Oaktree Strategic Income II, Inc. (Form: 10-Q, Received: 05/15/2019 06:19:25)

Large accelerated filer o

Accelerated filer o

Non-accelerated filer x

Smaller reporting company o

Emerging growth company x

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

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

Form 10-Q

(Mark One)



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

For the quarterly period ended March 31, 2019



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

COMMISSION FILE NUMBER: 000-55975

Oaktree Strategic Income II, Inc.

(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)



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

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

REGISTRANT’S TELEPHONE NUMBER, INCLUDING AREA CODE:

(213) 830-6300

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

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

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

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

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



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

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



Class		Outstanding at May 13, 2019
Common stock, $0.001 par value		5,047,214

OAKTREE STRATEGIC INCOME II, INC.

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

TABLE OF CONTENTS




		PART I — FINANCIAL INFORMATION

Item 1.	Consolidated Financial Statements:
		Consolidated Statements of Assets and Liabilities as of March 31, 2019 (unaudited) and September 30, 2018	1
		Consolidated Statement of Operations for the three and six months ended March 31, 2019 (unaudited)	2
		Consolidated Statement of Changes in Net Assets for the three and six months ended March 31, 2019 (unaudited)	3
		Consolidated Statement of Cash Flows for the six months ended March 31, 2019 (unaudited)	4
		Consolidated Schedule of Investments as of March 31, 2019 (unaudited)	5
		Consolidated Schedule of Investments as of September 30, 2018	10
		Notes to Consolidated Financial Statements (unaudited)	12
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations		31
Item 3.	Quantitative and Qualitative Disclosures about Market Risk		42
Item 4.	Controls and Procedures		44
		PART II — OTHER INFORMATION
Item 1.	Legal Proceedings		44
Item 1A.	Risk Factors		44
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds		44
Item 3.	Defaults Upon Senior Securities		44
Item 4.	Mine Safety Disclosures		44
Item 5.	Other Information		44
Item 6.	Exhibits		45
Signatures			46

PART I — FINANCIAL INFORMATION



Item 1.	Consolidated Financial Statements.

Oaktree Strategic Income II, Inc.

Consolidated Statements of Assets and Liabilities



	March 31, 2019 (unaudited)		September 30, 2018
ASSETS
Assets:
Investments – Non-control/Non-affiliate, at fair value (cost March 31, 2019: $161,159,391; cost September 30, 2018: $25,009,879)	$	162,809,839	$	25,232,606
Cash and cash equivalents	7,175,693		10,131,268
Interest receivable	697,777		87,979
Derivative asset at fair value	9,240		—
Deferred financing costs	409,824		—
Deferred offering costs	277,921		519,302
Receivable for shares sold	—		40,000
Other assets	203,372		225,597
Total assets	$	171,583,666	$	36,236,752
LIABILITIES AND NET ASSETS
Liabilities:
Accounts payable, accrued expenses and other liabilities	$	459,056	$	307,213
Base management fee and incentive fee payable	682,662		81,747
Due to affiliates	492,017		1,114,484
Interest payable	387,846		—
Payables from unsettled transactions	24,349,079		4,334,741
Director fees payable	26,250		26,250
Credit facility payable	76,000,000		—
Total liabilities	102,396,910		5,864,435
Commitments and contingencies (Note 11)
Net assets:
Common stock, $0.001 par value per share, 250,000,000 shares authorized; 3,391,900 shares issued and outstanding at March 31, 2019; 1,541,738 shares issued and outstanding at September 30, 2018	3,392		1,542
Preferred stock, $0.001 par value per share, 100,000,000 shares authorized; none issued and outstanding at March 31, 2019 and September 30, 2018	—		—
Additional paid-in-capital	67,533,407		30,833,227
Accumulated distributable earnings (loss)	1,649,957		(462,452		)
Total net assets (equivalent to $20.40 and $19.70 per common share at March 31, 2019 and September 30, 2018, respectively) (Note 10)	69,186,756		30,372,317
Total liabilities and net assets	$	171,583,666	$	36,236,752

See notes to Consolidated Financial Statements.

Oaktree Strategic Income II, Inc.

Consolidated Statement of Operations

(unaudited)



	Three months ended March 31, 2019			Six months ended March 31, 2019
Interest income:
Non-control/Non-affiliate investments	$	1,942,044		$	2,761,263
Interest on cash and cash equivalents	56,782			80,271
Total interest income	1,998,826			2,841,534
PIK interest income:
Non-control/Non-affiliate investments	191,748			259,694
Total PIK interest income	191,748			259,694
Fee income:
Non-control/Non-affiliate investments	9,114			264,678
Total fee income	9,114			264,678
Total investment income	2,199,688			3,365,906
Expenses:
Base management fee	332,290			453,219
Capital gains incentive fee	350,369			308,348
Offering costs	194,104			362,373
Organization expenses	710			56,921
Professional fees	190,929			383,769
Directors fees	26,250			52,500
Interest expense	453,272			587,155
Administrator expense	130,052			212,097
General and administrative expenses	225,569			369,501
Total expenses	1,903,545			2,785,883
Net investment income before taxes	296,143			580,023
Excise tax expense	—			9,357
Net investment income	296,143			570,666
Unrealized appreciation (depreciation):
Non-control/Non-affiliate investments	2,437,869			1,440,249
Foreign currency forward contracts	(25,295		)	9,240
Net unrealized appreciation (depreciation)	2,412,574			1,449,489
Realized gains (losses):
Non-control/Non-affiliate investments	(523		)	8,946
Foreign currency forward contracts	83,308			83,308
Net realized gains (losses)	82,785			92,254
Net realized and unrealized gains (losses)	2,495,359			1,541,743
Net increase (decrease) in net assets resulting from operations	$	2,791,502		$	2,112,409
Net investment income per common share — basic and diluted	$	0.09		$	0.19
Earnings (loss) per common share — basic and diluted (Note 5)	$	0.82		$	0.70
Weighted average common shares outstanding — basic and diluted	3,391,900			3,033,543

See notes to Consolidated Financial Statements.

Oaktree Strategic Income II, Inc.

Consolidated Statement of Changes in Net Assets

(unaudited)



	Three months ended March 31, 2019		Six months ended March 31, 2019
Operations:
Net investment income	$	296,143	$	570,666
Net unrealized appreciation (depreciation)	2,412,574		1,449,489
Net realized gains (losses)	82,785		92,254
Net increase (decrease) in net assets resulting from operations	2,791,502		2,112,409
Capital share transactions:
Issuance of common stock	—		36,702,030
Net increase (decrease) in net assets from capital share transactions	—		36,702,030
Total increase (decrease) in net assets	2,791,502		38,814,439
Net assets at beginning of period	66,395,254		30,372,317
Net assets at end of period	$	69,186,756	$	69,186,756
Net asset value per common share	$	20.40	$	20.40
Common shares outstanding at end of period	3,391,900		3,391,900

See notes to Consolidated Financial Statements.

Oaktree Strategic Income II, Inc.

Consolidated Statement of Cash Flows

(unaudited)



	Six months ended March 31, 2019
Operating activities:
Net increase (decrease) in net assets resulting from operations	$	2,112,409
Adjustments to reconcile net increase (decrease) in net assets resulting from operations to net cash used in operating activities:
Net unrealized (appreciation) depreciation	(1,449,489		)
Net realized (gains) losses	(92,254		)
PIK interest income	(259,694		)
Accretion of original issue discount on investments	(275,394		)
Amortization of deferred financing costs	120,581
Amortization of deferred offering costs	362,373
Purchases of investments	(141,509,006		)
Proceeds from sales and repayments of investments	5,677,327
Changes in operating assets and liabilities:
(Increase) decrease in interest receivable	(429,798		)
(Increase) decrease in other assets	22,225
Increase (decrease) in accounts payable, accrued expenses and other liabilities	172,466
Increase (decrease) in base management fee and incentive fee payable	600,915
Increase (decrease) in due to affiliates	(546,342		)
Increase (decrease) in interest payable	387,846
Increase (decrease) in payables from unsettled transactions	20,014,338
Net cash used in operating activities	(115,091,497		)
Financing activities:
Borrowings under the credit facility	76,000,000
Proceeds from the issuance of common stock	36,742,030
Deferred financing costs paid	(530,405		)
Offering costs paid	(120,992		)
Net cash provided by financing activities	112,090,633
Effect of exchange rate changes on foreign currency	45,289
Net decrease in cash and cash equivalents	(2,955,575		)
Cash and cash equivalents, beginning of period	10,131,268
Cash and cash equivalents, end of period	$	7,175,693
Supplemental information:
Cash paid for interest	$	78,728

See notes to Consolidated Financial Statements.

Oaktree Strategic Income II, Inc.

Consolidated Schedule of Investments

March 31, 2019

(unaudited)



Portfolio Company/Type of Investment (1)(2)(3)	Cash Interest Rate (4)		Industry	Principal (5)		Cost			Fair Value
Non-Control/Non-Affiliate Investments (6)
Access CIG, LLC			Diversified support services
First Lien Term Loan, LIBOR+3.75% cash due 2/27/2025 (4)	6.24	%		$	5,083,389	$	5,029,127		$	5,032,554
						5,029,127			5,032,554
AI Sirona (Luxembourg) Acquisition S.a.r.l.			Pharmaceuticals
Second Lien Term Loan, EURIBOR+7.25% cash due 7/10/2026 (4)(7)(9)(10)	7.25	%		€	2,500,000	2,862,090			2,694,840
						2,862,090			2,694,840
Air Medical Group Holdings, Inc.			Healthcare services
First Lien Term Loan, LIBOR+4.25% cash due 3/14/2025 (4)(10)	6.74	%		$	1,095,453	1,071,020			1,032,464
						1,071,020			1,032,464
Algeco Scotsman Global Finance Plc			Construction & engineering
Fixed Rate Callable Bond 8.00% cash due 2/15/2023 (9)				1,000,000		1,022,903			1,007,500
						1,022,903			1,007,500
Altice France S.A.			Integrated telecommunication services
Fixed Rate Callable Bond 7.75% cash due 5/15/2022 (9)				730,000		704,001			731,825
						704,001			731,825
Alvotech Holdings S.A.			Biotechnology
Fixed Rate Bond 15.00% PIK note due 12/13/2023 (7)(9)				4,000,000		3,922,865			4,000,000
						3,922,865			4,000,000
Apptio, Inc.			Application software
First Lien Term Loan, LIBOR+7.25% cash due 1/10/2025 (4)(7)(10)	9.74	%		5,538,462		5,431,787			5,431,016
First Lien Revolver, LIBOR+7.25% cash due 1/10/2025 (4)(7)(8)(10)				—		(8,890		)	(8,954		)
						5,422,897			5,422,062
Assembled Brands Capital LLC			Specialized finance
First Lien Delayed Draw Term Loan, LIBOR+6.00% cash due 10/17/2023 (4)(7)(8)	8.60	%		198,512		198,513			198,512
82,713.38 Class A Units (7)						82,713			82,713
63,107.22 Class B Units (7)						—			—
						281,226			281,225
Avantor Inc.			Healthcare distributors
Fixed Rate Bond 9.00% cash due 10/1/2025				1,000,000		1,016,794			1,086,250
						1,016,794			1,086,250
Ball Metalpack Finco, LLC			Metal & glass containers
First Lien Term Loan, LIBOR+4.50% due 7/31/2025 (4)(7)	7.00	%		1,488,750		1,481,955			1,487,820
						1,481,955			1,487,820
Boxer Parent Company Inc.			Systems software
First Lien Term Loan, LIBOR+4.25% cash due 10/2/2025 (4)	6.85	%		5,093,235		5,012,162			4,997,966
						5,012,162			4,997,966
Canyon Buyer, Inc.			Application software
First Lien Term Loan, LIBOR+4.25% 2/15/2025 (4)	6.85	%		3,989,924		3,942,268			3,963,751
						3,942,268			3,963,751
Cast & Crew Payroll, LLC			Application software
First Lien Term Loan, LIBOR+4.00% cash due 2/9/2026 (4)	6.50	%		4,000,000		3,960,000			4,021,500
						3,960,000			4,021,500
CGG Holding US, Inc.			Oil & gas equipment & services
Fixed Rate Callable Bond 9.00% cash due 5/1/2023 (9)				819,000		852,967			870,188
						852,967			870,188

Oaktree Strategic Income II, Inc.

