What changed in this filing

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Item 1. Business

2020-11-19 compared with 2019-11-20 · 112 added, 120 removed, 497 unchanged (32% of the section changed)

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federal income taxes on any net ordinary income or net realized capital gains that we distribute to our stockholders if we meet certain source-of-income, income distribution and asset diversification requirements.

As of October 17, 2017, we are externally managed by Oaktree Capital Management, L.P., which we also refer to as “Oaktree” or our “Adviser,” pursuant to an investment advisory agreement, as amended from time to time, or the Investment Advisory Agreement, between the Company and Oaktree.

Oaktree is a subsidiary of Oaktree Capital Group, LLC, or OCG.

We are externally managed by Oaktree Fund Advisors, LLC, which we also refer to as “Oaktree” or our “Adviser,” pursuant to an investment advisory agreement, as amended from time to time, or the Investment Advisory Agreement, between the Company and Oaktree.

Oaktree is an affiliate of Oaktree Capital Management, L.P., or OCM, the Company's external investment adviser from October 17, 2017 through May 3, 2020, and a subsidiary of Oaktree Capital Group, LLC, or OCG.

In 2019, Brookfield Asset Management Inc., which we refer to as "Brookfield," acquired a majority economic interest in OCG.

OCG operates as an independent business within Brookfield, with its own product offerings and investment, marketing and support teams.

Oaktree Fund Administration, LLC, which we refer to as “Oaktree Administrator,” a subsidiary of our Adviser, provides certain administrative and other services necessary for us to operate.

We seek to generate current income and capital appreciation by providing companies with flexible and innovative financing solutions, including first and second lien loans, unsecured and mezzanine loans, bonds, preferred equity and certain equity co-investments.

Oaktree Fund Administration, LLC, which we refer to as “Oaktree Administrator,” a subsidiary of OCM, provides certain administrative and other services necessary for us to operate.

Our investment objective is to generate current income and capital appreciation by providing companies with flexible and innovative financing solutions, including first and second lien loans, unsecured and mezzanine loans, bonds, preferred equity and certain equity co-investments.

We may also seek to generate capital appreciation and income through secondary investments at discounts to par in either private or syndicated transactions.

We invest in companies that typically possess business models we expect to be resilient in the future with underlying fundamentals that will provide strength in future downturns.

We intend to deploy capital across credit and economic cycles with a focus on long-term results, which we believe will enable us to build lasting partnerships with financial sponsors and management teams, and we may seek to opportunistically take advantage of dislocations in the financial markets and other situations that may benefit from our Adviser’s credit and structuring expertise.

We invest in companies that typically possess resilient business models with strong underlying fundamentals.

Sponsors may include financial sponsors, such as an institutional investor or a private equity firm, or a strategic entity seeking to invest in a portfolio company.

Our Adviser intends to continue to reposition our portfolio into investments that are better aligned with our Adviser's overall approach to credit investing and that it believes have the potential to generate attractive returns across market cycles.

Our Adviser is generally focused on middle-market companies, which we define as companies with enterprise values of between $100 million and $750 million.

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Our portfolio totaled $1.6 billion at fair value as of September 30, 2020 and was comprised of 113 portfolio companies.

These included debt investments in 79 companies, equity investments in 33 companies, including our limited partnership interests in two private equity funds, and our investment in Senior Loan Fund JV I, LLC, or the SLF JV I.

Nine of these equity investments were in companies in which we also had a debt investment.

These included debt investments in 88 companies, equity investments in 35 companies, including our limited partnership interests in two private equity funds, and our investment in Senior Loan Fund JV I, LLC, or the SLF JV I, a joint venture through which we and Trinity Universal Insurance Company, a subsidiary of Kemper Corporation, or Kemper, co-invest in senior secured loans of middle-market companies and other corporate debt securities.

Eleven of these equity investments were in companies in which we also had a debt investment.

At fair value, 94.3% of our portfolio consisted of debt investments and 84.1% of our portfolio consisted of senior secured loans as of September 30, 2020.

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The weighted average annual yield of our debt investments is determined before the payment of, and therefore does not take into account, our expenses and the payment by an investor of any stockholder transaction expenses, and does not represent the return on investment for our stockholders.

See “ —Investments—SLF JV I ” below for additional information regarding our investment in SLF JV I.

We are permitted to, and expect to continue to, finance our investments through borrowings.

However, as a Business Development Company, subject to certain limited exceptions, we are currently only allowed to borrow amounts in accordance with the asset coverage requirements in the Investment Company Act.

We generally expect to target a long-term debt to equity ratio of 0.70x to 0.85x (i.e., one dollar of equity for each $0.70 to $0.85 of debt outstanding).

As of September 30, 2019 , we

had a debt to equity ratio of 0.51x (i.e., one dollar of equity for each $0.51 of debt outstanding).

We generally expect to target a long-term debt to equity

ratio of 0.85x to 1.0x (i.e., one dollar of equity for each $0.85 to $1.00 of debt outstanding).

As of September 30, 2020, we had a debt to equity ratio of 0.78x (i.e., one dollar of equity for each $0.78 of debt outstanding).

At a special meeting of stockholders held on June 28, 2019, our stockholders approved the application of the reduced asset coverage requirements in Section 61(a)(2) of the Investment Company Act to us, effective as of June 29, 2019.

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As a result of the reduced asset coverage requirement, we can incur $2 of debt for each $1 of equity as compared to $1 of debt for each $1 of equity.

On October 28, 2020, we entered into an Agreement and Plan of Merger, or the Merger Agreement, with Oaktree Strategic Income Corporation, a Delaware corporation, or OCSI, Lion Merger Sub, Inc., a Delaware corporation and our wholly-owned subsidiary, or the Merger Sub, and, solely for the limited purposes set forth therein, Oaktree.

