10-Q 1 d595199d10q.htm 10-Q 10-Q
Table of Contents

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

FORM 10-Q

 

 

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

For the quarterly period ended June 30, 2018

OR

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

Commission file number: 814-01108

 

 

Corporate Capital Trust II

(Exact name of registrant as specified in its charter)

 

 

 

Delaware   47-1595504
(State or other jurisdiction of incorporation or organization)   (I.R.S. Employer Identification No.)
201 Rouse Boulevard  
Philadelphia, Pennsylvania   19112
(Address of principal executive offices)   (Zip Code)

(215) 495-1150

(Registrant’s telephone number, including area code)

 

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes  ☒    No  ☐

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes  ☐    No  ☐

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

 

Large accelerated filer     Accelerated filer   
Non-accelerated filer   ☒      Do not check if smaller reporting company   Smaller reporting company   
    Emerging growth company   

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

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes  ☐    No  ☒

The number of shares of common stock of the registrant outstanding as of August 13, 2018 was 12,581,139.

 

 

 


Table of Contents

CORPORATE CAPITAL TRUST II

INDEX

 

            PAGE    

PART I. FINANCIAL INFORMATION

  

Item 1.

  

Financial Statements:

      
  

Condensed Statements of Assets and Liabilities as of June  30, 2018 (Unaudited) and December 31, 2017

      
  

Unaudited Condensed Statements of Operations for the three and six months ended
June 30, 2018 and 2017

      
  

Unaudited Condensed Statements of Changes in Net Assets for the six months ended
June 30, 2018 and 2017

      
  

Unaudited Condensed Statements of Cash Flows for the six months ended June 30, 2018 and 2017

      
  

Condensed Schedules of Investments as of June  30, 2018 (Unaudited) and
December 31, 2017

      
  

Notes to Unaudited Condensed Financial Statements

     20   

Item 2.

  

Management’s Discussion and Analysis of Financial Condition and Results of Operations

     46   

Item 3.

  

Quantitative and Qualitative Disclosures about Market Risk

     70   

Item 4.

  

Controls and Procedures

     72   

PART II. OTHER INFORMATION

  

Item 1.

  

Legal Proceedings

     73   

Item 1A.

  

Risk Factors

     73   

Item 2.

  

Unregistered Sales of Equity Securities and Use of Proceeds

     74   

Item 3.

  

Defaults Upon Senior Securities

     74   

Item 4.

  

Mine Safety Disclosures

     74   

Item 5.

  

Other Information

     74   

Item 6.

  

Exhibits

     74   

Exhibit Index

     75   

Signatures

         76   


Table of Contents

PART I—FINANCIAL INFORMATION

Item 1.    Financial Statements

Corporate Capital Trust II

Condensed Statements of Assets and Liabilities

(in thousands, except share and per share amounts)

 

 

 

     June 30, 2018
(Unaudited)
    December 31, 2017  

Assets

    

Investments at fair value:

    

Non-controlled, non-affiliated investments (amortized cost of $188,028 and $162,976, respectively)

     $ 187,081        $ 163,911   

Cash

     8,113        7,392   

Cash denominated in foreign currency (cost of $338 and $95, respectively)

     330        97   

Income receivable

     2,075        1,551   

Receivable for investments sold

     632        1,340   

Principal receivable

     71        36   

Unrealized appreciation on foreign currency forward contracts

     279        96   

Deferred financing costs

     208        260   

Prepaid expenses and other assets

     132        396   
  

 

 

   

 

 

 

Total assets

     $         198,921        $         175,079   
  

 

 

   

 

 

 
    

Liabilities

    

Revolving credit facility

     $ 74,904        $ 53,000   

Payable for investments purchased

     5,101        4,220   

Accrued performance-based incentive fees

     15        279   

Accrued trustees’ fees

     32         

Accrued distribution and shareholder servicing fees

     —        95   

Accrued professional services

     262        217   

Payable to Advisors

     729        287   

Other accrued expenses and liabilities

     745        505   
  

 

 

   

 

 

 

Total liabilities

     81,788        58,608   
  

 

 

   

 

 

 

Commitments and contingencies (Note 11)

    

Net assets

     $ 117,133        $ 116,471   
  

 

 

   

 

 

 

Components of Net Assets

    

Preferred stock, $0.001 par value per share, 100,000,000 shares authorized and unissued at June 30, 2018 and December 31, 2017

     $ —        $ —   

Common stock, $0.001 par value per share, 1,000,000,000 shares authorized, 12,901,051 and 12,656,616 shares issued and outstanding at June 30, 2018 and December 31, 2017, respectively

     13        13   

Paid-in capital in excess of par value

     117,974        115,686   

Distributions in excess of net investment income

     (470)        (373)  

Accumulated net realized gains

     112        112   

Accumulated net unrealized appreciation (depreciation) on investments and foreign currency translation

     (496)       1,033   
  

 

 

   

 

 

 

Net assets

     $ 117,133        $ 116,471   
  

 

 

   

 

 

 

Net asset value per share of common stock at period end

     $ 9.08        $ 9.20   
  

 

 

   

 

 

 

 

 

See notes to unaudited condensed financial statements.

1


Table of Contents

Corporate Capital Trust II

Unaudited Condensed Statements of Operations

(in thousands, except share and per share amounts)

 

 

 

    Three Months Ended
June 30,
    Six Months Ended
June 30,
 
    2018     2017     2018     2017  

Investment income

       

Interest income

    $ 3,805        $ 1,767        $ 7,204        $ 2,978   

Fee income

    254        24        296        46   

Dividend and other income

    16        —        27        —   
 

 

 

   

 

 

   

 

 

   

 

 

 

Total investment income

    4,075        1,791        7,527        3,024   
 

 

 

   

 

 

   

 

 

   

 

 

 

Operating expenses

       

Investment advisory fees

    686        521        1,571        891   

Professional services

    183        195        407        431   

Administrative services

    334        207        652        393   

Custodian and accounting fees

    84        84        169        154   

Interest expense

    735        —        1,373        —   

Trustee fees and expenses

    78        52        128        103   

Insurance

    41        41        81        81   

Performance-based incentive fees

    (481)       (11)       (264)       27   

Distribution and shareholder servicing fees

    94        235        376        435   

Offering expense

    —        —        20        —   

Organization expenses

    —        88        —        88   

Other

    75        44        157        125   
 

 

 

   

 

 

   

 

 

   

 

 

 

Total operating expenses

    1,829        1,456        4,670        2,728   

Expense support

    —        (602)       (581)       (1,260)  
 

 

 

   

 

 

   

 

 

   

 

 

 

Net operating expenses

    1,829        854        4,089        1,468   
 

 

 

   

 

 

   

 

 

   

 

 

 

Net investment income

    2,246        937        3,438        1,556   
 

 

 

   

 

 

   

 

 

   

 

 

 

Net realized and unrealized gains (losses)

       

Net realized gains (losses) on:

       

Non-controlled, non-affiliated investments

    52        141        231        304   

Foreign currency forward contracts

    —        —        (1)       —   

Foreign currency transactions

    (2)             (21)        
 

 

 

   

 

 

   

 

 

   

 

 

 

Net realized gains

    50        144        209        307   
 

 

 

   

 

 

   

 

 

   

 

 

 

Net change in unrealized appreciation (depreciation) on:

       

Non-controlled, non-affiliated investments

    (2,702)       (200)       (1,882)       (177)  

Foreign currency forward contracts

    93        —        183        —   

Foreign currency translation

    156              170         
 

 

 

   

 

 

   

 

 

   

 

 

 

Net change in unrealized appreciation (depreciation)

    (2,453)       (196)       (1,529)       (172)   
 

 

 

   

 

 

   

 

 

   

 

 

 

Net realized and unrealized gains (losses)

    (2,403)       (52)       (1,320)       135   
 

 

 

   

 

 

   

 

 

   

 

 

 

Net increase (decrease) in net assets resulting from operations

    $ (157)       $ 885        $ 2,118        $ 1,691   
 

 

 

   

 

 

   

 

 

   

 

 

 

Net investment income per share

    $ 0.17        $ 0.10        $ 0.27        $ 0.19   
 

 

 

   

 

 

   

 

 

   

 

 

 

Diluted and basic earnings (losses) per share

    $ (0.01)       $ 0.09        $ 0.17        $ 0.20   
 

 

 

   

 

 

   

 

 

   

 

 

 

Weighted average number of shares of common stock outstanding (basic and diluted)

        12,836,067            9,573,327            12,806,356            8,320,520   
 

 

 

   

 

 

   

 

 

   

 

 

 

Distributions declared per share

    $ 0.15        $ 0.14        $ 0.30        $ 0.29   
 

 

 

   

 

 

   

 

 

   

 

 

 

 

 

See notes to unaudited condensed financial statements.

2


Table of Contents

Corporate Capital Trust II

Unaudited Condensed Statements of Changes in Net Assets

(in thousands, except share and per share amounts)

 

 

 

     Six Months Ended
June 30,
 
     2018      2017  

Operations

     

Net investment income

     $ 3,438         $ 1,556   

Net realized gains on investments, foreign currency forward contracts and foreign currency transactions

     209         307   

Net change in unrealized appreciation (depreciation) on investments, foreign currency forward contracts and foreign currency translation

     (1,529)        (172)  
  

 

 

    

 

 

 

Net increase in net assets resulting from operations

     2,118         1,691   
  

 

 

    

 

 

 

Distributions to shareholders from

     

Net investment income

     (3,438)        (1,556)  

Net realized gains

     (209)        (307)  

Distributions in excess of net investment income(1)

     (97)        (553)  
  

 

 

    

 

 

 

Net decrease in net assets resulting from shareholders’ distributions

     (3,744)        (2,416)  
  

 

 

    

 

 

 

Capital share transactions

     

Issuance of shares of common stock

     1,270         38,977   

Reinvestment of shareholders’ distributions

     1,858         1,299   

Repurchase of shares of common stock

     (840)        —   
  

 

 

    

 

 

 

Net increase in net assets resulting from capital share transactions

     2,288         40,276   
  

 

 

    

 

 

 

Total increase in net assets

     662         39,551   

Net assets at beginning of period

     116,471         55,017   
  

 

 

    

 

 

 

Net assets at end of period

     $         117,133         $ 94,568   
  

 

 

    

 

 

 

Capital share activity

     

Shares issued from subscriptions

     136,070         4,179,149   

Shares issued from reinvestment of distributions

     199,641         139,283   

Shares repurchased

     (91,276)        —   
  

 

 

    

 

 

 

Net increase in shares outstanding

     244,435             4,318,432   
  

 

 

    

 

 

 

Accumulated undistributed (distributions in excess of) net investment income at end of period

     $ (470)        $ (497)  
  

 

 

    

 

 

 

 

 

(1)

The Company estimates that none of the distributions declared during the six months ended June 30, 2018 would be classified as a tax basis return of capital.

 

 

See notes to unaudited condensed financial statements.

3


Table of Contents

Corporate Capital Trust II

Unaudited Condensed Statements of Cash Flows

(in thousands)

 

 

 

    Six Months Ended
June 30,
 
    2018     2017  

Operating Activities:

   

Net increase (decrease) in net assets resulting from operations

    $ 2,118        $ 1,691   

Adjustments to reconcile net increase (decrease) in net assets resulting from operations to net cash provided by (used in) operating activities:

   

Purchases of investments

    (71,484)       (81,689)  

Paid-in-kind interest

    (9)       —   

Proceeds from sales of investments

    33,873        29,962   

Proceeds from principal payments

    13,459        10,038   

Net realized (gain) loss on investments

    (231)       (304)  

Net change in unrealized (appreciation) depreciation on investments

    1,882        177   

Net change in unrealized (appreciation) depreciation on derivative instruments

    (183)       —   

Net change in unrealized (appreciation) depreciation on foreign currency translation

    10        (5)  

(Gain) loss on borrowings in foreign currency

    (180)       —   

Amortization of premium/discount, net

    (660)       (444)  

Amortization of deferred financing costs

    52        —   

(Increase) decrease in receivable for investments sold

    708        1,284   

(Increase) decrease in principal receivable

    (35)       (63)  

(Increase) decrease in receivable from Advisors

    —        282   

(Increase) decrease in income receivable

    (524)       (546)  

(Increase) decrease in prepaid expenses and other assets

    264        (83)  

Increase (decrease) in payable for investments purchased

    881        (957)  

Increase (decrease) in accrued performance-based incentive fees

    (264)       27   

Increase (decrease) in due to Advisors

    442        41   

Increase (decrease) in ongoing distribution and shareholder servicing fees

    (95)       20   

Increase (decrease) in accrued trustees’ fees

    27         

Increase (decrease) in accrued professional services

    45        64   

Increase (decrease) in other accrued expenses and liabilities

    240        281   
 

 

 

   

 

 

 

Net cash provided by (used in) operating activities

    (19,664)       (40,222)  
 

 

 

   

 

 

 

Financing Activities:

   

Proceeds from issuance of shares of common stock

    1,270        38,977   

Payments on repurchases of shares of common stock

    (840)       —   

Borrowings under revolving credit facility

    41,682        —   

Repayments of revolving credit facility

    (19,598)       —   

Distributions paid

    (1,886)       (1,369)  
 

 

 

   

 

 

 

Net cash provided by (used in) financing activities

            20,628                37,608   
 

 

 

   

 

 

 

Effect of exchange rate changes on cash

    (10)        
 

 

 

   

 

 

 

Net increase (decrease) in cash

    954        (2,613)  

Cash and cash denominated in foreign currency, beginning of period

    7,489        3,843   
 

 

 

   

 

 

 

Cash and cash denominated in foreign currency, end of period

    $ 8,443        $ 1,230   
 

 

 

   

 

 

 
   

Supplemental disclosure of cash flow information and non-cash financing activities:

   

Cash paid for interest

    $ 1,399        $ —   
 

 

 

   

 

 

 

Distributions reinvested

    $ 1,858        $ 1,299   
 

 

 

   

 

 

 

Excise taxes paid

    $ 17        $  
 

 

 

   

 

 

 

 

 

See notes to unaudited condensed financial statements.

4


Table of Contents

Corporate Capital Trust II

Unaudited Condensed Schedule of Investments

As of June 30, 2018

(in thousands, except share amounts)

 

 

 

 Portfolio Company(a)(b)

     Footnotes     

Industry

 

        Rate        

   Floor      Maturity  
Date
  Principal
  Amount(c)  
          Cost(d)             Fair Value    

 Senior Secured Loans—First Lien—83.1%

              

 Accuride Corporation

   (l)    Automobiles & Components   L+525   1.00%   11/17/23   $ 416      $ 410      $ 422  

 Acosta, Inc.

   (n)    Media   L+325   1.00%   9/26/21     5,202        4,707        3,944  

 Advantage Sales & Marketing Inc.

   (e)(n)    Commercial & Professional Services   L+325   1.00%   7/23/21     2,828        2,708        2,681  

 Agro Merchants North America Holdings, Inc.

   (l)    Commercial & Professional Services   L+375   1.00%   12/6/24     70        70        70  

 Aleris International, Inc.

   (n)    Materials   L+475     2/27/23     1,035        1,024        1,027  

 American Tire Distributors, Inc.

   (e)(n)    Retailing   L+425   1.00%   9/1/21     1,382        1,209        906  

 BakerCorp International, Inc.

   (l)    Capital Goods   L+300   1.25%   2/7/20     3,314        3,226        3,279  

 BC Equity Ventures LLC

   (l)    Consumer Services   L+650   1.00%   8/31/22     2,213        2,187        2,238  

 Belk, Inc.