Consolidated Schedule of Investments

March 31, 2019

(unaudited)



Portfolio Company/Type of Investment (1)(2)(3)	Cash Interest Rate (4)		Industry	Principal (5)		Cost			Fair Value
CITGO Petroleum Corp.			Oil & gas refining & marketing
First Lien Term Loan, LIBOR+5.00% cash due 3/22/2024 (4)(10)	7.60	%		$	8,000,000	$	7,920,000		$	8,000,000
						7,920,000			8,000,000
Convergeone Holdings, Inc.			IT consulting & other services
First Lien Term Loan, LIBOR+5.00% cash due 1/4/2026 (4)	7.50	%		8,000,000		7,681,548			7,677,520
						7,681,548			7,677,520
Crosby Worldwide			Building products
First Lien Term Loan, LIBOR+3.00% cash due 11/23/2020 (4)(10)	5.49	%		4,972,176		4,765,809			4,863,434
						4,765,809			4,863,434
DigiCert, Inc.			Internet services & infrastructure
First Lien Term Loan, LIBOR+4.00% cash due 10/31/2024 (4)(10)	6.50	%		3,941,846		3,904,204			3,881,082
						3,904,204			3,881,082
DKT Finance APS			Integrated telecommunication services
Fixed Rate Callable Bond 9.38% cash due 6/17/2023 (9)				207,000		217,009			222,422
						217,009			222,422
The Dun & Bradstreet Corporation			Research & consulting services
Fixed Rate Callable Bond 6.88% cash due 8/15/2026				5,000,000		5,000,000			5,121,875
						5,000,000			5,121,875
EHR Canada, LLC			Food retail
First Lien Term Loan, LIBOR+8.00% cash due 9/28/2020 (4)(7)(10)	10.60	%		974,073		960,272			975,047
						960,272			975,047
Femur Buyer, Inc.			Health care equipment
First Lien Term Loan LIBOR+4.50% cash due 3/5/2026 (4)	7.10	%		5,000,000		4,950,000			5,015,625
						4,950,000			5,015,625
Frontier Communications Corporation			Integrated telecommunication services
First Lien Term Loan, LIBOR+3.75% cash due 6/15/2024 (4)(9)(10)	6.25	%		3,298,607		3,234,022			3,228,511
						3,234,022			3,228,511
GI Chill Acquisition LLC			Managed healthcare
First Lien Term Loan, LIBOR+4.00% cash due 8/6/2025 (4)(7)	6.60	%		1,990,000		1,980,050			1,993,731
Second Lien Term Loan, LIBOR+7.50% cash due 8/6/2026 (4)(7)	10.10	%		2,000,000		1,981,579			2,000,000
						3,961,629			3,993,731
GoodRx, Inc.			Interactive media & services
First Lien Term Loan, LIBOR+3.00% cash due 10/10/2025 (4)	5.49	%		1,995,000		1,992,506			1,976,716
Second Lien Term Loan, LIBOR+7.50% cash due 10/12/2026 (4)(7)	10.00	%		1,333,333		1,306,548			1,353,333
						3,299,054			3,330,049
Horizon Pharma, Inc.			Pharmaceuticals
Fixed Rate Callable Bond 8.75% cash due 11/1/2024 (9)				1,000,000		1,056,419			1,091,250
						1,056,419			1,091,250
HUB International, Ltd
First Lien Term Loan, LIBOR+2.75% cash due 4/25/2025 (4)(9)	5.51	%	Insurance brokers	3,989,950		3,917,142			3,865,683
						3,917,142			3,865,683
iCIMs, Inc.			Application software
First Lien Term Loan, LIBOR+6.50% cash due 9/12/2024 (4)(7)(10)	8.99	%		1,411,765		1,386,119			1,386,004
First Lien Revolver, LIBOR+6.50% cash due 9/12/2024 (4)(7)(8)(10)				—		(1,603		)	(1,610		)
						1,384,516			1,384,394
Informatica, LLC			Application software
First Lien Term Loan, LIBOR+3.25% cash due 8/5/2022 (4)	5.75	%		3,989,871		3,972,696			3,989,073
						3,972,696			3,989,073

Oaktree Strategic Income II, Inc.

Consolidated Schedule of Investments

March 31, 2019

(unaudited)



Portfolio Company/Type of Investment (1)(2)(3)	Cash Interest Rate (4)		Industry	Principal (5)		Cost			Fair Value
KIK Custom Products Inc.			Household products
First Lien Term Loan, LIBOR+4.00% cash due 5/15/2023 (4)(9)(10)	6.50	%		$	2,000,000	$	1,898,114		$	1,873,340
						1,898,114			1,873,340
Ligand Pharmaceuticals I			Biotechnology
Fixed Rate Bond .75% cash due 5/15/2023 (9)				1,001,000		869,413			861,040
						869,413			861,040
LTI Holdings, Inc.			Auto parts & equipment
Second Lien Term Loan, LIBOR+6.75% cash due 9/6/2026 (4)	9.25	%		1,000,000		1,000,000			953,130
						1,000,000			953,130
Maravai Intermediate Holdings, LLC			Biotechnology
First Lien Term Loan, LIBOR+4.25% cash due 8/2/2025 (4)(7)	6.75	%		1,293,500		1,280,565			1,290,266
						1,280,565			1,290,266
McAfee, LLC			Systems software
First Lien Term Loan, LIBOR+3.75% cash due 9/30/2024 (4)(10)	6.25	%		4,868,996		4,856,736			4,872,063
						4,856,736			4,872,063
Mindbody, Inc.			Internet services & infrastructure
First Lien Revolver, LIBOR+7.00% cash due 2/15/2025 (4)(7)(8)(10)				—		(14,925		)	(15,238		)
First Lien Term Loan, LIBOR+7.00% cash due 2/15/2025 (4)(7)(10)	9.48	%		7,238,095		7,096,305			7,093,333
						7,081,380			7,078,095
ProFrac Services, LLC			Industrial machinery
First Lien Term Loan, LIBOR+5.75% cash due 9/15/2023 (4)(7)(10)	8.36	%		1,450,833		1,437,863			1,421,817
						1,437,863			1,421,817
Recorded Books Inc.			Publishing
First Lien Term Loan, LIBOR+4.50% cash due 8/29/2025 (4)	7.00	%		1,990,000		1,970,100			1,992,488
						1,970,100			1,992,488
Refinitiv Holdings, Inc.			Financial exchanges & data
First Lien Term Loan, LIBOR+3.75% cash due 10/1/2025 (4)	6.25	%		2,530,658		2,468,319			2,461,520
						2,468,319			2,461,520
Scilex Pharmaceuticals, Inc.			Pharmaceuticals
Fixed Rate Zero Coupon Bond cash due 8/15/2026 (7)				2,395,309		1,594,713			1,604,857
						1,594,713			1,604,857
Sirva Worldwide, Inc.			Diversified support services
First Lien Term Loan, LIBOR+5.50% cash due 8/4/2025 (4)	8.06	%		1,987,500		1,957,688			1,942,781
						1,957,688			1,942,781
Sorrento Therapeutics, Inc.			Biotechnology
First Lien Term Loan, LIBOR+7.00% cash due 11/7/2023 (4)(7)(9)(10)	9.63	%		8,000,000		7,410,821			7,760,000
First Lien Delayed Draw Term Loan, LIBOR+7.00% cash due 11/7/2023 (4)(7)(8)(9)(10)				—		(36,824		)	(36,800		)
Stock Warrants (exercise price $3.28) expiration date 5/7/2029 (7)(9)				503,119		560,000			1,423,827
						7,933,997			9,147,027
StandardAero Aviation Holdings Inc.			Aerospace & defense
First Lien Term Loan, LIBOR+4.00% cash due 1/24/2026 (4)	6.60	%		3,000,000		2,996,250			3,005,205
						2,996,250			3,005,205
TIBCO Software Inc.			Application software
First Lien Term Loan, LIBOR+3.50% cash due 12/4/2020 (4)	6.00	%		2,992,347		2,992,347			2,984,866
						2,992,347			2,984,866
Tullow Oil PLC			Oil & gas exploration & production
Fixed Rate Callable Bond 6.25% cash due 04/15/2022 (9)				700,000		689,777			705,075
						689,777			705,075
Uber Technologies, Inc.			Application software
First Lien Term Loan, LIBOR+4.00% cash due 4/4/2025 (4)(10)	6.49	%		986,033		978,879			988,005
First Lien Term Loan, LIBOR +3.50% cash due 7/13/2023 (4)(10)	5.98	%		3,989,770		3,972,857			3,969,003
						4,951,736			4,957,008

Oaktree Strategic Income II, Inc.

Consolidated Schedule of Investments

March 31, 2019

(unaudited)



Portfolio Company/Type of Investment (1)(2)(3)	Cash Interest Rate (4)		Industry	Principal (5)		Cost		Fair Value
UOS, LLC			Trading companies & distributors
First Lien Term Loan, LIBOR+5.50% cash due 4/18/2023 (4)(10)	8.00	%		$	2,984,810	$	3,009,306	$	2,999,734
						3,009,306		2,999,734
U.S. Well Services, LLC			Oil & gas drilling
Second Lien Delayed Draw Term Loan, LIBOR+7.75% cash due 5/31/2020 (4)(7)(9)(10)	10.25	%		2,000,000		1,932,190		1,960,000
						1,932,190		1,960,000
Veritas US Inc.			Application software
First Lien Term Loan, LIBOR+4.50% cash due 1/27/2023 (4)(10)	7.02	%		337,279		308,376		313,300
						308,376		313,300
Verscend Holding Corp.			Healthcare technology
First Lien Term Loan, LIBOR+4.50% cash due 8/27/2025 (4)(10)	7.00	%		3,399,424		3,379,942		3,382,427
						3,379,942		3,382,427
WeddingWire, Inc.			Interactive media & services
First Lien Term Loan, LIBOR+4.50% cash due 12/19/2025 (4)	6.99	%		2,992,500		2,977,992		2,990,630
						2,977,992		2,990,630
WideOpenWest Finance, LLC			Cable & satellite
First Lien Term Loan, LIBOR+3.25% 8/18/2023 (4)(9)(10)	5.74	%		4,987,342		4,824,075		4,814,356
						4,824,075		4,814,356
WP CPP Holdings, LLC			Aerospace &defense
First Lien Term Loan, LIBOR+3.75% cash due 4/30/2025 (4)(10)	6.51	%		3,989,975		3,963,097		3,967,033
						3,963,097		3,967,033
Zillow Group, Inc.			Interactive media & services
Fixed Rate Bond 1.50% cash due 7/01/2023 (9)				497,000		468,202		455,145
Fixed Rate Bond 2.00% cash due 12/01/2021 (9)				1,470,000		1,510,618		1,506,995
						1,978,820		1,962,140
Total Non-Control/Non-Affiliate Investments (235.3% of net assets)						$	161,159,391	$	162,809,839
Cash and Cash Equivalents (10.4% of net assets)						$	7,175,693	$	7,175,693
Total Portfolio Investments, Cash and Cash Equivalents (245.7% of net assets)						$	168,335,084	$	169,985,532



