FS KKR Capital Corp. II 10Q 2019 Q2 Quarterly report

TABLE OF CONTENTS

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-Q

☒

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

FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2019

☐

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

FOR THE TRANSITION PERIOD FROM TO

COMMISSION FILE NUMBER: 814-00926

FS Investment Corporation II

(Exact name of registrant as specified in its charter)

	Maryland			80-0741103
	(State or other jurisdiction of incorporation or organization)			(I.R.S. Employer Identification No.)
	201 Rouse Boulevard Philadelphia, Pennsylvania			19112
	(Address of principal executive offices)			(Zip Code)

Registrant’s telephone number, including area code: (215) 495-1150

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

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

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

Large accelerated filer	☐	Accelerated filer	☐
Non-accelerated filer	☑	Smaller reporting company	☐
		Emerging growth company	☐

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

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

Securities registered pursuant to Section 12(b) of the Act: None

	Title of each class			Trading Symbol(s)			Name of each 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.

The issuer had 327,309,962 shares of common stock outstanding as of August 9, 2019.

TABLE OF CONTENTS

	Page
PART I—FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Consolidated Balance Sheets as of June 30, 2019 (Unaudited) and December 31, 2018		1
Unaudited Consolidated Statements of Operations for the three and six months ended June 30, 2019 and 2018		2
Unaudited Consolidated Statements of Changes in Net Assets for the three and six months ended June 30, 2019 and 2018		3
Unaudited Consolidated Statements of Cash Flows for the six months ended June 30, 2019 and 2018		4
Consolidated Schedules of Investments as of June 30, 2019 (Unaudited) and December 31, 2018		5
Notes to Unaudited Consolidated Financial Statements		31
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS		59
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK		76
ITEM 4. CONTROLS AND PROCEDURES		77
PART II—OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS		78
ITEM 1A. RISK FACTORS		78
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS		78
ITEM 3. DEFAULTS UPON SENIOR SECURITIES		78
ITEM 4. MINE SAFETY DISCLOSURES		78
ITEM 5. OTHER INFORMATION		78
ITEM 6. EXHIBITS		78
SIGNATURES		82

TABLE OF CONTENTS

PART I—FINANCIAL INFORMATION

Item 1.

Financial Statements.

FS Investment Corporation II

Consolidated Balance Sheets
(in thousands, except share and per share amounts)

	June 30, 2019 (Unaudited)			December 31, 2018
Assets
Investments, at fair value
Non-controlled/unaffiliated investments (amortized cost—$3,924,164 and $4,312,105, respectively)		$	3,786,451		$	4,131,877
Non-controlled/affiliated investments (amortized cost—$266,434 and $248,500, respectively)			254,258			227,403
Total investments, at fair value (amortized cost—$4,190,598 and $4,560,605, respectively)			4,040,709			4,359,280
Cash			257,702			148,172
Restricted cash			33,216			—
Foreign currency, at fair value (cost – $11,640 and $2,264, respectively)			11,683			2,286
Collateral held at broker for open interest rate swap contracts			13,000			—
Receivable for investments sold and repaid			5,948			4,025
Interest receivable			36,594			34,221
Deferred financing costs			7,284			6,000
Receivable on interest rate swaps			1,267			173
Prepaid expenses and other assets			292			97
Total assets		$	4,407,695		$	4,554,254
Liabilities
Payable for investments purchased		$	34,650		$	42,236
Credit facilities payable (net of deferred financing costs of $2,203 and $3,122, respectively)(1)			1,746,553			1,887,132
Stockholder distributions payable			12,101			11,688
Management fees payable			16,982			17,256
Subordinated income incentive fees payable(2)			8,736			5,796
Administrative services expense payable			665			365
Interest payable			14,843			16,480
Directors’ fees payable			107			243
Interest rate swap income payable			1,289			174
Unrealized depreciation on interest rate swaps			12,396			1,743
Other accrued expenses and liabilities			1,709			3,732
Total liabilities			1,850,031			1,986,845
Commitments and contingencies(3)
Stockholders’ equity
Preferred stock, $0.001 par value, 50,000,000 shares authorized, none issued and outstanding			—			—
Common stock, $0.001 par value, 450,000,000 shares authorized, 326,267,116 and 326,445,320 shares issued and outstanding, respectively			326			326
Capital in excess of par value			2,989,461			2,990,996
Retained earnings (accumulated deficit)(4)			(432,123)			(423,913)
Total stockholders’ equity			2,557,664			2,567,409
Total liabilities and stockholders’ equity		$	4,407,695		$	4,554,254
Net asset value per share of common stock at period end		$	7.84		$	7.86

(1)

See Note 9 for a discussion of the Company’s financing arrangements.

(2)

See Note 2 for a discussion of the methodology employed by the Company in calculating the subordinated income incentive fees.

(3)

See Note 10 for a discussion of the Company’s commitments and contingencies.

(4)

See Note 5 for a discussion of the sources of distributions paid by the Company.

See notes to unaudited consolidated financial statements.

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FS Investment Corporation II

Unaudited Consolidated Statements of Operations
(in thousands, except share and per share amounts)

	Three Months Ended June 30,						Six Months Ended June 30,
	2019			2018			2019			2018
Investment income
From non-controlled/unaffiliated investments:
Interest income		$	95,971		$	94,377		$	198,572		$	189,534
Paid-in-kind interest income			2,332			1,755			4,213			3,976
Fee income			6,182			4,509			13,226			8,460
Dividend income			—			—			71			7,494
From non-controlled/affiliated investments:
Interest income			5,319			6,003			10,586			11,002
Paid-in-kind interest income			2,036			1,458			5,111			4,215
Fee income			43			—			43			1,123
Total investment income			111,883			108,102			231,822			225,804
Operating expenses
Management fees(1)			16,982			18,938			34,846			44,172
Subordinated income incentive fees(2)			8,736			1,480			19,867			7,055
Administrative services expenses			647			790			1,554			1,572
Stock transfer agent fees			501			501			1,206			996
Accounting and administrative fees			311			411			744			832
Interest expense(3)			25,503			26,851			55,078			51,034
Directors’ fees			75			295			217			799
Other general and administrative expenses			1,020			1,051			2,088			2,322
Operating expenses			53,775			50,317			115,600			108,782
Management fee waiver(1)			—			(278)			—			(3,432)
Net expenses			53,775			50,039			115,600			105,350
Net investment income			58,108			58,063			116,222			120,454
Realized and unrealized gain/loss
Net realized gain (loss) on investments:
Non-controlled/unaffiliated investments			(21,960)			15,694			(40,625)			(3,600)
Non-controlled/affiliated investments			3			(25,709)			182			(25,709)
Net realized gain (loss) on foreign currency			112			(339)			115			(666)
Net change in unrealized appreciation (depreciation) on investments:
Non-controlled/unaffiliated investments			5,858			24,288			42,515			(59,602)
Non-controlled/affiliated investments			9,320			(41,610)			8,921			(46,332)
Net change in unrealized appreciation (depreciation) on interest rate swaps			(6,657)			—			(10,653)			—
Net change in unrealized gain (loss) on foreign currency			(1,541)			367			(2,665)			777
Total net realized and unrealized gain (loss) on investments			(14,865)			(27,309)			(2,210)			(135,132)
Net increase (decrease) in net assets resulting from operations		$	43,243		$	30,754		$	114,012		$	(14,678)
Per share information—basic and diluted
Net increase (decrease) in net assets resulting from operations (Earnings per Share)		$	0.13		$	0.09		$	0.35		$	(0.05)
Weighted average shares outstanding			324,242,365			324,462,550			324,275,540			324,688,459

(1)

See Note 4 for a discussion of the waiver by FSIC II Advisor, LLC, the Company’s former investment adviser, of certain management fees to which it was otherwise entitled during the applicable period.