The Merger Agreement provides that, subject to the conditions set forth in the Merger Agreement, Merger Sub will merge with and into OCSI, with OCSI continuing as the surviving company and as our wholly-owned subsidiary, or the Merger, and, immediately thereafter, OCSI will merge with and into us, with us continuing as the surviving company, or together with the Merger, the Mergers.

Management’s Discussion and Analysis of Financial Condition and Results of Operations—Recent Developments—Merger Agreement” for further information regarding the Merger Agreement and the Mergers.

We are externally managed and advised by Oaktree, a registered investment adviser under the Investment Advisers Act of 1940, as amended, or the Advisers Act.

Oaktree, subject to the overall supervision of our Board of Directors, manages our day-to-day operations, and provides investment advisory services to us pursuant to the Investment Advisory Agreement.

Our Adviser is a leading global investment management firm headquartered in Los Angeles, California, focused on less efficient markets and alternative investments.

A number of our Adviser’s senior executives and investment professionals have been investing together for over 33 years and have generated impressive investment performance through multiple market cycles.

As of September 30, 2019 , our Adviser (together with its affiliates) had approximately $122 billion in assets under management 1 .

Our Adviser emphasizes an opportunistic, value-oriented and risk-controlled approach to investments in distressed debt, corporate debt (including high-yield debt and senior loans), control investing, real estate, convertible securities and listed equities.

Our Adviser is an affiliate of OCM, a leading global investment management firm headquartered in Los Angeles, California, focused on less efficient markets and alternative investments.

A number of the senior executives and investment professionals of our Adviser and its affiliates have been investing together for over 34 years and have generated impressive investment performance through multiple market cycles.

Our Adviser and its affiliates emphasize an opportunistic, value-oriented and risk-controlled approach to investments in distressed debt, corporate debt (including high-yield debt and senior loans), control investing, real estate, convertible securities and listed equities.

In 2019, Brookfield acquired a majority economic interest in OCG.

OCG operates as an independent business within Brookfield, with its own product offerings and investment, marketing and support teams.

Brookfield is a leading global alternative asset manager with a 120-year history and over $500 billion of assets under management (inclusive of Oaktree) across a broad portfolio of real estate, infrastructure, renewable power, credit and private equity assets.

Commencing in 2022, Oaktree's founders, senior management and current and former employee-unitholders of OCG will be able to sell their remaining OCG units to Brookfield over time pursuant to an agreed upon liquidity schedule and approach to valuing such units at the time of liquidation.

Brookfield is a leading global alternative asset manager with a 120-year history and approximately $550 billion of assets under management (inclusive of Oaktree) across a broad portfolio of real estate, infrastructure, renewable power, credit and private equity assets.

Commencing in 2022, OCG's founders, senior management and current and former employee-unitholders of OCG will be able to sell their remaining OCG units to Brookfield over time pursuant to an agreed upon liquidity schedule and approach to valuing such units at the time of liquidation.

Pursuant to this liquidity schedule, the earliest year in which Brookfield could own 100% of the OCG business is 2029.

Our Adviser’s primary firm-wide goal is to achieve attractive returns while bearing less than commensurate risk.

The primary firm-wide goal of our Adviser and OCM is to achieve attractive returns while bearing less than commensurate risk.

Our Adviser believes that it can achieve this goal by taking advantage of market inefficiencies in which financial markets and their participants fail to accurately value assets or fail to make available to companies the capital that they reasonably require.

Our Adviser believes that its defining characteristic is its adherence to the highest professional standards, which has yielded several important benefits.

First and foremost, this characteristic has allowed our Adviser to attract and retain an extremely talented group of investment professionals, or the Investment Professionals.

As of September 30, 2019, our Adviser had over 950 professionals in 18 cities and 13 countries, including 39 portfolio managers with an average experience of 24 years and approximately 950 years of combined industry experience.

Our Adviser and its affiliates believe that their defining characteristic is adherence to the highest professional standards, which has yielded several important benefits.

First and foremost, this characteristic has allowed our Adviser and its affiliates to attract and retain an extremely talented group of investment professionals, or the Investment Professionals, as well as accounting, valuation, legal, compliance and other administrative professionals.

As of September 30, 2020, our Adviser and its affiliates had more than 1,000 professionals in 19 cities and 14 countries, including 39 portfolio managers with an average experience of 25 years and approximately 1,000 years of combined industry experience.

Specifically, the Strategic Credit group that is primarily responsible for implementing our investment strategy consists of over 20 Investment Professionals led by Armen Panossian, our Chief Executive Officer and Chief Investment Officer, who focus on the investment strategy employed by our Adviser and certain of its affiliates.

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These institutional relationships have been instrumental in strengthening access to trading opportunities, to understanding the current market, and to executing the investment team’s investment strategies.

OCM aims to attract, motivate and retain talented employees (both Investment Professionals and accounting, valuation, legal, compliance and other administrative professionals) by making them active participants in, and beneficiaries of, the platform’s success.

In addition to competitive base salaries, all OCM employees share in the discretionary bonus pool.

An employee’s participation in the bonus pool is based on the overall success of our Adviser and its affiliates and the individual employee’s performance and level of responsibility.

Our Adviser and its affiliates provide discretionary investment management services to other managed accounts and investment funds, which may have overlapping investment objectives and strategies with our own and, accordingly, may invest in asset classes similar to those targeted by us.

The activities of such managed accounts and investment funds may raise actual or potential conflicts of interest.

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1 References to “assets under management” or “AUM” represent assets managed by our Adviser and a proportionate amount of the AUM reported by DoubleLine Capital LP, or Doubleline, in which our Adviser owns a 20% minority interest.

Our Adviser’s methodology for calculating AUM includes (i) the net asset value of assets managed directly by our Adviser, (ii) the leverage on which management fees are charged, (iii) undrawn capital that our Adviser is entitled to call from investors in Oaktree funds pursuant to their capital commitments, (iv) for collateralized loan obligation vehicles, or CLOs, the aggregate par value of collateral assets and principal cash, (v) for publicly-traded Business Development Companies, gross assets (including assets acquired with leverage), net of cash, and (vi) our Adviser’s pro rata portion of the AUM reported by DoubleLine.

