, 2018 are excluded from the calculations of the second part of the incentive fee. 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.

GAAP requires that the capital gains incentive fee accrual consider the cumulative aggregate unrealized capital appreciation in the calculation, as a capital gains incentive fee would be payable if such unrealized capital appreciation were realized on a theoretical "liquidation basis." A fee so calculated and accrued would not be payable under applicable law and may never be paid based upon the computation of capital gains incentive fees in subsequent periods. Amounts ultimately paid under the Investment Advisory Agreement will be consistent with the formula reflected in the Investment Advisory Agreement. This GAAP accrual is calculated using the aggregate cumulative realized capital gains and losses and aggregate cumulative unrealized capital depreciation included in the calculation of the capital gains incentive fee plus the aggregate cumulative unrealized capital appreciation. Any realized capital gains and losses and cumulative unrealized capital appreciation and depreciation with respect to the Company’s portfolio as of the end of the fiscal year ended September 30, 2018 are excluded from the GAAP accrual. If such amount is positive at the end of a period, then GAAP requires the Company to record a capital gains incentive fee equal to 17.5% of such cumulative amount, less the aggregate amount of actual capital gains incentive fees paid or capital gains incentive fees accrued under GAAP in all prior periods. The resulting accrual for any capital gains incentive fee under GAAP in a given period may result in an additional expense if such cumulative amount is greater than in the prior period or a reversal of previously recorded expense if such cumulative amount is less than in the prior period. If such cumulative amount is negative, then there is no accrual. There can be no assurance that such unrealized capital appreciation will be realized in the future or any accrued capital gains incentive fee will become payable under the Investment Advisory Agreement. For the three months ended December 31, 2019, the Company did not accrue, and cumulatively has not accrued, any capital gains incentive fees.

To ensure compliance with Section 15(f) of the Investment Company Act, Oaktree entered into a two-year contractual fee waiver with the Company, which ended on October 17, 2019, pursuant to which Oaktree waived any management or incentive fees payable under the Investment Advisory Agreement that exceeded what would have been paid to the Former Adviser in the aggregate under the Former Investment Advisory Agreement. At the end of the two-year period, Oaktree permanently waived $1.2 million, of which $0.1

43

OAKTREE STRATEGIC INCOME CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

million was recorded for the three months ended December 31, 2019. As of December 31, 2019, the contractual fee waiver of $1.2 million is reflected in base management fee and incentive fee payable on the Consolidated Statement of Assets and Liabilities.
Indemnification
The Investment Advisory Agreement provides that, absent willful misfeasance, bad faith or gross negligence in the performance of their respective duties or by reason of the reckless disregard of their respective duties and obligations, Oaktree and its officers, managers, partners, members (and their members, including the owners of their members), agents, employees, controlling persons and any other person or entity affiliated with it, are entitled to indemnification from the Company for any damages, liabilities, costs and expenses (including reasonable attorneys' fees and amounts reasonably paid in settlement) arising from the rendering of Oaktree's services under the Investment Advisory Agreement or otherwise as investment adviser.
Administrative Services
The Company is party to the Administration Agreement with Oaktree Administrator. Pursuant to the Administration Agreement, Oaktree Administrator provides administrative services to the Company necessary for the operations of the Company, which include providing office facilities, equipment, clerical, bookkeeping and record keeping services at such facilities and such other services as Oaktree Administrator, subject to review by the Company’s Board of Directors, shall from time to time deem to be necessary or useful to perform its obligations under the Administration Agreement. Oaktree Administrator may, on behalf of the Company, conduct relations and negotiate agreements with custodians, trustees, depositories, attorneys, underwriters, brokers and dealers, corporate fiduciaries, insurers, banks and such other persons in any such other capacity deemed to be necessary or desirable. Oaktree Administrator makes reports to the Company’s Board of Directors of its performance of obligations under the Administration Agreement and furnishes advice and recommendations with respect to such other aspects of the Company’s business and affairs, in each case, as it shall determine to be desirable or as reasonably required by the Company’s Board of Directors; provided that Oaktree Administrator shall not provide any investment advice or recommendation.
Oaktree Administrator also provides portfolio collection functions for interest income, fees and warrants and is responsible for the financial and other records that the Company is required to maintain and prepares, prints and disseminates reports to the Company’s stockholders and all other materials filed with the U.S. Securities and Exchange Commission, or the SEC. In addition, Oaktree Administrator assists the Company in determining and publishing the Company’s net asset value, overseeing the preparation and filing of the Company’s tax returns, and generally overseeing the payment of the Company’s expenses and the performance of administrative and professional services rendered to the Company by others. Oaktree Administrator may also offer to provide, on the Company’s behalf, managerial assistance to the Company’s portfolio companies.
For providing these services, facilities and personnel, the Company reimburses Oaktree Administrator the allocable portion of overhead and other expenses incurred by Oaktree Administrator in performing its obligations under the Administration Agreement, including the Company’s allocable portion of the rent of the Company’s principal executive offices (which are located in a building owned by a Brookfield affiliate) at market rates and the Company’s allocable portion of the costs of compensation and related expenses of its Chief Financial Officer, Chief Compliance Officer, their staffs and other non-investment professionals at Oaktree that perform duties for the Company. Such reimbursement is at cost, with no profit to, or markup by, Oaktree Administrator. The Administration Agreement may be terminated by either party without penalty upon 60 days’ written notice to the other. The Administration Agreement may also be terminated, without penalty, upon the vote of a majority of the Company’s outstanding voting securities.
For the three months ended December 31, 2019, the Company accrued administrative expenses of $0.3 million, including $0.1 million of general and administrative expenses. For the three months ended December 31, 2018, the Company accrued administrative expenses of $0.5 million, including $0.1 million of general and administrative expenses.
As of December 31, 2019 and September 30, 2019, $1.4 million and $1.5 million was included in “Due to affiliate” in the Consolidated Statements of Assets and Liabilities, respectively, reflecting the unpaid portion of administrative expenses and other reimbursable expenses payable to Oaktree Administrator.

44

OAKTREE STRATEGIC INCOME CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 12. Financial Highlights
 
 
Three months ended
December 31, 2019
 
Three months ended
December 31, 2018
Net asset value at beginning of period
 
$
9.65

 
$
10.04

Net investment income (1)
 
0.16

 
0.17

Net unrealized appreciation (depreciation) (1)
 
0.08

 
(0.67
)
Net realized gains (losses) (1)
 
(0.02
)
 
0.05

Distributions to stockholders
 
(0.16
)
 
(0.16
)
Net asset value at end of period
 
$
9.71

 
$
9.43

Per share market value at beginning of period
 
$
8.25

 
$
8.65

Per share market value at end of period
 
$
8.19

 
$
7.75

Total return (2)
 
1.14
%
 
(8.64
)%
Common shares outstanding at beginning of period
 
29,466,768

 
29,466,768

Common shares outstanding at end of period
 
29,466,768

 
29,466,768

Net assets at beginning of period
 
$
284,450,006

 
$
295,745,420

Net assets at end of period
 
$
286,016,910

 
$
277,977,380

Average net assets (3)
 
$
286,623,521

 
$
288,450,042

Ratio of net investment income to average net assets (4)
 
6.54
%
 
6.69
%
Ratio of total expenses to average net assets (4)
 
9.59
%
 
9.38
%
Ratio of net expenses to average net assets (4)
 
9.52
%
 
8.80
%
Ratio of portfolio turnover to average investments at fair value
 
5.76
%
 
12.59
%
Weighted average outstanding debt (5)
 
$
296,135,061

 
$
255,039,409

Average debt per share (1)
 
$
10.05

 
$
8.66

Asset coverage ratio at end of period (6)
 
193.37
%
 
206.03
%
 
 
 
 
 
(1)
Calculated based upon weighted average shares outstanding for the period.
(2)
Total return equals the increase or decrease of ending market value over beginning market value, plus distributions, divided by the beginning market value, assuming dividend reinvestment prices obtained under the Company's DRIP.
(3)
Calculated based upon the weighted average net assets for the period.
(4)
Interim periods are annualized.
(5)
Calculated based upon the weighted average outstanding debt for the period.
(6)
Based on outstanding senior securities of $306.3 million and $262.2 million as of December 31, 2019 and 2018, respectively.

Note 13. 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 JPMorgan Chase Bank, N.A. Net unrealized gains or losses on foreign currency contracts are included in “net unrealized appreciation (depreciation)” and net realized gains or losses on forward currency contracts are included in “net realized gains (losses)” in the accompanying Consolidated Statements of Operations. Forward currency contracts are considered undesignated derivative instruments.
Certain information related to the Company’s foreign currency forward contracts is presented below as of 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
 
$
6,250,213

 
£
4,838,750

 
2/18/2020
 
$

 
$
168,712

 
Derivative liability


45



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
 
$
6,106,199

 
£
4,934,900

 
10/15/2019
 
$
20,876

 
$

 
Derivative asset

Note 14. Commitments and Contingencies
Off-Balance Sheet Arrangements
The Company may be a party to financial instruments with off-balance sheet risk in the normal course of business to meet the financial needs of its portfolio companies. As of December 31, 2019 and September 30, 2019, off-balance sheet arrangements consisted of $30.0 million and $24.2 million, respectively, of unfunded commitments to provide debt and equity financing to certain of the Company's portfolio companies. Such commitments are subject to the portfolio companies' satisfaction of certain financial and nonfinancial covenants and may involve, to varying degrees, elements of credit risk in excess of the amount recognized in the Consolidated Statements of Assets and Liabilities.
A list of unfunded commitments by investment (consisting of revolvers, term loans and the OCSI Glick JV Subordinated Notes and LLC equity interests) as of December 31, 2019 and September 30, 2019 is shown in the table below:
 
 
December 31, 2019
 
September 30, 2019
OCSI Glick JV LLC
 
$
13,998,029

 
$
13,998,029

Connect U.S. Finco LLC
 
5,910,543

 

MHE Intermediate Holdings, LLC
 
4,466,338

 
4,466,338

PaySimple, Inc.
 
1,740,371

 
2,450,000

Mindbody, Inc.
 
952,381

 
952,381

CircusTrix Holdings LLC
 
802,541

 

OEConnection LLC
 
735,931

 
731,183

Apptio, Inc.
 
692,308

 
692,308

iCIMs, Inc.
 
294,118

 
294,118

GKD Index Partners, LLC
 
222,222

 
444,444

Ministry Brands, LLC
 
80,000

 
80,000

4 Over International, LLC
 
56,717

 
60,629

Total
 
$
29,951,499

 
$
24,169,430


Note 15. 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 January 31, 2020, the Company’s Board of Directors declared a quarterly distribution of $0.155 per share, payable on March 31, 2020 to stockholders of record on March 13, 2020.