   (l)    Retailing   L+475   1.00%   12/12/22     4,917        4,445        3,818  

 Berner Food & Beverage LLC

   (f)(l)    Food & Staples Retailing   L+675   1.00%   2/2/23     3,935        3,897        3,807  

 Berner Food & Beverage LLC

   (f)(l)(s)    Food & Staples Retailing   L+675   1.00%   2/2/23     2,623        2,623        2,538  

 Bugaboo International B.V. (NLD)

   (f)(g)(h)(j)(p)    Consumer Durables & Apparel  

E+375, 7.75% PIK

(7.75% Max PIK)

    3/20/25   1,168        1,390        1,328  

 CommerceHub, Inc.

   (n)    Software & Services   L+375     5/2/25   $ 303        302        305  

 Distribution International, Inc.

   (l)    Retailing   L+500   1.00%   12/15/21     7,521        6,626        7,183  

 Eacom Timber Corp (CAN)

   (f)(g)(h)(l)    Materials   L+650   1.00%   11/30/23   C$     2,855            2,829            2,846  

 Eagle Family Foods Group LLC

   (f)(l)    Food, Beverage & Tobacco   L+650   1.00%   6/14/23   $ 35        35        35  

 Eagle Family Foods Group LLC

   (f)(l)(s)    Food, Beverage & Tobacco   L+650   1.00%   6/14/23     124        122        122  

 Eagle Family Foods Group LLC

   (f)(l)    Food, Beverage & Tobacco   L+650   1.00%   6/14/24     1,061        1,049        1,049  

 Evergreen AcqCo 1 LP

   (l)    Retailing   L+375   1.25%   7/9/19     1,068        1,015        1,048  

 Foresight Energy LLC

   (g)(l)    Materials   L+575   1.00%   3/28/22     1,557        1,478        1,551  

 Frontline Technologies Group, LLC

   (f)(n)    Software & Services   L+650   1.00%   9/18/23     4,502        4,441        4,386  

 Frontline Technologies Group, LLC

   (f)(n)(s)    Software & Services   L+650   1.00%   9/18/23     889        878        867  

 GC Agile Intermediate Holdings Limited (GBR)

   (f)(g)(h)(l)    Commercial & Professional Services   L+650   1.00%   6/15/25     603        591        591  

 GC Agile Intermediate Holdings Limited (GBR)

   (f)(g)(h)(l)(s)    Commercial & Professional Services   L+650   1.00%   6/15/25     290        284        284  

 GC Agile Intermediate Holdings Limited (GBR)

   (f)(g)(h)(l)(s)    Commercial & Professional Services   L+650   1.00%   6/15/25     241        237        237  

 

See notes to unaudited condensed financial statements.

5


Table of Contents

Corporate Capital Trust II

Unaudited Condensed Schedule of Investments (continued)

As of June 30, 2018

(in thousands, except share amounts)

 

 

 

 Portfolio Company(a)(b)

     Footnotes     

Industry

 

        Rate        

   Floor      Maturity  
Date
  Principal
  Amount(c)  
          Cost(d)             Fair Value    

 GC Agile Intermediate Holdings Limited (GBR)

   (f)(g)(h)(l)(s)     Commercial & Professional Services   L+650     6/15/23   $     89      $ 86      $ 86  

 Harrison Gypsum, LLC

   (f)(n)     Materials   L+700   1.00%   4/29/24     814        806        804  

 Harrison Gypsum, LLC

   (f)(n)(s)     Materials   L+700   1.00%   4/29/24     260        260        257  

 ID Verde (FRA)

   (f)(g)(h)(l)     Commercial & Professional Services   L+725     3/29/25   £ 342        466        448  

 ID Verde (FRA)

   (f)(g)(h)(p)     Commercial & Professional Services   E+700     3/29/25   936        1,118        1,083  

 ID Verde (FRA)

   (f)(g)(h)(p)(s)     Commercial & Professional Services   E+700     3/29/24   271        333        330  

 Integro Intermediate Inc.

   (f)(l)     Insurance   L+575     10/30/22   $     1,200            1,194            1,194  

 Jo-Ann Stores, LLC

   (l)     Retailing   L+500   1.00%   10/16/23     3,413        3,386        3,394  

 MedAssets, Inc.

   (n)     Health Care Equipment & Services   L+450   1.00%   10/19/22     71        71        71  

 Monitronics International, Inc.

   (l)     Consumer Services   L+550   1.00%   9/30/22     2,017        1,981        1,931  

 NCI, Inc.

   (f)(l)     Software & Services   L+750   1.00%   8/15/24     4,298        4,251        4,329  

 Netsmart Technologies, Inc.

   (l)     Health Care Equipment & Services   L+450   1.00%   4/19/23     80        80        81  

 One Call Corp.

   (f)(n)     Health Care Equipment & Services  

L+375, 6.00% PIK

(6.00% Max PIK)

    4/11/24     1,162        1,150        1,148  

 Onvoy, LLC

   (l)     Telecommunication Services   L+450   1.00%   2/10/24     156        138        151  

 Patriot Well Solutions LLC

   (f)(l)     Energy   L+875   1.00%   3/31/21     667        656        655  

 Patriot Well Solutions LLC

   (f)(l)(s)     Energy   L+875   1.00%   4/17/21     334        334        328  

 Quidditch Acquisition Inc

   (n)     Consumer Services   L+700   1.00%   3/14/25     1,995        1,955        2,015  

 Quorum Health Corp.

   (n)     Health Care Equipment & Services   L+675   1.00%   4/29/22     4,518        4,506        4,604  

 Revere Superior Holdings, Inc.

   (f)(l)     Software & Services   L+675   1.00%   11/21/22     4,558        4,517        4,589  

 Revere Superior Holdings, Inc.

   (f)(m)     Software & Services   L+675   1.00%   11/21/22     987        982        984  

 Revere Superior Holdings, Inc.

   (f)(m)(s)     Software & Services   L+675   1.00%   11/21/22     646        643        644  

 Revere Superior Holdings, Inc.

   (f)(l)     Software & Services   L+675   1.00%   11/21/22     164        161        165  

 Revere Superior Holdings, Inc.

   (f)(l)     Software & Services   L+675   1.00%   11/21/22     221        217        192  

 Revere Superior Holdings, Inc.

   (f)(l)(s)     Software & Services   L+675   1.00%   11/21/22     131        129        115  

 Sequa Mezzanine Holdings L.L.C.

   (n)     Capital Goods   L+500   1.00%   11/28/21     1,538        1,548        1,543  

 SIRVA Worldwide, Inc.

   (l)     Commercial & Professional Services   L+650   1.00%   11/22/22     1,974        1,935        1,982  

 SMART Global Holdings, Inc.

   (f)(q)     Semiconductors & Semiconductor  Equipment   P+400     2/9/21     19        19        18  

 SMART Global Holdings, Inc.

   (f)(q)(s)     Semiconductors & Semiconductor  Equipment   P+400     2/9/21     77        77        70  

 

See notes to unaudited condensed financial statements.

6


Table of Contents

Corporate Capital Trust II

Unaudited Condensed Schedule of Investments (continued)

As of June 30, 2018

(in thousands, except share amounts)

 

 

 

 Portfolio Company(a)(b)

     Footnotes       

Industry

 

        Rate        

   Floor        Maturity  
Date
    Principal
  Amount(c)  
          Cost(d)             Fair Value    

 SMART Global Holdings, Inc.

     (f)(l)       Semiconductors & Semiconductor  Equipment   L+625     1.00%       8/9/22     $ 3,653      $     3,601      $     3,687    

 Staples Canada, ULC (CAN)

     (f)(o)       Retailing   CDOR+700     1.00%       9/12/23     C$     5,650        4,583        4,326    

 Sutherland Global Services Inc.

     (l)       Software & Services   L+538     1.00%       4/23/21     $ 1,803        1,758        1,736    

 Sutherland Global Services Inc.

     (g)(l)       Software & Services   L+538     1.00%       4/23/21       420         409        404    

 Team Health Holdings Inc

     (n)       Health Care Equipment & Services   L+275     1.00%       2/6/24       972        941        937    

 TruGreen, LP

     (n)       Consumer Services   L+400     1.00%       4/13/23       983        991        995    

 Utility One Source, LP

     (n)       Capital Goods   L+550     1.00%       4/7/23       3,289        3,272        3,375    

 Vertafore, Inc.

     (n)       Software & Services   L+325     1.00%       6/30/23       138        138        138    

 VP Parent Holdings, Inc.

     (f)(l)       Software & Services   L+650     1.00%       5/22/25       2,494        2,470        2,472    

 Wheels Up Partners, LLC

     (f)(l)(s)       Capital Goods   L+710     1.00%       12/31/18       827        827        827    

 Wheels Up Partners, LLC

     (f)(l)       Capital Goods   L+710     1.00%       12/31/18       827        824        831    

 Wheels Up Partners, LLC

     (f)(l)       Capital Goods   L+710     1.00%       12/31/18       827        820        831    

 Wheels Up Partners, LLC

     (f)(l)       Capital Goods   L+710     1.00%       12/31/18       1,285        1,281        1,291    

 Wheels Up Partners, LLC

     (f)(l)       Capital Goods   L+710     1.00%       12/31/18       527        524        529    

 Wheels Up Partners, LLC

     (f)(l)       Capital Goods   L+710     1.00%       12/31/18       269        267        270    

 Wheels Up Partners, LLC

     (f)(l)       Capital Goods   L+855     1.00%       12/31/18       790        788        790    

 Wheels Up Partners, LLC

     (f)(l)       Capital Goods   L+855     1.00%       12/31/18       399        398        397    

 WireCo WorldGroup, Inc.

     (n)       Capital Goods   L+500     1.00%       9/29/23       555                      554                      559    
               

 

 

   

 

 

 

 Total Senior Secured Loans—First Lien

 

               105,228        104,168    
                 

 Unfunded Loan Commitments

                  (6,833)       (6,833)  
               

 

 

   

 

 

 

 Net Senior Secured Loans—First Lien

 

               98,395        97,335    
               

 

 

   

 

 

 
                 

 Senior Secured Loans—Second Lien—27.4%

 

              

 Access CIG, LLC

     (n)       Software & Services   L+775       2/27/26       200        198        201    

 Access CIG, LLC

     (n)(s)       Software & Services   L+750       2/13/26       11        11        11    

 Advantage Sales & Marketing Inc.

     (n)       Commercial & Professional Services   L+650     1.00%       7/25/22       181        169        166    

 Albany Molecular Research, Inc.

     (n)       Pharmaceuticals, Biotechnology & Life Sciences   L+700       8/30/25       913        909        914    

 Applied Systems, Inc.

     (l)       Software & Services   L+700     1.00%       9/19/25               2,624        2,624        2,711    

 Arclin, Inc.

     (g)(l)       Materials   L+875     1.00%       2/9/25       289        286        293    

 

See notes to unaudited condensed financial statements.

7


Table of Contents

Corporate Capital Trust II

Unaudited Condensed Schedule of Investments (continued)

As of June 30, 2018

(in thousands, except share amounts)

 

 

 

 Portfolio Company(a)(b)

     Footnotes     

Industry

 

        Rate        

   Floor      Maturity  
Date
  Principal
  Amount(c)  
          Cost(d)             Fair Value    

 BJ’s Wholesale Club, Inc.

   (n)     Food & Staples Retailing   L+750   1.00%   2/3/25   $ 949      $ 941      $ 961    

 CommerceHub, Inc.

   (f)(n)     Software & Services   L+775   1.00%   6/30/26     3,222        3,127        3,152    

 CTI Foods Holding Co., LLC

   (n)     Food, Beverage & Tobacco   L+725   1.00%   6/28/21     222        210        169    

 Deck Chassis Acquisition Inc.

   (n)     Transportation   L+600     6/15/23     587        584        593    

 Excelitas Technologies Corp.

   (l)     Technology Hardware & Equipment   L+750   1.00%   12/1/25     811        803        831    

 FPC Holdings, Inc.

   (n)     Capital Goods   L+800   1.25%   5/19/23     12        12        12    

 Genoa, a QoL Healthcare Co., LLC

   (n)     Health Care Equipment & Services   L+800   1.00%   10/28/24     353        354        358    

 GOBP Holdings, Inc.

   (n)     Food & Staples Retailing   L+825   1.00%   10/21/22     50        47        51    

 Higginbotham Insurance Agency, Inc.

   (f)(n)     Insurance   L+725   1.00%   12/19/25     1,304        1,292        1,301    

 Integro Intermediate Inc.

   (f)(l)     Insurance   L+925     6/8/25     222        220        220    

 Invictus U.S., LLC

   (m)     Materials   L+675     2/13/26     451        453        456    

 iParadigms Holdings, LLC

   (l)     Software & Services   L+725   1.00%   7/29/22     183        179        181    

 Jo-Ann Stores, LLC

   (l)     Retailing   L+925   1.00%   5/21/24     396        390        392    

 LBM Borrower, LLC

   (e)(m)     Capital Goods   L+925   1.00%   8/20/23     900        895        907    

 Misys, Ltd. (GBR)

   (g)(h)(l)     Software & Services   L+725   1.00%   6/13/25     2,814        2,825         2,718    

 NEP Group, Inc.

   (l)     Media   L+700   1.00%   1/23/23     239        231        241    

 NeuStar, Inc.

   (n)     Software & Services   L+800   1.00%   8/8/25     221        218        215    

 Polyconcept North America, Inc.

   (f)(n)     Consumer Durables & Apparel   L+1000   1.00%   2/16/24     624        612        643    

 Press Ganey Holdings, Inc.

   (n)     Health Care Equipment & Services   L+650   1.00%   10/21/24     1,066        1,081        1,084    

 Sequa Mezzanine Holdings L.L.C.

   (e)(m)     Capital Goods   L+900   1.00%   4/28/22     4,024        4,066        4,034    

 SMG US Midco 2, Inc.

   (n)     Consumer Services   L+700     1/23/26     118        117        119    

 Sparta Systems, Inc.

   (f)(n)     Software & Services   L+825     7/27/25     2,438        2,404        2,391    

 Sungard Public Sector, LLC

   (f)(n)     Software & Services   L+850   1.00%   1/30/25     654        649        648    

 Transplace, Inc.

   (n)     Transportation   L+875   1.00%   10/6/25     3,289        3,213        3,326    

 Vantage Specialty Chemicals, Inc.

   (m)     Materials   L+825   1.00%   10/26/25     755        744        761    

 Vectra Co.

   (n)     Materials   L+725     3/8/26     450        446        452    

 WireCo WorldGroup, Inc.

   (n)     Capital Goods   L+900   1.00%   9/30/24     1,632        1,627                    1,649    
               

 

 

   

 

 

 

 Total Senior Secured Loans—Second Lien

               31,937        32,161    

 Unfunded Loan Commitments

                  (11)       (11)  
               

 

 

   

 

 

 

 Net Senior Secured Loans—Second Lien

                  31,926        32,150    
               

 

 

   

 

 

 

 

See notes to unaudited condensed financial statements.

8


Table of Contents

Corporate Capital Trust II

Unaudited Condensed Schedule of Investments (continued)

As of June 30, 2018

(in thousands, except share amounts)

 

 

 

 Portfolio Company(a)(b)

     Footnotes       

Industry

 

        Rate        

   Floor        Maturity  
Date
    Principal
  Amount(c)  
          Cost(d)             Fair Value    

 Senior Secured Bonds—10.3%

                 

 APX Group, Inc.