(2)

See Note 2 for a discussion of the methodology employed by the Company in calculating the subordinated income incentive fees.

(3)

See Note 9 for a discussion of the Company’s financing arrangements.

See notes to unaudited consolidated financial statements.

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FS Investment Corporation II

Unaudited Consolidated Statements of Changes in Net Assets
(in thousands)

	Three Months Ended June 30,						Six Months Ended June 30,
	2019			2018			2019			2018
Operations
Net investment income		$	58,108		$	58,063		$	116,222		$	120,454
Net realized gain (loss) on investments and foreign currency			(21,845)			(10,354)			(40,328)			(29,975)
Net change in unrealized appreciation (depreciation) on investments and interest rate swaps(1)			8,521			(17,322)			40,783			(105,934)
Net change in unrealized gain (loss) on foreign currency			(1,541)			367			(2,665)			777
Net increase (decrease) in net assets resulting from operations			43,243			30,754			114,012			(14,678)
Stockholder distributions(2)
Distributions to stockholders			(61,108)			(61,146)			(122,222)			(122,299)
Net decrease in net assets resulting from stockholder distributions			(61,108)			(61,146)			(122,222)			(122,299)
Capital share transactions(3)
Reinvestment of stockholder distributions			25,004			28,022			50,698			56,981
Repurchases of common stock			(25,692)			(28,960)			(52,233)			(58,953)
Net increase (decrease) in net assets resulting from capital share transactions			(688)			(938)			(1,535)			(1,972)
Total increase (decrease) in net assets			(18,553)			(31,330)			(9,745)			(138,949)
Net assets at beginning of period			2,576,217			2,745,402			2,567,409			2,853,021
Net assets at end of period		$	2,557,664		$	2,714,072		$	2,557,664		$	2,714,072

(1)

See Note 7 for a discussion of these financial instruments.

(2)

See Note 5 for a discussion of the sources of distributions paid by the Company.

(3)

See Note 3 for a discussion of the Company’s capital share transactions.

See notes to unaudited consolidated financial statements.

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FS Investment Corporation II

Unaudited Consolidated Statements of Cash Flows
(in thousands)

	Six Months Ended June 30,
	2019			2018
Cash flows from operating activities
Net increase (decrease) in net assets resulting from operations		$	114,012		$	(14,678)
Adjustments to reconcile net increase (decrease) in net assets resulting from operations to net cash provided by (used in) operating activities:
Purchases of investments			(729,410)			(540,847)
Paid-in-kind interest			(9,324)			(8,191)
Proceeds from sales and repayments of investments			1,072,656			733,671
Net realized (gain) loss on investments			40,443			29,309
Net change in unrealized (appreciation) depreciation on investments			(51,436)			105,934
Net change in unrealized (appreciation) depreciation on interest rate swaps			10,653			—
Accretion of discount			(4,358)			(2,906)
Amortization of deferred financing costs and discount			2,009			2,298
Unrealized (gain) loss on borrowings in foreign currency			2,685			(287)
(Increase) decrease in receivable for investments sold and repaid			(1,923)			(26,765)
(Increase) decrease in interest receivable			(2,373)			(4,515)
(Increase) decrease in receivable on interest rate swaps			(1,094)			—
(Increase) decrease in prepaid expenses and other assets			(195)			669
Increase (decrease) in payable for investments purchased			(7,586)			33,077
Increase (decrease) in management fees payable			(274)			(3,935)
Increase (decrease) in subordinated income incentive fees payable			2,940			(17,649)
Increase (decrease) in administrative services expense payable			300			362
Increase (decrease) in interest payable			(1,637)			2,928
Increase (decrease) in directors’ fees payable			(136)			14
Increase (decrease) in interest rate swap income payable			1,115			—
Increase (decrease) in other accrued expenses and liabilities			(2,023)			(2,122)
Net cash provided by (used in) operating activities			435,044			286,367
Cash flows from financing activities
Repurchases of common stock			(52,233)			(58,953)
Stockholder distributions			(71,111)			(64,758)
Borrowings under credit facilities(1)			508,948			2,970
Repayments of credit facilities(1)			(653,131)			(214,626)
Deferred financing costs paid			(2,374)			(6)
Net cash provided by financing activities			(269,901)			(335,373)
Total increase (decrease) in cash			165,143			(49,006)
Cash, restricted cash and foreign currency at beginning of period			150,458			460,409
Cash, restricted cash and foreign currency at end of period(2)		$	315,601		$	411,403
Supplemental disclosure
Non-cash purchase of investments		$	(21,482)		$	(60,000)
Non-cash sale of investments		$	21,482		$	60,000
Distributions reinvested		$	50,698		$	56,981
Local and excise taxes paid		$	2,098		$	2,574

(1)

See Note 9 for a discussion of the Company’s financing arrangements. During the six months ended June 30, 2019 and 2018, the Company paid $54,706 and $45,808 respectively, in interest expense on the credit facilities.

(2)

As of June 30, 2019, balance includes cash and foreign currency of $282,385 and restricted cash of $33,216. Restricted cash is cash set aside in escrow for the funding of an investment.

See notes to unaudited consolidated financial statements.

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FS Investment Corporation II

Unaudited Consolidated Schedule of Investments
As of June 30, 2019
(in thousands, except share amounts)

Portfolio Company(a)	Footnotes	Industry	Rate(b)	Floor		Maturity	Principal Amount(c)			Amortized Cost			Fair Value(d)
Senior Secured Loans—First Lien—112.0%
5 Arch Income Fund 2, LLC	(m)(q)	Diversified Financials	10.5%			11/18/23		$	37,729		$	37,729		$	37,681
5 Arch Income Fund 2, LLC	(m)(n)(q)	Diversified Financials	10.5%			11/18/23			36,271			36,271			36,225
Abaco Energy Technologies LLC	(h)(i)(s)	Energy	L+700, 2.5% PIK (2.5% Max PIK)		1.0%	11/20/20			23,720			23,361			23,513
ABB CONCISE Optical Group LLC	(s)	Retailing	L+500		1.0%	6/15/23			2,754			2,763			2,610
Accuride Corp	(s)	Capital Goods	L+525		1.0%	11/17/23			537			519			475
Acosta Holdco Inc	(h)(s)	Commercial & Professional Services	L+325		1.0%	9/26/21			6,609			5,355			2,450
Advanced Lighting Technologies Inc	(t)	Materials	L+750		1.0%	10/4/22			9,079			8,005			8,898
Advantage Sales & Marketing Inc	(i)(s)	Commercial & Professional Services	L+325		1.0%	7/23/21			15,290			14,715			14,033
All Systems Holding LLC	(g)(h)(i)	Commercial & Professional Services	L+767		1.0%	10/31/23			111,623			111,622			112,739
Altus Power America Inc	(i)	Energy	L+750		1.5%	9/30/21			3,547			3,547			3,387
Altus Power America Inc	(n)	Energy	L+750		1.5%	9/30/21			203			203			194
American Tire Distributors Inc	(s)	Automobiles & Components	L+600, 1.0% PIK (1.0% Max PIK)		1.0%	9/1/23			634			597			631
American Tire Distributors Inc	(s)	Automobiles & Components	L+750		1.0%	9/2/24			4,011			3,503			3,770
Ammeraal Beltech Holding BV	(m)(s)	Capital Goods	E+375			7/30/25		€	1,491			1,725			1,700
Apex Group Limited	(m)(n)	Diversified Financials	L+650			6/15/23		$	2,302			2,245			2,302
Apex Group Limited	(m)	Diversified Financials	L+700		1.0%	6/15/25		£	22,310			28,335			28,337
Apex Group Limited	(i)(m)	Diversified Financials	L+700		1.0%	6/15/25		$	34,939			34,702			34,939
Apex Group Limited	(f)(g)(m)	Diversified Financials	L+700		1.3%	6/15/25			15,486			15,211			15,486
Aspect Software Inc	(n)	Software & Services	L+500		1.0%	7/15/23			865			865			865
Aspect Software Inc	(h)	Software & Services	L+500		1.0%	1/15/24			5,642			5,018			4,993
ATX Networks Corp	(f)(m)(s)	Technology Hardware & Equipment	L+600, 1.0% PIK (1.0% Max PIK)		1.0%	6/11/21			26,301			25,940			24,920
AVF Parent LLC	(h)(i)	Retailing	L+725		1.3%	3/1/24			73,500			73,500			58,110
Belk Inc	(s)	Retailing	L+475		1.0%	12/12/22			22,482			19,902			18,239
Borden Dairy Co	(g)(h)	Food, Beverage & Tobacco	L+750		1.0%	7/6/23			52,500			52,500			47,677
Brand Energy & Infrastructure Services Inc	(s)	Capital Goods	L+425		1.0%	6/21/24			2,322			2,281			2,249
Caprock Midstream LLC	(s)	Energy	L+475			11/3/25			6,046			5,923			5,769
CEPSA Holdco (Matador Bidco)	(j)(m)(s)	Energy	L+475			6/19/26			1,877			1,858			1,886
CHS/Community Health Systems, Inc.	(m)(s)	Health Care Equipment & Services	8.0%			3/15/26			6,585			6,394			6,345
Cimarron Energy Inc		Energy	L+900		1.0%	6/30/21			7,500			7,500			7,500
Conservice LLC	(h)	Consumer Services	L+525			11/30/24			32,505			32,204			32,707
Conservice LLC	(n)	Consumer Services	L+525			11/30/24			5,275			5,243			5,291