Derivative Instrument	Notional Amount to be Purchased		Notional Amount to be Sold		Maturity Date	Counterparty	Cumulative Unrealized Appreciation (Depreciation)
Foreign currency forward contract	$	2,819,767	€	2,475,000	8/15/2019	Bank of New York Mellon	$	9,240


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


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


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

(4)

The interest rate on the principal balance outstanding for all floating rate loans is indexed to the London Interbank Offered Rate ("LIBOR") and/or an alternate base rate (e.g., prime rate), which typically resets semi-annually, quarterly, or monthly at the borrower's option. The borrower may also elect to have multiple interest reset periods for each loan. For each of these loans, the Company has provided the applicable margin over LIBOR or the alternate based rate based on each respective credit agreement and the cash interest rate as of period end. All LIBOR shown above is in U.S. dollars unless otherwise noted. As of March 31, 2019, the reference rates for our variable rate loans were the 30-day LIBOR at 2.50%, 60-day LIBOR at 2.56%, the 90-day LIBOR at 2.60%, the 180-day LIBOR at 2.65% and the 30-day EURIBOR at (0.42)%.


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


(6)	Non-Control/Non-Affiliate Investments are investments that are neither Control Investments nor Affiliate Investments. Control Investments generally are defined by the Investment Company Act of 1940, as amended (the "Investment Company Act"), as investments in companies in

Oaktree Strategic Income II, Inc.

Consolidated Schedule of Investments

March 31, 2019

(unaudited)

which the Company owns more than 25% of the voting securities and/or has the power to exercise control over the management or policies of the company. Affiliate Investments generally are defined by the Investment Company Act as investments in companies in which the Company owns between 5% and 25% of the voting securities.


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


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

(9)

Investment is not a qualifying asset as defined under Section 55(a) of the Investment Company Act. Under the Investment Company Act, the Company may not acquire any non-qualifying asset unless, at the time the acquisition is made, qualifying assets represent at least 70% of the Company's total assets. As of March 31, 2019 , qualifying assets represented 76.7% of the Company's total assets and non-qualifying assets represented 23.3% of the Company's total assets.


(10)	Loan includes interest rate floor, which is generally 1%.

See notes to Consolidated Financial Statements.

Oaktree Strategic Income II, Inc.

Consolidated Schedule of Investments

September 30, 2018



Portfolio Company/Type of Investment (1)(2)(3)	Cash Interest Rate (4)		Industry	Principal (5)		Cost			Fair Value
Non-Control/Non-Affiliate Investments (6)
AI Sirona (Luxembourg) Acquisition S.a.r.l			Pharmaceuticals
Second Lien Term Loan, EURIBOR+7.25% (0% Floor) cash due 7/10/2026 (4)(9)	7.25	%		€	2,500,000	$	2,862,090		$	2,889,231
						2,862,090			2,889,231
Altice France S.A.			Integrated telecommunication services
Fixed Rate Callable Bond 7.75% cash due 5/15/2022 (9)				$	465,000	445,977			454,305
Fixed Rate Callable Bond 7.75% cash due 5/15/2022 (9)				265,000		254,400			258,905
						700,377			713,210
Ball Metalpack Finco, LLC			Metal & glass containers
First Lien Term Loan, LIBOR+4.50% due 7/31/2025 (4)	6.74	%		1,496,250		1,488,884			1,514,018
						1,488,884			1,514,018
EHR Canada, LLC			Food retail
First Lien Term Loan, LIBOR+8.00% (1% Floor) cash due 9/28/2020 (4)(7)	10.30	%		1,500,000		1,470,123			1,470,000
						1,470,123			1,470,000
GI Chill Acquisition LLC			Managed healthcare
First Lien Term Loan, LIBOR+4.00% cash due 8/6/2025 (4)(7)	6.39	%		2,000,000		1,990,000			2,012,500
Second Lien Term Loan, LIBOR+7.50% cash due 8/6/2026 (4)(7)	9.68	%		2,000,000		1,980,329			1,980,000
						3,970,329			3,992,500
GTT Communications Inc.			Internet services & infrastructure
Fixed Rate Callable Bond 7.88% cash due 12/31/2024 (9)				266,000		252,625			260,015
						252,625			260,015
iCIMs, Inc.			Application software
First Lien Term Loan, LIBOR+6.50% (1% Floor) cash due 9/12/2024 (4)(7)	8.64	%		1,411,765		1,383,774			1,383,529
First Lien Revolver, LIBOR+6.50% (1% Floor) cash due 9/12/2024 (4)(7)(8)				—		(1,749		)	(1,765		)
						1,382,025			1,381,764
LTI Holdings, Inc.			Auto parts & equipment
Second Lien Term Loan, LIBOR+6.75% cash due 9/6/2026 (4)	8.99	%		1,000,000		1,000,000			1,002,710
						1,000,000			1,002,710
Maravai Intermediate Holdings, LLC			Biotechnology
First Lien Term Loan, LIBOR+4.25% cash due 8/2/2025 (4)(7)	6.38	%		1,300,000		1,287,000			1,295,938
						1,287,000			1,295,938
ProFrac Services, LLC			Industrial machinery
First Lien Term Loan, LIBOR+5.75% (1% Floor) cash due 9/15/2023 (4)(7)	8.07	%		1,500,000		1,485,091			1,492,500
						1,485,091			1,492,500
Recorded Books Inc.			Publishing
First Lien Term Loan, LIBOR+4.50% cash due 8/29/2025 (4)(7)	6.89	%		2,000,000		1,980,000			2,022,500
						1,980,000			2,022,500
Scilex Pharmaceuticals Inc.			Pharmaceuticals
Fixed Rate Zero Coupon Bond due 8/15/2026 (7)				2,400,000		1,500,000			1,500,000
						1,500,000			1,500,000
Sequa Mezzanine Holdings, LLC			Aerospace & defense
First Lien Term Loan, LIBOR+5.00% (1% Floor) cash due 11/28/2021 (4)	7.19	%		1,496,212		1,484,303			1,474,390
						1,484,303			1,474,390

Oaktree Strategic Income II, Inc.

Consolidated Schedule of Investments

September 30, 2018



Portfolio Company/Type of Investment (1)(2)(3)	Cash Interest Rate (4)		Industry	Principal (5)		Cost		Fair Value
Sirva Worldwide, Inc.			Diversified support services
First Lien Term Loan, LIBOR+5.50% cash due 8/4/2025 (4)	7.75	%		$	2,000,000	$	1,970,000	$	2,007,500
						1,970,000		2,007,500
Tullow Oil PLC			Oil & gas exploration & production
Fixed Rate Callable Bond 6.25% cash due 04/15/2022 (9)				700,000		688,282		701,015
						688,282		701,015
Verscend Holding Corp.			Healthcare technology
First Lien Term Loan, LIBOR+4.50% cash due 8/27/2025 (4)	6.74	%		1,500,000		1,488,750		1,515,315
						1,488,750		1,515,315
Total Non-Control/Non-Affiliate Investments (83.1% of net assets)						$	25,009,879	$	25,232,606
Cash and Cash Equivalents (33.4% of net assets)						$	10,131,268	$	10,131,268
Total Portfolio Investments, Cash and Cash Equivalents (116.4% of net assets)						$	35,141,147	$	35,363,874


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


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


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

(4)

The interest rate on the principal balance outstanding for all floating rate loans is indexed to the LIBOR and/or an alternate base rate (e.g., prime rate), which typically resets semi-annually, quarterly, or monthly at the borrower's option. The borrower may also elect to have multiple interest reset periods for each loan. For each of these loans, the Company has provided the applicable margin over LIBOR or the alternate based rate based on each respective credit agreement and the cash interest rate as of period end. All LIBOR shown above is in U.S. dollars unless otherwise noted. As of September 30, 2018, the reference rates for our variable rate loans were the 30-day LIBOR at 2.24%, 60-day LIBOR at 2.29%, the 90-day LIBOR at 2.39%, the 180-day LIBOR at 2.59% and the 30-day EURIBOR at (0.40)%.


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

(6)

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


(7)	As of September 30, 2018, these investments are categorized as Level 3 within the fair value hierarchy established by ASC 820 and were valued using significant unobservable inputs.


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

(9)

Investment is not a qualifying asset as defined under Section 55(a) of the Investment Company Act. Under the Investment Company Act, the Company may not acquire any non-qualifying asset unless, at the time the acquisition is made, qualifying assets represent at least 70% of the Company's total assets. As of September 30, 2018, qualifying assets represented 85.2% of the Company's total assets and non-qualifying assets represented 14.8% of the Company's total assets.

See notes to Consolidated Financial Statements.

OAKTREE STRATEGIC INCOME II, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 1. Organization

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

The Company was formed on April 30, 2018 as a Delaware corporation and is externally managed by Oaktree Capital Management, L.P. (the "Adviser"). The Company conducts private offerings (each, a “Private Offering”) of its common stock ("Common Stock") to investors in reliance on exemptions from the registration requirements of the Securities Act of 1933, as amended (the “Securities Act”). At each closing of a Private Offering, each investor participating in that closing makes a capital commitment (each, a “Capital Commitment”) to purchase the Company's Common Stock pursuant to a subscription agreement entered into with the Company in connection with its Capital Commitment ("Subscription Agreement"). Investors are required to fund drawdowns to purchase the Company's Common Stock up to the amount of their respective Capital Commitments on an as-needed basis. On July 23, 2018, the Company was initially capitalized with a $1,000 investment by the Adviser. The initial closing of a Private Offering occurred on August 6, 2018 (the "Initial Closing"). The Company's operations commenced on August 6, 2018, and loan origination and investment activities commenced shortly after the Initial Closing. As of March 31, 2019 , the Company raised $337,683,996 in total Capital Commitments from investors in connection with Private Offerings.

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

Note 2. Significant Accounting Policies

Basis of Presentation:

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

Use of Estimates:

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

Consolidation:

The accompanying consolidated financial statements include the accounts of the Company and its consolidated subsidiary, OSI 2 AB Blocker LLC. OSI 2 AB Blocker LLC is wholly-owned and, as such, consolidated into the consolidated financial statements. The assets of OSI 2 AB Blocker LLC are not directly available to satisfy the claims of the creditors of the Company. As an investment company, portfolio investments held by the Company are not consolidated into the consolidated financial statements but rather are included on the Consolidated Statements of Assets and Liabilities as investments at fair value.

OAKTREE STRATEGIC INCOME II, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Fair Value Measurements:

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

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

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


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


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

•

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

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

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

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

OAKTREE STRATEGIC INCOME II, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

In addition to ongoing monitoring and back-testing, the Adviser performs due diligence procedures over pricing vendors to understand their methodology and controls to support their use in the valuation process.