       Consumer Services   7.88%       12/1/22     $ 1,752      $ 1,728      $ 1,741    

 Avantor, Inc.

     (i)       Materials   6.00%       10/1/24       776        776        769    

 Boyne USA Inc.

     (i)       Consumer Services   7.25%       5/1/25       110        115        115    

 Cleaver-Brooks Inc

     (i)       Capital Goods   7.88%       3/1/23       866        866         894    

 Cornerstone Chemical, Co.

     (i)       Materials   6.75%       8/15/24       2,682        2,686        2,608    

 DJO Finance LLC

     (i)       Health Care Equipment & Services   8.13%       6/15/21       2,100        2,093        2,133    

 Frontier Communications Corp.

     (g)(i)       Telecommunication Services   8.50%       4/1/26       353        353        341    

 Genesys Telecommunications Laboratories, Inc.

     (i)       Software & Services   10.00%       11/30/24       672        748        750    

 Pattonair Holdings, Ltd. (GBR)

     (g)(h)(i)       Capital Goods   9.00%       11/1/22       1,057        1,073        1,096    

 Pisces Midco Inc.

     (i)       Capital Goods   8.00%       4/15/26       1,666        1,632        1,608    
               

 

 

   

 

 

 

 Total Senior Secured Bonds

                  12,070        12,055    
               

 

 

   

 

 

 

 Total Senior Debt

                  142,391        141,540    
               

 

 

   

 

 

 
                 

 Subordinated Debt—31.9%

                 

 Allegheny Technologies Incorporated

     (g)       Materials   7.88%       8/15/23       4,350        4,343        4,687    

 AmWINS Group, Inc.

     (e)(i)       Insurance   7.75%       7/1/26       314        314        314    

 APX Group, Inc.

       Consumer Services   8.75%       12/1/20       1,695        1,544        1,624    

 CDK Global Inc

     (g)       Software & Services   4.88%       6/1/27                   7    

 Clear Channel International BV (NLD)

     (g)(h)(i)       Media   8.75%       12/15/20       3,779        3,894        3,906    

 ClubCorp Holdings, Inc.

     (i)       Consumer Services   8.50%       9/15/25       5,260        5,164        5,003    

 Consolidated Energy Finance S.A. (BRB)

     (g)(i)       Materials   6.50%       5/15/26       201         201         200    

 Datatel, Inc.

     (i)       Software & Services   9.00%       9/30/23       102         107         107    

 Foresight Energy LLC

     (g)(i)       Materials   11.50%        4/1/23       545         474         484    

 Hub International Ltd.

     (i)       Insurance   7.00%       5/1/26       1,180         1,178         1,167    

 Kenan Advantage Group, Inc.

     (i)       Transportation   7.88%       7/31/23       3,350         3,472         3,424    

 Pactiv, LLC

       Materials   7.95%       12/15/25       849         933         936    

 Pactiv, LLC

       Materials   8.38%       4/15/27       2,653         2,953         2,965    

 PAREXEL International Corp.

     (i)       Pharmaceuticals, Biotechnology & Life
 Sciences
  6.38%       9/1/25       610         589         586    

 

See notes to unaudited condensed financial statements.

9


Table of Contents

Corporate Capital Trust II

Unaudited Condensed Schedule of Investments (continued)

As of June 30, 2018

(in thousands, except share amounts)

 

 

 

 Portfolio Company(a)(b)

     Footnotes      

Industry

 

        Rate        

   Floor        Maturity  
Date
    Principal
  Amount(c)  
          Cost(d)             Fair Value    

 Quorum Health Corp.

      Health Care Equipment & Services   11.63%       4/15/23      $ 30        $ 31        $ 30    

 SRS Distribution Inc.

     (i)      Capital Goods   8.25%       7/1/26       3,010         2,997         3,016    

 Surgery Center Holdings, Inc.

     (i)      Health Care Equipment & Services   6.75%       7/1/25       657         600         625    

 Surgery Partners Holdings LLC

     (i)      Health Care Equipment & Services   8.88%       4/15/21       18         18         19    

 Team Health Holdings Inc

     (i)      Health Care Equipment & Services   6.38%       2/1/25       1,943         1,693         1,672    

 Tenet Healthcare Corp.

     (g)(i)      Health Care Equipment & Services   7.00%       8/1/25       31         31         31    

 Triumph Group, Inc.

      Capital Goods   7.75%       8/15/25       217         217         216    

 USA Compression Partners, LP

     (g)(i)      Energy   6.88%       4/1/26       247         247         256    

 Vertiv Group Corp.

     (i)      Capital Goods   9.25%       10/15/24       6,124         6,337         6,067    
              

 

 

   

 

 

 

 Total Subordinated Debt

                 37,344         37,342    
              

 

 

   

 

 

 
                

 Asset Based Finance—3.5%

              

 

No. of Shares

 

 

 

   

 KKR Zeno Aggregator, LP (IRE), Membership Interest

     (f)(g)(h)      Capital Goods           1,526,247         1,526         1,526    

 Montgomery Credit Holdings, LP, Membership Interest

     (f)(g)(r)      Diversified Financials           2,689,167         2,689         2,548    
              

 

 

   

 

 

 

 Total Asset Based Finance

                 4,215         4,074    
              

 

 

   

 

 

 
                

 Equity/Other—3.5%

                

 Misys, Ltd. (GBR), Perpetual Preferred Equity

     (f)(g)(h)(j)(l)      Software & Services   L+1025         2,841         2,788         2,685    

 Polyconcept North America, Inc., Membership Units

     (f)      Consumer Durables & Apparel           624         62         77    

 VICI Properties, Inc., Common Stock

     (g)      Consumer Services           66,020         1,228         1,363    
              

 

 

   

 

 

 

 Total Equity/Other

                 4,078         4,125    
              

 

 

   

 

 

 

 TOTAL INVESTMENTS—159.7%

     (k)                 $ 188,028         187,081    
              

 

 

   

 OTHER ASSETS IN EXCESS OF LIABILITIES—(59.7%)

                   (69,948)  
                

 

 

 

 NET ASSETS—100.0%

                  $ 117,133    
                

 

 

 

Derivative Instrument (Note 4)—0.2%

 

             
                

 

 

 

Foreign currency forward contract

                   $         279   

 

 

See notes to unaudited condensed financial statements.

10


Table of Contents

Corporate Capital Trust II

Unaudited Condensed Schedule of Investments (continued)

As of June 30, 2018

(in thousands, except share amounts)

 

 

 

(a)

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

 

(b)

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

 

(c)

Denominated in U.S. dollars unless otherwise noted.

 

(d)

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

 

(e)

Position or portion thereof unsettled as of June 30, 2018.

 

(f)

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

 

(g)

The investment is not a qualifying asset as defined in Section 55(a) under the 1940 Act. A business development company may not acquire any asset other than qualifying assets, unless, at the time the acquisition is made, qualifying assets represent at least 70% of the company’s total assets. As of June 30, 2018, 81.3% of the Company’s total assets represented qualifying assets.

 

(h)

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

 

(i)

This security was acquired in a transaction that was exempt from the registration requirements of the Securities Act, pursuant to Rule 144A thereunder. This security may be resold only in transactions that are exempt from the registration requirements of the Securities Act, normally to qualified institutional buyers.

 

(j)

The issue of this security may elect at any time to capitalize distributions or interest.

 

(k)

As of June 30, 2018, the aggregate gross unrealized appreciation for all securities in which there was an excess of value over tax cost was $2,531; the aggregate gross unrealized depreciation for all securities in which there was an excess of tax cost over value was $3,574; the net unrealized appreciation was $(1,043); the aggregate cost of securities for Federal income tax purposes was $188,575.

 

(l)

The interest rate on these investments is subject to a base rate of 3-Month LIBOR, which at June 30, 2018 was 2.34%. The current base rate for each investment may be different from the reference rate on June 30, 2018.

 

(m)

The interest rate on these investments is subject to a base rate of 2-Month LIBOR, which at June 30, 2018 was 2.17%. The current base rate for each investment may be different from the reference rate on June 30, 2018.

 

(n)

The interest rate on these investments is subject to a base rate of 1-Month LIBOR, which at June 30, 2018 was 2.09%. The current base rate for each investment may be different from the reference rate on June 30, 2018.

 

(o)

The interest rate on these investments is subject to a base rate of 3-Month Canadian Banker Acceptance Rate, which at June 30, 2018 was approximately 1.70%. The current base rate for each investment may be different from the reference rate on June 30, 2018.

 

(p)

The interest rate on these investments is subject to a base rate of 3-Month Euro Interbank Offered Rate, which at June 30, 2018 was approximately (0.32)%. The current base rate for each investment may be different from the reference rate on June 30, 2018.

 

(q)

The interest rate on these investments is subject to a base rate of the PRIME rate, which at June 30, 2018 was approximately 5.00%. The current base rate for each investment may be different from the reference rate on June 30, 2018.

 

See notes to unaudited condensed financial statements.

11


Table of Contents

Corporate Capital Trust II

Unaudited Condensed Schedule of Investments (continued)

As of June 30, 2018

(in thousands, except share amounts)

 

 

 

(r)

Security is non-income producing.

 

(s)

Security is an unfunded loan commitment.

Abbreviations:

C$ - Canadian Dollar; local currency investment amount is denominated in Canadian Dollar. C$1 / U.S. $0.76 as of June 30, 2018.

€ - Local currency investment amount is denominated in Euros. € 1 / U.S. $1.17 as of June 30, 2018.

£ - Local currency investment amount is denominated in British Pound Sterling. £ 1 / U.S. $1.32 as of June 30, 2018.

BRB = Barbados

CAN = Canada

CDOR = Canadian Banker Acceptance Rate

E = EURIBOR - Euro Interbank Offered Rate

FRA = France

GBR = United Kingdom

IRE = Ireland

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

NLD = Netherlands

PIK = Payment-in-kind; the issuance of additional securities by the borrower to settle interest payment obligations.

 

See notes to unaudited condensed financial statements.

12


Table of Contents

Corporate Capital Trust II

Schedule of Investments

As of December 31, 2017

(in thousands, except share amounts)

 

 

 

Portfolio Company(a)(b)                         

          Footnotes          

                Industry         

      Rate                 Floor             Maturity
    Date    
    No. Shares/
Principal
    Amount(c)    
            Cost(d)                     Fair Value          

First Lien Senior Secured Loans—80.4%

               

ABB CONCISE Optical Group, LLC

  (1)   Retailing     L + 500       1.00%       6/15/23     $             510     $             508     $             511  

Accuride Corp.

  (e),(1)   Capital Goods     L + 525       1.00%       11/17/23       2,508       2,478       2,555  

Acosta Holdco, Inc.

  (2)   Commercial & Professional Services     L + 325       1.00%       9/26/21       2,761       2,515       2,439  

Advantage Sales & Marketing, Inc.

  (1)   Commercial & Professional Services     L + 325       1.00%       7/23/21       616       590       602  

Agro Merchants Global, LP

  (e),(1)   Transportation     L + 375       1.00%       12/6/24       70       70       71  

BakerCorp International, Inc.

  (1)   Capital Goods     L + 300       1.25%       2/7/20       4,565       4,418       4,525  

Bay Club, Co.

  (2)   Consumer Services     L + 650       1.00%       8/31/22       2,224       2,195       2,258  

Belk, Inc.

  (1)   Retailing     L + 475       1.00%       12/12/22       4,945       4,430       4,075  

Commercial Barge Line Co.

  (2)   Transportation     L + 875       1.00%       11/12/20       346       330       202  

David’s Bridal, Inc.

  (1)   Retailing     L + 400       1.25%       10/11/19       398       379       350  

DigiCert, Inc.

  (1)   Software & Services     L + 475       1.00%       10/31/24       1,975       1,965       2,003  

Distribution International, Inc.

  (1)   Retailing     L + 500       1.00%       12/15/21       7,560       6,558       6,431  

Eacom Timber Corp. (CAN)

  (f),(g),(h),(1)   Materials     L + 650       1.00%       11/30/23       2,928       2,899       2,909  

FleetPride Corp.

  (1)   Capital Goods     L + 400       1.25%       11/19/19       3,412       3,279       3,406  

Foresight Energy, LLC

  (g),(1)   Materials     L + 575       1.00%       3/17/22       3,676       3,543       3,458  

Frontline Technologies Group, LLC

  (f),(1)   Software & Services     L + 650       1.00%       9/18/23       4,524       4,446       4,448  

Intelsat S.A. (LUX)

  (g),(h),(1)   Media     L + 275       1.00%       6/30/19       2,267       2,259       2,265  

JC Penney Corp., Inc.

  (g),(1)   Retailing     L + 425       1.00%       6/23/23       16       16       15  

Jo-Ann Stores, Inc.

  (1)   Retailing     L + 500       1.00%       10/20/23       3,497       3,467       3,384  

Koosharem, LLC

  (1)   Commercial & Professional Services     L + 650       1.00%       5/15/20       2,495       2,292       2,437  

MedAssets, Inc.

  (2)   Health Care Equipment & Services     L + 450       1.00%       10/20/22       71       72       72  

Monitronics International, Inc.

  (1)   Commercial & Professional Services     L + 550       1.00%       9/30/22       2,027       1,987       2,013  

NCI, Inc.

  (f),(1)   Software & Services     L + 750       1.00%       8/15/24       4,330       4,279       4,289  

Netsmart Technologies, Inc.

  (1)   Health Care Equipment & Services     L + 450       1.00%       4/19/23       81       81       82  

 

See notes to unaudited condensed financial statements.

13


Table of Contents

Corporate Capital Trust II

Schedule of Investments (continued)

As of December 31, 2017

(in thousands, except share amounts)

 

 

 

Portfolio Company(a)(b)                         

          Footnotes          

                Industry         

      Rate               Floor             Maturity
    Date    
  No. Shares/
Principal
    Amount(c)    
            Cost(d)                     Fair Value          

P2 Energy Solutions, Inc.

  (g),(1)   Software & Services   L + 400     1.00%     10/30/20   $ 3,317     $ 3,246     $ 3,253  

Polyconcept North America, Inc.

  (2)   Consumer Durables & Apparel   L + 475     1.00%     8/16/23     332       329       334  

Quorum Health Corp.

  (2)   Health Care Equipment & Services   L + 675     1.00%     4/29/22     4,575       4,561       4,632  

Revere Superior Holdings, Inc.

  (f),(1)   Software & Services   L + 675     1.00%     11/21/22     4,581       4,536       4,567  

Revere Superior Holdings, Inc.

  (f),(1)   Software & Services   L + 675     1.00%     11/21/22     164       160       163  

Revere Superior Holdings, Inc.

  (f),(1)   Software & Services   L + 675     1.00%     11/21/22     33       26       2  

Savers, Inc.

  (1)   Retailing   L + 375     1.25%     7/9/19     1,074       1,000       1,012  

Sequa Corp.

  (1)   Materials   L + 500     1.00%     11/28/21     1,545       1,557       1,559  

SI Organization, Inc.

  (1)   Capital Goods   L + 475     1.00%     11/23/19     597       597       604  

SIRVA Worldwide, Inc.

  (1)   Commercial & Professional Services   L + 650     1.00%     11/22/22         2,061           2,016           2,081  

SMART Global Holdings, Inc.

  (f),(g),(4)   Semiconductors & Semiconductor Equipment   P + 400     0.00%     2/9/22     46       46       37  

SMART Global Holdings, Inc.