46


Schedule 12-14
Oaktree Strategic Income Corporation
Schedule of Investments in and Advances to Affiliates
Three months ended December 31, 2019
Portfolio Company/Type of Investment (1)
 
 Cash Interest Rate
 
Industry
 
Principal
 
Net Realized Gain (Loss)
 
Amount of
Interest,
Fees or
Dividends
Credited in
Income (2)
 
Fair Value
at October 1, 2019
 
Gross
Additions (3)
 
Gross
Reductions (4)
 
Fair Value at 
December 31, 2019
 
% of Total Net Assets
Control Investments
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
OCSI Glick JV LLC
 
 
 
 Multi-sector holdings
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 Subordinated Note, LIBOR+6.50% cash due 10/20/2021
 
8.51%
 
 
 
$
66,056,272

 
$

 
$
1,436,726

 
$
54,326,418

 
$

 
$
(156,708
)
 
$
54,169,710

 
18.9%
 87.5% LLC equity interest (5)
 
 
 
 
 
 
 

 

 

 

 

 

 
—%
Total Control Investments
 
 
 
 
 
$
66,056,272

 
$

 
$
1,436,726

 
$
54,326,418

 
$

 
$
(156,708
)
 
$
54,169,710

 
18.9%

This schedule should be read in connection with the Company's Consolidated Financial Statements, including the Consolidated Schedules of Investments and Notes to the Consolidated Financial Statements.
______________________
(1)
The principal amount and ownership detail are shown in the Company's Consolidated Schedules of Investments.
(2)
Represents the total amount of interest (net of non-accrual amounts), fees and dividends credited to income for the portion of the period an investment was included in the Control or Affiliate categories.
(3)
Gross additions include increases in the cost basis of investments resulting from new portfolio investments, follow-on investments and accrued PIK interest (net of non-accrual amounts), and the exchange of one or more existing securities for one or more new securities. Gross additions also include net increases in unrealized appreciation or net decreases in unrealized depreciation as well as the movement of an existing portfolio company into this category or out of a different category.
(4)
Gross reductions include decreases in the cost basis of investment resulting from principal payments or sales and exchanges of one or more existing securities for one or more new securities. Gross reductions also include net increases in unrealized depreciation or net decreases in unrealized appreciation as well as the movement of an existing portfolio company out of this category and into a different category.
(5)
Together with GF Equity Funding, the Company co-invests through the OCSI Glick JV. The OCSI Glick JV is capitalized as transactions are completed and all portfolio and investment decisions in respect to the OCSI Glick JV must be approved by the OCSI Glick JV investment committee consisting of representatives of the Company and GF Equity Funding (with approval from a representative of each required).



47


Schedule 12-14
Oaktree Strategic Income Corporation
Schedule of Investments in and Advances to Affiliates
Three months ended December 31, 2018
Portfolio Company/Type of Investment (1)
 
 Cash Interest Rate
 
Industry
 
Principal
 
Net Realized Gain (Loss)
 
Amount of
Interest,
Fees or
Dividends
Credited in
Income (2)
 
Fair Value
at October 1, 2018
 
Gross
Additions (3)
 
Gross
Reductions (4)
 
Fair Value at 
December 31, 2018
 
% of Total Net Assets
Control Investments
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
OCSI Glick JV LLC
 
 
 
 Multi-sector holdings
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 Subordinated Note, LIBOR+6.5% cash due 10/20/2021
 
8.77%
 
 
 
$
66,328,601

 
$

 
$
1,485,423

 
$
58,512,170

 
$

 
$
(3,976,861
)
 
$
54,535,309

 
19.6%
 87.5% LLC equity interest (5)
 
 
 
 
 
 
 

 

 

 

 

 

 
—%
Total Control Investments
 
 
 
 
 
$
66,328,601

 
$

 
$
1,485,423

 
$
58,512,170

 
$

 
$
(3,976,861
)
 
$
54,535,309

 
19.6%


This schedule should be read in connection with the Company's Consolidated Financial Statements, including the Consolidated Schedules of Investments and Notes to the Consolidated Financial Statements.
______________________
(1)
The principal amount and ownership detail are shown in the Consolidated Schedules of Investments as of December 31, 2018 included in the Company's quarterly report on Form 10-Q for the quarter ended December 31, 2018.
(2)
Represents the total amount of interest (net of non-accrual amounts), fees and dividends credited to income for the portion of the period an investment was included in the Control or Affiliate categories.
(3)
Gross additions include increases in the cost basis of investments resulting from new portfolio investments, follow-on investments and accrued PIK interest (net of non-accrual amounts), and the exchange of one or more existing securities for one or more new securities. Gross additions also include net increases in unrealized appreciation or net decreases in unrealized depreciation as well as the movement of an existing portfolio company into this category or out of a different category.
(4)
Gross reductions include decreases in the cost basis of investment resulting from principal payments or sales and exchanges of one or more existing securities for one or more new securities. Gross reductions also include net increases in unrealized depreciation or net decreases in unrealized appreciation as well as the movement of an existing portfolio company out of this category and into a different category.
(5)
Together with GF Equity Funding, the Company co-invests through the OCSI Glick JV. The OCSI Glick JV is capitalized as transactions are completed and all portfolio and investment decisions in respect to the OCSI Glick JV must be approved by the OCSI Glick JV investment committee consisting of representatives of the Company and GF Equity Funding (with approval from a representative of each required).






48


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

our future operating results and distribution projections;
the ability of Oaktree Capital Management, L.P., or Oaktree, to reposition our portfolio and to implement Oaktree’s future plans with respect to our business;
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;
the timing of cash flows, if any, from the operations of our portfolio companies; and
the cost or potential outcome of any litigation to which we may be a party.
In addition, words such as “anticipate,” “believe,” “expect,” “seek,” “plan,” “should,” “estimate,” “project” and “intend” indicate forward-looking statements, although not all forward-looking statements include these words. The forward-looking statements contained in this quarterly report on Form 10-Q involve risks and uncertainties. Our actual results could differ materially from those implied or expressed in the forward-looking statements for any reason, including the factors set forth in “Item 1A. Risk Factors” in our annual report on Form 10-K for the year ended September 30, 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 regulated investment companies, or RICs; and
other considerations that may be disclosed from time to time in our publicly disseminated documents and filings.
We have based the forward-looking statements included in this quarterly report on Form 10-Q on information available to us on the date of this quarterly report, and we assume no obligation to update any such forward-looking statements. Although we undertake no obligation to revise or update any forward-looking statements, whether as a result of new information, future events or otherwise, you are advised to consult any additional disclosures that we may make directly to you or through reports that we in the future may file with the Securities Exchange Commission, or 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 a specialty finance company that looks to provide customized capital solutions for middle-market companies in both the syndicated and private placement markets. We are a closed-end, externally managed, non-diversified management investment company that has elected to be regulated as a Business Development Company under the Investment Company Act of 1940, as amended, or the Investment Company Act. In addition, we have qualified and elected to be treated as a RIC under the Internal Revenue Code of 1986, as amended, or the Code, for tax purposes.
We are externally managed by Oaktree pursuant to an investment advisory agreement, as amended from time to time, or the Investment Advisory Agreement, between the Company and Oaktree. Oaktree Fund Administration, LLC, or the Oaktree Administrator, a subsidiary of Oaktree, provides certain administrative and other services necessary for us to operate pursuant to an administration agreement, as amended from time to time, or the Administration Agreement.
We seek to generate a stable source of current income while minimizing the risk of principal loss and, to a lesser extent, capital appreciation by providing innovative first-lien financing solutions to companies across a wide variety of industries. We invest in companies across a variety of industries that typically possess business models we expect to be resilient in the future with underlying fundamentals that will provide strength in future downturns. We intend to deploy capital across credit and economic cycles with a focus on long-term results, which we believe will enable us to build lasting partnerships with financial sponsors and management teams. We invest

49


in unsecured loans, including subordinated loans and bonds, issued by private middle-market companies and, to a lesser extent, senior and subordinated loans and bonds issued by public companies and equity investments.
Oaktree intends to complete repositioning of our portfolio in order to (1) rotate out of a small number of investments that it views as challenged, (2) focus on increasing the size of our core private investments and (3) supplement the portfolio with broadly syndicated and select privately placed loans. Oaktree is generally focused on middle-market companies, which we define as companies with enterprise values of between $100 million and $750 million. We generally invest in securities that are rated below investment grade by rating agencies or that would be rated below investment grade if they were rated. Below investment grade securities, which are often referred to as “high yield” and “junk,” have predominantly speculative characteristics with respect to the issuer’s capacity to pay interest and repay principal.
Since becoming our investment adviser, Oaktree has performed a comprehensive review of our portfolio and categorized our portfolio into core investments, non-core performing investments and non-accrual investments. Certain additional information on such categorization and our portfolio composition is included in investor presentations that we file with the SEC. Since becoming our investment adviser, Oaktree has reduced the investments it has identified as non-core by over $250 million, at fair value. Over time, Oaktree intends to rotate us out of the remaining non-core investments, which were approximately $36 million at fair value as of December 31, 2019. In addition, over time and under current market conditions, Oaktree generally expects to increase leverage to a debt to equity ratio of 1.20x to 1.60x following effectiveness of the 150% reduced asset coverage requirements to us on July 11, 2018. As of December 31, 2019, our debt to equity ratio was 1.07x.
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 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, 100% of our debt investment portfolio (at cost and fair value) bore interest at floating rates indexed to LIBOR and/or an alternate base rate (e.g., prime rate), which typically resets semi-annually, quarterly or monthly at the borrower’s option.  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, or 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.  The reinvestment period of each of our borrowing facilities in place as of December 31, 2019 ends prior to the end of 2021 (and therefore prior to any phase out of LIBOR); however, we expect that any refinancings or future borrowing facilities that bear interest at floating rates indexed to LIBOR (or certain amendments to current borrowing facilities) would include procedures for the selection of a replacement reference rate following any phase out of LIBOR.  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.  Alternatively, 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. 

50


Critical Accounting Policies
Basis of Presentation
Our Consolidated Financial Statements have been prepared in accordance with accounting principles generally accepted in the United States of America, or GAAP, and pursuant to the requirements for reporting on Form 10-Q and Regulation S-X. 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. Certain prior-period financial information has been reclassified to conform to current period presentation. We are an investment company following the accounting and reporting guidance in Financial Accounting Standards Board, or FASB, Accounting Standards Codification, or ASC, ASC Topic 946, Financial Services-Investment Companies, or ASC 946.
Investment Valuation
We value our investments in accordance with FASB ASC Topic 820, Fair Value Measurements and Disclosures, or ASC 820, which defines fair value as the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. A liability's fair value is defined as the amount that would be paid to transfer the liability to a new obligor, not the amount that would be paid to settle the liability with the creditor. ASC 820 prioritizes the use of observable market prices over entity-specific inputs. Where observable prices or inputs are not available or reliable, valuation techniques are applied. These valuation techniques involve some level of management estimation and judgment, the degree of which is dependent on the price transparency for the investments or market and the investments' complexity.

Hierarchical levels, defined by ASC 820 and directly related to the amount of subjectivity associated with the inputs to fair valuation of these assets and liabilities, are as follows:

Level 1 - Unadjusted, quoted prices in active markets for identical assets or liabilities as of the measurement date.

Level 2 - Observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data at the measurement date for substantially the full term of the assets or liabilities.