Our Adviser’s calculation of AUM may differ from the calculations of other asset managers and, as a result, our Adviser’s measurements of AUM may not be comparable to similar measures presented by other asset managers.

Our Adviser’s definition of AUM is not based on the definitions of AUM that may be set forth in agreements governing the investment funds, vehicles or accounts that it manages and is not calculated pursuant to regulatory definitions.

Strategic Credit

Our Adviser officially launched its Strategic Credit strategy in early 2013 as a step-out from its Distressed Debt strategy, to capture attractive investment opportunities that appear to offer too little return for distressed debt investors, but may pose too much uncertainty for high-yield bond creditors.

The strategy seeks to achieve an attractive total return by investing in public and private performing debt.

Our Adviser's affiliates officially launched the Strategic Credit strategy in early 2013 as a step-out from the Distressed Debt strategy, to capture attractive investment opportunities that appear to offer too little return for distressed debt investors, but may pose too much uncertainty for high-yield bond creditors.

The strategy seeks to achieve an attractive total return by investing in public and private revenue-generating, performing debt.

Strategic Credit focuses on U.S.

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Typical investments will be in high yield bonds and senior secured loans for borrowers that are in need of direct loans, rescue financings, or other capital solutions or that have had challenged or unsuccessful primary offerings.

The Investment Professionals employ a fundamental, value-driven opportunistic approach to credit investing, which seeks to benefit from the resources, relationships and proprietary information of our Adviser’s global investment platform.

Our Administrator

We entered into an administration agreement, as amended from time to time, or the Administration Agreement, with Oaktree Administrator, a Delaware limited liability company and a wholly owned subsidiary of Oaktree.

The principal executive offices of Oaktree Administrator are located at 333 South Grand Avenue, 28th Floor, Los Angeles, CA 90071.

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Business Strategy

We may also seek to generate capital appreciation and income through secondary investments at discounts to par in either private or syndicated transactions.

We invest in companies across a variety of industries that typically possess business models we expect to be resilient in the future with underlying fundamentals that will provide strength in future downturns.

We deploy capital across credit and economic cycles with a focus on long-term results, which we believe will enable us to build lasting partnerships with financial sponsors and management teams, and we may seek to opportunistically take advantage of dislocations in the financial markets and other situations that may benefit from our Adviser’s deep credit and structuring expertise.

We invest in companies across a variety of industries that typically possess resilient business models with strong underlying fundamentals.

Our Adviser intends to implement the following business strategy to achieve our investment objective:

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Our Adviser is focused on proprietary opportunities as well as partnering with other lenders as appropriate.

Dedicated sourcing professionals of our Adviser are in continuous contact with financial sponsors and corporate clients to originate proprietary deals and seek to leverage the networks and relationships of Oaktree’s Investment Professionals with management teams and corporations to originate non-sponsored transactions.

Since 2005, our Adviser has invested more than $14 billion in over 250 directly originated loans, and the Oaktree platform has the capacity to invest in large deals and to solely underwrite transactions.

Dedicated sourcing professionals of our Adviser and its affiliates are in continuous contact with financial sponsors and corporate clients to originate proprietary deals and seek to leverage the networks and relationships of Oaktree’s Investment Professionals with management teams and corporations to originate non-sponsored transactions.

Since 2005, our Adviser and its affiliates have invested more than $19 billion in over 350 directly originated loans, and the platform has the capacity to invest in large deals and to solely underwrite transactions.

• Focus On Quality Companies And Extensive Diligence.

Our Adviser seeks to maintain a conservative approach to investing with discipline around fundamental credit analysis and downside protection.

Our Adviser intends to focus on companies with business models we expect to be resilient in the future, underlying fundamentals that will provide strength in future downturns, significant asset or enterprise value and seasoned management teams, although not all portfolio companies will meet each of these criteria.

Our Adviser intends to focus on companies with resilient business models, strong underlying fundamentals, significant asset or enterprise value and seasoned management teams, although not all portfolio companies will meet each of these criteria.

Our Adviser intends to leverage its deep credit and deal structuring expertise to lend to companies that have unique needs, complex business models or specific business challenges.

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• Manage Risk Through Loan Structures.

Our Adviser seeks to leverage its experience in identifying structural risks in prospective portfolio companies and developing customized solutions in an effort to enhance downside

protection where possible.

Our Adviser seeks to leverage its experience in identifying structural risks in prospective portfolio companies and developing customized solutions in an effort to enhance downside protection where possible.

Our Adviser has the expertise to structure comprehensive, flexible and customized solutions for companies of all sizes across numerous industry sectors.

Our Adviser employs a rigorous due diligence process and seeks to include covenant protections designed to ensure that we, as the lender, can negotiate with a portfolio company before a deal reaches impairment.

The Oaktree platform has the ability to address a wide range of borrower needs, with capability to invest across the capital structure and to fund large loans, and our Adviser pays close attention to market trends.

Our Adviser provides certainty to borrowers by seeking to provide fully underwritten financing commitments and has expertise in both performing credit as well as restructuring and turnaround situations, which we expect will allow us to invest and lend during times of market stress when our competitors may halt investment activity.

Completion of Portfolio Repositioning.

Since becoming our Adviser, Oaktree has reduced the investments it has identified as non-core by nearly $700 million at fair value.

The platform of our Adviser and its affiliates has the ability to address a wide range of borrower needs, with capability to invest across the capital structure and to fund large loans, and our Adviser pays close attention to market trends.

Our Adviser provides certainty to borrowers by seeking to provide fully underwritten financing commitments and has expertise in both performing credit as well as restructuring and turnaround situations, which has allowed us to invest and lend during the COVID-19 pandemic and other times of market stress when our competitors may halt or reduce investment activity.