  (f),(g),(1)   Semiconductors & Semiconductor Equipment   L + 625     1.00%     8/9/22     3,261       3,201       3,288  

Staples Canada, Inc.

  (f),(g),(h),(5)   Retailing   CDOR + 700     1.00%     9/12/23   C$     5,689       4,608       4,412  

Sutherland Global Services, Inc.

  (g),(1)   Software & Services   L + 537.5     1.00%     4/23/21   $ 709       691       682  

Sutherland Global Services, Inc.

  (g),(1)   Software & Services   L + 537.5     1.00%     4/23/21     3,046       2,967       2,931  

Talbots, Inc.

  (2)   Retailing   L + 450     1.00%     3/19/20     720       671       701  

TruGreen, LP

  (1)   Consumer Services   L + 400     1.00%     4/13/23     1,573       1,588       1,598  

Utility One Source, LP

  (2)   Capital Goods   L + 550     1.00%     4/7/23     3,305       3,287       3,384  

Vertafore, Inc.

  (2)   Software & Services   L + 325     1.00%     6/30/23     139       139       140  

Wheels Up Partners, LLC

  (f),(1)   Transportation   L + 855     1.00%     10/15/21     372       370       369  

Wheels Up Partners, LLC

  (f),(1)   Transportation   L + 855     1.00%     7/15/22     424       422       421  

Wheels Up Partners, LLC

  (f),(1)   Transportation   L + 710     1.00%     8/1/24     1,347       1,338       1,336  

 

See notes to unaudited condensed financial statements.

14


Table of Contents

Corporate Capital Trust II

Schedule of Investments (continued)

As of December 31, 2017

(in thousands, except share amounts)

 

 

 

Portfolio Company(a)(b)                         

          Footnotes          

                Industry         

      Rate               Floor             Maturity
    Date    
  No. Shares/
Principal
    Amount(c)    
            Cost(d)                     Fair Value          

Wheels Up Partners, LLC

  (f),(1)   Transportation   L + 710     1.00%     11/1/24   $ 551     $ 547     $ 547  

Wheels Up Partners, LLC

  (f),(1)   Transportation   L + 710     1.00%     2/1/25     276       273       273  

WireCo WorldGroup, Inc.

  (1)   Capital Goods   L + 550     1.00%     9/29/23     558       557       563  
             

 

 

   

 

 

 

Total First Lien Senior Secured Loans

              93,789       93,689  
             

 

 

   

 

 

 

Second Lien Senior Secured Loans—28.6%

             

ABILITY Network, Inc.

  (e)   Health Care Equipment & Services   L + 775     1.00%     12/12/25     856       851       860  

Albany Molecular Research, Inc.

  (2)   Pharmaceuticals, Biotechnology & Life Sciences   L + 700     1.00%     8/28/25     913       909       901  

Applied Systems, Inc.

  (1)   Software & Services   L + 700     1.00%     9/12/25     2,624       2,624       2,721  

Arclin, Inc.

  (1)   Materials   L + 875     1.00%     2/9/25     424       421       430  

BJ’s Wholesale Club, Inc.

  (3)   Food & Staples Retailing   L + 750     1.00%     1/27/25     949       941       930  

CTI Foods Holding Co., LLC

  (2)   Food, Beverage & Tobacco   L + 725     1.00%     6/28/21     222       208       173  

Direct ChassisLink, Inc.

  (e)   Transportation   L + 600     0.00%     6/15/23     587       584       599  

Excelitas Technologies Corp.

  (e)(1)   Technology Hardware & Equipment   L + 750     1.00%     11/15/25     811       803       820  

FleetPride Corp.

  (1)   Capital Goods   L + 800     1.25%     5/19/20     853       775       838  

Genoa, a QoL Healthcare Co., LLC

  (2)   Health Care Equipment & Services   L + 800     1.00%     10/28/24     353       354       359  

Grocery Outlet, Inc.

  (1)   Food & Staples Retailing   L + 825     1.00%     10/21/22     198       186       199  

Higginbotham Insurance Agency, Inc.

  (e)(f)(4)   Insurance   L + 725     1.00%     12/19/25     1,304       1,291       1,291  

iParadigms Holdings, LLC

  (1)   Software & Services   L + 725     1.00%     7/29/22     183       179       179  

Misys, Ltd. (GBR)

  (g),(h),(1)   Software & Services   L + 725     1.00%     6/13/25     2,814       2,825       2,829  

NEP Group, Inc.

  (2)   Media   L + 700     1.00%     1/23/23     239       230       241  

NeuStar, Inc.

  (1)   Software & Services   L + 800     1.00%     8/8/25         1,807           1,781           1,831  

Polyconcept North America, Inc.

  (f),(2)   Consumer Durables & Apparel   L + 1000     1.00%     2/16/24     624       611       638  

 

See notes to unaudited condensed financial statements.

15


Table of Contents

Corporate Capital Trust II

Schedule of Investments (continued)

As of December 31, 2017

(in thousands, except share amounts)

 

 

 

Portfolio Company(a)(b)                         

          Footnotes          

                Industry         

      Rate               Floor           Maturity
    Date    
  No. Shares/
Principal
    Amount(c)    
            Cost(d)                     Fair Value          

Press Ganey Holdings, Inc.

  (2)   Health Care Equipment & Services   L + 650   1.00%   10/21/24   $ 1,598     $ 1,622     $ 1,621  

Sequa Corp.

  (1)   Materials   L + 900   1.00%   4/28/22     3,468       3,507       3,515  

SI Organization, Inc.

  (1)   Capital Goods   L + 875   1.00%   5/23/20     461       456       466  

Sparta Systems, Inc.

  (f),(1)   Software & Services   L + 825   1.00%   7/27/25     2,438       2,402       2,381  

SRS Distribution, Inc.

  (2)   Capital Goods   L + 875   1.00%   2/24/23     2,756       2,769       2,842  

Sungard Public Sector, LLC

  (f),(1)   Software & Services   L + 850   1.00%   1/30/25     654       648       654  

Transplace, Inc.

  (2)   Transportation   L + 875   1.00%   10/6/25     3,628       3,539       3,637  

Vantage Specialty Chemicals, Inc.

  (1)   Materials   L + 825   1.00%   10/26/25     755       744       744  

WireCo WorldGroup, Inc.

  (1)   Capital Goods   L + 900   1.00%   9/30/24     1,632       1,627       1,643  
             

 

 

   

 

 

 

Total Second Lien Senior Secured Loans

              32,887       33,342  
             

 

 

   

 

 

 

Other Senior Secured Debt—5.2%

               

Avantor, Inc.

  (i)   Pharmaceuticals, Biotechnology & Life Sciences   6.00%   0.00%   10/1/24     776       776       773  

Cleaver-Brooks Inc

  (i)   Capital Goods   7.88%   0.00%   3/1/23     1,378       1,378       1,412  

Cornerstone Chemical, Co.

  (i)   Materials   6.75%   0.00%   8/15/24     2,682       2,687       2,679  

DJO Finance, LLC

  (i)   Health Care Equipment & Services   8.13%   0.00%   6/15/21     452       429       423  

Pattonair Holdings, Ltd.

  (g),(i)   Capital Goods   9.00%   0.00%   11/1/22     748       748       773  
             

 

 

   

 

 

 

Total Other Senior Secured Debt

                6,018       6,060  
             

 

 

   

 

 

 

Total Senior Debt

                132,694       133,091  
             

 

 

   

 

 

 

Subordinated Debt—20.6%

               

Allegheny Technologies, Inc.

  (g)   Materials   7.88%   0.00%   8/15/23     4,350       4,343       4,701  

Clear Channel International BV (NLD)

  (g),(h),(i)   Media   8.75%   0.00%   12/15/20     3,779       3,915       3,902  

 

See notes to unaudited condensed financial statements.

16


Table of Contents

Corporate Capital Trust II

Schedule of Investments (continued)

As of December 31, 2017

(in thousands, except share amounts)

 

 

 

Portfolio Company(a)(b)                         

          Footnotes          

                Industry         

      Rate               Floor           Maturity
    Date    
    No. Shares/
Principal
    Amount(c)    
            Cost(d)                     Fair Value          

ClubCorp Club Operations, Inc.

  (i)   Consumer Services   8.50%   0.00%     9/15/25      $ 4,032      $ 3,978      $ 3,931  

Datatel, Inc.

  (i)   Software & Services   9.00%   0.00%     9/30/23       102       107       108  

Envision Healthcare Holdings

  (g),(i)   Health Care Equipment & Services   5.13%   0.00%     7/1/22       599       589       581  

Intelsat S.A. (LUX)

  (g),(h)   Media   7.25%   0.00%     10/15/20       1,334       1,277       1,254  

Kenan Advantage Group, Inc.

  (i)   Transportation   7.88%   0.00%     7/31/23       2,620       2,722       2,712  

Pactiv, LLC

    Materials   7.95%   0.00%     12/15/25       849       938       962  

Pactiv, LLC

    Materials   8.38%   0.00%     4/15/27       2,653       2,965       3,038  

Plastipak Holdings, Inc.

  (i)   Materials   6.25%   0.00%     10/15/25       163       163       167  

Surgery Center Holdings, Inc.

  (g),(i)   Health Care Equipment & Services   6.75%   0.00%     7/1/25       635       576       600  

Tenet Healthcare Corp.

  (g),(i)   Health Care Equipment & Services   7.00%   0.00%     8/1/25       31       31       29  

Triumph Group, Inc.

  (g),(i)   Capital Goods   7.75%   0.00%     8/15/25       1,360       1,360        1,443   

Vertiv Group Corp.

  (i)   Technology Hardware & Equipment   9.25%   0.00%     10/15/24       508       551        542   
             

 

 

   

 

 

 

Total Subordinated Debt

                23,515        23,970   
             

 

 

   

 

 

 

Asset Based Finance—2.3%

               

Montgomery Credit Holdings, LP, Membership Interest

  (f),(g)*   Diversified Financials           2,689,166       2,689        2,682   
             

 

 

   

 

 

 

Total Asset Based Finance

                2,689        2,682   
             

 

 

   

 

 

 

Equity/Other—3.6%

               

Misys, Ltd. (CYM), Perpetual Preferred Equity

  (f),(g),(h),(j)   Software & Services   L + 1025   1.00%       2,841       2,788        2,756   

Polyconcept North America, Inc. Membership Units

  (f)   Consumer Durables & Apparel           624       62        58   

VICI Properties, Inc., Common Stock

  (g)   Consumer Services           66,020       1,228        1,354   
             

 

 

   

 

 

 

Total Equity/Other

                4,078        4,168   
             

 

 

   

 

 

 

TOTAL INVESTMENTS—140.7% (k)

             $       162,976        163,911   
             

 

 

   

 

See notes to unaudited condensed financial statements.

17


Table of Contents

Corporate Capital Trust II

Schedule of Investments (continued)

As of December 31, 2017

(in thousands, except share amounts)

 

 

 

Portfolio Company(a)(b)                         

          Footnotes            

                Industry         

      Rate                 Floor             Maturity
    Date    
    No. Shares/
Principal
    Amount(c)    
            Cost(d)                     Fair Value          

OTHER ASSETS IN EXCESS OF LIABILITIES—(40.7%)

                 $ (47,440)  
               

 

 

 

NET ASSETS—100.0%

                 $ 116,471   
               

 

 

 

Derivative Instrument (Note 4)—0.1%

 

             
               

 

 

 

Foreign currency forward contract

                 $ 96   

 

 

(a)

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

 

(b)

Non-controlled/non-affiliated investments as defined by the 1940 Act, unless otherwise indicated. Non-controlled/non-affiliated investments are investments that are neither controlled investments nor affiliated investments.

 

(c)

Denominated in U.S. dollars unless otherwise noted.

 

(d)

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

 

(e)

Position or portion thereof unsettled as of December 31, 2017.

 

(f)

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

 

(g)

The investment is not a qualifying asset as defined in Section 55(a) under the 1940 Act. A business development company may not acquire any asset other than qualifying assets, unless, at the time the acquisition is made, qualifying assets represent at least 70% of the company’s total assets. As of December 31, 2017, qualifying assets represented 73.2% of the Company’s total assets.

 

(h)

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

 

(i)

This security was acquired in a transaction that was exempt from the registration requirements of the Securities Act, pursuant to Rule 144A thereunder. This security may be resold only in transactions that are exempt from the registration requirements of the Securities Act, normally to qualified institutional buyers.

 

(j)

The issue of this security may elect at any time to capitalize distributions.

 

(k)

As of December 31, 2017, the aggregate gross unrealized appreciation for all securities in which there was an excess of value over tax cost was $2,341; the aggregate gross unrealized depreciation for all securities in which there was an excess of tax cost over value was $1,409; the net unrealized appreciation was $932; the aggregate cost of securities for Federal income tax purposes was $163,077.

 

(1)

The interest rate on these investments is subject to a base rate of 3-Month LIBOR, which at December 31, 2017 was 1.69%. The current base rate for each investment may be different from the reference rate on December 31, 2017.

 

(2)

The interest rate on these investments is subject to a base rate of 1-Month LIBOR, which at December 31, 2017 was 1.56%. The current base rate for each investment may be different from the reference rate on December 31, 2017.

 

See notes to unaudited condensed financial statements.

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Table of Contents

Corporate Capital Trust II

Schedule of Investments (continued)

As of December 31, 2017

(in thousands, except share amounts)

 

 

 

(3)

The interest rate on these investments is subject to a base rate of 6-Month LIBOR, which at December 31, 2017 was 1.84%. The current base rate for each investment may be different from the reference rate on December 31, 2017.

 

(4)

The interest rate on these investments is subject to a base rate of the PRIME rate, which at December 31, 2017 was 4.5%. The current base rate for each investment may be different from the reference rate on December 31, 2017.

 

(5)

The interest rate on these investments is subject to a base rate of 3-Month Canadian Banker Acceptance Rate, which at December 31, 2017 was 1.54%. The current base rate for each investment may be different from the reference rate on December 31, 2017.

 

*

Non-income producing security.

Abbreviations:

CAD - Canadian Dollar; local currency investment amount is denominated in Canadian Dollar. C$1 / U.S. $0.80 as of December 31, 2017.

CAN - Canada

CDOR = Canadian Banker Acceptance Rate

LUX - Luxembourg

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

P = PRIME - U.S. Prime Rate

 

See notes to unaudited condensed financial statements.

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Table of Contents

Corporate Capital Trust II

Notes to Unaudited Condensed Financial Statements

(in thousands, except share and per share amounts)

 

 

Note 1. Principal Business and Organization

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

Since inception and through April 8, 2018, the Company was externally managed by CNL Fund Advisors II, LLC, as investment adviser (“CNL”), and KKR Credit Advisors (US) LLC, as investment sub-adviser (“KKR”, and together with CNL, the “Former Advisors”). On April 9, 2018, the Company entered into a new investment advisory agreement with FS/KKR Advisor, LLC (the “Joint Advisor”), a newly-formed entity that is jointly operated by KKR and an affiliate of Franklin Square Holdings, L.P., which does business as FS Investments, pursuant to which the Joint Advisor serves as the Company’s investment adviser. See Note 6. “Related Party Transactions” for additional information.