See notes to unaudited consolidated financial statements.

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FS Investment Corporation II

Unaudited Consolidated Schedule of Investments (continued)
As of June 30, 2019
(in thousands, except share amounts)

Portfolio Company(a)	Footnotes	Industry	Rate(b)	Floor		Maturity	Principal Amount(c)			Amortized Cost			Fair Value(d)
Constellis Holdings LLC/Constellis Finance Corp	(h)	Capital Goods	L+625		1.0%	4/15/22		$	47,088		$	46,474		$	43,575
CSafe Global	(n)	Capital Goods	L+650		1.0%	11/1/21			6,261			6,261			6,229
CSafe Global	(n)	Capital Goods	L+650		1.0%	10/31/23			12,522			12,522			12,522
CSafe Global	(f)(g)(h)	Capital Goods	L+650		1.0%	10/31/23			59,597			59,597			59,597
CSM Bakery Products	(i)(s)	Food, Beverage & Tobacco	L+400		1.0%	7/3/20			5,217			5,110			4,985
Dayton Superior Corp	(i)(s)	Materials	L+800, 6.0% PIK (6.0% Max PIK)		1.0%	11/15/21			3,508			3,465			1,894
Diamond Resorts International Inc	(i)(s)	Consumer Services	L+375		1.0%	9/2/23			14,015			13,751			13,283
Distribution International Inc	(s)	Retailing	L+575		1.0%	12/15/21			3,389			3,260			3,254
Eagle Family Foods Inc		Food, Beverage & Tobacco	L+650		1.0%	6/14/23			1,009			1,000			970
Eagle Family Foods Inc	(n)	Food, Beverage & Tobacco	L+650		1.0%	6/14/23			3,117			3,089			2,999
Eagle Family Foods Inc	(g)(h)	Food, Beverage & Tobacco	L+650		1.0%	6/14/24			27,231			26,965			26,200
Eagleclaw Midstream Ventures LLC	(i)(s)	Energy	L+425		1.0%	6/24/24			11,397			10,900			10,852
EIF Van Hook Holdings LLC	(i)(s)	Energy	L+525			9/5/24			7,239			7,107			7,000
Empire Today LLC	(f)(g)(h)(i)	Retailing	L+650		1.0%	11/17/22			87,750			87,750			87,324
Fairway Group Holdings Corp		Food & Staples Retailing	4.0%, 11.0% PIK (11.0% Max PIK)			8/28/23			452			450			452
Fairway Group Holdings Corp	(n)	Food & Staples Retailing	4.0%, 11.0% PIK (11.0% Max PIK)			8/28/23			227			227			227
Fairway Group Holdings Corp		Food & Staples Retailing	4.0%, 11.0% PIK (11.0% Max PIK)		1.0%	8/28/23			1,130			1,117			1,130
Fairway Group Holdings Corp	(k)(l)	Food & Staples Retailing	10.0% PIK (10.0% Max PIK)			11/27/23			2,064			1,733			160
Fairway Group Holdings Corp		Food & Staples Retailing	12.0% PIK (12.0% Max PIK)		1.0%	11/27/23			3,261			3,261			3,062
Foresight Energy LLC	(h)(m)(s)	Materials	L+575		1.0%	3/28/22			10,319			10,307			8,500
Fox Head Inc	(h)(i)	Consumer Durables & Apparel	L+850		1.0%	12/19/20			50,672			50,672			47,528
FullBeauty Brands Holdings Corp		Retailing	L+1,000		1.0%	2/7/22			188			188			184
FullBeauty Brands Holdings Corp	(s)	Retailing	L+900		1.0%	2/7/24			1,097			1,071			1,042
Gulf Finance LLC	(i)(s)	Energy	L+525		1.0%	8/25/23			4,664			4,571			3,834
HM Dunn Co Inc	(h)(k)(l)(t)	Capital Goods	L+875 PIK (L+875 Max PIK)		1.0%	6/30/21			46,386			38,571			12,524
HM Dunn Co Inc	(t)	Capital Goods	15.0% PIK (15.0% Max PIK)			6/30/21			2,190			2,190			2,190
HM Dunn Co Inc	(n)(t)	Capital Goods	15.0% PIK (15.0% Max PIK)			6/30/21			2,143			2,143			2,143
Hudson Technologies Co	(m)	Commercial & Professional Services	L+1,025		1.0%	10/10/23			50,460			50,065			34,628
Icynene Group Ltd	(f)(h)(i)	Materials	L+700		1.0%	11/30/24			35,460			35,460			34,957
Industry City TI Lessor LP	(h)	Consumer Services	10.8%, 1.0% PIK (1.0% Max PIK)			6/30/26			11,089			11,089			12,031
JAKKS Pacific Inc	(h)	Consumer Durables & Apparel	L+900		1.5%	6/14/21			2,793			2,778			2,815
JC Penney Corp Inc	(m)(s)	Retailing	L+425		1.0%	6/23/23			1,188			1,139			1,038

See notes to unaudited consolidated financial statements.