• Completion of Rotation out of Non-Core Investments.

Since an Oaktree affiliate became our investment adviser, Oaktree and its affiliates have reduced the investments identified as non-core by over $700 million at fair value.

Over time, Oaktree intends to rotate us out of the remaining non-core investments, which is approximately $128 million at fair value as of September 30, 2020.

Our Adviser intends to generate a competitive return on equity and sustainable, consistent dividends through (1) opportunistically investing across the capital structure, (2) seeking to take advantage of dislocations in financing markets and other situations that may benefit from our Adviser’s restructuring expertise and (3) generating capital appreciation and income through secondary investments at discounts to par in either private or syndicated transactions.

Our Adviser’s emphasis is on fundamental credit analysis, consistency and downside protection, all of which are key tenets of its investment philosophy.

Our Adviser’s emphasis is on fundamental credit analysis, consistency and downside protection, all of which are key tenets of its investment philosophy and important in times of market dislocation, including during the COVID-19 pandemic.

We believe this philosophy strongly aligns with the interests of our stockholders.

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Macro Factors

Macro factors that drive market dislocations occur throughout the global economy and include sovereign debt crises, political elections and other unexpected geopolitical events.

Macro factors that drive market dislocations occur throughout the global economy and include sovereign debt crises, political elections, global pandemics, including during the current COVID-19 pandemic, and other unexpected geopolitical events.

These factors drive highly correlated “risk on” and “risk off” market swings and frequently result in the indiscriminate selling or buying of securities and obligations at prices that the Investment Professionals believe are well below or above their intrinsic values.

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We believe that many commercial banks have decreased their lending to middle-market companies in recent years, which has created an opportunity for non-traditional market participants.

In addition, we believe that increased regulation of financial markets and its participants, such as Basel III and the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, or the Dodd-Frank Act, has resulted in traditional capital providers focusing on only higher-quality and more liquid opportunities.

In addition, we believe that traditional capital providers are focusing on only higher-quality and more liquid opportunities.

The lower-rated portion of the market is often less efficiently priced due to limited capital availability, which allows for more attractive risk and return opportunities.

Company Characteristics

Company-specific factors that drive market dislocations include over-leveraged balance sheets, near-term liquidity or maturity issues, secular pressures on businesses, acute shock to company operations, asset-light businesses and new or relatively small issuers.

Company-specific factors that drive market dislocations include over-leveraged balance sheets, near-term liquidity or maturity issues, secular pressures on businesses, acute shock to company operations (including from government shutdowns), asset-light businesses and new or relatively small issuers.

These factors may result in mispriced securities or obligations or require a highly structured direct loan.

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The second source is marketable securities or other forms of traded debt, which the Investment Professionals intend to purchase on the secondary market at prices they believe are below their intrinsic value.

Once the Investment Professionals

have identified a potential investment opportunity, they will evaluate the opportunity against the following investment criteria and guidelines.

Once the Investment Professionals have identified a potential investment opportunity, they will evaluate the opportunity against the following investment criteria and guidelines.

However, not all of these criteria will be met by each prospective portfolio company in which we invest.

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• Exit Strategy.

We generally intend to invest in companies that we believe will provide us with the opportunity to exit our investments in three to eight years, including through (1) the repayment of the remaining principal outstanding at maturity, (2) the recapitalization of the company resulting in our debt investments being repaid and (3) the sale of the company resulting in the repayment of all of its outstanding debt.

We generally intend to invest in companies that we believe will provide us with the opportunity to exit our investments in three to eight years, including through (1) the repayment of the remaining principal outstanding at maturity, (2) the recapitalization of the company resulting in our debt investments being repaid or (3) the sale of the company resulting in the repayment of all of its outstanding debt.

As a Business Development Company, we will invest at least 70% of our investments in U.S.

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Our investment process consists of the following five distinct stages.

Strategic Credit has dedicated sourcing professionals and also leverages its strong market presences and relationships across Oaktree’s global platform to gain access to opportunities from advisers, sponsors, banks, management teams, capital raising advisers and other sources.

Strategic Credit has dedicated sourcing professionals and also leverages its strong market presences and relationships across the global platform of our Adviser and its affiliates to gain access to opportunities from advisers, sponsors, banks, management teams, capital raising advisers and other sources.

Our Adviser is a trusted partner to financial sponsors and management teams based on its long-term commitment and focus on lending across economic cycles.

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The initial screening process will typically include a review of the proposed capital structure of the portfolio company, including level of assets or enterprise value coverage, an assessment by our Adviser of the company’s management team and its equity ownership levels as well as the viability of its long-term business model, and a review of forecasted financial statements and liquidity profile.

In addition, our Adviser may assess the prospect of industry or macroeconomic catalysts that may create enhanced value in the investment as well as the potential ability to enforce creditor rights, particularly where collateral is located outside of the United States.

In addition, our Adviser may assess the

prospect of industry or macroeconomic catalysts that may create enhanced value in the investment as well as the potential ability to enforce creditor rights, particularly where collateral is located outside of the United States.

Prior to making any new investment, our Adviser intends to engage in an extensive due diligence process led by investment analysts assigned to each transaction.

The analysts will assess a company’s management team, products, services, competitive position in its markets, barriers to entry and operating and financial performance, as well as the growth potential of its markets.

In performing this evaluation, the analysts may use financial, descriptive and other due diligence materials provided by the target company, commissioned third party reports and internal sources, including members of the investment

team, industry participants and experts with whom our Adviser has relationships.

As part of the research process, our Adviser’s analysts typically perform a “what-if” analysis that explores a range of values for each proposed investment and a range of potential credit events.

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Our Adviser prioritizes managing risk.