Since inception and through April 8, 2018, the Former Advisors were, and effective April 9, 2018, the Joint Advisor is, responsible for sourcing potential investments, conducting due diligence on prospective investments, analyzing investment opportunities, structuring investments, determining the securities and other assets that the Company will purchase, retain or sell and monitoring the Company’s portfolio on an ongoing basis, as well as providing the administrative services necessary for the Company to operate. Both the Former Advisors and the Joint Advisor (collectively, the “Advisors”) are registered as investment advisers with the Securities and Exchange Commission (“SEC”).

On September 29, 2014, the Company filed a registration statement on Form N-2 (the “Registration Statement”) with the SEC to permit the Company to sell up to $2.6 billion of shares of common stock (275 million shares) on a continuous basis (the “Offering”). The Registration Statement was declared effective on October 9, 2015. In January 2018, the Company suspended its Offering to new investors and on April 30, 2018, terminated the Offering. See Note 9. “Share Transactions” for additional information regarding the Offering.

Note 2. Significant Accounting Policies

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

Certain financial information that is normally included in annual financial statements, including certain financial statement footnotes, prepared in accordance with GAAP, is not required for interim reporting purposes and has been condensed or omitted herein. These financial statements should be read in conjunction with the Company’s

 

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Corporate Capital Trust II

Notes to Unaudited Condensed Financial Statements (continued)

(in thousands, except share and per share amounts)

 

 

Note 2. Significant Accounting Policies (continued)

 

 

financial statements and notes related thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2017, which was filed with the SEC on March 2, 2018.

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

Cash – Cash consists of demand deposits.

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

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

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

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

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

 

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Corporate Capital Trust II

Notes to Unaudited Condensed Financial Statements (continued)

(in thousands, except share and per share amounts)

 

 

Note 2. Significant Accounting Policies (continued)

 

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

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

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

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

 

   

Each investment is valued by the Company’s independent third-party valuation firm, which provides a valuation range for each investment to the Joint Advisor.

 

   

Valuation recommendations, which include selection of a specific value within the valuation range, are formulated and documented by personnel of the Joint Advisor. Valuation recommendations, along with supporting documentation, for each investment are provided to the Company.

 

   

Following Company management review, valuation recommendations and supporting documentation are provided to the Company’s audit committee for further review.

 

   

As a final step, the Company’s board of trustees discusses the investment valuation recommendations with the Joint Advisor, the Company’s independent third-party valuation firm, where applicable, and the Company’s management, and based on those discussions and the related review process conducted by the Company’s audit committee, approves the fair value of the investments as determined in good faith by such valuation process conducted under the supervision of the board of trustees.

 

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Corporate Capital Trust II

Notes to Unaudited Condensed Financial Statements (continued)

(in thousands, except share and per share amounts)

 

 

Note 2. Significant Accounting Policies (continued)

 

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

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

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

The Company utilizes several valuation techniques that use unobservable pricing inputs and assumptions in determining the fair value of its Level 3 investments. The valuation techniques, as well as key unobservable inputs that have a significant impact on the Company’s Level 3 valuations, are described in Note 5. “Fair Value of Financial Instruments.” The unobservable pricing inputs and assumptions may differ by asset and in the application of the Company’s valuation methodologies. The reported fair value estimates could vary materially if the Company had chosen to incorporate different unobservable pricing inputs and other assumptions.

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

Interest Income – Interest income is recorded on an accrual basis and includes amortization of premiums to par value and accretion of discounts to par value. Discounts and premiums to par value on securities purchased are accreted/amortized into interest income over the life of the respective security using the effective interest method. Generally, loan origination, closing, commitment and other fees received by the Company directly or

 

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Corporate Capital Trust II

Notes to Unaudited Condensed Financial Statements (continued)

(in thousands, except share and per share amounts)

 

 

Note 2. Significant Accounting Policies (continued)

 

indirectly from borrowers in connection with the closing of investments are accreted over the contractual life of the debt investment as interest income based on the effective interest method. Upon prepayment of a debt investment, any prepayment penalties and unamortized loan fees and discounts are recorded as interest income.

Certain of the Company’s investments in debt securities contain a contractual payment-in-kind (“PIK”) interest provision. The PIK provisions generally feature the obligation or the option at each interest payment date of making interest payments in (i) cash, (ii) additional debt securities or (iii) a combination of cash and additional debt securities. PIK interest, computed at the contractual rate specified in the investment’s credit agreement, is accrued as interest income and recorded as interest receivable up to the interest payment date. On the interest payment dates, the Company will capitalize the accrued interest receivable attributable to PIK as additional principal due from the borrower. When additional PIK securities are received on the interest payment date, they typically have the same terms, including maturity dates and interest rates as the original securities issued. PIK interest generally becomes due at maturity of the investment or upon the investment being called by the issuer.

If the portfolio company valuation indicates the value of the PIK investment is not sufficient to cover the contractual PIK interest, the Company will not accrue additional PIK interest income and will record an allowance for any accrued PIK interest receivable as a reduction of interest income in the period the Company determines it is not collectible.

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

Fee Income – In its role as the Company’s investment adviser, the Joint Advisor or its affiliates may provide financial advisory services to portfolio companies and in return may receive fees for capital structuring services. The Joint Advisor is obligated to remit to the Company any earned capital structuring fees based on the pro-rata portion of the Company’s investment in co-investment transactions and originated investments. These fees are generally nonrecurring and are recognized as fee income by the Company upon the investment closing date. The Company may also receive fees for commitments, amendments and other services related to portfolio companies. Such fees are recognized as fee income when earned or the services are rendered.

Dividend Income – Dividend income on preferred equity securities is recorded as dividend income on an accrual basis to the extent such amounts are payable by the portfolio company and are expected to be collected. Dividend income on common equity securities is recorded on the record date for private portfolio companies or on the ex-dividend date for publicly traded portfolio companies. Each distribution received from a limited liability company (“LLC”) and limited partnership (“LP”) 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 in LLCs and LPs as dividend income unless there are sufficient accumulated earnings in the LLC and LP 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.

 

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Corporate Capital Trust II

Notes to Unaudited Condensed Financial Statements (continued)

(in thousands, except share and per share amounts)

 

 

Note 2. Significant Accounting Policies (continued)

 

Derivative Instruments The Company’s derivative instruments consists of a foreign currency contract. The Company recognizes all derivative instruments as assets or liabilities at fair value in its unaudited condensed financial statements. Derivative contracts entered into by the Company are not designated as hedging instruments, and as a result, the Company presents changes in fair value through net change in unrealized appreciation (depreciation) on derivative instruments in the unaudited condensed statements of operations. Realized gains and losses that occur upon the cash settlement of the derivative instruments are included in net realized gains (losses) on derivative instruments in the unaudited condensed statements of operations.

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

Deferred Financing Costs – Financing costs, including upfront fees, commitment fees and legal fees related to the Company’s credit facility are deferred and amortized over the life of the related financing instrument using the straight-line method. The amortization of deferred financing costs is included in interest expense in the unaudited condensed statements of operations.

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

Net assets and fair values are presented based on the applicable foreign exchange rates described above and the Company does not isolate that portion of the results of operations resulting from changes in foreign exchange rates on investments from the fluctuations arising from changes in fair values of investments held; therefore, fluctuations related to foreign exchange rate conversions are included with the net realized gains (losses) and unrealized appreciation (depreciation) on investments.

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

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

Management Fees – The Company incurs a base management fee (recorded as investment advisory fees) and performance-based incentive fees, including (i) a subordinated incentive fee on income and (ii) an incentive fee on capital gains, due to the Joint Advisor pursuant to an investment advisory agreement described in Note 6. “Related Party Transactions.” The two components of performance-based incentive fees are combined and expensed in the unaudited condensed statements of operations and accrued as accrued performance-based incentive fees in the unaudited condensed statements of assets and liabilities. Pursuant to the terms of the investment advisory agreement, the incentive fee on capital gains is determined and payable in arrears as of the end of each calendar year (or upon termination of the investment advisory agreement) based on the Company’s realized capital gains on a cumulative basis from inception, net of all realized capital losses on a cumulative basis

 

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Corporate Capital Trust II

Notes to Unaudited Condensed Financial Statements (continued)

(in thousands, except share and per share amounts)

 

 

Note 2. Significant Accounting Policies (continued)

 

and unrealized depreciation at year end, less the aggregate amount of any previously paid capital gains incentive fees. Although the terms of the investment advisory agreement do not provide for the inclusion of unrealized gains in the calculation of the incentive fee on capital gains, pursuant to relevant authoritative guidance for investment companies, the Company includes unrealized gains in the calculation of the incentive fee on capital gains expense and related accrued incentive fee on capital gains. This accrual reflects the incentive fees that would be payable to the Joint Advisor if the Company’s entire portfolio was liquidated at its fair value as of the balance sheet date even though the Joint Advisor is not entitled to an incentive fee with respect to unrealized gains unless and until such gains are actually realized.

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

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

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

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

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

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

 

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Corporate Capital Trust II

Notes to Unaudited Condensed Financial Statements (continued)

(in thousands, except share and per share amounts)

 

 

Note 2. Significant Accounting Policies (continued)

 

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

Reclassifications As of June 30, 2018, the Company has revised its investment categories to reclassify investments that were previously categorized as Equity/Other to two new categories of Asset Based Finance and Equity/Other. This revision better distinguishes between corporate equity investments and investments that are primarily collateralized by hard assets, financial assets or investments in specialty finance platforms that provide exposure to hard assets or financial assets. The Company’s Asset Based Finance investments may be in the form of debt, equity, derivatives or private placement funds. The Company has adjusted the presentation of its asset categories for all periods presented to conform to the current period presentation.

The following table provides additional details of the fair value of investments reclassified by category as of December 31, 2017:

 

 Asset Category  

As Filed

  December 31, 2017  

      Adjustments        

Adjusted

  December 31, 2017  

 
     

 

 

   

 

 

 
                     

Asset Based Finance

  $                    —      $                 2,682      $                 2,682  

Equity/Other

  6,850       (2,682)       4,168  
 

 

 

 

 

   

 

 

 
  $               6,850      $ —      $ 6,850  
 

 

 

 

 

   

 

 

 

Recent Accounting Pronouncements – Effective January 1, 2018, the Company adopted ASC Topic 606, Revenue from Contracts with Customers, or ASC Topic 606, using the cumulative effect method applied to in-scope contracts with customers that have not been completed as of the date of adoption. The Company did not identify any in-scope contracts that had not been completed as of the date of adoption and, as a result, did not recognize a cumulative effect on stockholders’ equity in connection with the adoption of the new revenue recognition guidance.

Note 3. Investments

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

 

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Corporate Capital Trust II

Notes to Unaudited Condensed Financial Statements (continued)

(in thousands, except share and per share amounts)

 

 

Note 3. Investments (continued)

 

As of June 30, 2018 and December 31, 2017, the Company’s investment portfolio consisted of the following:

 

    June 30, 2018  

Asset Category

  Amortized
Cost(1)
    Fair Value     Percentage of
Investment
Portfolio
    Percentage of
Net Assets
 

Senior debt

       

Senior secured loans—first lien

   $ 98,395       $ 97,335        52.0%       83.1%  

Senior secured loans—second lien

    31,926        32,150        17.2%       27.4%  

Senior secured bonds

    12,070        12,055        6.4%       10.3%  
 

 

 

   

 

 

   

 

 

   

 

 

 

Total senior debt

   $ 142,391       $ 141,540        75.6%       120.8%  

Subordinated debt

    37,344        37,342        20.0%       31.9%  

Asset based finance

    4,215        4,074        2.2%       3.5%  

Equity/Other

    4,078        4,125        2.2%       3.5%  
 

 

 

   

 

 

   

 

 

   

 

 

 

Total

   $       188,028       $       187,081                    100.0%                   159.7%  
 

 

 

   

 

 

   

 

 

   

 

 

 
    December 31, 2017  

 Asset Category

  Amortized
Cost(1)
    Fair Value     Percentage of
Investment
Portfolio
    Percentage of
Net Assets
 

Senior debt

       

Senior secured loans—first lien

   $ 93,789       $ 93,689        57.2%       80.4%  

Senior secured loans—second lien

    32,887        33,342        20.3%       28.6%  

Senior secured bonds

    6,018        6,060        3.7%       5.2%  
 

 

 

   

 

 

   

 

 

   

 

 

 

Total senior debt

   $ 132,694       $ 133,091        81.2%       114.2%  

Subordinated debt

    23,515        23,970        14.6%       20.6%  

Asset based finance

    2,689        2,682        1.6%       2.3%  

Equity/Other

    4,078        4,168        2.6%       3.6%  
 

 

 

   

 

 

   

 

 

   

 

 

 

Total

   $       162,976       $       163,911                    100.0%                   140.7%  
 

 

 

   

 

 

   

 

 

   

 

 

 

 

 

  (1)

Represents amortized costs for debt securities and costs for equity investments translated to U.S. dollars.

As of June 30, 2018 and December 31, 2017, none of the Company’s debt investments were on non-accrual status.

 

28


Table of Contents

Corporate Capital Trust II

Notes to Unaudited Condensed Financial Statements (continued)

(in thousands, except share and per share amounts)

 

 

Note 3. Investments (continued)

 

The industry composition and geographic dispersion of the Company’s investment portfolio as a percentage of total fair value of the Company’s investments as of June 30, 2018 and December 31, 2017 were as follows:

 

Industry Composition                                      

  June 30, 2018     December 31, 2017  

Automobiles & Components

    0.2%       —%  

Capital Goods

    18.6%       14.9%  

Commercial & Professional Services

    3.8%       5.9%  

Consumer Durables & Apparel

    1.1%       0.6%  

Consumer Services

    9.2%       5.6%  

Diversified Financials

    1.4%       1.6%  

Energy

    0.5%       —%  

Food & Staples Retailing

    2.5%       0.7%  

Food, Beverage & Tobacco

    0.7%       0.1%  

Health Care Equipment & Services

    6.8%       5.7%  

Insurance

    2.2%       0.8%  

Materials

    11.1%       14.8%  

Media

    4.3%       4.7%  

Pharmaceuticals, Biotechnology & Life Sciences

    0.8%       1.0%  

Retailing

    11.3%       12.7%  

Semiconductors & Semiconductor Equipment

    2.0%       2.0%  

Software & Services

    18.9%       21.9%  

Technology Hardware & Equipment

    0.4%       0.8%  

Telecommunication Services

    0.3%       —%  

Transportation

    3.9%       6.2%  
 

 

 

   

 

 

 

Total

                    100.0%                       100.0%  
 

 

 

   

 

 

 

Geographic Dispersion(1)                                       

      June 30, 2018         December 31, 2017  

United States

    87.9%       87.6%  

Canada

    3.8%       4.5%  

United Kingdom

    3.8%       1.7%  

Netherlands

    2.8%       2.4%  

France

    0.8%       —%  

Ireland

    0.8%       —%  

Barbados

    0.1%       —%  

Luxembourg

    —%       2.1%  

Cayman Islands

    —%       1.7%  
 

 

 

   

 

 

 

Total

                    100.0%                       100.0%  
 

 

 

   

 

 

 

 

 

  (1)

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

All investments held at June 30, 2018 were denominated in U.S. dollars except for six investments, which were denominated in Canadian dollars, Euros and British pound sterling and represented 5.4% of the investment portfolio. All investments held at December 31, 2017 were denominated in U.S. dollars except for one investment, which was denominated in Canadian dollars and represented 2.7% of the investment portfolio.