TABLE OF CONTENTS

FS Investment Corporation II

Unaudited Consolidated Schedule of Investments (continued)
As of June 30, 2019
(in thousands, except share amounts)

Portfolio Company(a)	Footnotes	Industry	Rate(b)	Floor		Maturity	Principal Amount(c)			Amortized Cost			Fair Value(d)
Jo-Ann Stores Inc	(i)(s)	Retailing	L+500		1.0%	10/20/23		$	4,890		$	4,882		$	4,442
Jostens Inc	(s)	Consumer Services	L+550			12/19/25			3,499			3,401			3,464
JSS Holdings Ltd	(f)(h)(i)	Capital Goods	L+800, 0.0% PIK (2.5% Max PIK)		1.0%	3/31/23			72,890			72,384			75,076
Kodiak BP LLC	(g)(h)(i)	Capital Goods	L+725		1.0%	12/1/24			112,680			112,680			111,553
Kodiak BP LLC	(n)	Capital Goods	L+725		1.0%	12/1/24			7,344			7,344			7,270
Lazard Global Compounders Fund	(m)	Diversified Financials	L+725		3.8%	4/1/26			39,843			39,843			38,997
Lazard Global Compounders Fund	(m)(n)	Diversified Financials	L+725		3.8%	4/1/26			5,157			5,157			5,047
LD Intermediate Holdings Inc	(i)(s)	Software & Services	L+588		1.0%	12/9/22			15,725			14,791			15,646
Lenovo Group Ltd	(m)	Technology Hardware & Equipment	9.56%			6/30/22			15,881			15,881			15,881
Lenovo Group Ltd	(m)	Technology Hardware & Equipment	9.56%			6/30/22		€	7,557			8,593			8,596
Lipari Foods LLC	(h)(i)	Food & Staples Retailing	L+588		1.0%	1/4/25		$	121,878			120,944			121,637
Lipari Foods LLC	(n)	Food & Staples Retailing	L+588		1.0%	1/4/25			25,220			25,220			25,170
MB Precision Holdings LLC	(g)(t)	Capital Goods	L+725, 2.3% PIK (2.3% Max PIK)		1.3%	1/23/21			21,403			20,923			21,403
Mitel US Holdings Inc	(i)(s)	Technology Hardware & Equipment	L+450			11/30/25			119			119			114
Monitronics International Inc	(j)(s)	Commercial & Professional Services	L+550		1.0%	9/30/22			17,954			17,324			17,152
Multi-Color Corp	(j)(m)(s)	Commercial & Professional Services	6.8%			7/15/26			4,007			4,007			4,059
Murray Energy Corp	(h)	Energy	L+900		1.0%	2/12/21			10,891			10,837			10,868
NaviHealth Inc.	(i)(s)	Health Care Equipment & Services	L+500			8/1/25			15,035			14,402			14,960
North Haven Cadence Buyer Inc	(n)	Consumer Services	L+500		1.0%	9/2/21			2,625			2,625			2,625
North Haven Cadence Buyer Inc	(h)	Consumer Services	L+650		1.0%	9/2/22			24,899			24,899			24,775
North Haven Cadence Buyer Inc	(n)	Consumer Services	L+650		1.0%	9/2/22			292			292			290
North Haven Cadence Buyer Inc	(h)(i)	Consumer Services	L+795		1.0%	9/2/22			51,188			51,188			50,932
One Call Care Management Inc	(j)(s)	Insurance	L+400		1.0%	11/27/20			253			223			219
One Call Care Management Inc	(j)(s)	Insurance	L+525		1.0%	11/27/22			5,806			4,908			4,742
P2 Energy Solutions, Inc.	(s)	Software & Services	L+400		1.0%	10/30/20			74			73			73
PAE Holding Corp	(s)	Capital Goods	L+550		1.0%	10/20/22			9			9			9
Peak 10 Holding Corp	(g)(s)	Telecommunication Services	L+350			8/1/24			11,012			10,287			10,145
PF Chang’s China Bistro Inc	(s)	Consumer Services	L+650			3/1/26			5,803			5,747			5,609
PHRC License LLC	(g)(h)	Consumer Services	L+850, 0.3% PIK (0.3% Max PIK)		1.5%	4/28/22			66,535			66,535			67,283
Power Distribution Inc	(f)	Capital Goods	L+725		1.3%	1/25/23			42,063			42,063			41,117

See notes to unaudited consolidated financial statements.

TABLE OF CONTENTS

FS Investment Corporation II

Unaudited Consolidated Schedule of Investments (continued)
As of June 30, 2019
(in thousands, except share amounts)

Portfolio Company(a)	Footnotes	Industry	Rate(b)	Floor		Maturity	Principal Amount(c)			Amortized Cost			Fair Value(d)
Production Resource Group LLC	(f)(g)(h)(i)	Media	L+700		1.0%	8/21/24		$	207,992		$	207,992		$	202,793
Propulsion Acquisition LLC	(f)(h)(i)(s)	Capital Goods	L+600		1.0%	7/13/21			52,322			51,228			51,798
PSKW LLC	(f)(h)	Health Care Equipment & Services	L+823		1.0%	11/25/21			41,312			41,276			41,312
PSKW LLC	(f)(h)	Health Care Equipment & Services	L+824		1.0%	11/25/21			14,713			14,713			14,713
Reliant Rehab Hospital Cincinnati LLC	(h)	Health Care Equipment & Services	L+675		1.0%	8/30/24			59,862			59,373			59,017
Roadrunner Intermediate Acquisition Co LLC	(f)	Health Care Equipment & Services	L+675		1.0%	3/15/23			6,924			6,923			6,373
Safariland LLC		Capital Goods	L+725		1.1%	11/18/23			745			745			713
Safariland LLC	(g)(h)	Capital Goods	L+775		1.1%	11/18/23			69,053			69,053			66,119
Savers Inc		Retailing	L+650, 0.8% PIK (0.8% Max PIK)		1.5%	3/28/24		C$	36,422			26,804			27,533
Savers Inc		Retailing	L+650, 0.8% PIK (0.8% Max PIK)		1.5%	3/28/24		$	26,227			25,913			25,954
Sequa Corp	(i)(j)(s)	Materials	L+500		1.0%	11/28/21			18,863			18,636			18,493
Sequel Youth & Family Services LLC	(h)	Health Care Equipment & Services	L+700		1.0%	9/1/23			12,168			12,168			12,289
Sequel Youth & Family Services LLC	(f)(h)(i)	Health Care Equipment & Services	L+800			9/1/23			70,000			70,000			70,700
Sequential Brands Group Inc.	(g)	Consumer Durables & Apparel	L+875			2/7/24			117,336			115,490			116,309
SI Group Inc	(s)	Materials	L+475			10/15/25			2,908			2,806			2,875
SIRVA Worldwide Inc	(i)(s)	Commercial & Professional Services	L+550			8/4/25			2,742			2,705			2,668
Smart & Final Stores LLC	(m)(s)	Food & Staples Retailing	L+675			6/20/25			17,789			16,013			16,521
Smart Foodservice	(m)(s)	Food & Staples Retailing	L+475			6/20/26			2,528			2,503			2,537
Sorenson Communications LLC	(i)(s)	Telecommunication Services	L+650			4/29/24			55,946			53,768			56,156
Staples Canada	(m)	Retailing	L+700		1.0%	9/12/24		C$	51,070			39,517			39,767
Sungard Availability Services Capital Inc		Software & Services	L+750		1.0%	2/3/22		$	734			712			760
Sungard Availability Services Capital Inc	(n)	Software & Services	L+750		1.0%	2/3/22			734			712			760
Sutherland Global Services Inc	(h)(i)(m)(s)	Software & Services	L+538		1.0%	4/23/21			12,956			12,522			12,853
Swift Worldwide Resources Holdco Ltd	(f)(g)	Energy	L+1,000, 1.0% PIK (1.0% Max PIK)		1.0%	7/20/21			19,650			19,650			19,650
Tangoe LLC	(h)	Software & Services	L+650		1.0%	11/28/25			51,764			51,279			51,402
Team Health Inc	(s)	Health Care Equipment & Services	L+275		1.0%	2/6/24			77			71			69
Torrid Inc	(g)	Retailing	L+675		1.0%	12/14/24			20,060			19,837			19,835
Trace3 Inc	(f)(g)(h)(i)	Software & Services	L+675		1.0%	8/3/24			160,775			160,775			159,168

See notes to unaudited consolidated financial statements.