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

Exchange-Traded Investments

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

Non-Exchange-Traded Investments

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

The market yield approach is considered in the valuation of non-publicly traded debt investments, utilizing expected future cash flows, discounted using estimated current market rates. Discounted cash flow calculations may be adjusted to reflect current market conditions and/or the perceived credit risk of the borrowers. Consideration is also given to a borrower’s ability to meet principal and interest obligations; this may include an evaluation of collateral or the underlying value of the borrower, utilizing either the market or income techniques. A market technique utilizes valuations of comparable public companies or transactions and generally seeks to establish the enterprise value of the portfolio company using a market multiple technique. This technique takes into account a specific financial measure (such as earnings before interest, taxes, depreciation and amortization ("EBITDA"), adjusted EBITDA, free cash flow, net operating income, net income, book value or net asset value) believed to be most relevant for the given company. Consideration may also be given to such factors as acquisition price of the security, historical and projected operational and financial results for the portfolio company, the strengths and weaknesses of the portfolio company relative to its comparable companies, industry trends, general economic and market conditions and other factors deemed relevant. The income technique is typically a discounted cash flow method that incorporates expected timing and level of cash flows. It incorporates assumptions in determining growth rates, income and expense projections, discount rates, capital structure, terminal values and other factors. The applicability and weight assigned to market and income techniques are determined based on the availability of reliable projections and comparable companies and transactions.

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

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

OAKTREE STRATEGIC INCOME II, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

payable, accrued expenses and other liabilities," "base management fee and incentive fee payable," "due to affiliates," "interest payable," "director fees payable" and "payables from unsettled transactions" approximate fair value due to their short maturities.

Foreign Currency Translation:

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

Derivative Instruments

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

Investment Income:

Interest Income

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

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

PIK Interest Income

The Company's investments in debt securities may contain payment-in-kind ("PIK") interest provisions. PIK interest, which represents contractually deferred interest added to the loan balance that is generally due at the end of the loan term, is generally recorded on the accrual basis to the extent such amounts are expected to be collected. The Company generally ceases accruing PIK interest if there is insufficient value to support the accrual or if the Company does not expect the portfolio company to be able to pay all principal and interest due. The Company's decision to cease accruing PIK interest involves subjective judgments and determinations based on available information about a particular portfolio company, including whether the portfolio company is current with respect to its payment of principal and interest on its loans and debt securities; financial statements and financial projections for the portfolio company; the Company's assessment of the portfolio company's business development success; information obtained by the Company in connection with periodic formal update interviews with the portfolio company's management and, if appropriate, the private equity sponsor; and information about the general economic and market conditions in which the portfolio company operates. Based on this and other information, the Company determines whether to cease accruing PIK interest on a loan or debt security. The Company's determination to cease accruing PIK interest is generally made well before the Company's full write-down of a loan or debt security. In addition, if it is subsequently determined that the Company will not be able to collect any previously accrued PIK interest, the fair value of the loans or debt securities would be reduced by the amount of such previously accrued, but uncollectible, PIK interest. The accrual of PIK interest on the Company’s debt investments increases the recorded cost bases of these investments in the consolidated financial statements and, as a result, increases the cost bases of these investments for purposes of computing the capital gain incentive fee payable by the Company to the Adviser. To maintain its status as a RIC, certain income from PIK interest may be required to be distributed to the Company’s stockholders, even though the Company has not yet collected the cash and may never do so.

OAKTREE STRATEGIC INCOME II, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Fee Income

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

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

Cash and Cash Equivalents:

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

Organization and Offering Expenses:

Costs incurred to organize the Company are expensed as incurred. For the three and six months ended March 31, 2019 , the Company incurred organizational costs of $710 and $56,921 , respectively.

Offering costs incurred in connection with Private Offerings are recognized as a deferred cost and amortized on a straight line basis over twelve months beginning on August 6, 2018 (commencement of operations). For the three and six months ended March 31, 2019 , the Company incurred additional offering costs of $24,244 and $120,992, respectively and amortized $ 194,104 and $ 362,373 of deferred offering costs, respectively.

Receivables/Payables From Unsettled Transactions:

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

Deferred Financing Costs:

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

Income Taxes:

The Company has elected to be subject to tax as a RIC under Subchapter M of the Code and operates in a manner so as to qualify for the tax treatment applicable to RICs. In order to be subject to tax as a RIC, among other things, the Company is required to meet certain source of income and asset diversification requirements and timely distribute dividends to its stockholders of an amount generally at least equal to 90% of investment company taxable income, as defined by the Code and determined without regard to any deduction for dividends paid, for each taxable year. As a RIC, the Company is not subject to federal income tax on the portion of its taxable income and gains distributed currently to stockholders as a dividend. Depending on the level of taxable income earned during a taxable year, the Company may choose to retain taxable income in excess of current year dividend distributions and would distribute such taxable income in the next taxable year. The Company would then incur a 4% excise tax on such income, as required. To the extent that the Company determines that its estimated current year annual taxable income, determined on a calendar year basis, could exceed estimated current calendar year dividend distributions, the Company accrues excise tax, if any, on estimated excess taxable income as taxable income is earned. The Company anticipates timely distribution of its taxable income within the tax rules under Subchapter M of the Code. The Company incurred a U.S. federal excise tax of $9,357 for calendar year 2018.

OAKTREE STRATEGIC INCOME II, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The Company uses the asset and liability method to account for its income taxes. Using this method, the Company recognizes deferred tax assets and liabilities for the estimated future tax effects attributable to temporary differences between financial reporting and tax bases of assets and liabilities. In addition, the Company recognizes deferred tax benefits associated with net operating loss carry forwards that it may use to offset future tax obligations. The Company measures deferred tax assets and liabilities using the enacted tax rates expected to apply to taxable income in the years in which it expects to recover or settle those temporary differences.

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

Recent Accounting Pronouncements:

In August 2018, the FASB issued ASU 2018-13, Disclosure Framework – Changes to the Disclosure Requirements for Fair Value Measurement , which changes the fair value disclosure requirements. The new guidance includes new, eliminated and modified fair value disclosures. Among other requirements, the guidance requires disclosure of the range and weighted average of the significant unobservable inputs for Level 3 fair value measurements and the way it is calculated. The guidance also eliminated the following disclosures: (i) amount and reason for transfers between Level 1 and Level 2, (ii) policy for timing of transfers between levels of the fair value hierarchy and (iii) valuation processes for Level 3 fair value measurement. The guidance is effective for all entities for interim and annual periods beginning after December 15, 2019. Early adoption is permitted upon issuance of the guidance. The adoption of this guidance is not expected to have a material effect on the Company’s consolidated financial statements.

Note 3. Portfolio Investments

Portfolio Composition

As of March 31, 2019 , the fair value of the Company's investment portfolio was $162.8 million and was comprised of investments in 53 portfolio companies. As of September 30, 2018, the fair value of the Company's investment portfolio was $25.2 million and was comprised of investments in 16 portfolio companies.

As of March 31, 2019 and September 30, 2018, the Company's investment portfolio consisted of the following:



	March 31, 2019				September 30, 2018
Cost:			% of Total Investments				% of Total Investments
Senior secured debt	$	150,513,862	93.39	%	$	21,868,595	87.44	%
Subordinated debt	10,002,816		6.21	%	3,141,284		12.56	%
Common equity & warrants	642,713		0.40	%	—		—	%
Total	$	161,159,391	100.00	%	$	25,009,879	100.00	%



	March 31, 2019						September 30, 2018
Fair Value:			% of Total Investments		% of Net Assets				% of Total Investments		% of Net Assets
Senior secured debt	$	151,160,753	92.84	%	218.48	%	$	22,058,366	87.42	%	72.63	%
Subordinated debt	10,142,546		6.23	%	14.66	%	3,174,240		12.58	%	10.45	%
Common equity & warrants	1,506,540		0.93	%	2.18	%	—		—	%	—	%
Total	$	162,809,839	100.00	%	235.32	%	$	25,232,606	100.00	%	83.08	%

OAKTREE STRATEGIC INCOME II, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The composition of the Company's debt investments as of March 31, 2019 and September 30, 2018 by floating rates and fixed rates was as follows:



	March 31, 2019				September 30, 2018
	Fair Value		% of Debt Investments		Fair Value		% of Debt Investments
Floating rate	$	142,038,878	88.06	%	$	22,058,366	87.42	%
Fixed rate	19,264,421		11.94	%	3,174,240		12.58	%
Total	$	161,303,299	100.00	%	$	25,232,606	100.00	%

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



	March 31, 2019				September 30, 2018
Cost:			% of Total Investments				% of Total Investments
United States	$	148,029,397	91.85	%	$	19,289,006	77.13	%
Iceland	3,922,864		2.44	%	—		—	%
Luxembourg	3,566,090		2.21	%	3,562,467		14.24	%
Canada	2,858,385		1.77	%	1,470,123		5.88	%
United Kingdom	1,712,681		1.06	%	688,283		2.75	%
France	852,966		0.53	%	—		—	%
Denmark	217,008		0.14	%	—		—	%
Total	$	161,159,391	100.00	%	$	25,009,879	100.00	%



	March 31, 2019						September 30, 2018
Fair Value:			% of Total Investments		% of Net Assets				% of Total Investments		% of Net Assets
United States	$	149,729,602	91.97	%	216.41	%	$	19,459,150	77.11	%	64.07	%
Iceland	4,000,000		2.46	%	5.78	%	—		—	%	—	%
Luxembourg	3,426,665		2.10	%	4.95	%	3,602,441		14.28	%	11.86	%
Canada	2,848,387		1.75	%	4.12	%	1,470,000		5.83	%	4.84	%
United Kingdom	1,712,575		1.05	%	2.48	%	701,015		2.78	%	2.31	%
France	870,188		0.53	%	1.26	%	—		—	%	—	%
Denmark	222,422		0.14	%	0.32	%	—		—	%	—	%
Total	$	162,809,839	100.00	%	235.32	%	$	25,232,606	100.00	%	83.08	%

OAKTREE STRATEGIC INCOME II, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The composition of the Company's portfolio by industry at cost as a percentage of total investments and at fair value as a percentage of total investments and net assets as of March 31, 2019 and September 30, 2018 was as follows:



	March 31, 2019				September 30, 2018
Cost:			% of Total Investments				% of Total Investments
Application software	$	26,934,838	16.72	%	$	1,382,025	5.53	%
Biotechnology	14,006,840		8.69	%	1,287,000		5.15	%
Internet services & infrastructure	10,985,584		6.82	%	252,625		1.01	%
Systems software	9,868,896		6.12	%	—		—	%
Interactive media & services	8,255,868		5.12	%	—		—	%
Oil & gas refining & marketing	7,920,000		4.91	%	—		—	%
IT consulting & other services	7,681,547		4.77	%	—		—	%
Diversified support services	6,986,814		4.34	%	1,970,000		7.88	%
Aerospace & defense	6,959,348		4.32	%	1,484,303		5.93	%
Pharmaceuticals	5,513,222		3.42	%	4,362,090		17.44	%
Research & consulting services	5,000,000		3.10	%	—		—	%
Healthcare equipment	4,950,000		3.07	%	—		—	%
Cable & satellite	4,824,076		2.99	%	—		—	%
Building products	4,765,808		2.96	%	—		—	%
Integrated telecommunication services	4,155,029		2.58	%	700,377		2.80	%
Managed healthcare	3,961,629		2.46	%	3,970,329		15.88	%
Insurance brokers	3,917,142		2.43	%	—		—	%
Healthcare technology	3,379,942		2.10	%	1,488,750		5.95	%
Trading companies & distributors	3,009,307		1.87	%	—		—	%
Financial exchanges & data	2,468,319		1.53	%	—		—	%
Publishing	1,970,100		1.22	%	1,980,000		7.92	%
Oil & gas drilling	1,932,191		1.20	%	—		—	%
Household products	1,898,114		1.18	%	—		—	%
Metal & glass containers	1,481,955		0.92	%	1,488,884		5.95	%
Industrial machinery	1,437,863		0.89	%	1,485,091		5.93	%
Healthcare services	1,071,020		0.66	%	—		—	%
Construction & engineering	1,022,903		0.63	%	—		—	%
Healthcare distributors	1,016,794		0.63	%	—		—	%
Auto parts & equipment	1,000,000		0.62	%	1,000,000		4.00	%
Food retail	960,271		0.60	%	1,470,123		5.88	%
Oil & gas equipment & services	852,966		0.53	%	—		—	%
Oil & gas exploration & production	689,779		0.43	%	688,282		2.75	%
Specialized finance	281,226		0.17	%	—		—	%
Total	$	161,159,391	100.00	%	$	25,009,879	100.00	%