 

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Table of Contents

Corporate Capital Trust II

Notes to Unaudited Condensed Financial Statements (continued)

(in thousands, except share and per share amounts)

 

 

 

Note 4. Derivative Instruments

The following is a summary of the fair value and location of the Company’s derivative instruments in the unaudited condensed statements of assets and liabilities held as of June 30, 2018 and December 31, 2017:

 

          Fair Value  

 Derivative Instrument                                 

  

Statement Location

   June 30, 2018      December 31, 2017  

 Foreign currency forward contracts

  

Unrealized appreciation on foreign currency forward contracts

    $             279         $                     96    
     

 

 

    

 

 

 

 Total

       $ 279         $ 96    
     

 

 

    

 

 

 

Net unrealized gains and losses on derivative instruments recorded by the Company for the three and six months ended June 30, 2018 are in the following locations in the unaudited condensed statements of operations:

 

          Net Unrealized Gains (Losses)  

 Derivative Instrument                                 

  

Statement Location

   Three Months Ended
June 30, 2018
     Six Months Ended
June 30, 2018
 

 Foreign currency forward contracts

  

Net change in unrealized appreciation on foreign currency forward contracts

    $                       93         $                   183    
     

 

 

    

 

 

 

 Total

       $ 93         $ 183    
     

 

 

    

 

 

 

The Company did not invest in derivative instruments during the three and six months ended June 30, 2017.

Foreign Currency Forward Contracts

The Company may enter into foreign currency forward contracts from time to time to facilitate settlement of purchases and sales of investments denominated in foreign currencies and to economically hedge the impact that an adverse change in foreign exchange rates would have on the value of the Company’s investments denominated in foreign currencies. A foreign currency forward contract is a commitment to purchase or sell a foreign currency at a future date at a negotiated forward rate. These contracts are marked-to-market by recognizing the difference between the contract forward exchange rate and the forward market exchange rate on the last day of the period presented as unrealized appreciation or depreciation. Realized gains or losses are recognized when forward contracts are settled. Risks arise as a result of the potential inability of the counterparties to meet the terms of their contracts. The Company attempts to limit counterparty risk by only dealing with well-known counterparties.

The Company was a party to one foreign currency forward contract during the period which related to economic hedging of the Company’s foreign currency denominated debt investments. As of June 30, 2018 and December 31, 2017, the Company’s open foreign currency forward contract was as follows:

 

 Foreign Currency

 

  Settlement Date  

 

Counterparty

 

  Notional Amount  
and Transaction

  US $ Value at
Settlement
Date
    US $ Value at
June 30, 2018
    Unrealized
Appreciation
 

 CAD

  October 10, 2019  

  JP Morgan Chase Bank  

 

C$  5,690 Sold  

   $   4,642        $       4,363        $       279    
       

 

 

   

 

 

   

 

 

 

 Total

         $ 4,642        $ 4,363        $ 279    
       

 

 

   

 

 

   

 

 

 

 Foreign Currency

 

  Settlement Date  

 

Counterparty

 

  Notional Amount  
and Transaction

  US $ Value at
Settlement
Date
    US $ Value at
  December 31,
2017  
    Unrealized
  Appreciation  
 

 CAD

  October 10, 2019  

  JP Morgan Chase Bank    

 

C$  5,690 Sold  

   $ 4,642        $ 4,546        $ 96    
       

 

 

   

 

 

   

 

 

 

 Total

         $ 4,642        $ 4,546        $ 96    
       

 

 

   

 

 

   

 

 

 

 

30


Table of Contents

Corporate Capital Trust II

Notes to Unaudited Condensed Financial Statements (continued)

(in thousands, except share and per share amounts)

 

 

 

Note 5. Fair Value of Financial Instruments

The Company’s investments were categorized in the fair value hierarchy described in Note 2. “Significant Accounting Policies”, as follows as of June 30, 2018 and December 31, 2017:

 

    June 30, 2018  

 Description

  Level 1     Level 2     Level 3     Total  

 Senior debt

   $ —       $ 88,238       $ 53,302       $ 141,540   

 Subordinated debt

    —        37,342        —        37,342   

 Asset based finance

    —        —        4,074        4,074   

 Equity/Other

    1,363        —        2,762        4,125   
 

 

 

   

 

 

   

 

 

   

 

 

 

 Total investments

   $             1,363       $           125,580       $           60,138       $           187,081   
 

 

 

   

 

 

   

 

 

   

 

 

 
    December 31, 2017  

 Description

  Level 1     Level 2     Level 3     Total  

 Senior debt

  $ —      $ 101,066      $ 32,025      $ 133,091   

 Subordinated debt

    —        23,970        —        23,970   

 Asset based finance

    —        —        2,682        2,682   

 Equity/Other

    1,354        —        2,814        4,168   
 

 

 

   

 

 

   

 

 

   

 

 

 

 Total investments

   $         1,354       $         125,036       $         37,521       $         163,911   
 

 

 

   

 

 

   

 

 

   

 

 

 

In addition, the Company had one derivative, as described in Note 4. “Derivative Instruments,” which was categorized as Level 2 in the fair value hierarchy as of June 30, 2018 and December 31, 2017.

There were no transfers between Level 1 and Level 2 during the six months ended June 30, 2018 and the year ended December 31, 2017. The carrying value of cash is classified as Level 1 with respect to the fair value hierarchy. At June 30, 2018, the Company held 52 distinct investment positions classified as Level 3, representing an aggregate fair value of $60,138 or 32.1% of the total investment portfolio. At December 31, 2017, the Company held 21 distinct investment positions classified as Level 3, representing an aggregate fair value of $37,521 or 22.9% of the total investment portfolio. The ranges of unobservable inputs used in the fair value measurement of the Company’s Level 3 investments as of June 30, 2018 and December 31, 2017 were as follows:

 

As of June 30, 2018

 

 Asset Group

  Fair
Value(1)
    Valuation
Techniques
    Unobservable
Inputs
    Range
(Weighted
Average)(2)
      Impact to Valuation  
from an Increase in
Input(3)
 

 Senior Debt

     $    50,213        Discounted Cash Flow       Discount Rate       8.30% - 13.95% (10.84%)       Decrease  
    3,089        Cost       Cost       N/A       N/A  

 Asset Based Finance

    2,548        Discounted Cash Flow       Discount Rate       11.70% (11.70%)       Decrease  
    1,526        Cost       Cost       N/A       N/A  

 Equity/Other

    2,685        Discounted Cash Flow       Discount Rate       15.95% (15.95%)       Decrease  
    77        Market Comparables       Illiquidity Discount       10.00% (10.00%)       Decrease  
 

 

 

         

 Total

     $    60,138           
 

 

 

         

 

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Table of Contents

Corporate Capital Trust II

Notes to Unaudited Condensed Financial Statements (continued)

(in thousands, except share and per share amounts)

 

 

Note 5. Fair Value of Financial Instruments (continued)

 

As of December 31, 2017

 Asset Group

      Fair Value(1)           Valuation Techniques       Unobservable Inputs     Range
    (Weighted Average)(2)    
    Impact to Valuation  
from an Increase in
Input(3)

 Senior Debt

     $            32,025      Discounted Cash Flow   Discount Rate   7.52% - 12.32% (9.87%)   Decrease

 Asset Based Finance

    2,682      Discounted Cash Flow   Discount Rate   17.79% (17.79%)   Decrease

 Equity/Other

    2,756      Discounted Cash Flow   Discount Rate   13.81% - 17.79% (15.77%)   Decrease
    58      Discounted Cash Flow   Discount Rate   11.02% (11.02%)   Decrease
    Market Comparables   EBITDA Multiple   9.26x - 10.32x (9.79x)   Increase
      Illiquidity Discount   10.00% (10.00%)   Decrease
 

 

 

         

 Total

     $            37,521           
 

 

 

         

 

(1)

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

 

(2)

Weighted average amounts are based on the estimated fair values.

 

(3)

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

The preceding tables represent the significant unobservable inputs as they relate to the Company’s determination of fair values for the majority of its investments categorized within Level 3 as of June 30, 2018 and December 31, 2017. In addition to the techniques and inputs noted in the table above, according to the Company’s valuation policy, the Company may also use other valuation techniques and methodologies when determining the fair value estimates for the Company’s investments. Any significant increases or decreases in the unobservable inputs would result in significant increases or decreases in the fair value of the Company’s investments.

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

 

32


Table of Contents

Corporate Capital Trust II

Notes to Unaudited Condensed Financial Statements (continued)

(in thousands, except share and per share amounts)

 

 

Note 5. Fair Value of Financial Instruments (continued)

 

The following tables provide reconciliations for the six months ended June 30, 2018 and the year ended December 31, 2017 of investments for which Level 3 inputs were used in determining fair value:

 

     Six Months Ended
June 30, 2018
 
         Senior Debt             Asset Based    
Finance
         Equity/Other             Total      

Fair value at beginning of period

    $           32,025        $            2,682         $            2,814        $           37,521    

Additions(1)

     22,186         1,526          —         23,712    

Paid-in-kind interest

     9         —          —         9    

Net realized gains (losses)(2)

     (1)        —          —         (1)   

Net change in unrealized appreciation (depreciation)(3)

     (249)        (134)         (52)        (435)   

Sales or repayments(4)

     (729)        —          —         (729)   

Net discount accretion

     61         —          —         61    
  

 

 

   

 

 

    

 

 

   

 

 

 

Fair value at end of period

    $ 53,302        $ 4,074         $ 2,762        $ 60,138    
  

 

 

   

 

 

    

 

 

   

 

 

 

Change in net unrealized appreciation (depreciation) in investments still held at the reporting date(3)

    $ (244)       $ (134)        $ (52)       $ (430)   
  

 

 

   

 

 

    

 

 

   

 

 

 
     Year Ended
December 31, 2017
 
       Senior Debt       Asset Based
Finance
       Equity/Other       Total  

Fair value at beginning of period

    $             616       $                 —        $                 58       $             674   

Additions(1)

     33,449        2,682         3,018        39,149   

Net realized gains (losses)(2)

           —         —         

Net change in unrealized appreciation (depreciation)(3)

     (88     —         (38     (126

Sales or repayments(4)

     (1,979     —         (224     (2,203

Net discount accretion

     25        —         —        25   
  

 

 

   

 

 

    

 

 

   

 

 

 

Fair value at end of period

    $ 32,025       $ 2,682        $ 2,814       $ 37,521   
  

 

 

   

 

 

    

 

 

   

 

 

 

Change in net unrealized appreciation (depreciation) in investments still held at the reporting date(3)

    $ (88    $ —        $ (38   $ (126
  

 

 

   

 

 

    

 

 

   

 

 

 

 

 

(1)

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

 

(2)

Included in net realized gain (loss) in the statements of operations.

 

(3)

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

 

(4)

Includes principal payments/paydowns on debt investments and proceeds from sale of investments.

No securities were transferred into or out of the Level 3 hierarchy during the six months ended June 30, 2018. All realized and unrealized gains and losses are included in earnings and are reported as separate line items within the Company’s unaudited condensed statements of operations.

 

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Table of Contents

Corporate Capital Trust II

Notes to Unaudited Condensed Financial Statements (continued)

(in thousands, except share and per share amounts)

 

 

 

Note 6. Related Party Transactions

Managing Dealer Agreement and Distribution and Shareholder Servicing Plan

The Company was a party to a managing dealer agreement with CNL Securities Corp., an affiliate of CNL. CNL Securities Corp. which served as the managing dealer (the “Managing Dealer”) of the Company’s Offering and in connection therewith received up-front selling commissions of up to 2.00% of gross offering proceeds, up-front dealer manager fees of up to 2.75% of gross offering proceeds and ongoing distribution and shareholder servicing fees at an annualized rate of 1.25% of the Company’s most recently published net asset value per share, excluding shares issued through the distribution reinvestment plan. All or any portion of these fees were re-allowed to participating brokers.

On March 16, 2017, the board of trustees approved an amended and restated managing dealer agreement (the “Managing Dealer Agreement”) between the Company and the Managing Dealer and approved an amended and restated distribution and shareholder servicing plan for the Company (the “Distribution and Shareholder Servicing Plan”) which lowered the ongoing distribution and shareholder servicing fee paid to the Managing Dealer from an annualized rate of 1.25% to an annualized rate of 1.00% of the Company’s net asset value per share. On April 9, 2018, the Managing Dealer Agreement and the Distribution and Shareholder Servicing Plan were terminated effective April 30, 2018.

Investment Advisory Agreements

On April 9, 2018, the Company terminated the Former Investment Advisory Agreement (as defined below) and concurrently entered into a new investment advisory agreement with the Joint Advisor (the “Joint Advisor Investment Advisory Agreement”). Pursuant to the Joint Advisor Investment Advisory Agreement, the Company pays the Joint Advisor a fee for their services consisting of two components – a base management fee based on the average value of the Company’s gross assets and incentive fees based on the Company’s performance. Under the Joint Advisor Investment Advisory Agreement, the Joint Advisor is entitled to an annual base management fee of 1.50% of the average value of the Company’s gross assets, as compared to the annual rate of 2.00% under the Former Investment Advisory Agreement. In addition, the calculation of the base management fee under the Joint Advisor Investment Advisory Agreement excludes cash and cash equivalents from gross assets, as compared to the Former Investment Advisory Agreement, which included cash and cash equivalents within the definition of gross assets. Under the Joint Advisor Investment Advisory Agreement, the Joint Advisor serves as the sole investment adviser of the Company.

Previously, the Company was a party to an investment advisory agreement with CNL (the “Former Investment Advisory Agreement”) for the overall management of the Company’s activities. CNL was a party to a sub-advisory agreement with KKR (the “Former Sub-Advisory Agreement”), under which KKR was responsible for the day-to-day management of the Company’s investment portfolio. Pursuant to the Former Investment Advisory Agreement, CNL earned (i) a management fee equal to an annual rate of 2.00% of the Company’s average gross assets, and (ii) an incentive fee based on the Company’s performance. The incentive fee consisted of (i) a subordinated incentive fee on income and (ii) an incentive fee on capital gains. CNL compensated KKR for advisory services that it provided to the Company with 50% of the fees that CNL received under the Investment Advisory Agreement.

A subordinated incentive fee on income is payable to the Joint Advisor each calendar quarter if the Company’s pre-incentive fee net investment fee income (as defined in the Joint Advisor Investment Advisory Agreement and

 

34


Table of Contents

Corporate Capital Trust II

Notes to Unaudited Condensed Financial Statements (continued)

(in thousands, except share and per share amounts)

 

 

Note 6. Related Party Transactions (continued)

 

approved by the Company’s board of trustees) exceeds the 1.75% quarterly preference return to the Company’s shareholders (the ratio of pre-incentive fee net investment income divided by average adjusted capital).

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

The terms of the incentive fees are substantially the same as those to which CNL was entitled to receive under the Former Investment Advisory Agreement.

The Company did not incur any subordinated incentive fee on income under the Investment Advisory Agreements during the six months ended June 30, 2018 and 2017. The Company had accrued $15 of incentive fees payable on capital gains under the Investment Advisory Agreements as of June 30, 2018.