TABLE OF CONTENTS

FS Investment Corporation II

Unaudited Consolidated Schedule of Investments (continued)
As of June 30, 2019
(in thousands, except share amounts)

Portfolio Company(a)	Footnotes	Industry	Rate(b)	Floor		Maturity	Principal Amount(c)			Amortized Cost			Fair Value(d)
Vertiv Group Corp	(j)(s)	Technology Hardware & Equipment	L+400		1.0%	11/30/23		$	10,975		$	10,519		$	10,454
Virgin Pulse Inc	(h)(i)	Software & Services	L+650		1.0%	5/22/25			79,490			78,926			79,097
Vivint Inc	(i)(s)	Commercial & Professional Services	L+500			4/1/24			18,490			18,446			17,704
Warren Resources Inc	(t)	Energy	L+1,000, 1.0% PIK (1.0% Max PIK)		1.0%	5/22/20			14,734			14,734			14,734
York Risk Services Group Inc	(j)(s)	Insurance	L+375		1.0%	10/1/21			8,182			7,819			7,758
Zeta Interactive Holdings Corp	(f)(h)	Software & Services	L+750		1.0%	7/29/22			40,398			40,398			40,802
Zeta Interactive Holdings Corp	(n)	Software & Services	L+750		1.0%	7/29/22			3,286			3,286			3,319
Total Senior Secured Loans—First Lien												3,058,712			2,977,209
Unfunded Loan Commitments												(113,705)			(113,705)
Net Senior Secured Loans—First Lien												2,945,007			2,863,504
Senior Secured Loans—Second Lien—14.5%
Access CIG LLC	(s)	Software & Services	L+775			2/27/26			1,326			1,341			1,321
Advantage Sales & Marketing Inc	(s)	Commercial & Professional Services	L+650		1.0%	7/25/22			2,291			2,065			1,825
American Bath Group LLC	(i)(s)	Capital Goods	L+975		1.0%	9/30/24			7,000			6,623			7,000
Ammeraal Beltech Holding BV	(h)(m)	Capital Goods	L+800			7/27/26			52,309			51,337			51,053
Arena Energy LP	(f)(h)	Energy	L+1,300 PIK (L+1,300 Max PIK)		1.0%	1/24/21			26,390			26,390			26,389
athenahealth Inc	(h)	Health Care Equipment & Services	L+850			2/11/27			65,229			64,605			65,737
Bellatrix Exploration Ltd	(m)	Energy	8.5%			9/11/23			6,372			5,981			5,778
Byrider Finance LLC		Automobiles & Components	L+1,000, 0.5% PIK (4.0% Max PIK)		1.3%	8/22/20			29,769			29,769			29,508
Chisholm Oil & Gas Operating LLC	(h)	Energy	L+800		1.0%	3/21/24			16,000			16,000			15,735
Crossmark Holdings Inc	(i)(k)(l)(s)	Media	L+750		1.3%	12/21/20			7,778			7,786			58
Emerald Performance Materials LLC	(j)(s)	Materials	L+775		1.0%	8/1/22			230			227			226
Excelitas Technologies Corp	(s)	Technology Hardware & Equipment	L+750		1.0%	12/1/25			3,101			3,120			3,111
Fairway Group Holdings Corp	(k)(l)	Food & Staples Retailing	11.0% PIK (11.0% Max PIK)			2/24/24			1,843			1,520			—
Gruden Acquisition Inc	(h)(s)	Transportation	L+850		1.0%	8/18/23			15,000			14,552			14,925
LBM Borrower LLC	(f)(h)(i)(s)	Capital Goods	L+925		1.0%	8/20/23			29,332			29,109			28,746
One Call Care Management Inc	(h)	Insurance	L+375, 6.0% PIK (6.0% Max PIK)		1.0%	4/11/24			12,866			12,763			11,134
OPE Inmar Acquisition Inc	(i)(s)	Software & Services	L+800		1.0%	5/1/25			2,615			2,585			2,458
P2 Energy Solutions, Inc.	(i)(s)	Software & Services	L+800		1.0%	4/30/21			14,500			14,593			14,246
Paradigm Acquisition Corp	(s)	Health Care Equipment & Services	L+750			10/26/26			1,599			1,595			1,591
Peak 10 Holding Corp	(i)(s)	Telecommunication Services	L+725		1.0%	8/1/25			5,814			5,640			4,902
Pure Fishing Inc	(i)	Consumer Durables & Apparel	L+838		1.0%	12/31/26			46,828			46,380			44,170

See notes to unaudited consolidated financial statements.

TABLE OF CONTENTS

FS Investment Corporation II

Unaudited Consolidated Schedule of Investments (continued)
As of June 30, 2019
(in thousands, except share amounts)

Portfolio Company(a)	Footnotes	Industry	Rate(b)	Floor		Maturity	Principal Amount(c)			Amortized Cost			Fair Value(d)
Rise Baking Company	(i)	Food, Beverage & Tobacco	L+800		1.0%	8/9/26		$	17,990		$	17,824		$	17,718
Sequa Corp	(i)(s)	Materials	L+900		1.0%	4/28/22			7,462			7,422			7,163
SIRVA Worldwide Inc	(i)(s)	Commercial & Professional Services	L+950			8/3/26			2,494			2,319			2,170
SMG/PA	(s)	Consumer Services	L+700			1/23/26			3,641			3,670			3,692
Sorenson Communications LLC	(h)	Telecommunication Services	11.5% PIK (11.5% Max PIK)			4/30/25			5,489			5,317			5,489
Titan Energy LLC	(h)(k)(l)	Energy	L+1,300 PIK (L+1,300 Max PIK)		1.0%	2/23/20			91,946			67,595			670
WireCo WorldGroup Inc	(s)	Capital Goods	L+900		1.0%	9/30/24			5,115			5,174			5,115
Total Senior Secured Loans—Second Lien												453,302			371,930
Other Senior Secured Debt—8.3%
Advanced Lighting Technologies Inc	(k)(l)(t)	Materials	L+1,700 PIK (L+1,700 Max PIK)		1.0%	10/4/23			13,112			10,663			164
Akzo Nobel Specialty Chemicals	(m)(s)	Materials	8.0%			10/1/26			6,305			6,283			6,510
Artesyn Embedded Technologies Inc	(s)	Technology Hardware & Equipment	9.8%			10/15/20			2,238			2,168			2,277
Black Swan Energy Ltd	(m)	Energy	9.0%			1/20/24			1,333			1,333			1,313
Enterprise Development Authority/The	(s)	Consumer Services	12.0%			7/15/24			3,356			3,489			3,658
FourPoint Energy LLC	(h)(i)	Energy	9.0%			12/31/21			46,313			45,347			45,618
Frontier Communications Corp	(m)(s)	Telecommunication Services	8.5%			4/1/26			10,722			10,385			10,427
Genesys Telecommunications Laboratories Inc	(s)	Technology Hardware & Equipment	10.0%			11/30/24			144			158			157
JC Penney Corp Inc	(m)(s)	Retailing	5.7%			6/1/20			126			118			114
JW Aluminum Co	(h)(s)(t)	Materials	10.3%			6/1/26			33,001			33,001			34,816
Lycra	(g)(m)(s)	Consumer Durables & Apparel	7.5%			5/1/25			6,732			6,732			6,421
Mood Media Corp	(h)(t)	Media	L+1,400 PIK (L+1,400 Max PIK)			12/31/23			40,563			39,429			40,563
MultiPlan Inc	(s)	Health Care Equipment & Services	7.1%			6/1/24			6,952			7,004			6,554
Numericable-SFR	(m)(s)	Software & Services	8.1%			2/1/27			917			917			965
PAREXEL International Corp	(s)	Pharmaceuticals, Biotechnology & Life Sciences	6.4%			9/1/25			72			70			67
Pattonair Holdings Ltd	(j)(m)(s)	Capital Goods	9.0%			11/1/22			6,767			6,959			6,970
Ply Gem Holdings Inc	(s)	Capital Goods	8.0%			4/15/26			7,807			7,470			7,631
Sungard Availability Services Capital Inc	(f)	Software & Services	L+400, 2.5% PIK (2.5% Max PIK)		1.0%	11/3/22			3,297			3,297			3,297
Sunnova Energy Corp		Energy	9.5%			3/30/21			1,157			1,182			1,185
Velvet Energy Ltd	(i)(m)	Energy	9.0%			10/5/23			15,000			15,000			15,675

See notes to unaudited consolidated financial statements.