In managing our portfolio, our Adviser intends to monitor each portfolio company and be well-positioned to make hold and exit decisions when credit events occur, our collateral becomes overvalued or opportunities with more attractive risk/reward profiles are identified.

In managing our portfolio, our Adviser monitors each portfolio company to be well-positioned to make hold and exit decisions when credit events occur, our collateral becomes overvalued or opportunities with more attractive risk/reward profiles are identified.

Investment analysts are assigned to each investment to monitor industry developments, review company financial statements, attend company presentations and regularly speak with company management.

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We believe that our Adviser’s experience with restructurings and our access to our Adviser’s deep knowledge, expertise and contacts in the distressed debt area will help us preserve the value of our investments.

In addition, in light of the COVID-19 pandemic, our Adviser has been in close contact with many of our portfolio companies to understand their liquidity and solvency positions.

We believe that these efforts to closely monitor and identify vulnerable investments will allow us to address potential problems early and provide constructive solutions to our portfolio companies.

Our investment objective is to generate current income and capital appreciation.

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A substantial source of return is monthly or quarterly interest that we collect on our debt investments, including payment-in-kind, or PIK, interest which represents contractual interest accrued and added to the principal that generally becomes due at maturity.

Our debt investments may generally consist of the following:

Our debt investments generally consist of the following:

• First Lien Loans.

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We also seek to obtain limited registration rights in connection with these investments, which may include “piggyback” registration rights.

We and Trinity Universal Insurance Company, a subsidiary of Kemper Corporation, or Kemper, co-invest through SLF JV I, an unconsolidated Delaware limited liability company.

We and Kemper co-invest through SLF JV I, an unconsolidated Delaware limited liability company.

SLF JV I was formed in May 2014 to invest in middle-market and other corporate debt securities.

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Valuation Procedures

As a Business Development Company, we may invest in illiquid debt and equity securities issued by private middle-market companies.

As a Business Development Company, we generally invest in illiquid debt and equity securities issued by private middle-market companies.

We are required to carry our portfolio investments at market value or, if there is no readily available market value, at fair value as determined by our Board of Directors.

Management’s Discussion and Analysis of Financial Condition and Results of Operations – Critical Accounting Policies – Investment Valuation” for a description of our investment valuation processes and procedures.

Management’s Discussion and Analysis of Financial

Condition and Results of Operations – Critical Accounting Policies – Investment Valuation” for a description of our investment valuation processes and procedures.

Investment Advisory Agreement

The following is a description of the Investment Advisory Agreement.

From October 17, 2017 through May 3, 2020, we were externally managed by OCM pursuant to an investment advisory agreement.

On May 4, 2020, OCM effected the novation of such investment advisory agreement to Oaktree.

Immediately following such novation, we and Oaktree entered into a new investment advisory agreement with the same terms, including fee structure, as the investment advisory agreement with OCM.

The term “Investment Advisory Agreement” refers collectively to the agreements with Oaktree and, prior to its novation, with OCM.

Management Services

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Effective May 3, 2019, the base management fee on the Company’s gross assets, including any investments made with borrowings, but excluding any cash and cash equivalents, that exceed the product of (A) 200% and (B) the Company’s net asset value will be 1.00%.

For the avoidance of doubt, the 200% will be calculated in accordance with the Investment Company Act and will give effect to exemptive relief the Company received from the U.S.

Securities and Exchange Commission with respect to debentures issued by a small business investment company subsidiary.

For the avoidance of doubt, the 200% will be calculated in accordance with the Investment Company Act and will give effect to exemptive relief the Company received from the SEC with respect to debentures issued by a small business investment company subsidiary.

See “ Item 7.

Management’s Discussion and Analysis of Financial Condition and Results of Operations—Recent Developments—Management Fee Waiver.

Incentive Fee

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For this purpose, “pre-incentive fee net investment income” means interest income, dividend income and any other income (including any other fees such as commitment, origination, structuring, diligence and consulting fees or other fees that we receive from portfolio companies, other than fees for providing managerial assistance) accrued during the fiscal quarter, minus our operating expenses for the quarter (including the base management fee, expenses payable under the Administration Agreement and any interest expense and dividends paid on any issued and outstanding preferred stock, but excluding the incentive fee).

Pre-incentive fee net investment income includes, in the case of investments with a deferred interest feature (such as original issue discount, or OID, debt instruments with PIK interest and zero coupon securities), accrued income that we have not yet received in cash.

have not yet received in cash.

Pre-incentive fee net investment income does not include any realized capital gains, realized capital losses or unrealized capital appreciation or depreciation.

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• 100% of our pre-incentive fee net investment income, if any, that exceeds the preferred return but is less than or equal to 1.8182% in any fiscal quarter is payable to Oaktree.

We refer to this portion of the incentive fee on income as the “catch-up” provision, and it is intended to provide Oaktree with an incentive fee of 17.5% on all of our pre-incentive fee

net investment income when our pre-incentive fee net investment income reaches 1.8182% on net assets in any fiscal quarter.

We refer to this portion of the incentive fee on income as the “catch-up” provision, and it is intended to provide Oaktree with an incentive fee of 17.5% on all of our pre-incentive fee net investment income when our pre-incentive fee net investment income reaches 1.8182% on net assets in any fiscal quarter.

• For any quarter in which our pre-incentive fee net investment income exceeds 1.8182% on net assets, the incentive fee on income is equal to 17.5% of the amount of our pre-incentive fee net investment income, as the preferred return and catch-up will have been achieved.