Level 3 - Unobservable inputs that reflect management's best estimate of what market participants would use in pricing the asset or liability at the measurement date. Consideration is given to the risk inherent in the valuation technique and the risk inherent in the inputs to the model.
If inputs used to measure fair value fall into different levels of the fair value hierarchy, an investment's level is based on the lowest level of input that is significant to the fair value measurement. Our assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment and considers factors specific to the investment. This includes investment securities that are valued using "bid" and "ask" prices obtained from independent third party pricing services or directly from brokers. These investments may be classified as Level 3 because the quoted prices may be indicative in nature for securities that are in an inactive market, may be for similar securities or may require adjustments for investment-specific factors or restrictions.
Financial instruments with readily available quoted prices generally will have a higher degree of market price observability and a lesser degree of judgment inherent in measuring fair value. As such, Oaktree obtains and analyzes readily available market quotations provided by pricing vendors and brokers for all of our investments for which quotations are available. In determining the fair value of a particular investment, pricing vendors and brokers use observable market information, including both binding and non-binding indicative quotations.
We seek to obtain at least two quotations for the subject or similar securities, typically from pricing vendors. If we are unable to obtain two quotes from pricing vendors, or if the prices obtained from pricing vendors are not within our set threshold, we seek to obtain a quote directly from a broker making a market for the asset. Oaktree evaluates the quotations provided by pricing vendors and brokers based on available market information, including trading activity of the subject or similar securities, or by performing a comparable security analysis to ensure that fair values are reasonably estimated. Oaktree also performs back-testing of valuation information obtained from pricing vendors and brokers against actual prices received in transactions. In addition to ongoing monitoring and back-testing, Oaktree performs due diligence procedures over pricing vendors to understand their methodology and controls to support their use in the valuation process. Generally, we do not adjust any of the prices received from these sources.
If the quotations obtained from pricing vendors or brokers are determined to not be reliable or are not readily available, we value such investments using any of three different valuation techniques. The first valuation technique is the transaction precedent technique, which utilizes recent or expected future transactions of the investment to determine fair value, to the extent applicable. The second valuation technique is an analysis of the enterprise value, or EV, of the portfolio company. EV means the entire value of the portfolio company to a market participant, including the sum of the values of debt and equity securities used to capitalize the enterprise at a point in time. The EV analysis is typically performed to determine (i) the value of equity investments, (ii) whether there is credit impairment for debt investments and (iii) the value for debt investments that we are deemed to control under the Investment Company Act. To estimate the

51


EV of a portfolio company, Oaktree analyzes various factors, including the portfolio company’s historical and projected financial results, macroeconomic impacts on the company, and competitive dynamics in the company’s industry. Oaktree also utilizes some or all of the following information based on the individual circumstances of the portfolio company: (i) valuations of comparable public companies, (ii) recent sales of private and public comparable companies in similar industries or having similar business or earnings characteristics, (iii) purchase prices as a multiple of their earnings or cash flow, (iv) the portfolio company’s ability to meet its forecasts and its business prospects, (v) a discounted cash flow analysis, (vi) estimated liquidation or collateral value of the portfolio company's assets and (vii) offers from third parties to buy the portfolio company. We may probability weight potential sale outcomes with respect to a portfolio company when uncertainty exists as of the valuation date. The third valuation technique is a market yield technique, which is typically performed for non-credit impaired debt investments. In the market yield technique, a current price is imputed for the investment based upon an assessment of the expected market yield for a similarly structured investment with a similar level of risk, and we consider the current contractual interest rate, the capital structure and other terms of the investment relative to risk of the company and the specific investment. A key determinant of risk, among other things, is the leverage through the investment relative to the EV of the portfolio company. As debt investments held by us are substantially illiquid with no active transaction market, we depend on primary market data, including newly funded transactions and industry specific market movements, as well as secondary market data with respect to high yield debt instruments and syndicated loans, as inputs in determining the appropriate market yield, as applicable.
In accordance with ASC 820-10, certain investments that qualify as investment companies in accordance with ASC 946 may be valued using net asset value as a practical expedient for fair value. Consistent with FASB guidance under ASC 820, these investments are excluded from the hierarchical levels. These investments are generally not redeemable.
We estimate the fair value of privately held warrants using a Black Scholes pricing model, which includes an analysis of various factors and subjective assumptions, including the current stock price (by using an EV analysis as described above), the expected period until exercise, expected volatility of the underlying stock price, expected dividends and the risk-free rate. Changes in the subjective input assumptions can materially affect the fair value estimates.
Our Board of Directors undertakes a multi-step valuation process each quarter in connection with determining the fair value of our investments:
The quarterly valuation process begins with each portfolio company or investment being initially valued by Oaktree’s valuation team in conjunction with Oaktree’s portfolio management team and investment professionals responsible for each portfolio investment;
Preliminary valuations are then reviewed and discussed with management of Oaktree;
Separately, independent valuation firms engaged by our Board of Directors prepare valuations of our investments, on a selected basis, for which market quotations are not readily available or are readily available but deemed not reflective of the fair value of the investment, and submit the reports to us and provide such reports to Oaktree and the Audit Committee of our Board of Directors;
Oaktree compares and contrasts its preliminary valuations to the valuations of the independent valuation firms and prepares a valuation report for the Audit Committee;
The Audit Committee reviews the preliminary valuations with Oaktree, and Oaktree responds and supplements the preliminary valuations to reflect any discussions between Oaktree and the Audit Committee;
The Audit Committee makes a recommendation to our full Board of Directors regarding the fair value of the investments in our portfolio; and
Our Board of Directors discusses valuations and determines the fair value of each investment in our portfolio.
The fair value of our investments as of December 31, 2019 and September 30, 2019 was determined in good faith by our Board of Directors. Our Board of Directors has and will continue to engage independent valuation firms to provide assistance regarding the determination of the fair value of a portion of our portfolio securities for which market quotations are not readily available or are readily available but deemed not reflective of the fair value of the investment each quarter, and the Board of Directors may reasonably rely on that assistance. As of December 31, 2019, 92.5% of our portfolio at fair value was valued either based on market quotations, the transactions precedent approach or corroborated by independent valuation firms. However, our Board of Directors is responsible for the ultimate valuation of the portfolio investments at fair value as determined in good faith pursuant to our valuation policy and a consistently applied valuation process.
Due to the inherent uncertainty of determining the fair value of investments that do not have a readily available market value, the fair value of our investments may fluctuate from period to period. Because of the inherent uncertainty of valuation, these estimated values may differ significantly from the values that would have been reported had a ready market for the investments existed, and it is reasonably possible that the difference could be material.
As of December 31, 2019 and September 30, 2019, approximately 95.3% and 95.8%, respectively, of our total assets represented investments at fair value.

52


Revenue Recognition
Interest Income
Interest income, adjusted for accretion of original issue discount, or 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 and/or payment-in-kind, or PIK, interest or OID income.
In connection with our investment in a portfolio company, we sometimes receive nominal cost equity that is valued as part of the negotiation process with the portfolio company. When we receive nominal cost equity, we allocate our cost basis in the investment between debt securities and the nominal cost equity at the time of origination. Any resulting discount from recording the loan, or otherwise purchasing a security at a discount, is accreted into interest income over the life of the loan.
PIK Interest Income
Our investments in debt securities may contain PIK interest provisions. PIK interest, which typically 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 Oaktree. 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.
Fee Income
Oaktree may provide financial advisory services to portfolio companies and, in return, we may receive fees for capital structuring services. These fees are generally nonrecurring and are recognized by us upon the investment closing date. We may also receive additional fees in the ordinary course of business, including servicing, amendment and prepayment fees, which are classified as fee income and recognized as they are earned or the services are rendered.
We may structure exit fees across certain of our portfolio investments to be received upon the future exit of those investments. These fees are typically paid to us upon the earliest to occur of (i) a sale of the borrower or substantially all of its assets of the borrower, (ii) the maturity date of the loan or (iii) the date when full prepayment of the loan occurs. The receipt of such fees is contingent upon the occurrence of one of the events listed above for each of the investments. These fees are included in net investment income over the life of the loan.
Dividend Income
We generally recognize dividend income on the ex-dividend date. Distributions received from equity investments are evaluated to determine if the distribution should be recorded as dividend income or a return of capital. Generally, we will not record distributions from such equity investments as dividend income unless there are sufficient earnings at the portfolio company prior to the distribution. Distributions that are classified as a return of capital are recorded as a reduction in the cost basis of the investment.
Portfolio Composition
Our investments principally consist of senior loans in private middle-market companies and investments in OCSI Glick JV LLC, or the OCSI Glick JV. As of December 31, 2019, our senior loans were typically secured by a first or second lien on the assets of the portfolio company and generally had terms of up to ten years (but an expected average life of between three and four years). We believe the environment for direct lending remains active, and, as a result, a number of our portfolio companies were able to refinance and repay their loans during the three months ended December 31, 2019.

53


During the three months ended December 31, 2019, we originated $34.9 million of investment commitments in nine new and two existing portfolio companies and funded $37.9 million of investments.
During the three months ended December 31, 2019, we received $46.0 million of proceeds from prepayments, exits, other paydowns and sales and exited nine portfolio companies.
A summary of the composition of our investment portfolio at cost and fair value as a percentage of total investments is shown in the following tables:
 
 
December 31, 2019
 
September 30, 2019
Cost:
 
 
 
 
Senior secured loans
 
88.05
%
 
88.33
%
OCSI Glick JV subordinated notes
 
10.79

 
10.54

OCSI Glick JV equity interests
 
1.16

 
1.13

Equity securities, excluding the OCSI Glick JV
 

 

Total
 
100.00
%
 
100.00
%

 
 
December 31, 2019
 
September 30, 2019
Fair value:
 
 
 
 
Senior secured loans
 
90.68
%
 
90.85
%
OCSI Glick JV subordinated notes
 
9.27

 
9.10

Equity securities, excluding the OCSI Glick JV
 
0.05

 
0.05

OCSI Glick JV equity interests
 

 

Total
 
100.00
%
 
100.00
%

54


The industry composition of our portfolio at cost and fair value as a percentage of total investments was as follows:
 
 
December 31, 2019
 
September 30, 2019
Cost:
 
 
 
 
Application Software
 
13.62
%
 
12.98
%
Multi-Sector Holdings (1)
 
11.95

 
11.68

Aerospace & Defense
 
5.03

 
5.24

Diversified Support Services
 
4.47

 
4.38

Advertising
 
3.91

 
3.84

Internet Services & Infrastructure
 
2.92

 
4.54

Systems Software
 
2.84

 
2.48

Data Processing & Outsourced Services
 
2.83

 
2.66

Movies & Entertainment
 
2.54

 
1.54

Commercial Printing
 
2.52

 
2.47

Specialized Finance
 
2.50

 
2.43

Oil & Gas Exploration & Production
 
2.39

 
2.34

Health Care Services
 
2.15

 
2.74

Integrated Telecommunication Services
 
2.10

 
2.78

Pharmaceuticals
 
2.04

 
2.01

Research & Consulting Services
 
2.02

 
1.58

Oil & Gas Refining & Marketing
 
1.93

 
1.89

Interactive Media & Services
 
1.93

 
1.89

Metal & Glass Containers
 
1.91

 
1.41

Alternative Carriers
 
1.80

 
2.70

Health Care Technology
 
1.78

 
1.74

Computer & Electronics Retail
 
1.76

 
1.72

Publishing
 
1.68

 
1.64

Real Estate Services
 
1.60

 
1.57

IT Consulting & Other Services
 
1.58

 
1.54

Leisure Facilities
 
1.47

 
1.43

Trading Companies & Distributors
 
1.46

 
1.43

Communications Equipment
 
1.45

 
1.55

Health Care Equipment
 
1.45

 
1.42

Industrial Machinery
 
1.43

 
1.49

Specialized REITs
 
1.41

 
1.38

Biotechology
 
1.29

 
1.27

Household Appliances
 
1.12

 
1.09

Electrical Components & Equipment
 
1.04

 
1.02

Auto Parts & Equipment
 
0.94

 
0.92

Household Products
 
0.82

 
0.80

Health Care Supplies
 
0.81

 

Specialty Chemicals
 
0.76

 
0.75

Environmental & Facilities Services
 
0.64

 
0.67

Independent Power Producers & Energy Traders
 
0.55

 

Personal Products
 
0.49

 
0.48

Managed Health Care
 
0.49

 

Property & Casualty Insurance
 
0.33

 

General Merchandise Stores
 
0.25

 
0.25

Human Resource & Employment Services
 

 
1.29

Commodity Chemicals
 

 
0.78

Oil & Gas Equipment & Services
 

 
0.10

Oil & Gas Storage & Transportation
 

 
0.09

 
 
100.00
%
 
100.00
%

55


 
 
December 31, 2019
 
September 30, 2019
Fair value:
 
 
 
 
Application Software
 
14.28
%
 
13.52
%
Multi-Sector Holdings (1)
 