TABLE OF CONTENTS

FS Investment Corporation II

Unaudited Consolidated Schedule of Investments (continued)
As of June 30, 2019
(in thousands, except share amounts)

Portfolio Company(a)	Footnotes	Industry	Rate(b)	Floor	Maturity	Principal Amount(c)			Amortized Cost			Fair Value(d)
Vivint Inc	(g)(h)(s)	Commercial & Professional Services	7.9%		12/1/22		$	11,307		$	11,102		$	10,897
Vivint Inc	(h)(s)	Commercial & Professional Services	7.6%		9/1/23			7,309			6,758			5,920
Total Other Senior Secured Debt											218,865			211,199
Subordinated Debt—8.5%
All Systems Holding LLC		Commercial & Professional Services	10.0% PIK (10.0% Max PIK)		10/31/22			206			206			206
Ascent Resources Utica Holdings LLC/ARU Finance Corp	(h)(i)(s)	Energy	10.0%		4/1/22			26,026			26,026			27,682
athenahealth Inc		Health Care Equipment & Services	L+1,125 PIK (L+1,125 Max PIK)					32,614			32,614			33,032
Avantor Inc	(i)(s)	Pharmaceuticals, Biotechnology & Life Sciences	9.0%		10/1/25			20,000			20,000			22,350
Byrider Finance LLC		Automobiles & Components	20.0% PIK (20.0% Max PIK)		3/31/22			1,765			1,765			1,765
CEC Entertainment Inc	(s)	Consumer Services	8.0%		2/15/22			3,728			3,682			3,770
ClubCorp Club Operations Inc	(h)(s)	Consumer Services	8.5%		9/15/25			10,733			10,381			10,009
Diamond Resorts International Inc	(s)	Consumer Services	10.8%		9/1/24			3,048			3,181			3,018
Eclipse Resources Corp	(m)(s)	Energy	8.9%		7/15/23			8,175			8,073			6,928
GFL Environmental Inc	(m)(s)	Commercial & Professional Services	8.5%		5/1/27			8,827			9,076			9,522
Hub International Ltd	(s)	Insurance	7.0%		5/1/26			3,518			3,469			3,575
Intelsat Jackson Holdings SA	(m)(s)	Media	5.5%		8/1/23			5,752			5,231			5,277
Ken Garff Automotive LLC	(s)	Retailing	7.5%		8/15/23			6,004			6,050			6,244
LifePoint Hospitals Inc	(s)	Health Care Equipment & Services	9.8%		12/1/26			9,259			9,287			9,722
Logan’s Roadhouse Inc	(l)	Consumer Services			11/1/24			4,907			4,861			4,907
Plastipak Holdings Inc	(s)	Materials	6.3%		10/15/25			974			911			886
Quorum Health Corp	(s)	Health Care Equipment & Services	11.6%		4/15/23			2,396			2,384			2,097
SRS Distribution Inc	(h)(s)	Capital Goods	8.3%		7/1/26			11,667			11,486			11,375
Stars Group Holdings BV	(m)(s)	Consumer Services	7.0%		7/15/26			1,438			1,438			1,524
Team Health Inc	(s)	Health Care Equipment & Services	6.4%		2/1/25			6,901			6,017			5,314
Vertiv Group Corp	(h)(s)	Technology Hardware & Equipment	9.3%		10/15/24			16,553			16,390			15,932
Vivint Inc	(h)(s)	Commercial & Professional Services	8.8%		12/1/20			5,813			5,666			5,537
York Risk Services Group Inc	(h)(i)(s)	Insurance	8.5%		10/1/22			33,473			31,517			27,699
Total Subordinated Debt											219,711			218,371

See notes to unaudited consolidated financial statements.

TABLE OF CONTENTS

FS Investment Corporation II

Unaudited Consolidated Schedule of Investments (continued)
As of June 30, 2019
(in thousands, except share amounts)

Portfolio Company(a)	Footnotes	Industry	Rate(b)	Floor	Maturity	Principal Amount(c)/ Shares			Cost			Fair Value(d)
Asset Based Finance—3.7%
Abacus JV, Private Equity	(m)	Insurance						8,497,569		$	8,498		$	8,498
Altavair NewCo, Private Equity	(l)(m)	Capital Goods						3,429,458			3,429			3,608
Altus Power America Inc, Preferred Stock	(r)	Energy	9.0%, 5.0% PIK (5.0% Max PIK)		10/3/23			1,107,723			1,108			1,097
Australis Maritime, Private Equity	(l)(m)	Transportation						5,448,630			5,449			5,449
CGMS CLO 2013-3A Class Subord., 7/15/2025	(m)	Commercial & Professional Services	7.4%		7/15/25		$	23,263			8,901			11,549
Global Jet Capital LLC, Preferred Stock	(e)(l)	Commercial & Professional Services						7,806,703			7,807			781
Global Jet Capital LLC, Structured Mezzanine		Commercial & Professional Services	15.0% PIK (15.0% Max PIK)		1/30/25		$	1,062			1,017			1,056
Global Jet Capital LLC, Structured Mezzanine		Commercial & Professional Services	15.0% PIK (15.0% Max PIK)		4/30/25		$	6,748			6,463			6,714
Global Jet Capital LLC, Structured Mezzanine		Commercial & Professional Services	15.0% PIK (15.0% Max PIK)		9/3/25		$	1,395			1,336			1,387
Global Jet Capital LLC, Structured Mezzanine		Commercial & Professional Services	15.0% PIK (15.0% Max PIK)		9/29/25		$	1,313			1,257			1,306
Global Jet Capital LLC, Structured Mezzanine	(e)	Commercial & Professional Services	15.0% PIK (15.0% Max PIK)		12/4/25		$	7,926			7,591			7,886
Global Jet Capital LLC, Structured Mezzanine	(e)(m)	Commercial & Professional Services	15.0% PIK (15.0% Max PIK)		12/4/25		$	1,765			1,690			1,756
Global Jet Capital LLC, Structured Mezzanine	(e)	Commercial & Professional Services	15.0% PIK (15.0% Max PIK)		12/9/25		$	182			175			181
Global Jet Capital LLC, Structured Mezzanine	(e)(m)	Commercial & Professional Services	15.0% PIK (15.0% Max PIK)		12/9/25		$	1,403			1,343			1,396
Global Jet Capital LLC, Structured Mezzanine	(e)	Commercial & Professional Services	15.0% PIK (15.0% Max PIK)		1/29/26		$	679			650			675
Global Jet Capital LLC, Structured Mezzanine	(e)(m)	Commercial & Professional Services	15.0% PIK (15.0% Max PIK)		1/29/26		$	151			145			151
Global Jet Capital LLC, Structured Mezzanine		Commercial & Professional Services	15.0% PIK (15.0% Max PIK)		12/2/26		$	2,511			2,405			2,499
Home Partners JV, Common Stock	(l)(m)	Real Estate						6,514,831			6,515			6,515
Home Partners JV, Private Equity	(l)(m)(s)	Real Estate						351,531			352			94
Home Partners JV, Structured Mezzanine	(m)	Real Estate	11.0% PIK (11.0% Max PIK)		3/25/29		$	13,030			13,030			13,030
Home Partners JV, Structured Mezzanine	(m)(n)	Real Estate	11.0% PIK (11.0% Max PIK)		3/25/29		$	13,030			13,030			13,030
NewStar Clarendon 2014-1A Class D	(m)	Diversified Financials	15.4%		1/25/27		$	12,140			7,389			7,649
Pretium Partners LLC, Structured Mezzanine	(m)	Real Estate	9.5%		5/29/25		$	11,292			11,292			11,292
Total Asset Based Finance											110,872			107,599
Unfunded Commitments											(13,030)			(13,030)
Net Asset Based Finance											97,842			94,569

See notes to unaudited consolidated financial statements.