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These assumptions are summarized in the following chart:

Cumulative Unrealized Capital Depreciation

Cumulative Realized Capital Losses

Cumulative Realized Capital Gains

$10 million (cost basis)

$20 million (sale price)

$12 million FMV

$10 million FMV

$14 million FMV

$16 million FMV

$10 million FMV

$16 million FMV

$12 million (sale price)

$14 million FMV

$20 million (sale price)

$10 million FMV

$16 million (sale price)

$8 million FMV

$8 million (sale price)

Investment A Investment B Investment C Investment D Investment E Cumulative Unrealized Capital Depreciation Cumulative Realized Capital Losses Cumulative Realized Capital Gains

Year 1 $10 million (cost basis) $10 million (cost basis) $10 million (cost basis) $10 million (cost basis) $10 million (cost basis) -- -- --

Year 2 $20 million (sale price) $8 million

FMV $12 million FMV $10 million FMV $10 million FMV $2 million -- $10 million

Year 3 -- $8 million

FMV $14 million FMV $14 million FMV $16 million FMV $2 million -- $10 million

Year 4 -- $10 million FMV $16 million FMV $12 million (sale price) $14 million FMV -- -- $12 million

Year 5 -- $14 million FMV $20 million (sale price) -- $10 million FMV -- -- $22 million

Year 6 -- $16 million (sale price) -- -- $8 million FMV $2 million -- $28 million

Year 7 -- -- -- -- $8 million (sale price) -- $2 million $28 million

The Incentive Fee on Capital Gains under the Investment Advisory Agreement would be:

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Collection and Disbursement of Fees Owed to Our Former Adviser

Under the Former Investment Advisory Agreement described below, both the base management fee and incentive fee on income were calculated and paid to our Former Adviser at the end of each quarter.

In order to ensure that our Former Adviser received any compensation earned during the quarter ended December 31, 2017, the initial payment of the base management fee and incentive fee on income under the Investment Advisory Agreement covered the entire quarter in which the Investment Advisory Agreement became effective, and was calculated at a blended rate that reflected fee rates under the respective investment advisory agreements for the portion of the quarter in which our Former Adviser and Oaktree were serving as investment adviser.

This structure allowed Oaktree to pay our Former Adviser the pro rata portion of the fees that were earned by, but not paid to, our Former Adviser for services rendered to us prior to October 17, 2017 of $1.1 million.

Under the Former Investment Advisory Agreement described below, both the base management fee and incentive fee on income were calculated and paid to our Former Adviser (as defined below) at the end of each quarter.

This structure allowed OCM to pay our Former Adviser the pro rata portion of the fees that were earned by, but not paid to, our Former Adviser for services rendered to us prior to October 17, 2017 of $1.1 million.

Duration and Termination

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The Investment Advisory Agreement will automatically terminate in the event of its assignment.

The Investment Advisory Agreement may be terminated by either party without penalty upon 60 days’ written notice to the other.

Investment Advisory Agreement may be terminated by either party without penalty upon 60 days’ written notice to the other.

The Investment Advisory Agreement may also be terminated, without penalty, upon the vote of a majority of our outstanding voting securities.

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The Investment Advisory Agreement provides that, absent willful misfeasance, bad faith or gross negligence in the performance of their respective duties or by reason of the reckless disregard of their respective duties and obligations, Oaktree and its officers, managers, partners, members (and their members, including the owners of their members), agents, employees, controlling persons and any other person or entity affiliated with it, are entitled to indemnification from us for any damages, liabilities, costs and expenses (including reasonable attorneys’ fees and amounts reasonably paid in settlement) arising from the rendering of Oaktree’s services under the Investment Advisory Agreement or otherwise as our investment adviser.

For the two-year period commencing on October 17, 2017, Oaktree will waive, to the extent necessary, any management or incentive fees payable under the Investment Advisory Agreement that exceed what would have been paid to the Former Adviser (as defined below) in the aggregate under the Former Investment Advisory Agreement (as defined below).

For the two-year period commencing on October 17, 2017, OCM waived management and incentive fees payable under the Investment Advisory Agreement that exceeded what would have been paid to the Former Adviser (as defined below) in the aggregate under the Former Investment Advisory Agreement (as defined below).

Organization of our Adviser

Our Adviser is a Delaware limited partnership that is registered as an investment adviser under the Advisers Act.

Our Adviser is a Delaware limited liability company that is registered as an investment adviser under the Advisers Act.

The principal address of our Adviser is 333 South Grand Avenue, 28th Floor, Los Angeles, CA 90071.

Board Approval of the Investment Advisory Agreement

Our Board of Directors met in person with Oaktree to consider the Investment Advisory Agreement on May 3, 2019.

Our Board of Directors met in person with OCM to consider the Investment Advisory Agreement on May 3, 2019.

At the in-person meeting held on May 3, 2019, our Board of Directors, including all of the independent directors, unanimously approved the Investment Advisory Agreement.

Such independent directors met separately with independent counsel in connection with their review of the Investment Advisory Agreement and the Brookfield transaction.

In reaching its decision to approve the Investment Advisory Agreement, our Board of Directors, including all of the independent directors, reviewed a significant amount of information, which had been furnished by Oaktree at the request of independent counsel, on behalf of the independent directors.

In reaching its decision to approve the Investment Advisory Agreement, our Board of Directors, including all of the independent directors, reviewed a significant amount of information, which had been furnished by OCM at the request of independent counsel, on behalf of the independent directors.

In reaching a decision to approve the Investment Advisory Agreement, our Board of Directors considered, among other things:

the nature, extent and quality of services performed by Oaktree;

the investment performance of us and funds managed by Oaktree with a similar investment objective to us;

the costs of services provided and the profits realized by Oaktree and its affiliates from their relationship with us;

• the nature, extent and quality of services performed by OCM;

• the investment performance of us and funds managed by OCM with a similar investment objective to us;

• the costs of services provided and the profits realized by OCM and its affiliates from their relationship with us;

• the possible economies of scale that would be realized due to our growth;

• whether fee levels reflect such economies of scale for the benefit of investors;

comparisons of services rendered to and fees paid by us with the services provided by and the fees paid to other investment advisers and the services provided to and the fees paid by other Oaktree clients;

• comparisons of services rendered to and fees paid by us with the services provided by and the fees paid to other investment advisers and the services provided to and the fees paid by other OCM clients;

• whether consummation of the Brookfield transaction would have any effect on the above considerations.