Under the terms of the Former Investment Advisory Agreement, CNL (and indirectly KKR) was entitled to receive up to 1.50% of gross offering proceeds as reimbursement for organization and offering expenses incurred by the Former Advisors on behalf of the Company. The Former Advisors had incurred organization and offering costs of approximately $5,400 as of March 31, 2018 on behalf of the Company. The Former Advisors waived the reimbursement of organization and offering expenses in connection with the Company’s gross capital raise received from the Offering from March 1, 2016 (when the Company satisfied the minimum offering requirement) through April 30, 2017 (the “O&O Reimbursement Waiver”). The O&O Reimbursement Waiver did not reduce the amount of organization and offering expenses incurred by the Former Advisors that were eligible for reimbursement in future periods based on subsequent gross capital raised by the Company after April 30, 2017. Gross capital raised by the Company after April 30, 2017 was subject to the maximum organization and offering cost reimbursement of 1.50%. The Former Advisors were entitled to reimbursement of approximately $400 of organization and offering costs for gross capital raised for the period May 1, 2017 through April 9, 2018, all of which had been reimbursed to the Former Advisors as of April 9, 2018. A contingent obligation for the balance of organization and offering costs, subject to reimbursement based on future gross proceeds raised assuming a reinstatement of the Company’s Offering, was approximately $5,000 as of April 30, 2018.

On April 30, 2018, the Company terminated its Offering and in conjunction therewith, the Former Advisors agreed to permanently waive their rights to receive reimbursement of approximately $5,000 of organization and offering expenses that they had incurred on the Company’s behalf. As such, as of June 30, 2018, the Company had no contingent obligations to reimburse its Former Advisors for organization and offering expenses.

Administrative Services Agreements

The Company was a party to an administrative services agreement with CNL (“Former Administrative Services Agreement”), under which CNL performed, or oversaw the performance of, various administrative services on behalf of the Company. Administrative services included investor services, general ledger accounting, fund

 

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Table of Contents

Corporate Capital Trust II

Notes to Unaudited Condensed Financial Statements (continued)

(in thousands, except share and per share amounts)

 

 

Note 6. Related Party Transactions (continued)

 

accounting, maintaining required financial records, calculating the Company’s net asset value, filing tax returns, preparing and filing SEC reports, preparing, printing, and disseminating shareholder reports and generally overseeing the payment of the Company’s expenses and the performance of administrative and professional services rendered to the Company by others. The Company reimbursed CNL for administrative expenses it incurred in performing its obligations.

On April 9, 2018, the Company terminated the Former Administrative Services Agreement with CNL and concurrently entered into a new administrative services agreement with the Joint Advisor (the “Joint Advisor Administrative Services Agreement”). Under the Joint Advisor Administrative Services Agreement, the Joint Advisor serves as the Company’s administrator. The terms of the Joint Advisor Administrative Services Agreement, including the services to be provided by the Joint Advisor as administrator and the amount of reimbursements to be paid by the Company for certain administrative expenses, are substantially the same as those under the Former Administrative Services Agreement.

Expense Support Agreements

The Company was a party to an expense support and conditional reimbursement agreement, as amended and restated (the “Former Expense Support Agreement”) with the Former Advisors pursuant to which the Former Advisors jointly and severally agreed to pay to the Company some or all of its operating expenses (an “Expense Support Payment”) for each month during the Former Expense Support Payment Period (as defined below) in which the Company’s board of trustees declared a distribution to its shareholders. Expense Support Payments were made in accordance with the terms of the Former Expense Support Agreement. The “Expense Support Payment Period” commenced on March 1, 2016 and terminated effective with the termination of the Former Expense Support Agreement on April 9, 2018.

The Former Advisors were entitled to be reimbursed promptly by the Company (a “Reimbursement Payment”) for Expense Support Payments made with respect to any class of common stock, subject to the limitation that no Reimbursement Payment may be made by the Company to the extent that it would cause the Company’s Other Operating Expenses (as defined in the Former Expense Support Agreement) for such class of common stock to exceed the lesser of (A) 1.75% of average net assets attributable to common shares on an annualized basis after taking such payment into account and (B) the percentage of average net assets attributable to shares of such class of common stock represented by Other Operating Expenses (as defined in the Former Expense Support Agreement) during the period in which such Expense Support Payment from the Former Advisors was made (provided, however, that this clause (B) did not apply to any reimbursement payment which related to an Expense Support Payment from the Former Advisors made during the same period).

Concurrently with the Company’s entry into the Joint Advisor Investment Advisory Agreement and the Joint Advisor Administrative Services Agreement, on April 9, 2018, the Company entered into a new expense support and conditional reimbursement agreement (the “Joint Advisor Expense Support Agreement”), which replaced the Former Expense Support Agreement. The Joint Advisor Expense Support Agreement is substantially similar to the Former Expense Support Agreement.

 

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Table of Contents

Corporate Capital Trust II

Notes to Unaudited Condensed Financial Statements (continued)

(in thousands, except share and per share amounts)

 

 

Note 6. Related Party Transactions (continued)

 

Related party fees and expenses incurred on behalf of the Company during the three and six months ended June 30, 2018 and 2017 are summarized below:

 

        Three Months Ended
June 30,
    Six Months Ended
June 30,
 

Related Party

 

Source Agreement & Description

  2018     2017     2018     2017  

CNL Securities Corp.

  Former Managing Dealer Agreement:        
  Up-front selling commissions and dealer manager fees    $       —       $     696       $ 61       $     1,907   
  Distribution and shareholder servicing fees    $ 94       $ 235       $ 376       $ 435   

KKR

  Former Investment Sub-Advisory Agreement:        
  Investment expenses reimbursement(1)(2)    $ 34       $      $ 38       $  

FS/KKR Advisor

  Joint Advisor Investment Advisory Agreement:        

CNL and KKR

  Former Investment Advisory Agreement:        
  Base management fees (investment advisory fees)(1)    $ 686       $ 521       $     1,571       $ 891   
  Incentive fee on capital gains(3)    $ (481)      $ (11)      $ (264)      $ 27   
  Organization and offering expense reimbursement    $ —       $ 88       $ 20       $ 88   

FS/KKR Advisor

  Joint Advisor Administrative Services Agreement:        

CNL

  Former Administrative Services Agreement:        
  Administrative and compliance services(1)    $ 169       $ 161       $ 326       $ 298   

FS/KKR Advisor

  Joint Advisor Expense Support Agreement:        

CNL and KKR

  Former Expense Support Agreement:        
  Expense support provided    $       —       $ (602)      $ (581)      $ (1,260)  

 

 

(1)

Expenses subject to Expense Support.

 

(2)

Includes reimbursement of fees related to transactional expenses for prospective investments, including fees and expenses associated with performing due diligence reviews of investments that do not close, often referred to as “broken deal” costs. Broken deal costs were approximately $8 and $6 for the six months ended June 30, 2018 and 2017, respectively.

 

(3)

Incentive fees on capital gains are included in performance-based incentive fees in the unaudited condensed statements of operations. The following table provides additional details for the incentive fee on capital gains for the three and six months ended June 30, 2018 and 2017:

 

    Three Months Ended
June 30,
    Six Months Ended
June 30,
 

Incentive Fee on Capital Gains

  2018     2017     2018     2017  

Accrued incentive fee at beginning of period

   $         496       $         205       $         279       $         167   

Incentive fee on capital gains during the period

    (481)       (11)       (264)       27   

Less: Incentive fee on capital gains paid to the Advisors during the period

    —        —        —        —   
 

 

 

   

 

 

   

 

 

   

 

 

 

Accrued incentive fee at end of period

    15        194        15        194   

Less: Accrued incentive fee on capital gains attributable to unrealized gains at end of period

    (15)       (194)       (15)       (194)  
 

 

 

   

 

 

   

 

 

   

 

 

 

Incentive fee on capital gains earned by and payable to the Advisors at end of period

   $         —       $         —       $         —       $         —   
 

 

 

   

 

 

   

 

 

   

 

 

 

 

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Table of Contents

Corporate Capital Trust II

Notes to Unaudited Condensed Financial Statements (continued)

(in thousands, except share and per share amounts)

 

 

Note 6. Related Party Transactions (continued)

 

The amount of Expense Support Payments provided by the Former Advisors since inception was approximately $5,400. Effective April 30, 2018, the Former Advisors waived their right to reimbursement of such Expense Support Payments.

The following table presents amounts due to Advisors as of June 30, 2018 and December 31, 2017:

 

      June 30, 2018         December 31, 2017    

Due from the Advisors:

   

Expense support

   $                 —       $                     492   
 

 

 

   

 

 

 

Total due from Advisors

    —        492   
   

Due to the Advisors:

   

Base management fees (investment advisory fees)

    686        556   

Operating expense reimbursement

    43        146   

Offering expense reimbursement

    —        77   
 

 

 

   

 

 

 

Total due to Advisors

    729        779   
 

 

 

   

 

 

 

Net due (to) from Advisors

   $         (729)      $         (287)  
 

 

 

   

 

 

 

Note 7. Distributions

The Company intends to declare cash distributions on a weekly basis and pay such distributions on a monthly basis. The Company’s board of trustees declared weekly distributions of $0.011250 per share beginning on January 2, 2018 through and including June 26, 2018. These distributions were paid monthly to shareholders of record as of monthly record dates previously determined by the Company’s board of trustees. On July 18, 2018 and July 31, 2018, the Company’s board of trustees declared distributions which have been or will be recorded weekly and paid monthly for July through August 2018 and September through October 2018, respectively, each in the amount of $0.011250 per share. The timing and amount of any future distributions to shareholders are subject to applicable legal restrictions and the sole discretion of the Company’s board of trustees.

The total and the sources of declared distributions on a GAAP basis for the six months ended June 30, 2018 and 2017 are presented in the tables below:

 

    Six Months Ended
June 30,
 
    2018     2017  
    Per Share     Amount     Allocation     Per Share     Amount     Allocation  

Net investment income

   $     0.27       $     3,438                91.8%     $     0.19       $     1,557                64.4%  

Net realized gains

    0.02        209        5.6%       0.04        307        12.7%  

Distributions in excess of net investment income

    0.01        97        2.6%       0.06        552        22.9%  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total Declared Distributions

   $ 0.30       $ 3,744        100.0%     $ 0.29       $ 2,416        100.0%  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net investment income includes Expense Support Payments of $581 and $1,260 which supported distributions of $3,744 and $2,416 during the six months ended June 30, 2018 and 2017, respectively. Sources of distributions, other than net investment income and realized gains on a GAAP basis, include (i) the ordinary income component of prior year tax basis undistributed earnings and (ii) required adjustments to GAAP net investment income and realized gains in the current period to determine taxable income available for distributions.

 

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Corporate Capital Trust II

Notes to Unaudited Condensed Financial Statements (continued)

(in thousands, except share and per share amounts)

 

 

Note 7. Distributions (continued)

 

The following table summarizes the primary sources of differences between (i) GAAP net investment income and realized gains and (ii) taxable income available for distributions that contribute to tax-related distributions in excess of net investment income for the six months ended June 30, 2018 and 2017:

 

     Six Months Ended
June 30,
 
     2018      2017  

Ordinary income component of tax basis undistributed earnings

    $ 317        $ 223   

Unearned performance-based incentive fees on unrealized gains

     (264)        27   

Marked-to-market foreign currency forward contracts

     183         —   

Organization and offering expenses

     17         —   

Distribution and shareholder servicing fees

     376         435   
  

 

 

    

 

 

 

Total(1)

    $                 629        $                 685   
  

 

 

    

 

 

 

 

 

(1)

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

For the six months ended June 30, 2018, the tax-related sources of distributions of $629 were greater than the distributions in excess of net investment income of $97. As a result, the Company estimates that none of the distributions declared during the six months ended June 30, 2018 would be classified as a tax basis return of capital. None of the distributions declared during the year ended December 31, 2017 were classified as a tax basis return of capital.

Note 8. Fee Income

Fee income, which is non-recurring, consisted of the following:

 

     Three Months Ended
June 30,
     Six Months Ended
June 30,
 

Fee Income

   2018      2017      2018      2017  

Capital structuring fees

   $ 67       $ —       $ 106       $ —   

Prepayment fees

     84         —         84         —   

Other

     103         24         106         46   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $             254       $             24       $             296       $             46   
  

 

 

    

 

 

    

 

 

    

 

 

 

 

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Table of Contents

Corporate Capital Trust II

Notes to Unaudited Condensed Financial Statements (continued)

(in thousands, except share and per share amounts)

 

 

 

Note 9. Share Transactions

The following table summarizes the total shares issued and proceeds received in connection with the Company’s Offering for the six months ended June 30, 2018 and 2017:

 

     Six Months Ended
June 30,
 
     2018(1)      2017  
     Shares      Amount      Shares      Amount  

Gross proceeds

     136,070        $ 1,331         4,179,149        $ 40,884   

Up-front selling commissions and dealer manager fees

     —         (61)        —         (1,907)  
  

 

 

    

 

 

    

 

 

    

 

 

 

Net proceeds to company

     136,070         1,270         4,179,149         38,977   

Reinvestment of distributions

     199,641         1,858         139,283         1,299   
  

 

 

    

 

 

    

 

 

    

 

 

 

Net proceeds

             335,711        $         3,128                 4,318,432        $         40,276   
  

 

 

    

 

 

    

 

 

    

 

 

 

Average net proceeds per share

       $ 9.32           $ 9.33   

 

 

(1)

The Company suspended its Offering to new investors effective January 10, 2018. However, the Company continues to issue new shares under its distribution reinvestment plan.

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

From inception through the suspension of the Company’s Offering on January 10, 2018, the Company raised gross proceeds of approximately $123.6 million (12.8 million shares) through its Offering, including approximately $3.4 million (0.4 million shares) through its distribution reinvestment plan. Following the suspension of its Offering, the Company has and will continue to issue shares pursuant to its distribution reinvestment plan. During the six months ended June 30, 2018, the Company issued $1,858 (199,641 shares) through its distribution reinvestment plan. The Company terminated its Offering effective April 30, 2018 as described in Note 6. “Related Party Transactions.”

The Company conducts quarterly tender offers pursuant to its share repurchase program. The Company currently limits the number of shares to be repurchased during any calendar year to the number of shares it can repurchase with the proceeds it receives from the issuance of shares of its common stock under is distribution reinvestment plan. At the discretion of the Company’s board of trustees, the Company may also use cash on hand, cash available from borrowings and cash from the sale of investments as the end of the applicable period to repurchase shares. The Company limits repurchases in each quarter to 2.5% of the weighted average number of shares of common stock outstanding. The Company’s board of trustees may amend, suspend or terminate the share repurchase program upon 30 days’ notice.

 

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Table of Contents

Corporate Capital Trust II

Notes to Unaudited Condensed Financial Statements (continued)

(in thousands, except share and per share amounts)

 

 

Note 9. Share Transactions (continued)

 

The following table is a summary of the share repurchases completed during the six months ended June 30, 2018:

 

Repurchase Date

    Total Number of Shares  
Offered to Repurchase
    Total Number of
  Shares Repurchased  
      Total Consideration       No. of Shares
  Repurchased/

Total Offer  
      Price Paid Per  
Share
 

February 20, 2018

    249,708        91,276      $                         840        37%     $                 9.20   

On May 21, 2018, the Company offered to purchase 284,984 shares of its issued and outstanding common shares at a purchase price of $9.24 per share. The Company’s board of trustees subsequently approved the purchase of an additional 71,891 shares in connection with the tender offer. On July 2, 2018, the Company repurchased approximately 356,875 shares (representing 100% of the common shares tendered for repurchase) at $9.24 per share for aggregate consideration totaling $3,298.