TABLE OF CONTENTS

FS Investment Corporation II

Unaudited Consolidated Schedule of Investments (continued)
As of June 30, 2019
(in thousands, except share amounts)

Portfolio Company(a)	Footnotes	Industry	Rate(b)		Floor	Maturity		Principal Amount(c)/ Shares		Amortized Cost			Fair Value(d)
Equity/Other—11.0%
Abaco Energy Technologies LLC, Common Stock	(l)	Energy							3,055,556		$	3,055		$	1,270
Abaco Energy Technologies LLC, Preferred Stock	(l)	Energy							12,734,481			637			6,686
Advanced Lighting Technologies Inc, Common Stock	(l)(t)	Materials							219,154			7,471			—
Advanced Lighting Technologies Inc, Warrant	(l)(t)	Materials					10/4/27		50,782			39			—
All Systems Holding LLC, Common Stock	(l)	Commercial & Professional Services							1,240,204			1,201			1,704
Ascent Resources Utica Holdings LLC/ARU Finance Corp, Common Stock	(l)(o)	Energy							13,556			12,900			4,284
Ascent Resources Utica Holdings LLC/ARU Finance Corp, Trade Claim	(o)	Energy							115,178,571			25,800			36,396
ASG Technologies, Common Stock	(l)(t)	Software & Services							625,178			13,475			36,285
ASG Technologies, Warrant	(l)(t)	Software & Services					6/27/22		253,704			7,231			9,207
Aspect Software Inc, Common Stock	(h)(l)	Software & Services							304,599			493			484
Aspect Software Inc, Warrant	(h)(l)	Software & Services					1/15/24		304,120			—			—
ATX Networks Corp, Common Stock	(l)(m)	Technology Hardware & Equipment							72,635			116			67
Bellatrix Exploration Ltd	(l)(m)	Energy					9/11/23		127,489			—			22
Byrider Finance LLC, Common Stock	(l)	Automobiles & Components							1,389			—			—
Catalina Marketing Corp, Common Stock	(l)	Media							6,522			—			—
Chisholm Oil & Gas Operating LLC, Series A Units	(l)(p)	Energy							75,000			75			35
Cimarron Energy Inc, Common Stock	(l)	Energy							4,302,293			3,950			176
Cimarron Energy Inc, Participation Option	(l)	Energy							25,000,000			1,289			1,025
CSafe Global, Common Stock	(l)	Capital Goods							417,400			417			772
Empire Today LLC, Common Stock	(l)	Retailing							411			1,227			1,699
Envigo Laboratories Inc, Series A Warrant	(h)(l)	Health Care Equipment & Services					4/29/24		10,924			—			—
Envigo Laboratories Inc, Series B Warrant	(h)(l)	Health Care Equipment & Services					4/29/24		17,515			—			—
Fairway Group Holdings Corp, Common Stock	(l)	Food & Staples Retailing							31,626			1,016			—
FourPoint Energy LLC, Common Stock, Class C—II—A Units	(l)(p)	Energy							13,000			13,000			3,001
FourPoint Energy LLC, Common Stock, Class D Units	(l)(p)	Energy							2,437			1,610			568
FourPoint Energy LLC, Common Stock, Class E—II Units	(l)(p)	Energy							29,730			7,432			6,864
FourPoint Energy LLC, Common Stock, Class E—III Units	(l)(p)	Energy							43,875			10,969			10,130
Fox Head Inc, Common Stock	(e)(l)	Consumer Durables & Apparel							8,857,143			8,857			1,332
FullBeauty Brands Holdings Corp, Common Stock	(l)	Retailing							5,583			26			58
Harvey Industries Inc, Common Stock	(l)	Capital Goods							666,667			667			2,660
HM Dunn Co Inc, Preferred Stock, Series A	(h)(l)(t)	Capital Goods							12,857			—			—
HM Dunn Co Inc, Preferred Stock, Series B	(h)(l)(t)	Capital Goods							12,857			—			—
JHC Acquisition LLC, Common Stock	(l)	Capital Goods							1,449			1,449			1,739
JSS Holdings Ltd, Net Profits Interest	(l)	Capital Goods							27			—			404
JW Aluminum Co, Common Stock	(e)(i)(l)(t)	Materials							548			—			—
JW Aluminum Co, Preferred Stock	(e)(i)(t)	Materials		12.5%PIK			2/15/28		4,869			35,851			58,872

See notes to unaudited consolidated financial statements.

TABLE OF CONTENTS

FS Investment Corporation II

Unaudited Consolidated Schedule of Investments (continued)
As of June 30, 2019
(in thousands, except share amounts)

Portfolio Company(a)	Footnotes	Industry	Rate(b)	Floor	Maturity		Principal Amount(c)/ Shares		Amortized Cost			Fair Value(d)
MB Precision Holdings LLC, Class A—2 Units	(g)(h)(l)(p)(t)	Capital Goods						6,655,178		$	2,288		$	—
MB Precision Holdings LLC, Preferred Stock	(g)(l)(t)	Capital Goods						41,778,909			8,774			2,430
Mood Media Corp, Common Stock	(l)(t)	Media						17,400,835			12,644			6,125
North Haven Cadence Buyer Inc, Common Stock	(l)	Consumer Services						2,916,667			2,917			5,614
Power Distribution Inc, Common Stock	(l)	Capital Goods						2,912,147			2,495			888
Professional Plumbing Group Inc, Common Stock	(e)(l)	Materials						3,000,000			3,000			6,915
Ridgeback Resources Inc, Common Stock	(e)(l)(m)	Energy						817,308			5,022			4,433
Sequential Brands Group Inc., Common Stock	(e)(l)(s)	Consumer Durables & Apparel						408,685			5,517			225
Sorenson Communications LLC, Common Stock	(e)(l)	Telecommunication Services						43,796			—			34,671
SSC (Lux) Limited S.a r.l., Common Stock	(l)(m)	Health Care Equipment & Services						261,364			5,227			6,545
Sungard Availability Services Capital Inc	(f)(l)	Software & Services						57,588			4,025			4,025
Sunnova Energy Corp, Common Stock	(l)	Energy						384,746			1,444			1,568
Sunnova Energy Corp, Preferred Stock	(l)	Energy						70,229			374			444
Swift Worldwide Resources Holdco Ltd, Common Stock	(l)	Energy						1,250,000			2,010			638
Templar Energy LLC, Common Stock	(e)(l)(p)(s)	Energy						717,718			6,101			718
Templar Energy LLC, Preferred Stock	(e)(l)(s)	Energy						475,758			4,751			—
Titan Energy LLC, Common Stock	(e)(l)(s)	Energy						200,039			6,322			8
Trace3 Inc, Common Stock	(l)	Software & Services						33,216			332			977
Warren Resources Inc, Common Stock	(l)(t)	Energy						2,371,337			11,145			6,047
White Star Petroleum LLC, Common Stock	(l)(p)	Energy						1,613,753			1,372			—
Zeta Interactive Holdings Corp, Preferred Stock, Series E—1	(l)	Software & Services						620,025			4,929			6,784
Zeta Interactive Holdings Corp, Preferred Stock, Series F	(l)	Software & Services						563,932			4,929			6,112
Zeta Interactive Holdings Corp, Warrant	(l)	Software & Services				4/20/27		84,590			—			229
Total Equity/Other											255,871			281,136
TOTAL INVESTMENTS—158.0%										$	4,190,598			4,040,709
LIABILITIES IN EXCESS OF OTHER ASSETS—(58.0%)														(1,483,045)
NET ASSETS—100.0%													$	2,557,664