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Our stockholders approved the Investment Advisory Agreement on June 28, 2019.

Our Board of Directors met with Oaktree and OCM to consider to the approval of the novation and assumption of the Investment Advisory Agreement by OCM and Oaktree, respectively, and of the new Investment Advisory Agreement between the Company and Oaktree.

On April 30, 2020, our Board of Directors, including all of the independent directors, unanimously approved the novation and assumption of the Investment Advisory Agreement with OCM and entry into the Investment Advisory Agreement with Oaktree.

In reaching such decision, our Board of Directors considered, among other items, that the level and quality of services and the personnel providing such services would remain unchanged, that Oaktree and OCM are under common control and that the terms and conditions of the Investment Advisory Agreement (other than the parties) would remain unchanged.

Payment of Our Expenses

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Former Investment Advisory Agreement

Prior to October 17, 2017, we were externally managed and advised by Fifth Street Management LLC, which we refer to as our “Former Adviser”, and we were named Fifth Street Finance Corp.

Prior to October 17, 2017, we were externally managed and advised by Fifth Street Management LLC, which we refer to as our “Former Adviser”.

The following is a description of the Former Investment Advisory Agreement, which was terminated on October 17, 2017.

The Former Investment Advisory Agreement, dated March 20, 2017, was effective January 1, 2017 through its termination on October 17, 2017.

Management Fee

Through October 17, 2017, we paid our Former Adviser a fee for its services under the Former Investment Advisory Agreement consisting of two components - a base management fee and an incentive fee.

The cost of both the base management fee paid to our Former Adviser and any incentive fees earned by our Former Adviser were ultimately borne by our common stockholders.

Base Management Fee

As of January 1, 2016, the base management fee was calculated at an annual rate of 1.75% of our gross assets, including any borrowings for investment purposes but excluding cash and cash equivalents.

The base management fee was calculated at an annual rate of 1.75% of our gross assets, including any borrowings for investment purposes but excluding cash and cash equivalents.

The base management fee was payable quarterly in arrears and the fee for any partial month or quarter was appropriately prorated.

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Our net investment income used to calculate this part of the incentive fee was also included in the amount of its gross assets used to calculate the 1.75% base management fee.

In the event the cumulative incentive fee on income accrued from January 1, 2017 (after giving effect to any reduction(s) pursuant to this paragraph for any prior fiscal quarters but not the quarter of calculation) exceeded 20.0% of the cumulative net increase in net assets resulting from operations since January 1, 2017, then the incentive fee on income for the quarter was reduced by an amount equal to (1) 25% of the incentive fee on income calculated for such quarter (prior to giving effect to any reduction pursuant to this paragraph) less (2) any base management fees waived by the Former Adviser for such fiscal quarter.

increase in net assets resulting from operations since January 1, 2017, then the incentive fee on income for the quarter was reduced by an amount equal to (1) 25% of the incentive fee on income calculated for such quarter (prior to giving effect to any reduction pursuant to this paragraph) less (2) any base management fees waived by the Former Adviser for such fiscal quarter.

For this purpose, the “cumulative net increase in net assets resulting from operations” was an amount, if positive, equal to the sum of our pre-incentive fee net investment income, base management fees, realized gains and losses and unrealized capital appreciation and depreciation from January 1, 2017.

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Prior to its termination by its terms on October 17, 2017, we were party to an administration agreement, or the Former Administration Agreement, with a wholly-owned subsidiary of the Former Adviser, or the Former Administrator.

Pursuant to the Former Administration Agreement, our Former Administrator provided services substantially similar to those provided by Oaktree Administrator as described above under “– Administration Agreement.” For providing these services, facilities and personnel, we reimbursed the Former Administrator the allocable portion of overhead and other expenses incurred by it in performing its obligations under the Former Administration Agreement, including rent and our allocable portion of the costs of

compensation and related expenses of our Chief Financial Officer and Chief Compliance Officer and their staffs.

Such reimbursement was at cost, with no profit to, or markup by, our Former Administrator.

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Our executive officers and directors, and certain members of our Adviser, serve or may serve as officers, directors or principals of entities that operate in the same or a related line of business as we do or of investment funds managed by our affiliates.

For example, Oaktree presently serves as the investment adviser to Oaktree Strategic Income Corporation, or OCSI, a publicly-traded Business Development Company, and Oaktree Strategic Income II, Inc., or OSI II, a privately offered Business Development Company.

For example, Oaktree presently serves as the investment adviser to OCSI, a publicly-traded Business Development Company, and Oaktree Strategic Income II, Inc., or OSI II, a private Business Development Company.

All of our executive officers serve in substantially similar capacities for OCSI and OSI II, all of our independent directors serve as independent directors of OCSI, and one of our independent directors serves as an independent director of OSI II.

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Therefore, there may be certain investment opportunities that satisfy the investment criteria for OCSI, OSI II and us as well as private investment funds and accounts advised or sub-advised by Oaktree or its affiliates.

In addition, Oaktree and its affiliates may have obligations to investors in other entities that it advises or sub-advises, the fulfillment of which might not be in the best interests of us or our stockholders.

In addition, Oaktree and its affiliates may have obligations to investors in other entities that they advise or sub-advise, the fulfillment of which might not be in the best interests of us or our stockholders.

For example, the personnel of our Adviser may face conflicts of interest in the allocation of investment opportunities to us and such other funds and accounts.

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For example, we may invest alongside such accounts consistent with guidance promulgated by the staff of the SEC permitting us and such other accounts to purchase interests in a single class of privately placed securities so long as certain conditions are met, including that our Adviser, acting on our behalf and on behalf of other clients, negotiates no term other than price or terms related to price.