9.27

 
9.10

Aerospace & Defense
 
5.22

 
5.44

Diversified Support Services
 
4.69

 
4.57

Advertising
 
3.56

 
3.51

Internet Services & Infrastructure
 
3.06

 
4.77

Data Processing & Outsourced Services
 
3.00

 
2.81

Systems Software
 
3.00

 
2.59

Movies & Entertainment
 
2.67

 
1.61

Commercial Printing
 
2.63

 
2.58

Specialized Finance
 
2.59

 
2.42

Health Care Services
 
2.26

 
2.88

Oil & Gas Exploration & Production
 
2.21

 
2.34

Research & Consulting Services
 
2.18

 
1.72

Integrated Telecommunication Services
 
2.15

 
2.87

Pharmaceuticals
 
2.06

 
2.02

Oil & Gas Refining & Marketing
 
2.04

 
2.00

Interactive Media & Services
 
2.04

 
1.99

Alternative Carriers
 
1.94

 
2.84

Health Care Technology
 
1.89

 
1.85

Metal & Glass Containers
 
1.85

 
1.40

Computer & Electronics Retail
 
1.85

 
1.81

Publishing
 
1.79

 
1.75

Real Estate Services
 
1.68

 
1.65

Leisure Facilities
 
1.53

 
1.50

Trading Companies & Distributors
 
1.52

 
1.50

Communications Equipment
 
1.51

 
1.57

Health Care Equipment
 
1.50

 
1.51

Specialized REITs
 
1.49

 
1.45

Industrial Machinery
 
1.47

 
1.54

Biotechnology
 
1.38

 
1.35

IT Consulting & Other Services
 
1.30

 
1.34

Household Appliances
 
1.16

 
1.12

Electrical Components & Equipment
 
1.11

 
1.01

Auto Parts & Equipment
 
0.96

 
0.90

Health Care Supplies
 
0.86

 

Household Products
 
0.84

 
0.80

Environmental & Facilities Services
 
0.64

 
0.67

Specialty Chemicals
 
0.62

 
0.62

Independent Power Producers & Energy Traders
 
0.58

 

Personal Products
 
0.52

 
0.51

Managed Health Care
 
0.51

 

Property & Casualty Insurance
 
0.35

 

General Merchandise Stores
 
0.24

 
0.24

Human Resource & Employment Services
 

 
1.34

Commodity Chemicals
 

 
0.83

Oil & Gas Storage & Transportation
 

 
0.09

Oil & Gas Equipment & Services
 

 
0.07

 
 
100.00
%
 
100.00
%
___________________
(1)
This industry includes our investment in the OCSI Glick JV.




56


OCSI Glick JV
In October 2014, we entered into a limited liability company, or LLC, agreement with GF Equity Funding 2014 LLC, or GF Equity Funding, to form the OCSI Glick JV. On April 21, 2015, the OCSI Glick JV began investing in senior secured loans of middle-market companies. We co-invest in these securities with GF Equity Funding through the OCSI Glick JV. The OCSI Glick JV is managed by a four person Board of Directors, two of whom are selected by us and two of whom are selected by GF Equity Funding. The OCSI Glick JV is capitalized as transactions are completed, and portfolio decisions and investment decisions in respect of the OCSI Glick JV must be approved by the OCSI Glick JV investment committee, consisting of one representative selected by us and one representative selected by GF Equity Funding (with approval from a representative of each required). The members provide capital to the OCSI Glick JV in exchange for LLC equity interests, and we and GF Debt Funding 2014 LLC, or GF Debt Funding, an entity advised by affiliates of GF Equity Funding, provide capital to the OCSI Glick JV in exchange for subordinated notes, or the Subordinated Notes. As of December 31, 2019 and September 30, 2019, we and GF Equity Funding owned 87.5% and 12.5%, respectively, of the outstanding LLC equity interests, and we and GF Debt Funding owned 87.5% and 12.5%, respectively, of the Subordinated Notes. The OCSI Glick JV is not an "eligible portfolio company" as defined in section 2(a)(46) of the Investment Company Act.
The OCSI Glick JV's portfolio consisted of middle-market and other corporate debt securities of 42 and 39 portfolio companies as of December 31, 2019 and September 30, 2019, respectively. The portfolio companies in the OCSI Glick JV are in industries similar to those in which we may invest directly.
The OCSI Glick JV has a senior revolving credit facility with Deutsche Bank AG, New York Branch, or the JV Deutsche Bank Facility, which, as of December 31, 2019, had a reinvestment period end date and maturity date of September 29, 2020 and March 29, 2024, respectively, and permitted borrowings of up to $125.0 million. Borrowings under the JV Deutsche Bank Facility are secured by all of the assets of the OCSI Glick JV and all of the equity interests in the OCSI Glick JV and bore interest at a rate equal to the 3-month LIBOR, plus 1.95% per annum with no LIBOR floor. Under the JV Deutsche Bank Facility, $99.4 million and $91.9 million of borrowings were outstanding as of December 31, 2019 and September 30, 2019, respectively.
As of December 31, 2019 and September 30, 2019, the OCSI Glick JV had total assets of $171.4 million and $179.7 million, respectively. Our investment in the OCSI Glick JV consisted of LLC equity interests and Subordinated Notes of $54.2 million and $54.3 million in the aggregate at fair value as of December 31, 2019 and September 30, 2019, respectively. The Subordinated Notes are junior in right of payment to the repayment of temporary contributions made by us to fund investments of the OCSI Glick JV that are repaid when GF Equity Funding and GF Debt Funding make their capital contributions and fund their Subordinated Notes, respectively.
As of December 31, 2019 and September 30, 2019, the OCSI Glick JV had total capital commitments of $100.0 million, $87.5 million of which was from us and the remaining $12.5 million from GF Equity Funding and GF Debt Funding. Approximately $84.0 million in aggregate commitments was funded as of each of December 31, 2019 and September 30, 2019, of which $73.5 million was from us. As of each of December 31, 2019 and September 30, 2019, we had commitments to fund Subordinated Notes to the OCSI Glick JV of $78.8 million, of which $12.4 million was unfunded. As of each of December 31, 2019 and September 30, 2019, we had commitments to fund LLC equity interests in the OCSI Glick JV of $8.7 million, of which $1.6 million was unfunded as of each such date.
Below is a summary of the OCSI Glick JV's portfolio, followed by a listing of the individual loans in the OCSI Glick JV's portfolio as of December 31, 2019 and September 30, 2019:
 
 
December 31, 2019
 
September 30, 2019
Senior secured loans (1)
 
$163,491,961
 
$177,911,560
Weighted average current interest rate on senior secured loans (2)
 
6.69%
 
6.92%
Number of borrowers in the OCSI Glick JV
 
42
 
39
Largest loan exposure to a single borrower (1)
 
$6,912,500
 
$7,425,000
Total of five largest loan exposures to borrowers (1)
 
$32,167,329
 
$34,662,500
__________
(1) At principal amount.
(2) Computed using the weighted average annual interest rate on accruing senior secured loans at fair value.









57


OCSI Glick JV Portfolio as of December 31, 2019
Portfolio Company
Investment Type
 Cash Interest Rate (1)(2)
Industry
Principal
 
Cost
 
Fair Value (3)
Notes
AI Ladder (Luxembourg) Subco S.a.r.l.
First Lien Term Loan, LIBOR+4.50% cash due 7/9/2025
6.44%
Electrical Components & Equipment
$
2,707,174

 
$
2,642,720

 
$
2,710,558

(4)
Altice France S.A.
First Lien Term Loan, LIBOR+4.00% cash due 8/14/2026
5.74%
Integrated Telecommunication Services
2,970,000

 
2,907,864

 
2,981,449

 
Alvogen Pharma US, Inc.
First Lien Term Loan, LIBOR+4.75% cash due 4/1/2022
6.55%
Pharmaceuticals
6,619,829

 
6,436,801

 
5,803,384


Anastasia Parent, LLC
First Lien Term Loan, LIBOR+3.75% cash due 8/11/2025
5.68%
Personal Products
1,697,405

 
1,389,320

 
1,455,525

 
Ancile Solutions, Inc.
First Lien Term Loan, LIBOR+7.00% cash due 6/30/2021
8.94%
Application Software
3,346,869

 
3,331,897

 
3,286,625

(4)
Aptos, Inc.
First Lien Term Loan, LIBOR+5.50% cash due 7/23/2025
7.70%
Computer & Electronics Retail
2,970,000

 
2,940,300

 
2,942,780

(4)
Aurora Lux Finco S.À.R.L.
First Lien Term Loan, LIBOR+6.00% cash due 12/24/2026
7.93%
Airport Services
3,750,000

 
3,656,580

 
3,656,250


Brazos Delaware II, LLC
First Lien Term Loan, LIBOR+4.00% cash due 5/21/2025
5.79%
Oil & Gas Equipment & Services
4,925,000

 
4,906,037

 
4,235,500

 
California Pizza Kitchen, Inc.
First Lien Term Loan, LIBOR+6.00% cash due 8/23/2022
7.91%
Restaurants
4,837,500

 
4,825,848

 
4,221,323


CITGO Petroleum Corp.
First Lien Term Loan, LIBOR+5.00% cash due 3/28/2024
6.94%
Oil & Gas Refining & Marketing
3,970,000

 
3,930,300

 
3,994,813

(4)
Connect U.S. Finco LLC
First Lien Delayed Draw Term Loan, LIBOR+4.50% cash due 12/11/2026
6.29%
Alternative Carriers
2,044,728

 
1,945,239

 
2,081,828

(4)(5)
Cortes NP Acquisition Corporation
First Lien Term Loan, LIBOR+4.00% cash due 11/30/2023
5.93%
Electrical Components & Equipment
2,970,000

 
2,821,487

 
2,970,000

 
Covia Holdings Corporation
First Lien Term Loan, LIBOR+4.00% cash due 6/1/2025
6.04%
Oil & Gas Equipment & Services
6,912,500

 
6,912,500

 
5,366,381


Curium Bidco S.à.r.l.
First Lien Term Loan, LIBOR+4.00% cash due 7/9/2026
5.94%
Biotechnology
4,987,500

 
4,950,094

 
5,034,283

(4)
Ellie Mae, Inc.
First Lien Term Loan, LIBOR+4.00% cash due 4/17/2026
5.94%
Application Software
997,500

 
992,513

 
1,005,610

(4)
eResearch Technology, Inc.
First Lien Term Loan, LIBOR+4.50% cash due 11/20/2026
6.39%
Application Software
2,500,000

 
2,475,000

 
2,523,438

(4)
Falmouth Group Holdings Corp.
First Lien Term Loan, LIBOR+6.75% cash due 12/14/2021
8.55%
Specialty Chemicals
4,658,544

 
4,626,032

 
4,631,329


Frontier Communications Corporation
First Lien Term Loan, LIBOR+3.75% cash due 6/15/2024
5.55%
Integrated Telecommunication Services
3,958,074

 
3,893,812

 
3,985,839

(4)
Gigamon, Inc.
First Lien Term Loan, LIBOR+4.25% cash due 12/27/2024
6.04%
Systems Software
5,880,000

 
5,837,894

 
5,828,550


Guidehouse LLP
Second Lien Term Loan, LIBOR+8.00% cash due 5/1/2026
9.80%
Research & Consulting Services
5,000,000

 
4,980,091

 
4,925,000

(4)
Helios Software Holdings, Inc.
First Lien Term Loan, LIBOR+4.25% cash due 10/24/2025
6.18%
Systems Software
1,000,000

 
990,000

 
994,690

(4)
Houghton Mifflin Harcourt Publishers Inc.
First Lien Term Loan, LIBOR+6.25% cash due 11/22/2024
8.04%
Education Services
3,000,000

 
2,880,933

 
3,000,000

 
Indivior Finance S.a.r.l.
First Lien Term Loan, LIBOR+4.50% cash due 12/19/2022
6.43%
Pharmaceuticals
4,322,191

 
4,309,272

 
4,005,223

(4)
Integro Parent, Inc.
First Lien Term Loan, LIBOR+5.75% cash due 10/31/2022
7.55%
Insurance Brokers
3,315,762