OAKTREE STRATEGIC INCOME II, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



	March 31, 2019						September 30, 2018
Fair Value:			% of Total Investments		% of Net Assets				% of Total Investments		% of Net Assets
Application software	$	27,035,953	16.61	%	39.05	%	$	1,381,764	5.48	%	4.55	%
Biotechnology	15,298,333		9.40	%	22.11	%	1,295,938		5.14	%	4.27	%
Internet services & infrastructure	10,959,178		6.73	%	15.84	%	260,015		1.03	%	0.86	%
Systems software	9,870,029		6.06	%	14.27	%	—		—	%	—	%
Interactive media & services	8,282,818		5.09	%	11.97	%	—		—	%	—	%
Oil & gas refining & marketing	8,000,000		4.91	%	11.56	%	—		—	%	—	%
IT consulting & other services	7,677,520		4.72	%	11.10	%	—		—	%	—	%
Diversified support services	6,975,336		4.28	%	10.08	%	2,007,500		7.96	%	6.61	%
Aerospace & defense	6,972,237		4.28	%	10.08	%	1,474,390		5.84	%	4.85	%
Pharmaceuticals	5,390,947		3.31	%	7.79	%	4,389,231		17.40	%	14.45	%
Research & consulting services	5,121,875		3.15	%	7.40	%	—		—	%	—	%
Healthcare equipment	5,015,625		3.08	%	7.25	%	—		—	%	—	%
Building products	4,863,434		2.99	%	7.03	%	—		—	%	—	%
Cable & satellite	4,814,356		2.96	%	6.96	%	—		—	%	—	%
Integrated telecommunication services	4,182,758		2.57	%	6.05	%	713,210		2.83	%	2.35	%
Managed healthcare	3,993,731		2.46	%	5.77	%	3,992,500		15.82	%	13.15	%
Insurance brokers	3,865,683		2.37	%	5.59	%	—		—	%	—	%
Healthcare technology	3,382,427		2.08	%	4.89	%	1,515,315		6.01	%	4.99	%
Trading companies & distributors	2,999,734		1.84	%	4.34	%	—		—	%	—	%
Financial exchanges & data	2,461,520		1.51	%	3.56	%	—		—	%	—	%
Publishing	1,992,488		1.22	%	2.88	%	2,022,500		8.02	%	6.66	%
Oil & gas drilling	1,960,000		1.20	%	2.83	%	—		—	%	—	%
Household products	1,873,340		1.15	%	2.71	%	—		—	%	—	%
Metal & glass containers	1,487,820		0.91	%	2.15	%	1,514,018		6.00	%	4.98	%
Industrial machinery	1,421,817		0.87	%	2.06	%	1,492,500		5.91	%	4.91	%
Healthcare distributors	1,086,250		0.67	%	1.57	%	—		—	%	—	%
Healthcare services	1,032,465		0.63	%	1.49	%	—		—	%	—	%
Construction & engineering	1,007,500		0.62	%	1.46	%	—		—	%	—	%
Food retail	975,047		0.60	%	1.41	%	1,470,000		5.83	%	4.84	%
Auto parts & equipment	953,130		0.59	%	1.38	%	1,002,710		3.97	%	3.30	%
Oil & gas equipment & services	870,188		0.54	%	1.26	%	—		—	%	—	%
Oil & gas exploration & production	705,075		0.43	%	1.02	%	701,015		2.78	%	2.31	%
Specialized finance	281,225		0.17	%	0.41	%	—		—	%	—	%
Total	$	162,809,839	100.00	%	235.32	%	$	25,232,606	100.00	%	83.08	%

OAKTREE STRATEGIC INCOME II, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Fair Value Measurements

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



	Level 1		Level 2		Level 3		Total
Senior secured debt	$	—	$	110,177,635	$	40,983,118	$	151,160,753
Subordinated debt	—		8,537,689		1,604,857		10,142,546
Common equity & warrants	—		—		1,506,540		1,506,540
Total investments at fair value	—		118,715,324		44,094,515		162,809,839
Derivative asset	—		9,240		—		9,240
Total assets at fair value	$	—	$	118,724,564	$	44,094,515	$	162,819,079

The following table presents the financial instruments carried at fair value as of September 30, 2018 on the Company's Consolidated Statements of Assets and Liabilities for each of the three levels of hierarchy established by ASC 820:



	Level 1		Level 2		Level 3		Total
Senior secured debt	$	—	$	10,403,164	$	11,655,202	$	22,058,366
Subordinated debt	—		1,674,240		1,500,000		3,174,240
Total investments at fair value	$	—	$	12,077,404	$	13,155,202	$	25,232,606

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

The principal value of the Company's credit facility approximates fair value due to its variable rate and is included in Level 3 of the hierarchy.

The following table provides a roll-forward of the changes in fair value from December 31, 2018 to March 31, 2019 , for all investments for which the Company determined fair value using unobservable (Level 3) factors:



	Three months ended March 31, 2019

	Senior Secured Debt			Subordinated Debt			Common Equity & Warrants		Total
Fair value as of December 31, 2018	$	26,757,663		$	1,560,000		$	530,489	$	28,848,152
New investments	13,500,508			—			—		13,500,508
Redemptions/repayments/sales	(649,083		)	(4,691		)	—		(653,774		)
Transfers in (a)	2,825,724			—			—		2,825,724
Transfers out (a)	(1,972,556		)	—			—		(1,972,556		)
Capitalized PIK interest income	26,686			—			—		26,686
Accretion of OID	75,228			43,837			—		119,065
Net unrealized appreciation (depreciation)	418,948			5,711			976,051		1,400,710
Fair value as of March 31, 2019	$	40,983,118		$	1,604,857		$	1,506,540	$	44,094,515
Net unrealized appreciation (depreciation) relating to Level 3 assets and liabilities still held at March 31, 2019 and reported within net unrealized appreciation (depreciation) in the Consolidated Statement of Operations for the three months ended March 31, 2019	$	418,948		$	5,711		$	976,051	$	1,400,710

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

OAKTREE STRATEGIC INCOME II, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The following table provides a roll-forward of the changes in fair value from September 30, 2018 to March 31, 2019 , for all investments for which the Company determined fair value using unobservable (Level 3) factors:



	Six months ended March 31, 2019

	Senior Secured Debt			Subordinated Debt			Common Equity & Warrants		Total
Fair value as of September 30, 2018	$	11,655,202		$	1,500,000		$	—	$	13,155,202
New investments	27,155,069			—			642,713		27,797,782
Redemptions/repayments/sales	(664,832		)	(4,691		)	—		(669,523		)
Transfers in (a)	4,403,249			—			—		4,403,249
Transfers out (a)	(2,022,500		)	—			—		(2,022,500		)
Capitalized PIK interest income	65,740			—			—		65,740
Accretion of OID	105,759			99,404			—		205,163
Net unrealized appreciation (depreciation)	285,431			10,144			863,827		1,159,402
Fair value as of March 31, 2019	$	40,983,118		$	1,604,857		$	1,506,540	$	44,094,515
Net unrealized appreciation (depreciation) relating to Level 3 assets and liabilities still held at March 31, 2019 and reported within net unrealized appreciation (depreciation) in the Consolidated Statement of Operations for the six months ended March 31, 2019	$	285,431		$	10,144		$	863,827	$	1,159,402

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

Significant Unobservable Inputs for Level 3 Investments

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

Asset

Fair Value

Valuation Technique

Unobservable Input

Range

Weighted

Average (a)

Senior secured debt

25,319,249

Market yield technique

Market yield

(b)

9.0%

23.0%

12.6%

10,241,807

Broker quotations

Broker quoted price

(c)

N/A

5,422,062

Transaction precedent technique

Transaction price

(d)

N/A

Subordinated debt

1,604,857

Market yield technique

Market yield

(b)

13.0%

15.0%

14.0%

Common equity & warrants

1,506,540

Market approach (comparable companies)

Earnings multiple

(e)

7.0x

9.0x

8.0x

Total

44,094,515

_____________________

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

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

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

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

OAKTREE STRATEGIC INCOME II, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(e) Used when market participant would use such multiples when pricing the investment.

The following table provides quantitative information related to the significant unobservable inputs for Level 3 investments, which are carried at fair value as of September 30, 2018:

Asset

Fair Value

Valuation Technique

Unobservable Input

Range

Weighted

Average (a)

Senior secured debt

4,810,938

Broker quotations

Broker quoted price

(b)

N/A

6,844,264

Transaction precedent technique

Transaction price

(c)

N/A

Subordinated debt

1,500,000

Market yield technique

Market yield

(d)

14.0%

16.0%

15.0%

Total

13,155,202

_____________________

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

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

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

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

Under the market approach (comparable companies), the significant unobservable input used in the fair value measurement of the Company's investments is the earnings multiples derived from comparable businesses. Increases or decreases in the earnings multiple in isolation may result in a higher or lower fair value measurement, respectively.

Note 4. Fee Income

For the three and six months ended March 31, 2019 , the Company recorded total fee income of $9,114 and $264,678 , respectively, of which $9,114 and $20,177, respectively, was recurring in nature.

Note 5. Share Data and Distributions

Earnings per Share

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



	Three months ended March 31, 2019		Six months ended March 31, 2019
Earnings (loss) per common share — basic and diluted:
Net increase (decrease) in net assets resulting from operations	$	2,791,502	$	2,112,409
Weighted average common shares outstanding	3,391,900		3,033,543
Earnings (loss) per common share — basic and diluted	$	0.82	$	0.70

OAKTREE STRATEGIC INCOME II, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Changes in Net Assets

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



	Common Stock
	Shares	Par Value		Additional Paid-in-Capital		Accumulated Distributable Earnings (Loss)			Total Net Assets
Balance at September 30, 2018	1,541,738	$	1,542	$	30,833,227	$	(462,452	)	$	30,372,317
Net investment income	—	—		—		274,523			274,523
Net unrealized appreciation (depreciation)	—	—		—		(963,085		)	(963,085		)
Net realized gains (losses)	—	—		—		9,469			9,469
Issuance of common stock	1,850,162	1,850		36,700,180		—			36,702,030
Balance at December 31, 2018	3,391,900	3,392		67,533,407		(1,141,545		)	66,395,254
Net investment income	—	—		—		296,143			296,143
Net unrealized appreciation (depreciation)	—	—		—		2,412,574			2,412,574
Net realized gains (losses)	—	—		—		82,785			82,785
Balance at March 31, 2019	3,391,900	$	3,392	$	67,533,407	$	1,649,957		$	69,186,756

Capital Activity

Through March 31, 2019 , the Company received $337,683,996 in Capital Commitments from investors in connection with Private Offerings, of which $3,854,346 in Capital Commitments were made by one or more affiliates of the Adviser. As of March 31, 2019 , the Company completed drawdowns of $67,536,799 , or 20.0% , of such Capital Commitments.