In addition, on October 18, 2017, our Adviser received exemptive relief from the SEC to allow certain managed funds and accounts, each of whose investment adviser is Oaktree or an investment adviser controlling, controlled by or under common control with Oaktree, to participate in negotiated co-investment transactions where doing so is consistent with the applicable registered fund’s or Business Development Company’s investment objective and strategies as well as regulatory requirements and other pertinent factors, and pursuant to the conditions of the exemptive relief.

In addition, on October 18, 2017, affiliates of our Adviser received exemptive relief from the SEC to allow certain managed funds and accounts, each of whose investment adviser is OCM or an investment adviser controlling, controlled by or under common control with OCM, such as our Adviser, to participate in negotiated co-investment transactions where doing so is consistent with the applicable registered fund’s or Business Development Company’s investment objective and strategies as well as regulatory requirements and other pertinent factors, and pursuant to the conditions of the exemptive relief.

Each potential co-investment opportunity that falls under the terms of the exemptive relief and is appropriate for us and any affiliated fund or account, and satisfies the then-current board-established criteria, will be offered to us and such other eligible funds and accounts.

If there is a sufficient amount of securities to satisfy all participants, the securities will be allocated among the participants in accordance with their proposed order size and if there is an insufficient amount of securities to satisfy all participants, the securities will be allocated pro rata based on the investment proposed by the applicable investment adviser to such participant, up to the amount proposed to be invested by each, which is reviewed and approved by an independent committee of legal, compliance and accounting professionals at our Adviser.

We, with our Adviser and certain other affiliates, have submitted an application to the SEC for exemptive relief that would modify the terms of our existing exemptive relief to allow proprietary accounts to participate in co-investment transactions subject to certain conditions.

We may also invest alongside funds managed by our Adviser and its affiliates in certain circumstances where doing so is consistent with applicable law and SEC staff interpretations.

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We may be required to recognize taxable income in circumstances in which we do not receive cash.

For example, if we hold debt obligations that are treated under applicable tax rules as having original issue discount (such as debt instruments with increasing interest rates or debt instruments issued with warrants), we must include in income each year a portion of the original issue discount that accrues over the life of the obligation, regardless of whether cash representing such income is received by us in the same taxable year.

Because any original issue discount accrued will be included in our investment company taxable income for the year of accrual, we may be required to make a distribution to our stockholders in order to satisfy the Annual Distribution Requirement, even though we will not have received any corresponding cash amount.

For example, if we hold debt obligations that are treated under applicable tax rules as having OID (such as debt instruments with increasing interest rates or debt instruments issued with warrants), we must include in income each year a portion of the OID that accrues over the life of the obligation, regardless of whether cash representing such income is received by us in the same taxable year.

Because any OID accrued will be included in our investment company taxable income for the year of accrual, we may be required to make a distribution to our stockholders in order to satisfy the Annual Distribution Requirement, even though we will not have received any corresponding cash amount.

Because we use debt financing, we are subject to certain asset coverage ratio requirements under the Investment Company Act described above and financial covenants under loan and credit agreements that could, under certain circumstances, restrict us from making distributions necessary to satisfy the Annual Distribution Requirement.

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(3) Securities purchased in a private transaction from a U.S.

issuer that is not an investment company or from an affiliated person of the issuer, or in transactions incident thereto, if the issuer is in bankruptcy and subject to reorganization or if

the issuer, immediately prior to the purchase of its securities was unable to meet its obligations as they came due without material assistance other than conventional lending or financing arrangements;

issuer that is not an investment company or from an affiliated person of the issuer, or in transactions incident thereto, if the issuer is in bankruptcy and subject to reorganization or if the issuer, immediately prior to the purchase of its securities was unable to meet its obligations as they came due without material assistance other than conventional lending or financing arrangements;

(4) Securities of an eligible portfolio company purchased from any person in a private transaction if there is no ready market for such securities and we already own 60% of the outstanding equity of the eligible portfolio company;

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As a result of the reduced asset coverage requirement, we can incur $2 of debt for each $1 of equity as compared to $1 of debt for each $1 of equity.

Consistent with applicable legal and regulatory requirements, we are permitted, under specified conditions, to issue multiple classes of indebtedness and one class of stock senior to our common stock if our asset coverage, as calculated as provided in the Investment Company Act, is at least 150% immediately after each such issuance.

provided in the Investment Company Act, is at least 150% immediately after each such issuance.

In addition, while any senior securities remain outstanding, we may make provisions to prohibit any distribution to our stockholders or the repurchase of such securities or shares unless we meet the applicable asset coverage ratios at the time of the distribution or repurchase.

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We are required to provide and maintain a bond issued by a reputable fidelity insurance company to protect us against larceny and embezzlement.

Furthermore, as a Business Development Company, we are prohibited from protecting any director

or officer against any liability to us or our stockholders arising from willful misfeasance, bad faith, gross negligence or reckless disregard of the duties involved in the conduct of such person’s office.

We and our Adviser will each be required to adopt and implement written policies and procedures reasonably designed to prevent violation of the U.S.

Furthermore, as a Business Development Company, we are prohibited from protecting any director or officer against any liability to us or our stockholders arising from willful misfeasance, bad faith, gross negligence or reckless disregard of the duties involved in the conduct of such person’s office.

We and our Adviser are each required to adopt and implement written policies and procedures reasonably designed to prevent violation of the U.S.

federal securities laws, review these policies and procedures annually for their adequacy and the effectiveness of their implementation, and designate a Chief Compliance Officer to be responsible for administering the policies and procedures.

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Stock Exchange Corporate Governance Regulations

Each of the Nasdaq Stock Market LLC and the New York Stock Exchange has adopted corporate governance regulations that listed companies must comply with.

The Nasdaq Stock Market LLC has adopted corporate governance regulations that listed companies must comply with.

We are in compliance with such corporate governance regulations as applicable to us.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 1. Business