 
3,273,903

 
3,266,026


Intelsat Jackson Holdings S.A.
First Lien Term Loan, LIBOR+3.75% cash due 11/27/2023
5.68%
Alternative Carriers
4,000,000

 
3,958,925

 
4,013,920


MHE Intermediate Holdings, LLC
First Lien Term Loan, LIBOR+5.00% cash due 3/8/2024
6.94%
Diversified Support Services
4,133,125

 
4,081,354

 
4,050,463

(4)
 
First Lien Delayed Draw Term Loan, LIBOR+5.00% cash due 3/8/2024
6.99%
Diversified Support Services
834,991

 
824,712

 
818,291

(4)
 Total MHE Intermediate Holdings, LLC
 
 
 
4,968,116

 
4,906,066

 
4,868,754

 
Navicure, Inc.
First Lien Term Loan, LIBOR+4.00% cash due 10/22/2026
5.80%
Health Care Technology
4,000,000

 
3,980,000

 
4,027,500


Northern Star Industries Inc.
First Lien Term Loan, LIBOR+4.50% cash due 3/31/2025
6.56%
Electrical Components & Equipment
5,403,750

 
5,383,467

 
5,322,694



58


Portfolio Company
Investment Type
 Cash Interest Rate (1)(2)
Industry
Principal
 
Cost
 
Fair Value (3)
Notes
Novetta Solutions, LLC
First Lien Term Loan, LIBOR+5.00% cash due 10/17/2022
6.80%
Application Software
$
5,853,384

 
$
5,811,162

 
$
5,767,047


OEConnection LLC
First Lien Term Loan, LIBOR+4.00% cash due 9/25/2026
5.80%
Application Software
3,644,545

 
3,626,323

 
3,667,324

(4)
 
First Lien Delayed Draw Term Loan, LIBOR+4.00% cash due 9/25/2026
 
Application Software

 
(1,675
)
 
2,165

(4)(5)
Total OEConnection LLC
 
 
 
3,644,545

 
3,624,648

 
3,669,489

 
Red Ventures, LLC
First Lien Term Loan, LIBOR+3.00% cash due 11/8/2024
4.80%
Interactive Media & Services
3,979,849

 
3,961,607

 
4,013,240


Sabert Corporation
First Lien Term Loan, LIBOR +4.50% cash due 12/10/2026
6.25%
Metal & Glass Containers
2,900,000

 
2,871,000

 
2,930,218

(4)
SHO Holding I Corporation
First Lien Term Loan, LIBOR+5.00% cash due 10/27/2022
6.93%
Footwear
6,240,000

 
6,214,046

 
5,584,800


Signify Health, LLC
First Lien Term Loan, LIBOR+4.50% cash due 12/23/2024
6.44%
Health Care Services
5,895,000

 
5,852,206

 
5,887,631

(4)
Sunshine Luxembourg VII SARL
First Lien Term Loan, LIBOR+4.25% cash due 10/1/2026
6.19%
Personal Products
6,500,000

 
6,467,500

 
6,570,200

(4)
Supermoose Borrower, LLC
First Lien Term Loan, LIBOR+3.75% cash due 8/29/2025
5.55%
Application Software
2,771,770

 
2,560,038

 
2,654,468

(4)
Thunder Finco (US), LLC
First Lien Term Loan, LIBOR +4.25% cash due 11/26/2026
6.04%
Movies & Entertainment
3,000,000

 
2,970,000

 
3,000,000

(4)
Tribe Buyer LLC
First Lien Term Loan, LIBOR+4.50% cash due 2/16/2024
6.30%
Human Resource & Employment Services
1,617,579

 
1,614,811

 
1,362,811


Triple Royalty Sub LLC
Fixed Rate Bond 144A 9.00% cash due 4/15/2033
 
Pharmaceuticals
2,972,808

 
2,972,808

 
3,076,856

 
UFC Holdings, LLC
First Lien Term Loan, LIBOR+3.25% cash due 4/29/2026
5.05%
Movies & Entertainment
2,487,147

 
2,487,147

 
2,507,006

(4)
Verra Mobility, Corp.
First Lien Term Loan, LIBOR+3.75% cash due 2/28/2025
5.55%
Data Processing & Outsourced Services
4,917,437

 
4,901,740

 
4,956,383

(4)
WP CPP Holdings, LLC
Second Lien Term Loan, LIBOR+7.75% cash due 4/30/2026
9.68%
Aerospace & Defense
3,000,000

 
2,975,327

 
2,964,390

(4)
 Total Portfolio Investments
 
 
 
$
163,491,961

 
$
161,368,935

 
$
158,083,811

 
__________
(1) Represents the current interest rate as of December 31, 2019. All interest rates are payable in cash, unless otherwise noted.
(2) The interest rate on the principal balance outstanding for all floating rate loans is indexed to LIBOR and/or an alternate base rate (e.g., prime rate), which typically resets semi-annually, quarterly, or monthly at the borrower's option. The borrower may also elect to have multiple interest reset periods for each loan. For each of these loans, we have provided the applicable margin over LIBOR or the alternate base rate based on each respective credit agreement and the cash interest rate as of period end. All LIBOR shown above is in U.S. dollars. As of December 31, 2019, the reference rates for the OCSI Glick JV'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 180-day LIBOR at 1.92%. Most loans include an interest floor, which generally ranges from 0% to 1%.
(3) Represents the current determination of fair value as of December 31, 2019 utilizing a similar technique as us in accordance with ASC 820. However, the determination of such fair value is not included in our Board of Directors' valuation process described elsewhere herein.
(4) This investment is held by both us and the OCSI Glick JV as of December 31, 2019.
(5) 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.


59


OCSI Glick JV Portfolio as of September 30, 2019
Portfolio Company
Investment Type
 Cash Interest Rate (1)(2)
Industry
Principal
 
Cost
 
Fair Value (3)
Notes
AI Ladder (Luxembourg) Subco S.a.r.l.
First Lien Term Loan, LIBOR+4.50% cash due 7/9/2025
6.60%
Electrical components & equipment
$
2,718,993

 
$
2,651,270

 
$
2,504,016

(4)
Air Newco LP
First Lien Term Loan, LIBOR+4.75% cash due 5/31/2024
6.79%
IT consulting & other services
7,425,000

 
7,406,438

 
7,437,400

 
AL Midcoast Holdings LLC
First Lien Term Loan, LIBOR+5.50% cash due 8/1/2025
7.60%
Oil & gas storage & transportation
6,930,000

 
6,860,699

 
6,834,712

(4)
Altice France S.A.
First Lien Term Loan, LIBOR+4.00% cash due 8/14/2026
6.03%
Integrated telecommunication services
2,977,500

 
2,912,809

 
2,975,639

 
Alvogen Pharma US, Inc.
First Lien Term Loan, LIBOR+4.75% cash due 4/1/2022
6.79%
Pharmaceuticals
5,359,286

 
5,359,286

 
4,874,270

 
Ancile Solutions, Inc.
First Lien Term Loan, LIBOR+7.00% cash due 6/30/2021
9.10%
Application software
3,395,374

 
3,377,463

 
3,327,467

(4)
Aptos, Inc.
First Lien Term Loan, LIBOR+5.50% cash due 7/23/2025
7.70%
Computer & electronics retail
2,977,500

 
2,947,725

 
2,940,281

(4)
Brazos Delaware II, LLC
First Lien Term Loan, LIBOR+4.00% cash due 5/21/2025
6.05%
Oil & gas equipment & services
4,937,500

 
4,917,589

 
4,570,273

 
California Pizza Kitchen, Inc.
First Lien Term Loan, LIBOR+6.00% cash due 8/23/2022
8.53%
Restaurants
4,850,000

 
4,838,318

 
4,349,868

 
CITGO Petroleum Corp.
First Lien Term Loan, LIBOR+5.00% cash due 3/28/2024
7.10%
Oil & gas refining & marketing
3,980,000

 
3,940,200

 
4,004,875

(4)
Connect U.S. Finco LLC
First Lien Term Loan, LIBOR+4.50% cash due 9/23/2026
7.10%
Alternative Carriers
5,000,000

 
4,900,000

 
4,930,075

(4)
Covia Holdings Corporation
First Lien Term Loan, LIBOR+4.00% cash due 6/1/2025
6.31%
Oil & gas equipment & services
6,912,500

 
6,912,500

 
5,673,745

 
Curium Bidco S.à r.l.
First Lien Term Loan, LIBOR+4.00% cash due 7/9/2026
6.10%
Biotechnology
5,000,000

 
4,962,500

 
5,025,000

(4)
Ellie Mae, Inc.
First Lien Term Loan, LIBOR+4.00% cash due 4/17/2026
6.04%
Application software
1,000,000

 
995,000

 
1,002,920

(4)
Falmouth Group Holdings Corp.
First Lien Term Loan, LIBOR+6.75% cash due 12/14/2021
8.95%
Specialty chemicals
4,658,544

 
4,626,032

 
4,632,004

 
Frontier Communications Corporation
First Lien Term Loan, LIBOR+3.75% cash due 6/15/2024
5.80%
Integrated telecommunications services
5,468,222

 
5,365,594

 
5,466,281

(4)
Gigamon, Inc.
First Lien Term Loan, LIBOR+4.25% cash due 12/27/2024
6.29%
Systems software
5,895,000

 
5,850,631

 
5,732,888

 
Guidehouse LLP
Second Lien Term Loan, LIBOR+7.50% cash due 5/1/2026
9.54%
Research & consulting services
5,000,000

 
4,979,290

 
4,937,500

(4)
Indivior Finance S.a.r.l.
First Lien Term Loan, LIBOR+4.50% cash due 12/19/2022
6.76%
Pharmaceuticals
4,340,941

 
4,326,851

 
3,997,290

(4)
Integro Parent, Inc.
First Lien Term Loan, LIBOR+5.75% cash due 10/31/2022
7.80%
Insurance brokers
4,813,924

 
4,744,243

 
4,681,541

 
Intelsat Jackson Holdings S.A.
First Lien Term Loan, LIBOR+3.75% cash due 11/27/2023
5.80%
Alternative Carriers
5,000,000

 
4,939,169

 
5,021,100

 
McDermott Technology (Americas), Inc.
First Lien Term Loan, LIBOR+5.00% cash due 5/9/2025
7.10%
Oil & gas equipment & services
1,429,306

 
1,406,187

 
913,565

(4)
MHE Intermediate Holdings, LLC
First Lien Term Loan, LIBOR+5.00% cash due 3/8/2024
7.10%
Diversified support services
4,143,750

 
4,089,029

 
4,060,875

(4)
 
First Lien Delayed Draw Term Loan, LIBOR+5.00% cash due 3/8/2024
7.10%
Diversified support services
837,128

 
826,823

 
820,385

(4)
 Total MHE Intermediate Holdings, LLC
 
 
 
4,980,878

 
4,915,852

 
4,881,260

 
Navicure, Inc.
First Lien Term Loan, LIBOR+4.00% cash due 9/18/2026
6.13%
Healthcare technology
4,000,000

 
3,980,000

 
4,005,000

 
Northern Star Industries Inc.
First Lien Term Loan, LIBOR+4.50% cash due 3/31/2025
6.56%
Electrical components & equipment
5,417,500

 
5,396,178

 
5,336,238

 
Novetta Solutions, LLC
First Lien Term Loan, LIBOR+5.00% cash due 10/17/2022
7.05%
Application software
5,868,628

 
5,824,577

 
5,760,440

 

60


Portfolio Company
Investment Type
 Cash Interest Rate (1)(2)
Industry
Principal
 
Cost
 
Fair Value (3)
Notes
OCI Beaumont LLC
First Lien Term Loan, LIBOR+4.00% cash due 3/13/2025
6.10%
Commodity chemicals
$
6,895,000