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



	Shares Issued	Price per Share		Proceeds
August 6, 2018 (1)	770,869	$	20.00	$	15,417,385
September 17, 2018	770,869	20.00		15,417,384
October 29, 2018	1,060,964	19.85		21,060,130
November 15, 2018	789,198	19.82		15,641,900
Total	3,391,900			$	67,536,799

__________________


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

Distributions

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

realized capital gains for investment. There were no distributions paid during the six months ended March 31, 2019 .

Note 6. Borrowings

On October 16, 2018, the Company entered into a revolving credit agreement (the “Credit Agreement”) between the Company, as borrower, and City National Bank (“CNB”), as lender. The Credit Agreement provides for a senior secured revolving credit facility (the “Credit Facility”) of up to $100 million (the “Maximum Commitment”) in aggregate principal amount, subject to (i) the lesser of a percentage of unfunded commitments from certain classes of eligible investors in the Company and (ii) the

OAKTREE STRATEGIC INCOME II, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Maximum Commitment. The maturity date of the Credit Facility is October 15, 2020. Borrowings under the Credit Facility bear interest at a rate equal to (a) the LIBOR for the selected period plus 1.65% for LIBOR loans or (b) the prime rate of CNB minus 0.25% for prime rate loans. There is a non-usage fee of 25 basis points per year on the unused portion of the Credit Facility, payable quarterly.

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

As of March 31, 2019 , the Company had $76.0 million outstanding under the Credit Facility. The Company’s borrowings under the Credit Facility bore interest at a weighted average interest rate of 4.20% for the six months ended March 31, 2019 . For the three and six months ended March 31, 2019 , the Company recorded interest expense (including financing costs) of $453,272 and $587,155 , respectively, related to the Credit Facility.

Note 7. Taxable/Distributable Income and Dividend Distributions

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

Listed below is a reconciliation of net decrease in net assets resulting from operations to taxable income for the three and six months ended March 31, 2019 :



	Three months ended March 31, 2019			Six months ended March 31, 2019
Net increase (decrease) in net assets resulting from operations	$	2,791,502		$	2,112,409
Net unrealized (appreciation) depreciation	(2,412,574		)	(1,449,489		)
Book/tax difference due to organizational and deferred offering costs	187,212			404,090
Book/tax differences due to capital gains incentive fee	350,369			308,348
Other book/tax differences	—			9,357
Taxable income (1)	$	916,509		$	1,384,715

__________________


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

As of September 30, 2018, the Company's tax year end, the components of accumulated undistributed losses on a tax basis were as follows:



Undistributed ordinary loss, net	$	(189,507	)
Net realized capital losses	—
Unrealized losses, net	$	(272,945	)

As a RIC, the Company is also subject to a U.S. federal excise tax based on distribution requirements of its taxable income on a calendar year basis. The Company anticipates timely distribution of its taxable income in accordance with tax rules. The Company expects to incur a U.S. federal excise tax of $9,357 for calendar year 2018, which has been recognized on the Company's Consolidated Statement of Operations for the six months ended March 31, 2019 .

The aggregate cost of investments for income tax purposes was $25,492,928 as of September 30, 2018. As of September 30, 2018, the aggregate gross unrealized appreciation for all investments in which there was an excess of value over cost for income tax purposes was $233,353. As of September 30, 2018, the aggregate gross unrealized depreciation for all investments in which there was an excess of cost for income tax purposes over value was $506,298. As of September 30, 2018, net unrealized depreciation based on the aggregate cost of investments for income tax purposes was $272,945.

OAKTREE STRATEGIC INCOME II, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 8. Concentration of Credit Risks

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

Note 9. Related Party Transactions

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

Management Fee

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

For purposes of calculating the Management Fee, the Gross Asset Value is determined by the Company’s board of directors (including any committee thereof). Until (a) the 12-month anniversary of the Initial Closing (as defined below) or (b) the completion of a Qualified Listing, whichever occurs first, the Management Fee for each quarter is calculated based on the Company’s average Gross Asset Value at the end of each month during such calendar quarter (prior to taking into account any Incentive Fee); provided, that the Management Fee for the Company’s first calendar quarter is calculated based on the Company’s Gross Asset Value at the end of such calendar quarter (prior to taking into account any Incentive Fee). Following (a) the 12-month anniversary of the Initial Closing or (b) the completion of a Qualified Listing, whichever occurs first, the Management Fee for each quarter will be calculated based on the Company’s average Gross Asset Value at the end of such quarter and at the end of the preceding quarter (in each case, prior to taking into account any Incentive Fee); provided, that the Management Fee for the calendar quarter in which the Company consummates a Qualified Listing will be calculated based on the Company’s Gross Asset Value at the end of such calendar quarter (prior to taking into account any Incentive Fee). For the three and six months ended March 31, 2019 , base management fees were $332,290 and $453,219 , respectively.

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

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

Incentive Fee

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

Investment Income Incentive Fee

The Investment Income Incentive Fee is calculated and payable quarterly in arrears based on the Company’s Pre-Incentive Fee Net Investment Income, which means consolidated interest income, dividend income and any other income (including any other fees (other than fees for providing managerial assistance), such as commitment, origination, structuring, diligence and consulting fees or other fees that the Company receives from portfolio companies) accrued during the calendar quarter, minus the operating expenses accrued for the quarter (including the Management Fee, Company expenses and any interest expense or fees on any credit facilities or

OAKTREE STRATEGIC INCOME II, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

outstanding debt, but excluding the Incentive Fee). The Pre-Incentive Fee Net Investment Income includes, in the case of investments with a deferred interest feature (such as OID, debt instruments with PIK interest and zero coupon securities), accrued income that has not yet been received in cash. For the avoidance of doubt, the Pre-Incentive Fee Net Investment Income does not include any realized capital gains, realized capital losses or unrealized capital appreciation or depreciation. The Pre-Incentive Fee Net Investment Income, expressed as a rate of return on the value of the Company’s net assets at the end of the immediately preceding calendar quarter, is compared to a hurdle of 1.50% per quarter (6% annualized) (the “Hurdle Rate”). The Company pays the Adviser an Investment Income Incentive Fee each quarter as follows:


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

(b)

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


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

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

Capital Gains Incentive Fee

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

Although the Capital Gains Incentive Fee due to the Adviser will not be payable until it is contractually due based on the Investment Advisory Agreement, the Company will accrue this component at the end of each reporting period based on the Company’s realized capital gains, if any, on a cumulative basis from the date of the Initial Closing through the end of each reporting period, computed net of all realized capital losses on a cumulative basis and unrealized capital depreciation, less the aggregate amount of any previously paid Capital Gains Incentive Fee, as contractually included in the calculation of the Capital Gains Incentive Fee, plus the cumulative amount of unrealized capital appreciation. If such amount is positive at the end of a period, then the Company will accrue an incentive fee equal to 20% of such amount. If such amount is negative, then there will be no accrual for such period or an appropriate reduction in any amount previously accrued. U.S. GAAP requires that the Capital Gains Incentive Fee accrual consider cumulative unrealized capital appreciation in the calculation, as a Capital Gains Incentive Fee would be payable if such unrealized capital appreciation were realized. There can be no assurance that such unrealized capital appreciation will be realized in the future. For the three months ended March 31, 2019 , the Company accrued $ 350,369 of Capital Gains Incentive Fee, and for the six months ended March 31, 2019 , the Company accrued $ 308,348 of Capital Gains Incentive Fee. As of March 31, 2019 , there was $350,369 of Capital Gains Incentive Fee accrued on a cumulative basis.

As of March 31, 2019 , the Company had a liability on its Consolidated Statements of Assets and Liabilities in the amount of $682,662 reflecting the unpaid portion of the base management fee and incentive fee payable to the Adviser. As of September 30, 2018, the Company had a liability on its Consolidated Statements of Assets and Liabilities in the amount of $81,747 reflecting the unpaid portion of the base management fee and incentive fee payable to the Adviser.

OAKTREE STRATEGIC INCOME II, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Administration Agreement

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

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

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

For the three and six months ended March 31, 2019 , the Company incurred $160,397 and $378,005, respectively, of expenses under the Administration Agreement. As of March 31, 2019 , $492,017 was included in “Due to affiliates” in the Consolidated Statements of Assets and Liabilities, reflecting the unpaid portion of administrative expenses and other reimbursable expenses. As of September 30, 2018, $1,114,484 was included in “Due to affiliates” in the Consolidated Statements of Assets and Liabilities, reflecting the unpaid portion of administrative expenses and other reimbursable expenses, including deferred offering costs, payable to the Administrator.

Placement Agent Agreement

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

OAKTREE STRATEGIC INCOME II, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 10. Financial Highlights



	Three months ended March 31, 2019			Six months ended March 31, 2019
Net asset value at beginning of period	$	19.57		$	19.70
Net investment income (1)	0.09			0.19
Net realized gains (losses) (1)	0.02			0.03
Net unrealized appreciation (depreciation) (2)	0.72			0.39
Effect of offering price of drawdowns (3)	—			0.09
Net asset value at end of period	$	20.40		$	20.40
Total return (4)	4.24		%	3.55		%
Common stock outstanding at beginning of period	3,391,900			1,541,738
Common stock outstanding at end of period	3,391,900			3,391,900
Net assets at beginning of period	$	66,395,254		$	30,372,317
Net assets at end of period	$	69,186,756		$	69,186,756
Average net assets (5)	$	67,791,005		$	60,145,845
Ratio of net investment income to average net assets (6)	0.44		%	0.95		%
Ratio of total expenses to average net assets (6)	2.81		%	4.65		%
Ratio of portfolio turnover to average investments at fair value (6)	3.44		%	6.55		%
Weighted average outstanding debt	$	33,322,222		$	17,802,198
Average debt per share (1)	$	9.82		$	5.87
Asset coverage ratio (7)	191.04		%	191.04		%



(1)	Calculated based upon weighted average shares outstanding for the period.
(2)	The amount shown does not correspond with the net unrealized appreciation (depreciation) for the period as it includes the effect of the timing of equity issuances.
(3)	Increase is due to drawdowns during the period that were executed at an offering price at a premium to net asset value in order to effect a reallocation of organizational costs to subsequent investors.
(4)	Total return is calculated as the change in net asset value (“NAV”) per share during the period, plus distributions per share or capital activity, if any, divided by the beginning NAV per share and has not been annualized.
(5)	Calculated based upon the weighted average net assets for the period.
(6)	Financial results for the three and six months ended March 31, 2019 have not been annualized for purposes of this ratio.
(7)	Based on outstanding senior securities of $76.0 million as of March 31, 2019.