Note 10. Borrowings

On July 14, 2017, the Company entered into a senior secured revolving credit agreement (the “Credit Agreement”). The Credit Agreement provides for a revolving credit facility (the “Revolving Credit Facility”) consisting of loans to be made in dollars and other foreign currencies in an initial aggregate principal amount of $70,000. Availability under the Revolving Credit Facility will terminate on July 14, 2019, and the outstanding loans under the Revolving Credit Facility will mature on July 14, 2020. On June 11, 2018, the Company entered into an incremental commitment agreement with ING Capital LLC to increase the total borrowing capacity under the Revolving Credit Facility to $82,000.

Under the Revolving Credit Facility, the Company has made certain representations and warranties and is required to comply with various covenants, reporting requirements and other customary requirements for similar revolving credit facilities. The Company was in compliance with all covenants required by the Revolving Credit Facility as of June 30, 2018.

As of June 30, 2018 and December 31, 2017, the principal amount outstanding on the Revolving Credit Facility was approximately $74,904 and $53,000, respectively. Of the $74,904 principal outstanding as of June 30, 2018, approximately $2,499 and $455 were denominated in Euros and British pound sterling, respectively. There were no borrowings denominated in foreign currencies as of December 31, 2017.

The components of interest expense, average interest rates (i.e., base interest rate in effect plus the spread) and average outstanding balances for the Revolving Credit Facility for the three and six months ended June 30, 2018 and 2017 were as follows:

 

     Three Months Ended
June 30,
     Six Months Ended
June 30,
 
     2018      2017      2018      2017  

Interest expense

    $ 690          $ —         $ 1,283          $ —    

Unused commitment fees

     18           —          38           —    

Amortization of deferred financing costs

     27           —          52           —    
  

 

 

    

 

 

    

 

 

    

 

 

 

Total interest expense

    $ 735          $ —         $ 1,373          $ —    
  

 

 

    

 

 

    

 

 

    

 

 

 

Weighted average interest rate

     4.9%        —          4.7%        —    

Average borrowings

    $         58,452          $             —         $         56,287          $             —    

 

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Corporate Capital Trust II

Notes to Unaudited Condensed Financial Statements (continued)

(in thousands, except share and per share amounts)

 

 

Note 10. Borrowings (continued)

 

The weighted average effective interest rate and weighted average remaining years to maturity of the Company’s outstanding borrowings as of June 30, 2018 were approximately 4.8% and 2.0 years, respectively. As of June 30, 2018, the asset coverage per unit was 2.56. Asset coverage per unit is the ratio of the carrying value of the Company’s total assets available to cover senior securities, less all liabilities and indebtedness not represented by senior securities, to the aggregate amount of senior securities representing indebtedness.

Note 11. Commitments and Contingencies

Unfunded commitments to provide funds to portfolio companies are not recorded in the Company’s unaudited condensed statements of assets and liabilities. Since these commitments may expire without being drawn upon, the total commitment amount does not necessarily represent future cash requirements. The Company has sufficient liquidity to fund these commitments. As of June 30, 2018, the Company’s unfunded commitments consisted of the following:

 

Category / Portfolio Company

   Cost  

 Unfunded Term Loan Commitments:

  

Access CIG, LLC

    $ 11    

Berner Food & Beverage LLC

     2,623    

Frontline Technologies Group, LLC

     878    

GC Agile Intermediate Holdings Limited (GBR)

     284    

GC Agile Intermediate Holdings Limited (GBR)

     237    

Harrison Gypsum, LLC

     260    

ID Verde (FRA)(1)

     333    

Patriot Well Solutions LLC

     334    

Revere Superior Holdings, Inc.

     643    

Wheels Up Partners, LLC

     827    

 Unfunded Revolving Loan Commitments:

  

Eagle Family Foods Group LLC

     122    

GC Agile Intermediate Holdings Limited (GBR)

     86    

Revere Superior Holdings, Inc.

     129    

SMART Global Holdings, Inc.

     77    

 Unfunded Asset Based Finance Commitments:

  

KKR Zeno Aggregator, LP

     5,286    

 Unfunded Equity Commitments:

  

Polyconcept North America, Inc.

     26    
  

 

 

 

 Total Unfunded Commitments

    $             12,156    
  

 

 

 

 

  

(1)   Local currency commitment amount is denominated in Euros. As of June 30, 2018, €1 equaled approximately US $1.17.

    

 

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Corporate Capital Trust II

Notes to Unaudited Condensed Financial Statements (continued)

(in thousands, except share and per share amounts)

 

 

Note 11. Commitments and Contingencies (continued)

 

The Company funds its commitments as it receives funding notices from the portfolio companies. At June 30, 2018, the Company’s unfunded commitments have a net fair value of $(128).

On April 30, 2018, the Former Advisors agreed to permanently waive the Company’s obligation to reimburse the Former Advisors approximately $5,400 in expense support payments not previously reimbursed under the Former Expense Support Agreement and approximately $5,000 of organization and offering expenses that they had incurred on the Company’s behalf. As such, as of June 30, 2018, the Company had no contingent obligations to reimburse its Former Advisors for expense support and organization and offering expenses. See Note 6. “Related Party Transactions” for further detail of the agreements with the Former Advisors.

In the normal course of business, the Company may enter into guarantees on behalf of portfolio companies. Under these arrangements, the Company would be required to make payments to third parties if the portfolio companies were to default on their related payment obligations. The Company had no such guarantees outstanding as of June 30, 2018.

The Company enters into contracts that contain a variety of indemnification provisions. The Company’s maximum exposure under these arrangements is unknown; however, the Company has not had prior claims or losses pursuant to these contracts. Management of Joint Advisor has reviewed the Company’s existing contracts and expects the risk of loss to the Company to be remote.

 

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Corporate Capital Trust II

Notes to Unaudited Condensed Financial Statements (continued)

(in thousands, except share and per share amounts)

 

 

 

Note 12. Financial Highlights

The following is a schedule of financial highlights for one share of common stock during the six months ended June 30, 2018 and 2017:

 

     Six Months Ended
June 30,
 
     2018      2017  

OPERATING PERFORMANCE PER SHARE

     

Net Asset Value, Beginning of Period

    $                     9.20          $                     9.26     
  

 

 

    

 

 

 

Net investment income (loss), before expense support(1)

     0.22           0.04     

Expense support(1)

     0.05           0.15     
  

 

 

    

 

 

 

Net investment income(1)

     0.27           0.19     

Net realized and unrealized gain (loss)(1)(2)

     (0.09)          0.02     
  

 

 

    

 

 

 

Net increase resulting from investment operations

     0.18           0.21     
  

 

 

    

 

 

 

Distributions from net investment income(3)

     (0.27)          (0.19)    

Distributions from net realized gains(3)

     (0.02)          (0.04)    

Distributions in excess of net investment income(3)(4)

     (0.01)          (0.06)    
  

 

 

    

 

 

 

Net decrease resulting from distributions to common shareholders

     (0.30)          (0.29)    
  

 

 

    

 

 

 

Issuance of common stock above net asset value(5)

     0.00           0.03     

Repurchases of common stock(6)

     0.00           —     
  

 

 

    

 

 

 

Net increase resulting from capital share transactions

     0.00           0.03     
  

 

 

    

 

 

 

Net Asset Value, End of Period

    $ 9.08          $ 9.21     
  

 

 

    

 

 

 
     

OPERATING PERFORMANCE PER SHARE

     

Total Investment Return–Net Asset Value(7)

     1.84%        2.62%  
     

RATIOS/SUPPLEMENTAL DATA

     

Net assets, end of period

    $ 117,133          $ 94,569     

Average net assets(8)

    $ 117,927          $ 77,061     

Average borrowings(8)

    $ 56,287          $ —     

Shares outstanding, end of period

     12,901,051           10,262,635     

Weighted average shares outstanding

     12,806,356           8,320,520     
     

Ratios to average net assets:

     

Total operating expenses before expense support(8)

     3.96%        3.54%  

Total operating expenses after expense support(8)

     3.47%        1.90%  

Net investment income

     2.92%        2.02%  

Portfolio turnover rate

     28%        52%  

 

 

 

(1)

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

 

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Corporate Capital Trust II

Notes to Unaudited Condensed Financial Statements (continued)

(in thousands, except share and per share amounts)

 

 

Note 12. Financial Highlights (continued)

 

(2)

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

 

(3)

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

 

(4)

See Note 7. “Distributions” for further information on the source of distributions from other than net investment income and realized gains.

 

(5)

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

 

(6)

The per share impact of the Company’s repurchase of common stock reflects a change in net asset value of less than $0.01 per share during the six months ended June 30, 2018.

 

(7)

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

 

(8)

The computation of average net assets during the period is based on the daily value of net assets and borrowing balances, respectively. Ratios are not annualized.

 

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

The following discussion is based on the unaudited condensed financial statements as of June 30, 2018 and December 31, 2017, and for the three and six months ended June 30, 2018 and 2017. Amounts as of December 31, 2017 included in the unaudited condensed financial statements have been derived from the audited financial statements as of that date. This information should be read in conjunction with the accompanying unaudited condensed financial statements and the notes thereto, as well as, the audited financial statements, notes and management’s discussion and analysis of financial condition and results of operations included in our Annual Report on Form 10-K for the period ended December 31, 2017. Capitalized terms used in this Item 2 have the same meaning as in the accompanying unaudited condensed financial statements in Item 1 unless otherwise defined herein.

Statement Regarding Forward-Looking Information

The following information contains statements that constitute forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). These statements generally are characterized by the use of terms such as “may,” “should,” “plan,” “anticipate,” “estimate,” “intend,” “predict,” “believe” and “expect” or the negative of these terms or other comparable terminology. Although we believe that the expectations reflected in such forward-looking statements are based upon reasonable assumptions, our actual results could differ materially from those set forth in the forward-looking statements. Some factors that might cause such a difference include the following: persistent economic weakness at the global or national level, increased direct competition, changes in government regulations or accounting rules, changes in local, national and global capital market conditions, our ability to obtain or maintain credit lines or credit facilities on satisfactory terms, changes in interest rates, availability of proceeds from our offering of shares, our ability to identify suitable investments, our ability to close on identified investments, our ability to obtain or maintain our qualification as a regulated investment company and as a business development company, the ability of our investment adviser and their affiliates to attract and retain highly talented professionals, inaccuracies of our accounting estimates, the ability of our investment adviser to locate suitable borrowers for our loans and the ability of such borrowers to make payments under their respective loans. Given these uncertainties, we caution you not to place undue reliance on such statements, which apply only as of the date hereof. We undertake no obligation to publicly release the results of any revisions to these forward-looking statements that may be made to reflect future events or circumstances or to reflect the occurrence of unanticipated events. The forward-looking statements should be read in light of the risk factors identified in the “Risk Factors” section of our Annual Report on Form 10-K filing for the period ended December 31, 2017 and Item 1A in Part II of this Quarterly Report.

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

Overview

We are a non-diversified closed-end management investment company that has elected to be treated as a business development company under the Investment Company Act of 1940 Act (as amended, the “1940 Act”). We commenced operations on March 1, 2016 when we satisfied our minimum offering requirement. Formed as a Delaware statutory trust on August 12, 2014, we were externally managed by CNL Fund Advisors II, LLC (“CNL”) and KKR Credit Advisors (US) LLC (“KKR”), (collectively, our “Former Advisor”) through April 8, 2018 under a Former Investment Advisory Agreement and under a Former Administrative Services Agreement (as defined and further described below under “Changes to Advisory Structure and Other Agreements).”

On April 9, 2018, we entered into a new investment advisory agreement (the “Joint Advisor Investment Advisory Agreement”) with FS/KKR Advisor, LLC (the “Joint Advisor”), a newly-formed entity that is jointly operated by KKR and an affiliate of Franklin Square Holdings, L.P. (“FS Investments”). The Joint Advisor

 

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Investment Advisory Agreement replaced the Former Investment Advisory Agreement with KKR and CNL, as further described below under “Changes to Advisory Structure and Other Agreements.” In addition, we entered into a new administrative services agreement with the Joint Advisor (the “Joint Advisor Administrative Services Agreement”), which replaced the Former Administrative Services Agreement between us and CNL, as further described below under “Changes to Advisory Structure and Other Agreements.”

Through April 8, 2018, our Former Advisors were, and commencing April 9, 2018, our Joint Advisor is responsible for sourcing potential investments, conducting due diligence on prospective investments, analyzing investment opportunities, structuring investments, determining the securities and other assets that we purchase, retain or sell and monitoring our portfolio on an ongoing basis, as well as providing the administrative services necessary for our company to operate. Our Former Advisors were, and our Joint Advisor is, registered as investment advisers with the SEC.

We have elected to be taxed as a regulated investment company (“RIC”) under the Internal Revenue Code of 1986 (as amended, the “Code”) and operated in a manner as to qualify for tax treatments applicable to RICs.

Changes to Advisory Structure and Other Agreements

On April 9, 2018, we entered into the Joint Advisor Investment Advisory Agreement, which replaced the Former Investment Advisory Agreement, dated September 24, 2015, by and between us and our Former Advisors. We pay the Joint Advisor a fee for its services under the Joint Advisor Investment Advisory Agreement consisting of two components – a base management fee based on the average value of the Company’s gross assets and an incentive fee based on the Company’s performance. Under the Joint Advisor Investment Advisory Agreement, the base management fee calculation is at an annual rate of 1.50% of the average value of the Company’s gross assets, as compared to the annual rate of 2.00% under the Former Investment Advisory Agreement. Under the Joint Advisor Investment Advisory Agreement, the Joint Advisor serves as our sole investment adviser. The terms of the incentive fee are substantially the same as those under the Former Investment Advisory Agreement.

On April 9, 2018, we also entered into the Joint Advisor Administrative Services Agreement, which replaced the Former Advisor Administrative Services Agreement, dated September 24, 2015, by and between us and CNL (one of our Former Advisors). Under the Joint Advisor Administrative Services Agreement, the Joint Advisor serves as our administrator. The terms of the Joint Advisor Administrative Services Agreement, including the services provided by the Joint Advisor and the amount of reimbursements paid by us for certain administrative expenses, are substantially the same as those of the Former Advisor Administrative Services Agreement.

Concurrently with our entry into the Joint Advisor Investment Advisory Agreement and the Joint Advisor Administrative Services Agreement, on April 9, 2018, we entered into a new expense support and conditional reimbursement agreement with the Joint Advisor (the “Joint Advisor Expense Support Agreement”), which replaced the Fourth Amended and Restated Expense Support and Conditional Reimbursement Agreement, dated January 22, 2018, by and among us and the Former Advisors (the “Former Advisor Expense Support Agreement”). The Joint Advisor Expense Support Agreement is substantially similar to the Former Advisor Expense Support Agreement.

On April 5, 2018, in connection with the transition of investment advisory services to the Joint Advisor and due to the January 10, 2018 suspension of our continuous public offering of our common shares (the “Offering”), our board of trustees approved the termination, effective as of April 30, 2018, of (i) the Amended and Restated Managing Dealer Agreement with an affiliate of CNL that became effective on April 28, 2017, and (ii) our amended and restated distribution and shareholder servicing plan that became effective on April 28, 2017. We will not incur any distribution and shareholder servicing fees subsequent to the April 30, 2018 termination of the plan.

 

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Additional information on the above agreements can be located in our Form 8-K filed with the SEC on April 9, 2018.

On April 30, 2018, our Former Advisors agreed to permanently waive our obligation to reimburse the Former Advisors approximately $5,400 in expense support payments not previously reimbursed under our Former Expense Support Agreement. The reimbursement of these amounts had been subject to certain conditions, as described further below in “Capital Resources and Liquidity—Expense Support and Reimbursement Arrangements with Our Former Advisor.”