 
$
6,888,231

 
$
6,903,619

(4)
OEConnection LLC
First Lien Term Loan, LIBOR+4.00% cash due 9/24/2026
6.13%
Application software
3,655,914

 
3,637,634

 
3,649,059

(4)
 
First Lien Delayed Draw Term Loan, LIBOR+4.00% cash due 9/24/2026
 
Application software

 
(1,720
)
 
(645
)
(4)(5)
 Total OEConnection LLC
 
 
 
3,655,914

 
3,635,914

 
3,648,414

 
Red Ventures, LLC
First Lien Term Loan, LIBOR+3.00% cash due 11/8/2024
5.04%
Interactive media & services
3,989,924

 
3,970,677

 
4,010,712

 
RSC Acquisition, Inc.
First Lien Term Loan, LIBOR+4.25% cash due 11/30/2022
6.29%
Trading companies & distributors
3,849,574

 
3,835,594

 
3,820,702

 
Servpro Borrower, LLC
First Lien Term Loan, PRIME+2.50% cash due 3/26/2026
7.50%
Specialized consumer services
3,980,000

 
3,970,050

 
3,984,975

 
SHO Holding I Corporation
First Lien Term Loan, LIBOR+5.00% cash due 10/27/2022
7.26%
Footwear
6,256,250

 
6,227,881

 
5,943,438

 
Signify Health, LLC
First Lien Term Loan, LIBOR+4.50% cash due 12/23/2024
6.60%
Healthcare services
5,910,000

 
5,864,902

 
5,902,613

(4)
Sunshine Luxembourg VII SARL
First Lien Term Loan, LIBOR+4.25% cash due 9/25/2026
6.59%
Personal products
6,500,000

 
6,467,500

 
6,538,610

(4)
Tribe Buyer LLC
First Lien Term Loan, LIBOR+4.50% cash due 2/16/2024
6.54%
Human resources & employment services
3,114,779

 
3,109,120

 
2,907,133

(4)
Triple Royalty Sub LLC
Fixed Rate Bond 144A 9.0% Toggle PIK cash due 4/15/2033
 
Pharmaceuticals
3,000,000

 
3,000,000

 
3,105,000

 
UFC Holdings, LLC
First Lien Term Loan, LIBOR+3.25% cash due 4/29/2026
5.30%
Movies & entertainment
2,493,573

 
2,493,573

 
2,503,099

(4)
Verra Mobility, Corp.
First Lien Term Loan, LIBOR+3.75% cash due 2/28/2025
5.79%
Data processing & outsourced services
4,929,950

 
4,913,436

 
4,956,645

(4)
WP CPP Holdings, LLC
Second Lien Term Loan, LIBOR+7.75% cash due 4/30/2026
10.01%
Aerospace & defense
3,000,000

 
2,974,333

 
2,987,490

(4)
 Total Portfolio Investments
 
 
 
$
177,911,560

 
$
176,687,612

 
$
173,028,098

 
__________
(1) Represents the current interest rate as of September 30, 2019. All interest rates are payable in cash, unless otherwise noted.
(2) The interest rate on the principal balance outstanding for all floating rate loans is indexed to LIBOR and/or an alternate base rate (e.g., prime rate), which typically resets semi-annually, quarterly, or monthly at the borrower's option. The borrower may also elect to have multiple interest reset periods for each loan. For each of these loans, we have provided the applicable margin over LIBOR or the alternate base rate based on each respective credit agreement and the cash interest rate as of period end. All LIBOR shown above is in U.S. dollars. As of September 30, 2019, the reference rates for the OCSI Glick JV'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%, the 180-day LIBOR at 2.06% and the PRIME at 5.00%. Most loans include an interest floor, which generally ranges from 0% to 1%.
(3) Represents the current determination of fair value as of September 30, 2019 utilizing a similar technique as us in accordance with ASC 820. However, the determination of such fair value is not included in our Board of Directors' valuation process described elsewhere herein.
(4) This investment is held by both us and the OCSI Glick JV as of September 30, 2019.

The cost and fair value of our aggregate investment in the OCSI Glick JV was $73.2 million and $54.2 million, respectively, as of December 31, 2019 and $73.2 million and $54.3 million, respectively, as of September 30, 2019. As of December 31, 2019 and September 30, 2019, the Subordinated Notes paid a weighted average interest rate of LIBOR plus 6.5% per annum. For the three months ended December 31, 2019 and 2018, we earned interest income of $1.4 million and $1.5 million, respectively, on our investment in the Subordinated Notes. We did not earn any dividend income for the three months ended December 31, 2019 and 2018 with respect to our investment in the LLC equity interests of the OCSI Glick JV.

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Below is certain summarized financial information for the OCSI Glick JV as of December 31, 2019 and September 30, 2019 and for the three months ended December 31, 2019 and 2018:
 
 
December 31, 2019
 
September 30, 2019
Selected Balance Sheet Information:
 
 
 
 
Investments at fair value (cost December 31, 2019: $161,368,935; cost September 30, 2019: $176,687,612)
 
$
158,083,811

 
$
173,028,098

Cash and cash equivalents
 
5,524,662

 
1,096,498

Restricted cash
 
2,515,205

 
2,616,125

Due from portfolio companies
 
94,175

 

Other assets
 
5,210,898

 
2,937,681

Total assets
 
$
171,428,751

 
$
179,678,402

 
 
 
 
 
Senior credit facility payable
 
$
99,381,939

 
$
91,881,939

Subordinated notes payable at fair value (proceeds December 31, 2019: $75,492,882; proceeds September 30, 2019: $75,517,614)
 
61,907,548

 
62,087,348

Other liabilities
 
10,139,264

 
25,709,115

Total liabilities
 
$
171,428,751

 
$
179,678,402

Members' equity
 

 

Total liabilities and members' equity
 
$
171,428,751

 
$
179,678,402

 
 
Three months ended
December 31, 2019
 
Three months ended
December 31, 2018
Selected Statements of Operations Information:
 
 
 
 
Interest income
 
$
2,857,253

 
$
3,079,856

Fee income
 
27,710

 

Total investment income
 
2,884,963

 
3,079,856

Interest expense
 
2,702,956

 
2,912,745

Other expenses
 
67,268

 
43,112

Total expenses (1)
 
2,770,224

 
2,955,857

Net unrealized appreciation (depreciation)
 
529,458

 
(128,702
)
Realized gain (loss)
 
(644,197
)
 
4,703

Net income (loss)
 
$

 
$

 __________
(1) There are no management fees or incentive fees charged at the OCSI Glick JV.
The OCSI Glick JV has elected to fair value the Subordinated Notes issued to us and GF Debt Funding under FASB ASC Topic 825, Financial Instruments - Fair Value Option. The Subordinated Notes are valued based on the total assets less the liabilities senior to the Subordinated Notes of the OCSI Glick JV in an amount not exceeding par under the enterprise value technique.
During the three months ended December 31, 2019 and 2018, we did not sell any debt investments to the OCSI Glick JV.
 Discussion and Analysis of Results and Operations
Results of Operations
Net increase (decrease) in net assets resulting from operations includes net investment income, net realized gains (losses) and net unrealized appreciation (depreciation). Net investment income is the difference between our income from interest, dividends and fees and total expenses. Net realized gains (losses) is the difference between the proceeds received from dispositions of investment related assets and liabilities and their stated costs. Net unrealized appreciation (depreciation) is the net change in the fair value of our investment related assets and liabilities carried at fair value during the reporting period, including the reversal of previously recorded unrealized appreciation (depreciation) when gains or losses are realized.
Comparison of Three Months Ended December 31, 2019 and December 31, 2018
Total Investment Income
Total investment income includes interest on our investments and fee income.

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Total investment income for the three months ended December 31, 2019 and 2018 was $11.6 million and $11.3 million, respectively. For the three months ended December 31, 2019, this amount consisted of $11.2 million of interest income from portfolio investments and $0.4 million of fee income. For the three months ended December 31, 2018, this amount primarily consisted of $11.2 million of interest income from portfolio investments. The increase of $0.3 million in our total investment income for the three months ended December 31, 2019, as compared to the three months ended December 31, 2018, was primarily due to a $0.3 million increase in fee income, which was attributable to higher amendment fees earned during the quarter.
Expenses
Net expenses (expenses net of fee waivers) for the three months ended December 31, 2019 and 2018 were $6.9 million and $6.4 million, respectively. The increase of $0.5 million in our net expenses for the three months ended December 31, 2019, as compared to the three months ended December 31, 2018, was primarily due to a $0.5 million increase in Part I incentive fees (net of waivers), which was primarily attributable to a reduction in fees waived in connection with the expiration of the two-year contractual fee waiver period.
To ensure compliance with Section 15(f) of the Investment Company Act, Oaktree entered into a two-year contractual fee waiver with us, which ended on October 17, 2019, pursuant to which Oaktree waived any management or incentive fees payable under the Investment Advisory Agreement that exceeded what would have been paid to Fifth Street Asset Management Inc., or the Former Adviser, in the aggregate under the investment advisory agreement between us and the Former Adviser.
Net Investment Income
As a result of the $0.3 million increase in total investment income and the $0.5 million increase in net expenses, net investment income for the three months ended December 31, 2019 decreased by approximately $0.1 million, as compared to the three months ended December 31, 2018.
Realized Gain (Loss)
Realized gains or losses are measured by the difference between the net proceeds from the sale or redemption of investments and foreign currency and the cost basis without regard to unrealized appreciation or depreciation previously recognized, and includes investments written-off during the period, net of recoveries. Realized losses may also be recorded in connection with our determination that certain investments are considered worthless securities and/or meet the conditions for loss recognition per the applicable tax rules.
During the three months ended December 31, 2019, we recorded net realized losses of $0.5 million in connection with the exit of various investments. During the three months ended December 31, 2018, we recorded net realized gains of $1.7 million, which was primarily attributable to the exit of our investment in BeyondTrust Holdings LLC.
Net Unrealized Appreciation (Depreciation)
Net unrealized appreciation or depreciation is the net change in fair value of our investments and foreign currency during the reporting period, including the reversal of previously recorded unrealized appreciation or depreciation when gains or losses are realized.
For the three months ended December 31, 2019, we recorded net unrealized appreciation of $1.9 million. This consisted of $1.9 million of unrealized appreciation of debt investments and $0.2 million of net unrealized appreciation from exited investments (a portion of which resulted in a reclassification to realized losses), offset by $0.2 million of unrealized depreciation on foreign currency forward contracts. For the three months ended December 31, 2018, we recorded net unrealized depreciation of $19.8 million. This consisted of $18.3 million of unrealized depreciation of debt investments and $1.5 million of net unrealized depreciation related to exited investments (a portion of which resulted in a reclassification to realized gains).
Financial Condition, Liquidity and Capital Resources
We have a number of alternatives available to fund our investment portfolio and our operations, including raising equity, increasing or refinancing debt and funding from operational cash flow. We generally expect to fund the growth of our investment portfolio through additional debt and equity capital, which may include securitizing a portion of our investments. We cannot assure you, however, that our efforts to grow our portfolio will be successful.  For example, our common stock has generally traded at prices below net asset value for the past several years, and we are currently limited in our ability to raise additional equity at prices below the then-current net asset value per share. We intend to continue to generate cash primarily from cash flows from operations, including interest earned and future borrowings. We intend to fund our future distribution obligations through operating cash flow or with funds obtained through future equity and debt offerings or credit facilities, as we deem appropriate.
Our primary uses of funds are investments in our targeted asset classes and cash distributions to holders of our common stock. At a special meeting of our stockholders held on July 10, 2018, our stockholders approved the application of the reduced asset coverage requirements in Section 61(a)(2) of the Investment Company Act to us effective as of July 11, 2018.  As a result of the effectiveness of the 150% reduced asset coverage requirements, we can incur $2 of debt for each $1 of equity as compared to $1 of debt for each $1 of equity. Over time and under current market conditions, we generally expect to target a debt to equity ratio of 1.20x to 1.60x over the long-