OAKTREE STRATEGIC INCOME II, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 11. Commitments and Contingencies

Off-Balance Sheet Arrangements

The Company may be a party to financial instruments with off-balance sheet risk in the normal course of business to meet the financial needs of its portfolio companies. As of March 31, 2019 , off-balance sheet arrangements consisted of $9,524,546 of unfunded commitments to provide debt financing. As of September 30, 2018, off-balance sheet arrangements consisted of $88,235 of unfunded commitments to provide debt financing. Such commitments are subject to the portfolio companies' satisfaction of certain financial and nonfinancial covenants and may involve, to varying degrees, elements of credit risk in excess of the amount recognized in the Consolidated Statements of Assets and Liabilities.



	March 31, 2019		September 30, 2018
Assembled Brands Capital LLC	$	4,212,868	$	—
Sorrento Therapeutics, Inc.	4,000,000		—
Mindbody, Inc.	761,905		—
Apptio, Inc.	461,538		—
iCIMs, Inc.	88,235		88,235
	$	9,524,546	$	88,235

Note 12. Derivative Instruments

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

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



Description	Notional Amount to be Purchased		Notional Amount to be Sold		Maturity Date	Gross Amount of Recognized Assets		Gross Amount of Recognized Liabilities		Balance Sheet Location of Net Amounts
Foreign currency forward contract	$	2,819,767	€	2,475,000	8/15/2019	$	9,240	$	—	Derivative asset

Note 13. Subsequent Events

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

Capital Drawdown

On April 29, 2019, the Company issued 1,655,314 shares of Common Stock for an aggregate offering price of approximately $33.8 million pursuant to the Subscription Agreement and a capital drawdown notice delivered by the Company to its investors dated April 18, 2019.

Credit Facility

On April 18, 2019, the Company increased the Maximum Commitment under the Credit Facility from $100 million to $120 million.

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

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

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


•	our future operating results and distribution projections;


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


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


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


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


•	our expected financings and investments;


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


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

In addition, words such as “anticipate,” “believe,” “expect,” “seek,” “plan,” “should,” “estimate,” “project” and “intend” indicate forward-looking statements, although not all forward-looking statements include these words. The forward-looking statements contained in this quarterly report on Form 10-Q involve risks and uncertainties. Our actual results could differ materially from those implied or expressed in the forward-looking statements for any reason, including the factors set forth in “Item 1A. Risk Factors” in our annual report on Form 10-K for the year ended September 30, 2018 and elsewhere in this quarterly report on Form 10-Q.

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


•	changes in the economy, financial markets and political environment;


•	risks associated with possible disruption in our operations or the economy generally due to terrorism or natural disasters;


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


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

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

Business Overview

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

We were formed on April 30, 2018 as a Delaware corporation and are externally managed by our Adviser. Our investment objective is to generate current income and long-term capital appreciation. We seek to achieve our investment objective without subjecting principal to undue risk of loss by investing primarily in situations where a company or its owners (a) are overleveraged or facing pressures to recapitalize, (b) are unable to access broadly syndicated capital markets, (c) are undervalued after having recently exited bankruptcy or completed a restructuring or (d) are otherwise affected by mispricings or inefficiencies in the capital markets or at different points throughout the credit cycle. We seek to generate revenues primarily in the form of interest income from the investments we hold.

We conduct Private Offerings of shares of our Common Stock to investors in reliance on exemptions from the registration requirements of the Securities Act. At each Closing of a Private Offering, each investor participating in that closing makes a Capital Commitment to purchase our Common Stock pursuant to a Subscription Agreement entered into with us in connection with its Capital Commitment. Investors are required to fund drawdowns to purchase our Common Stock up to the amount of their respective Capital Commitments on an as-needed basis. The Initial Closing occurred on August 6, 2018. Loan origination and investment activities commenced shortly after the Initial Closing. As of March 31, 2019 , we received $337,683,996 in Capital Commitments from investors in connection with Private Offerings.

We commenced our loan origination and investment activities shortly after the Initial Closing. The proceeds from the Initial Closing provided us with the necessary seed capital to commence operations. As of March 31, 2019 , we completed drawdowns of

$67,536,799 , or 20%, on Capital Commitments. As of March 31, 2019 , we held $162,809,839 of investments at fair value, up from $25,232,606 held at September 30, 2018.

Business Environment and Developments

We believe that the shift of commercial banks away from lending to middle-market companies following the 2008 financial crisis, including as a result of the passage of the Dodd-Frank Wall Street Reform and Consumer Protection Act, and the adoption of the Basel III Accord continues to create opportunities for non-bank lenders such as us. We believe middle-market companies represent a significant opportunity for direct lending as there are nearly 200,000 middle-market businesses, representing one-third of private sector gross domestic product and accounting for approximately 48 million jobs according to the National Center for the Middle Market. In addition, according to the S&P Global Market Intelligence LCD Middle Market Review, there was a total of $10.7 billion of syndicated middle market loan issuance in calendar year 2018.

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

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

Brookfield Transaction

On March 13, 2019, Oaktree Capital Group, LLC, a Delaware limited liability company (together with its affiliates, "OCG"), the parent company of our current investment adviser, entered into an Agreement and Plan of Merger, or the Merger Agreement, with Brookfield Asset Management Inc., a corporation incorporated under the laws of the Province of Ontario, or Brookfield, Berlin Merger Sub, LLC, a Delaware limited liability company and wholly-owned subsidiary of Brookfield, or Merger Sub, Oslo Holdings LLC, a Delaware limited liability company and wholly-owned subsidiary of Oaktree Capital Group Holdings, L.P., or SellerCo, and Oslo Holdings Merger Sub LLC, a Delaware limited liability company and wholly-owned subsidiary of OCG, or Seller MergerCo, pursuant to which, among other things and subject to the satisfaction of closing conditions contained in the Merger Agreement, (i) Merger Sub will merge with and into OCG with OCG continuing as the surviving entity and (ii) immediately following the Merger, SellerCo will merge with and into Seller MergerCo, with Seller MergerCo continuing as the surviving entity. Such transactions are collectively referred to as the “Brookfield Transaction.” As a result of the Brookfield Transaction, Brookfield would indirectly own a majority economic interest in OCG’s business. Upon consummation of the Brookfield Transaction, Brookfield and OCG will continue to operate their respective businesses independently, with each remaining under its current brand and led by its existing management and investment teams. As a result, our management team is expected to continue to operate in the same professional capacity for us following completion of the Brookfield Transaction. The Brookfield Transaction is subject to various closing conditions, and there is no assurance the Brookfield Transaction will be completed.

If the Brookfield Transaction is consummated, OCG’s current management will maintain actual control of the management of OCG for an initial period of up to seven years following the closing of the Brookfield Transaction (or less if certain other conditions are triggered). Following the conclusion of this initial period, Brookfield will have the right to assume control of OCG. Our Adviser has informed our Board of Directors that it does not believe the consummation of the Brookfield Transaction would be deemed an ‘‘assignment’’ of the Investment Advisory Agreement under the Investment Company Act, although such a determination is inherently uncertain. In accordance with the Investment Company Act, however, the Investment Advisory Agreement automatically terminates upon its assignment. To prevent any potential disruption in our Adviser’s ability to provide services to us once an assignment is deemed to occur, whether as a result of the consummation of the Brookfield Transaction or as a result of Brookfield exercising actual control over OCG, we intend to file a preliminary proxy statement and to convene a special meeting seeking stockholder approval of a new investment advisory agreement between us and our Adviser, which agreement was approved by our Board of Directors on May 9, 2019. All material terms will remain unchanged from the Investment Advisory Agreement in effect as of May 9, 2019. The consummation of the Brookfield Transaction is currently expected to occur in the third quarter of 2019 and is subject to customary closing conditions, including receipt of approval for the transaction from OCG’s stockholders, as well as the receipt of required regulatory approvals.

Critical Accounting Policies

Basis of Presentation

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

Investment Valuation

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

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


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

•

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

•

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

period to period for reasonableness, considering items such as industry trends, general economic and market conditions, and factors specific to the investment.

Certain Level III assets are valued using prices obtained from pricing vendors or brokers. These investments are classified as Level III because the quoted prices may be indicative in nature for securities that are in an inactive market, may be for similar securities or may require adjustment for investment-specific factors or restrictions. We will seek to obtain at least two quotations for the subject or similar securities, typically from pricing vendors. If we are unable to obtain two quotes from pricing vendors, or if the prices obtained from pricing vendors are not within our set threshold, we will seek to obtain a quote directly from a broker making a market for the asset. However, given the anticipated nature of our portfolio, we do not expect that all of our Level III assets will be valued at least annually using prices obtained from pricing vendors or brokers. Generally, we do not adjust any of the prices received from these sources, and all prices are reviewed by us. We evaluate the prices obtained from pricing vendors or brokers based on available market information, including trading activity of the subject or similar securities, or by performing a comparable security analysis to ensure that fair values are reasonably estimated. The Adviser also performs back-testing of valuation information obtained from pricing vendors and brokers against actual prices received in transactions. In addition to ongoing monitoring and back-testing, the Adviser performs due diligence procedures over pricing vendors to understand their methodology and controls to support their use in the valuation process.

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

Exchange-Traded Investments

Non-Exchange-Traded Investments

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

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

Revenue Recognition

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

Interest Income

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

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

Fee Income

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

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

PIK Interest Income

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

result, increases the cost bases of these investments for purposes of computing the capital gains incentive fee payable by us to the Adviser. To maintain our status as a RIC, income from PIK interest may be required to be distributed to our stockholders even though we have not yet collected the cash and may never do so.

Portfolio Composition

As of March 31, 2019 , the fair value of our investment portfolio was $162.8 million and was comprised of investments in 53 portfolio companies. As of September 30, 2018, the fair value of our investment portfolio was $25.2 million and was comprised of investments in 16 portfolio companies.

As of March 31, 2019 and September 30, 2018, our investment portfolio consisted of the following:



	March 31, 2019		September 30, 2018
Cost:
Senior secured debt	$	150,513,862	$	21,868,595
Subordinated debt	10,002,816		3,141,284
Common equity & warrants	642,713		—
Total	$	161,159,391	$	25,009,879



	March 31, 2019		September 30, 2018
Fair Value:
Senior secured debt	$	151,160,753	$	22,058,366
Subordinated debt	10,142,546		3,174,240
Common equity & warrants	1,506,540		—
Total	$	162,809,839	$	25,232,606

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



	March 31, 2019		September 30, 2018
Fair Value:
Application software	16.61	%	5.48	%
Biotechnology	9.40	%	5.14	%
Internet services & infrastructure	6.73	%	1.03	%
Systems software	6.06	%	—	%
Interactive media & services	5.09	%	—	%
Oil & gas refining & marketing	4.91	%	—	%
IT consulting & other services	4.72	%	—	%
Diversified support services	4.28	%	7.96	%
Aerospace & defense	4.28	%	5.84	%
Pharmaceuticals	3.31	%	17.40	%
Research & consulting services	3.15	%	—	%
Healthcare equipment	3.08	%	—	%
Building products	2.99	%	—	%
Cable & satellite	2.96	%	—	%
Integrated telecommunication services	2.57	%	2.83	%
Managed healthcare	2.46	%	15.82	%
Insurance brokers	2.37	%	—	%
Healthcare technology	2.08	%	6.01	%
Trading companies & distributors	1.84	%	—	%
Financial exchanges & data	1.51	%	—	%
Publishing	1.22	%	8.02	%
Oil & gas drilling	1.20	%	—	%
Household products	1.15	%	—	%
Metal & glass containers	0.91	%	6.00	%
Industrial machinery	0.87	%	5.91	%
Healthcare distributors	0.67	%	—	%
Healthcare services	0.63	%	—	%
Construction & engineering	0.62	%	—	%
Food retail	0.60	%	5.83	%
Auto parts & equipment	0.59	%	3.97	%
Oil & gas equipment & services	0.54	%	—	%
Oil & gas exploration & production	0.43	%	2.78	%
Specialized finance	0.17	%	—	%
Total	100.00	%	100.00	%

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



	March 31, 2019		September 30, 2018
Fair Value:
United States	91.97	%	77.11	%
Iceland	2.46	%	—	%
Luxembourg	2.10	%	14.28	%
Canada	1.75	%	5.83	%
United Kingdom	1.05	%	2.78	%
France	0.53	%	—	%
Denmark	0.14	%	—	%
Total	100.00	%	100.00	%

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

Discussion and Analysis of Results and Operations

Results of Operations

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

For the Three and Six Months Ended March 31, 2019

Investment Income

Total investment income for the three months ended March 31, 2019 was $2,199,688 and consisted of $2,190,574 of interest income primarily from portfolio investments and $ 9,114 of fee income. Total investment income for the six months ended March 31, 2019 was $3,365,906 and consisted of $3,101,228 of interest income primarily from portfolio investments and $264,678 of fee income. Based on fair value as of March 31, 2019 , the weighted average yield on our debt investments was 7.6%.