63


term (i.e., one dollar of equity for each $1.20 to $1.60 of debt outstanding). As of December 31, 2019, we had $306.3 million in senior securities outstanding and our asset coverage ratio was 193.4%.
For the three months ended December 31, 2019, we experienced a net increase in cash and cash equivalents and restricted cash of $3.9 million. During that period, $3.0 million of cash was used in operating activities, primarily consisting of cash used to fund $34.0 million of investments and a decrease in net payables from unsettled transactions of $22.1 million, partially offset by $48.6 million of principal payments and proceeds from the sale of investments and the cash activities related to $4.7 million of net investment income. During the same period, cash provided by financing activities was $6.9 million, primarily consisting of $11.5 million of net borrowings under our credit facilities, partially offset by $4.5 million of cash distributions paid to our stockholders.
For the three months ended December 31, 2018, we experienced a net decrease in cash and cash equivalents and restricted cash of $1.5 million. During that period, $16.0 million of cash was provided operating activities, primarily consisting of $73.1 million of principal payments and proceeds from the sale of investments, an increase in net payables from unsettled transactions of $23.7 million and the cash activities related to $4.9 million of net investment income, partially offset by cash used to fund $87.0 million of investment purchases. During the same period, cash used in financing activities was $17.5 million, primarily consisting of $12.9 million of net repayments of borrowings under our credit facilities and $4.5 million of cash distributions paid to our stockholders.
As of December 31, 2019, we had $18.0 million of cash and cash equivalents (including $8.5 million of restricted cash), portfolio investments (at fair value) of $584.5 million, $3.0 million of interest, dividends and fees receivable, $10.5 million of net payables from unsettled transactions, $306.2 million of borrowings outstanding under our revolving credit facilities and unfunded commitments of $30.0 million. Pursuant to the terms of the Citibank Facility (as defined below), we were restricted in terms of access to $3.3 million of cash until the occurrence of the periodic distribution dates and, in connection therewith, our submission of our required periodic reporting schedules and verifications of our compliance with the terms of the credit agreement. As of December 31, 2019, $4.4 million of cash was restricted due to the obligation to pay interest under the terms of the Deutsche Bank Facility. As of December 31, 2019, $0.8 million was restricted due to minimum balance requirements under the East West Bank Facility.
As of September 30, 2019, we had $14.1 million of cash and cash equivalents (including $8.4 million of restricted cash), portfolio investments (at fair value) of $597.1 million, $3.8 million of interest, dividends and fees receivable, $32.6 million of net payables from unsettled transactions, $294.7 million of borrowings outstanding under our revolving credit facilities and unfunded commitments of $24.2 million. Pursuant to the terms of the Citibank Facility (as defined below), we were restricted in terms of access to $3.4 million of cash until the occurrence of the periodic distribution dates and, in connection therewith, our submission of our required periodic reporting schedules and verifications of our compliance with the terms of the credit agreement. As of September 30, 2019, $4.3 million of cash was restricted due to the obligation to pay interest under the terms of the Deutsche Bank Facility. As of September 30, 2019, $0.8 million was restricted due to minimum balance requirements under the East West Bank Facility.
Significant Capital Transactions
The following table reflects the quarterly distributions per share that we have paid, including shares issued under our dividend reinvestment plan, or DRIP, on our common stock since October 1, 2017:
Date Declared
 
Record Date
 
Payment Date
 
Amount
per Share
 
Cash Distribution
 
DRIP Shares Issued (1)
 
DRIP Shares Value
August 7, 2017
 
December 15, 2017
 
December 29, 2017
 
$
0.19

 
$
5,439,519

 
18,809
 
$
159,167

February 5, 2018
 
March 15, 2018
 
March 30, 2018
 
0.14

 
4,091,583

 
4,204
 
33,764

May 3, 2018
 
June 15, 2018
 
June 29, 2018
 
0.145

 
4,232,547

 
4,829
 
40,134

August 1, 2018
 
September 15, 2018
 
September 28, 2018
 
0.155

 
4,518,677

 
5,620
 
48,672

November 19, 2018
 
December 17, 2018
 
December 28, 2018
 
0.155

 
4,513,238

 
6,888
 
54,111

February 1, 2019
 
March 15, 2019
 
March 29, 2019
 
0.155

 
4,516,806

 
6,187
 
50,543

May 3, 2019
 
June 14, 2019
 
June 28, 2019
 
0.155

 
4,514,262

 
6,314
 
53,088

August 2, 2019
 
September 13, 2019
 
September 30, 2019
 
0.155

 
4,510,023

 
6,961
 
57,325

November 12, 2019
 
December 13, 2019
 
December 31, 2019
 
0.155

 
4,503,016

 
7,793
 
64,334

______________
(1) Shares were purchased on the open market and distributed.
Indebtedness
See “Note 6. Borrowings” in the Consolidated Financial Statements for more details regarding our indebtedness.
Citibank Facility
As of December 31, 2019 and September 30, 2019, we were able to borrow $180 million under a revolving credit facility with us, as collateral manager, OCSI Senior Funding II LLC, our wholly-owned, special purpose financing subsidiary, as borrower, the lenders from

64


time to time party thereto, Citibank, N.A., as administrative agent and Wells Fargo Bank, N.A., as collateral agent, or the Citibank Facility. As of December 31, 2019, the reinvestment period under the Citibank Facility is scheduled to expire on July 19, 2021 and the maturity date for the Citibank Facility is July 18, 2023.
As of December 31, 2019, borrowings under the Citibank Facility are subject to certain customary advance rates and accrue interest at a rate equal to LIBOR plus 1.70% per annum on broadly syndicated loans and LIBOR plus 2.25% per annum on all other eligible loans during the reinvestment period. Following termination of the reinvestment period, borrowings under the Citibank Facility will accrue interest at rates equal to LIBOR plus 3.50% per annum during the first year after the reinvestment period and LIBOR plus 4.00% per annum during the subsequent two years, respectively. In addition, as of December 31, 2019, for the duration of the reinvestment period there is a non-usage fee payable of 0.50% per annum on the undrawn amount under the Citibank Facility. As of December 31, 2019, the minimum asset coverage ratio applicable to us under the Citibank Facility is 150% as determined in accordance with the requirements of the Investment Company Act.
As of each of December 31, 2019 and September 30, 2019, we had $126.1 million outstanding under the Citibank Facility. Our borrowings under the Citibank Facility bore interest at a weighted average interest rate of 3.878% and 4.684% 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 of $1.4 million (inclusive of fees) and $1.5 million (inclusive of fees), respectively, related to the Citibank Facility.  
East West Bank Facility
On January 6, 2016, we entered into a five-year, $25 million senior secured revolving credit facility with the lenders referenced therein, U.S. Bank National Association, as custodian, and East West Bank as secured lender, or, as amended, the East West Bank Facility. As of December 31, 2019, borrowings under the East West Bank Facility bear an interest rate of either (i) LIBOR plus 2.85% per annum or (ii) East West Bank’s prime rate, in each case with a 3.5% floor. The East West Bank Facility matures on January 6, 2021. As of December 31, 2019, the minimum asset coverage ratio applicable to us under the East West Bank Facility is 150% as determined in accordance with the requirements of the Investment Company Act. The East West Bank Facility requires us to comply with certain affirmative and negative covenants and other customary requirements for similar credit facilities.
As of December 31, 2019 and September 30, 2019, we had $15.5 million and $11.0 million of borrowings outstanding under the East West Bank Facility, respectively. Our borrowings under the East West Bank Facility bore interest at a weighted average interest rate of 4.799% and 5.697% 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 of $0.2 million (inclusive of fees) and $0.1 million (inclusive of fees), respectively, related to the East West Bank Facility.
Deutsche Bank Facility
On September 24, 2018, OCSI Senior Funding Ltd., our wholly-owned subsidiary, entered into a loan financing and servicing agreement, or, as amended, the Deutsche Bank Facility, with us as equityholder and as servicer, the lenders from time to time parties thereto, Deutsche Bank AG, New York Branch, as facility agent, the other agents parties thereto and Wells Fargo Bank, National Association, as collateral agent and as collateral custodian.
Under the Deutsche Bank Facility, as of December 31, 2019, OCSI Senior Funding Ltd. could borrow an aggregate principal amount of up to $250 million, which can be increased to $300 million in the sole discretion of Deutsche Bank AG, New York Branch in connection with certain milestones in the marketing of a collateralized loan obligation. The period during which OCSI Senior Funding Ltd. may request drawdowns under the Deutsche Bank Facility, or the revolving period, will continue through March 31, 2020 unless there is an earlier termination or event of default. The Deutsche Bank Facility will mature on the earliest of June 30, 2020, the occurrence of an event of default or completion of a securitization transaction.
As of September 30, 2019 and prior to December 31, 2019, borrowings under the Deutsche Bank Facility bore interest at a rate equal to the three-month LIBOR plus 2.00%, following which the interest rate reset to three-month LIBOR plus 2.10% for the remaining term of the Deutsche Bank Facility. No up-front commitment fees were paid by us in connection with the Deutsche Bank Facility. There is a non-usage fee of 0.25% per annum payable on the undrawn amount under the Deutsche Bank Facility through December 24, 2018, following which the non-usage fee increases to 0.50% per annum for the remaining term of the Deutsche Bank Facility.
The Deutsche Bank Facility is secured by all of the assets held by OCSI Senior Funding Ltd. OCSI Senior Funding Ltd. 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. Our borrowings, including indirectly under the Deutsche Bank Facility, are subject to the leverage restrictions contained in the Investment Company Act.
As of December 31, 2019 and September 30, 2019, we had $164.6 million and $157.6 million outstanding under the Deutsche Bank Facility, respectively. For the three months ended December 31, 2019 and 2018, our borrowings under the Deutsche Bank Facility bore interest at a weighted average interest rate of 4.127% and 4.413%, respectively, and we recorded interest expense of $1.8 million (inclusive of fees) and $1.6 million (inclusive of fees), respectively.

65


Off-Balance Sheet Arrangements
We may be a party to financial instruments with off-balance sheet risk in the normal course of business to meet the financial needs of our portfolio companies. As of December 31, 2019 and September 30, 2019, our only off-balance sheet arrangements consisted of $30.0 million and $24.2 million, respectively, of unfunded commitments to provide debt and equity financing to certain of our portfolio companies. Such commitments are subject to our portfolio companies' satisfaction of certain financial and nonfinancial covenants and may involve, to varying degrees, elements of credit risk in excess of the amount recognized in our Consolidated Statements of Assets and Liabilities.
A list of unfunded commitments by investment (consisting of revolvers, term loans with delayed draw components and Subordinated Notes and LLC equity interests of the OCSI Glick JV) as of December 31, 2019 and September 30, 2019 is shown in the table below:
 
 
December 31, 2019
 
September 30, 2019
OCSI Glick JV LLC
 
$
13,998,029

 
$
13,998,029

Connect U.S. Finco LLC
 
5,910,543

 

MHE Intermediate Holdings, LLC
 
4,466,338

 
4,466,338

PaySimple, Inc.
 
1,740,371

 
2,450,000

Mindbody, Inc.
 
952,381

 
952,381

CircusTrix Holdings LLC
 
802,541

 

OEConnection LLC
 
735,931

 
731,183

Apptio, Inc.
 
692,308

 
692,308

iCIMs, Inc.
 