Expenses

Total expenses for the three and six months ended March 31, 2019 were $1,903,545 and $2,785,883 , respectively. These amounts consisted of the following:



	Three months ended March 31, 2019		Six months ended March 31, 2019
Expenses:
Base management fee	$	332,290	$	453,219
Capital gains incentive fee	350,369		308,348
Offering costs	194,104		362,373
Organization expenses	710		56,921
Professional fees	190,929		383,769
Directors fees	26,250		52,500
Interest expense	453,272		587,155
Administrator expense	130,052		212,097
General and administrative expenses	225,569		369,501
Total expenses	$	1,903,545	$	2,785,883

Net Unrealized Appreciation (Depreciation)

Net unrealized appreciation on investments was $2,412,574 for the three months ended March 31, 2019 and was primarily driven by volatility experienced in the broadly syndicated loan market and unrealized appreciation from our investment in Sorrento Therapeutics, Inc. during the period.

Net unrealized appreciation on investments was $1,449,489 for the six months ended March 31, 2019 and was primarily driven by unrealized appreciation from our investment in Sorrento Therapeutics, Inc. during the period.

Financial Condition, Liquidity and Capital Resources

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

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

For the six months ended March 31, 2019 , we experienced a net decrease in cash and cash equivalents of $2,955,575 . During that period, $115,091,497 of cash was used in operating activities, primarily consisting of cash used to fund new investments. During the same period, cash provided by financing activities was $112,090,633 , primarily consisting of $36,742,030 of net proceeds from Private Offerings and $76,000,000 of borrowings under our credit facility.

As of March 31, 2019 , we had $7,175,693 of cash and cash equivalents, portfolio investments (at fair value) of $162,809,839 , $697,777 of interest receivable, $24,349,079 of net payables from unsettled transactions and unfunded commitments of $9,524,546 .

As of September 30, 2018, we had $ 10,131,268 of cash and cash equivalents, portfolio investments (at fair value) of $25,232,606 , $ 87,979 of interest receivable, $ 4,334,741 of net payables from unsettled transactions and unfunded commitments of $88,235 .

Equity Activity

Through March 31, 2019 , we received $337,683,996 in Capital Commitments from investors in connection with Private Offerings, of which $3,854,346 in Capital Commitments were made by one or more affiliates of the Adviser. As of March 31, 2019 , we completed drawdowns of $67,536,799 , or 20.0% , of such Capital Commitments.

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



	Shares Issued	Price per Share		Proceeds
August 6, 2018 (1)	770,869	$	20.00	$	15,417,385
September 17, 2018	770,869	20.00		15,417,384
October 29, 2018	1,060,964	19.85		21,060,130
November 15, 2018	789,198	19.82		15,641,900
Total	3,391,900			$	67,536,799

__________________


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

Leverage

On July 9, 2018, our sole stockholder approved our becoming subject to a minimum asset coverage ratio of 150% as set forth in Section 61(a)(2) of the Investment Company Act. As a result of this approval, we are permitted to borrow amounts so long as our asset coverage ratio, as defined in the Investment Company Act, is at least 150% after such borrowing (if certain requirements are met). As of March 31, 2019 , our asset coverage ratio, as defined in the Investment Company Act, was 191.0%, and aggregate outstanding principal amount of indebtedness was $76.0 million.

On October 16, 2018, we entered into the Credit Agreement between us, as borrower, and CNB, as lender. The Credit Agreement provides for the Credit Facility of up to $100 million, or the Maximum Commitment, in aggregate principal amount, subject to (i) the lesser of a percentage of unfunded commitments from certain classes of eligible investors in the Company and (ii) the Maximum

Commitment. The maturity date of the Credit Facility is October 15, 2020. Borrowings under the Credit Facility bear interest at a rate equal to (a) the LIBOR for the selected period plus 1.65% for LIBOR loans or (b) the prime rate of CNB minus 0.25% for prime rate loans. There is a non-usage fee of 25 basis points per year on the unused portion of the Credit Facility, payable quarterly.

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

As of March 31, 2019 , we had $76.0 million outstanding under the Credit Facility. Our borrowings under the Credit Facility bore interest at a weighted average interest rate of 4.20% for the six months ended March 31, 2019 . For the three and six months ended March 31, 2019 , we recorded interest expense of $453,272 and $587,155 , respectively, related to the Credit Facility.

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

Contractual Obligations



	Payments due by period as of March 31, 2019
	Total		< 1 year		1-3 years		3-5 years		> 5 years
Credit Facility	$	76,000,000	$	—	$	76,000,000	$	—	$	—
Interest due on Credit Facility	4,963,354		3,212,100		1,751,254		—		—
Total	$	80,963,354	$	3,212,100	$	77,751,254	$	—	$	—

Off-Balance Sheet Arrangements

We may be a party to financial instruments with off-balance sheet risk in the normal course of business to meet the financial needs of our portfolio companies. As of March 31, 2019 , off-balance sheet arrangements consisted of $9,524,546 of unfunded commitments to provide debt financing. As of September 30, 2018, off-balance sheet arrangements consisted of $88,235 of unfunded commitments to provide debt financing. Such commitments are subject to the portfolio companies' satisfaction of certain financial and nonfinancial covenants and may involve, to varying degrees, elements of credit risk in excess of the amount recognized in our Consolidated Statements of Assets and Liabilities.



	March 31, 2019		September 30, 2018
Assembled Brands Capital LLC	$	4,212,868	$	—
Sorrento Therapeutics, Inc.	4,000,000		—
Mindbody, Inc.	761,905		—
Apptio, Inc.	461,538		—
iCIMs, Inc.	88,235		88,235
	$	9,524,546	$	88,235

Regulated Investment Company Status and Distributions

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

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

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

During the six months ended March 31, 2019 , no dividends or distributions had been declared or paid by us.

Related Party Transactions

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

Recent Developments

Capital Drawdown

On April 29, 2019, we issued 1,655,314 shares of Common Stock for an aggregate offering price of approximately $33.8 million pursuant to the Subscription Agreement and a capital drawdown notice delivered by us to our investors dated April 18, 2019.

Credit Facility

On April 18, 2019, we increased the Maximum Commitment under the Credit Facility from $100 million to $120 million.

Item 3. Quantitative and Qualitative Disclosures about Market Risk

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

Valuation Risk

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

Interest Rate Risk

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

As of March 31, 2019 , 88.1% of our debt investment portfolio at fair value bore interest at floating rates and had interest rate floors between 0% and 1%.

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



Basis point increase	Interest income		Interest expense			Net increase (decrease)
300	$	4,328,354	$	(2,280,000	)	$	2,048,354
200	2,885,570		(1,520,000		)	1,365,570
100	1,442,785		(760,000		)	682,785



Basis point decrease (1)	Interest income			Interest expense		Net increase (decrease)
100	$	(1,414,713	)	$	760,000	$	(654,713	)
200	(2,486,551		)	1,520,000		(966,551		)

__________

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

We regularly measure exposure to interest rate risk. We assess interest rate risk and manage our interest rate exposure on an ongoing basis by comparing our interest rate sensitive assets to our interest rate sensitive liabilities. Based on this review, we determine whether or not any hedging transactions are necessary to mitigate exposure to changes in interest rates. The interest rate on the principal balance outstanding for all floating rate loans is indexed to the LIBOR and/or an alternate base rate (e.g., prime rate), which typically resets semi-annually, quarterly, or monthly at the borrower's option. The borrower may also elect to have multiple interest reset periods for each loan. The following table shows a comparison of the interest rate base for our interest-bearing cash and outstanding investments, at principal, and our outstanding borrowings as of March 31, 2019 and September 30, 2018:



	March 31, 2019				September 30, 2018
	Interest Bearing Cash and Investments		Borrowings		Interest Bearing Investments
Money market rate	$	7,175,693	$	—	$	—
LIBOR:
30 day	93,645,964		76,000,000		10,204,227
60 day	—		—		3,000,000
90 day	47,825,393		—		6,000,000
EURIBOR:
30 day	2,807,125		—		2,903,750
Fixed rate	19,819,309		—		4,096,000
Total	$	171,273,484	$	76,000,000	$	26,203,977

Item 4. Controls and Procedures

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

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

PART II — OTHER INFORMATION

Item 1. Legal Proceedings

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

Item 1A. Risk Factors

There have been no material changes during the three months ended March 31, 2019 to the risk factors discussed in Item 1A. Risk Factors in our Annual Report on Form 10-K for the year ended September 30, 2018.

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

We did not sell any securities during the period covered by this Form 10-Q that were not registered under the Securities Act.

Item 3. Defaults Upon Senior Securities

None.

Item 4. Mine Safety Disclosures

Not applicable.

Item 5. Other Information

None.

Item 6. Exhibits

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



Exhibit		Description
10.1		Amendment No.1 to Revolving Credit Agreement, dated as of April 18, 2019, by and between City National Bank, a national banking association and Oaktree Strategic Income II, Inc., a Delaware corporation, as borrower.*
31.1		Certification of Chief Executive Officer (Principal Executive Officer) Pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934, as amended.*
31.2		Certification of Chief Financial Officer (Principal Financial Officer) Pursuant to Rule 13a-14 of the Securities Exchange Act of 1934, as amended.*
32.1		Certification of Chief Executive Officer (Principal Executive Officer) Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.*
32.2		Certification of Chief Financial Officer (Principal Financial Officer) Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.*



*	Filed herewith.

SIGNATURES

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




OAKTREE STRATEGIC INCOME II, INC.

By:		/s/ Edgar Lee
		Edgar Lee
		Chairman, Chief Executive Officer and Chief Investment Officer

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

Date: May 14, 2019



OAKTREE STRATEGIC INCOME II, INC.

By:	/s/ Mary Gallegly
	Name: Mary Gallegly Title: Secretary



CITY NATIONAL BANK, a national banking association

By:	/s/ Brandon L. Feitelson
	Name: Brandon L. Feitelson, C.F.A. Title: Senior Vice President



17619262 014342-10187		SIGNATURE PAGE TO AMENDMENT NO. 1 TO REVOLVING CREDIT AGREEMENT