294,118

 
294,118

GKD Index Partners, LLC
 
222,222

 
444,444

Ministry Brands, LLC
 
80,000

 
80,000

4 Over International, LLC
 
56,717

 
60,629

Total
 
$
29,951,499

 
$
24,169,430

Contractual Obligations
The following table reflects information pertaining to our debt outstanding under the Citibank Facility, the East West Bank Facility and the Deutsche Bank Facility:
 
 
Debt Outstanding
as of September 30, 2019
 
Debt Outstanding
as of December 31, 2019
 
Weighted average  debt
outstanding for the
three months ended
December 31, 2019
 
Maximum debt
outstanding
for the three months ended
December 31, 2019
Citibank Facility
 
$
126,056,800

 
$
126,056,800

 
$
126,056,800

 
$
126,056,800

Deutsche Bank Facility
 
157,600,000

 
164,600,000

 
159,393,478

 
164,600,000

East West Bank Facility
 
11,000,000

 
15,500,000

 
10,684,783

 
15,500,000

Total debt
 
$
294,656,800

 
$
306,156,800

 
$
296,135,061

 
 

The following table reflects our contractual obligations arising from the Citibank Facility, Deutsche Bank Facility and East West Bank Facility:
 
 
Payments due by period as of December 31, 2019
 
 
Total
 
< 1 year
 
1-3 years
 
3-5 years
Citibank Facility
 
$
126,056,800

 
$

 
$

 
$
126,056,800

Interest due on Citibank Facility
 
16,889,212

 
4,760,280

 
9,520,560

 
2,608,372

Deutsche Bank Facility
 
164,600,000

 
164,600,000

 

 

Interest due on Deutsche Bank Facility
 
3,353,672

 
3,353,672

 

 

East West Bank Facility
 
15,500,000

 

 
15,500,000

 

Interest due on East West Bank Facility
 
730,738

 
716,988

 
13,750

 

Total
 
$
327,130,422

 
$
173,430,940

 
$
25,034,310

 
$
128,665,172

Regulated Investment Company Status and Distributions
We have qualified and elected to be treated as a RIC under Subchapter M of the Code for tax purposes. As long as we continue to qualify as a RIC, we will not be subject to tax on our investment company taxable income (determined without regard to any deduction for dividends paid) or realized net capital gains, to the extent that such taxable income or gains is distributed, or deemed to be distributed as dividends, to stockholders on a timely basis.

66


Taxable income generally differs from net income for financial reporting purposes due to temporary and permanent differences in the recognition of income and expenses, and generally excludes net unrealized appreciation or depreciation. Distributions declared and paid by us in a taxable year may differ from taxable income for that taxable year as such distributions may include the distribution of taxable income derived from the current taxable year or the distribution of taxable income derived from the prior taxable year carried forward into and distributed in the current taxable year. Distributions also may include returns of capital.
To maintain RIC tax treatment, we must, among other things, distribute dividends, with respect to each taxable year, of an amount at least equal to 90% of our investment company taxable income (i.e., our net ordinary income and our realized net short-term capital gains in excess of realized net long-term capital losses, if any) determined without regard to any deduction for dividends paid. As a RIC, we are also subject to a federal excise tax, based on distribution requirements of our taxable income on a calendar year basis. We anticipate timely distribution of our taxable income in accordance with tax rules. We did not incur a U.S. federal excise tax for calendar years 2018 and 2019. We may incur a federal excise tax in future years.
We intend to distribute at least 90% of our annual taxable income (which includes our taxable interest and fee income) to our stockholders. The covenants under the respective documents governing the Citibank Facility, the East West Bank Facility and the Deutsche Bank Facility could, under certain circumstances, hinder our ability to satisfy the distribution requirement associated with our ability to be subject to tax as a RIC. In addition, we may retain for investment some or all of our net capital gains (i.e., realized net long-term capital gains in excess of realized net short-term capital losses) and treat such amounts as deemed distributions to our stockholders. If we do this, our stockholders will be treated as if they received actual distributions of the capital gains we retained and then reinvested the net after-tax proceeds in our common stock. Our stockholders also may be eligible to claim tax credits (or, in certain circumstances, tax refunds) equal to their allocable share of the tax we paid on the capital gains deemed distributed to them. To the extent our taxable earnings for a fiscal and taxable year fall below the total amount of our distributions for that fiscal and taxable year, a portion of those distributions may be deemed a return of capital to our stockholders.
We may not be able to achieve operating results that will allow us to make distributions at a specific level or to increase the amount of these distributions from time to time. In addition, we may be limited in our ability to make distributions due to the asset coverage test for borrowings applicable to us as a Business Development Company under the Investment Company Act and due to provisions in our credit facilities and debt instruments. If we do not distribute a certain percentage of our taxable income annually, we will suffer adverse tax consequences, including possible loss of our ability to be subject to tax as a RIC. We cannot assure stockholders that they will receive any distributions or distributions at a particular level.
A RIC may treat a distribution of its own stock as fulfilling its RIC distribution requirements if each stockholder elects to receive his or her entire distribution in either cash or stock of the RIC, subject to certain limitations regarding the aggregate amount of cash to be distributed to all stockholders. If these and certain other requirements are met, for U.S federal income tax purposes, the amount of the dividend paid in stock will be equal to the amount of cash that could have been received instead of stock. We have no current intention of paying dividends in shares of our stock in accordance with these guidelines.
We may generate qualified net interest income or qualified net short-term capital gains that may be exempt from U.S. withholding tax when distributed to foreign stockholders. A RIC is permitted to designate distributions of qualified net interest income and qualified short-term capital gains as exempt from U.S. withholding tax when paid to non-U.S. shareholders with proper documentation. The following table, which may be subject to change as we finalize our annual tax filings, lists the percentage of qualified net interest income and qualified short-term capital gains for the year ended September 30, 2019, our last tax year end.
Year Ended
 
Qualified Net Interest Income
Qualified Short-Term Capital Gains
September 30, 2019
 
89.1
%

We have adopted a DRIP that provides for the reinvestment of any distributions that we declare in cash on behalf of our stockholders, unless a stockholder elects to receive cash. As a result, if our Board of Directors declares a cash distribution, then our stockholders who have not “opted out” of the DRIP will have their cash distributions automatically reinvested in additional shares of our common stock, rather than receiving a cash distribution. If our shares are trading at a premium to net asset value, we typically issue new shares to implement the DRIP, with such shares issued at the greater of the most recently computed net asset value per share of our common stock or 95% of the current market value per share of our common stock on the payment date for such distribution. If our shares are trading at a discount to net asset value, we typically purchase shares in the open market in connection with our obligations under the DRIP.

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Related Party Transactions
We have entered into the Investment Advisory Agreement with Oaktree and the Administration Agreement with Oaktree Administrator, a wholly-owned subsidiary of Oaktree. Mr. John B. Frank, an interested member of our Board of Directors, has an indirect pecuniary interest in Oaktree. Oaktree is a registered investment adviser under the Investment Advisers Act of 1940, as amended, that is partially and indirectly owned by OCG. See “Note 11. Related Party Transactions - Investment Advisory Agreement” and “– Administrative Services” in the notes to the accompanying Consolidated Financial Statements.
Recent Developments
Distribution Declaration
On January 31, 2020, our Board of Directors declared a quarterly distribution of $0.155 per share, payable on March 31, 2020 to stockholders of record on March 13, 2020.

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Item 3. Quantitative and Qualitative Disclosures about Market Risk
We are subject to financial market risks, including changes in the valuations of our investment portfolio and interest rates.
Valuation Risk
Our investments may not have a readily available market price, and we value these investments at fair value as determined in good faith by our Board of Directors, with the assistance of the Audit Committee and Oaktree. There is no single standard for determining fair value in good faith and valuation methodologies involve a significant degree of management judgment. In addition, our valuation methodology utilizes discount rates in part in valuing our investments, and changes in those discount rates may have an impact on the valuation of our investments. Accordingly, valuations by us do not necessarily represent the amounts which may eventually be realized from sales or other dispositions of investments. Estimated fair values may differ from the values that would have been used had a ready market for the investment existed, and the differences could be material to the financial statements.
Interest Rate Risk
We are subject to financial market risks, including changes in interest rates. Changes in interest rates may affect both our cost of funding and our interest income from portfolio investments, cash and cash equivalents and idle fund 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 and September 30, 2019, 100% of our debt investment portfolio (at cost and fair value) bore interest at floating rates. The composition of our floating rate debt investments by cash interest rate floor as of December 31, 2019 and September 30, 2019 was as follows: 
 
 
December 31, 2019
 
September 30, 2019
 
 
Fair Value
 
% of Floating
Rate Portfolio
 
Fair Value
 
% of Floating
Rate Portfolio
Under 1%
 
$
255,369,378

 
43.72
%
 
$
187,485,498

 
31.41
%
1% to 2%
 
328,791,030

 
56.28

 
409,325,610

 
68.59

Total
 
$
584,160,408

 
100.00
%
 
$
596,811,108

 
100.00
%
Based on our Consolidated Statement 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 on 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
 
$
18,280,331

 
$
(9,184,704
)
 
$
9,095,627

200
 
12,186,887

 
(6,123,136
)
 
6,063,751

100
 
6,093,444

 
(3,061,568
)
 
3,031,876


Basis point decrease
 
(Decrease) in Interest Income
 
Decrease in Interest Expense
 
Net increase (decrease) in net assets resulting from operations
100
 
$
(5,597,060
)
 
$
3,061,568

 
$
(2,535,492
)
200 (1)
 
(7,789,694
)
 
5,841,144

 
(1,948,550
)
 __________
(1) The effect of a greater than 200 basis point decrease is limited by interest rate floors on certain investments.




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We regularly measure exposure to interest rate risk. We assess interest rate risk and manage our interest rate exposure on an ongoing basis by comparing our interest rate sensitive assets to our interest rate sensitive liabilities. Based on this review, we determine whether or not any hedging transactions are necessary to mitigate exposure to changes in interest rates. The following table shows a comparison of the interest rate base for our interest-bearing cash and outstanding investments, at principal, and our outstanding borrowings as of December 31, 2019 and September 30, 2019:

 
 
December 31, 2019
 
September 30, 2019
 
 
Interest Bearing Cash and Investments
 
Borrowings
 
Interest Bearing Cash and Investments
 
Borrowings
Money market rate
 
$
16,964,326

 
$

 
$
13,063,815

 
$

Prime rate
 
3,574,952

 

 
7,392,651

 

LIBOR:
 
 
 
 
 
 
 
 
30 day
 
377,619,966

 
15,500,000

 
408,142,675

 
11,000,000

60 day
 
2,000,000

 

 
2,000,000

 

90 day
 
199,796,801

 
290,656,800

 
179,653,417

 
283,656,800

180 day
 
19,728,889

 

 
20,311,944

 

360 day
 

 

 

 

UK LIBOR:
 
 
 
 
 
 
 
 
30 day
 
6,623,750

 

 
6,161,500

 

Fixed rate
 

 

 

 

Total
 
$
626,308,684

 
$
306,156,800

 
$
636,726,002

 
$
294,656,800



Item 4. Controls and Procedures

Management, with the participation of our Chief Executive Officer and Chief 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 Securities and Exchange Commission’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the company’s management, including its chief executive officer and chief financial officer, as appropriate to allow timely decisions regarding required disclosure. Management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives. Based on the evaluation of our disclosure controls and procedures as of December 31, 2019, the 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
Although we may, from time to time, be involved in litigation arising out of our operations in the normal course of business or otherwise, we are currently not a party to any pending material legal proceedings.


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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
 
 
Certification of Chief Executive Officer Pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934.
 
Certification of Chief Financial Officer Pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934.
 
Certification of Chief Executive Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. 1350).
 
Certification of Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. 1350).

*
Filed herewith.




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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 CORPORATION
 
 
By:
 
/s/   Armen Panossian
 
 
Armen Panossian

 
 
Chief Executive Officer
 
 
By:
 
/s/    Mel Carlisle
 
 
Mel Carlisle
 
 
Chief Financial Officer and Treasurer
Date: February 5, 2020



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