A summary of outstanding financial instruments as of June 30, 2019 is as follows:

Interest rate swaps

Counterparty	Notional Amount			Company Receives Floating Rate	Company Pays Fixed Rate		Termination Date	Premiums Paid/ (Received)			Value			Unrealized Depreciation
JP Morgan Chase Bank		$	80,000	3-Month LIBOR		2.78%	12/18/2023		$	—		$	(3,881)		$	(3,881)
JP Morgan Chase Bank		$	80,000	3-Month LIBOR		2.81%	12/18/2021			—			(2,162)			(2,162)
ING Capital Markets		$	100,000	3-Month LIBOR		2.59%	1/14/2024			—			(4,055)			(4,055)
ING Capital Markets		$	100,000	3-Month LIBOR		2.62%	1/14/2022			—			(2,298)			(2,298)
									$	—		$	(12,396)		$	(12,396)

(a)

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

See notes to unaudited consolidated financial statements.

TABLE OF CONTENTS

FS Investment Corporation II

Unaudited Consolidated Schedule of Investments (continued)
As of June 30, 2019
(in thousands, except share amounts)

(b)

Certain variable rate securities in the Company’s portfolio bear interest at a rate determined by a publicly disclosed base rate plus a basis point spread. As of June 30, 2019, the three-month London Interbank Offered Rate, or LIBOR or “L”, was 2.32%, the Euro Interbank Offered Rate, or EURIBOR, was (0.35)%, Candian Dollar Offer Rate, or CDOR was 1.97%, and the U.S. Prime Lending Rate, or Prime, was 5.50%. PIK means paid-in-kind. PIK income accruals may be adjusted based on the fair value of the underlying investment.

(c)

Denominated in U.S. dollars unless otherwise noted.

(d)

Fair value determined by the Company’s board of directors (see Note 8).

(e)

Security or portion thereof held within Cobbs Creek LLC and is pledged as collateral supporting the amounts outstanding under the revolving credit facility with ING Capital LLC (see Note 9).

(f)

Security or portion thereof held within Cooper River LLC and is pledged as collateral supporting the amounts outstanding under the revolving credit facility with Citibank, N.A. (see Note 9).

(g)

Security or portion thereof held within Darby Creek LLC and is pledged as collateral supporting the amounts outstanding under a revolving credit facility with Deutsche Bank AG, New York Branch (see Note 9).

(h)

Security or portion thereof held within Juniata River LLC and is pledged as collateral supporting the amounts outstanding under a term loan credit facility with JPMorgan Chase Bank, N.A. (see Note 9).

(i)

Security or portion thereof held within Green Creek LLC and is pledged as collateral supporting the amounts outstanding under a term loan credit facility with Goldman Sachs Bank USA (see Note 9).

(j)

Position or portion thereof unsettled as of June 30, 2019.

(k)

Security was on non-accrual status as of June 30, 2019.

(l)

Security is non-income producing.

(m)

The investment is not a qualifying asset under the Investment Company Act of 1940, as amended. A business development company may not acquire any asset other than qualifying assets, unless, at the time the acquisition is made, qualifying assets represent at least 70% of the company’s total assets. As of June 30, 2019, 87.5% of the Company’s total assets represented qualifying assets.

(n)

Security is an unfunded commitment. The stated rate reflects the spread disclosed at the time of commitment and may not indicate the actual rate received upon funding.

(o)

Security held within IC II American Energy Investments, Inc., a wholly-owned subsidiary of the Company.

(p)

Security held within FSIC II Investments, Inc., a wholly-owned subsidiary of the Company.

(q)

Security held within IC II Arches Investments, LLC, a wholly-owned subsidiary of the Company.

(r)

Security held within IC II Altus Investments, LLC, a wholly-owned subsidiary of the Company.

(s)

Security is classified as Level 1 or Level 2 in the Company’s fair value hierarchy (see Note 8).

See notes to unaudited consolidated financial statements.

TABLE OF CONTENTS

FS Investment Corporation II

Unaudited Consolidated Schedule of Investments (continued)
As of June 30, 2019
(in thousands, except share amounts)

(t)

Under the Investment Company Act of 1940, as amended, the Company generally is deemed to be an “affiliated person” of a portfolio company if it owns 5% or more of the portfolio company’s voting securities and generally is deemed to “control” a portfolio company if it owns more than 25% of the portfolio company’s voting securities or it has the power to exercise control over the management or policies of such portfolio company. As of June 30, 2019, the Company held investments in portfolio companies of which it is deemed to be an “affiliated person” but is not deemed to “control”. The following table presents certain information with respect to investments in portfolio companies of which the Company was deemed to be an affiliated person for the six months ended June 30, 2019:

Portfolio Company	Fair Value at December 31, 2018			Gross Additions(1)			Gross Reductions(2)			Net Realized Gain (Loss)			Net Change in Unrealized Appreciation (Depreciation)			Fair Value at June 30, 2019			Interest Income(3)			PIK Income(3)			Fee Income(3)
Senior Secured Loans—First Lien
Advanced Lighting Technologies Inc		$	9,125		$	112		$	(46)		$	6		$	(299)		$	8,898		$	467		$	—		$	—
HM Dunn Co Inc			7,022			—			—			—			5,502			12,524			—			—			—
HM Dunn Co Inc (4)			—			2,190			—			—			—			2,190			—			47			43
MB Precision Holdings LLC			21,339			967			(584)			176			(495)			21,403			1,295			239			—
Warren Resources Inc			14,652			82			—			—			—			14,734			873			82			—
Senior Secured Loans—Second Lien																					—			—			—
JW Aluminum Co			—			—			—			—			—			—			—			—			—
Other Senior Secured Debt																					—			—			—
Advanced Lighting Technologies Inc			3,630			—			—			—			(3,466)			164			—			—			—
JW Aluminum Co			32,919			—			—			—			1,897			34,816			1,691			—			—
Mood Media Corp			28,478			11,046			—			—			1,039			40,563			2,600			1,139			—
Equity/Other																					—			—			—
Advanced Lighting Technologies Inc, Common Equity			—			—			—			—			—			—			—			—			—
Advanced Lighting Technologies Inc, Warrant			—			—			—			—			—			—			—			—	��		—
ASG Technologies, Common Equity			31,743			—			—			—			4,542			36,285			—			—			—
ASG Technologies, Warrants			7,364			—			—			—			1,843			9,207			—			—			—
HM Dunn Co Inc, Preferred Stock, Series A			—			—			—			—			—			—			—			—			—
HM Dunn Co Inc, Preferred Stock, Series B			—			—			—			—			—			—			—			—			—
JW Aluminum Co, Common Stock			—			—			—			—			—			—			—			—			—
JW Aluminum Co, Preferred Stock			43,890			3,811			—			—			11,171			58,872			3,660			3,604			—
MB Precision Holdings LLC, Class A-2 Units			—			—			—			—			—			—			—			—			—
MB Precision Holdings LLC, Preferred Stock			5,826			174			—			—			(3,570)			2,430			—			—			—
Mood Media Corp, Common Stock			15,842			—			—			—			(9,717)			6,125			—			—			—
Warren Resources Inc, Common Stock			5,573			—			—			—			474			6,047			—			—			—
Total		$	227,403		$	18,382		$	(630)		$	182		$	8,921		$	254,258		$	10,586		$	5,111		$	43

(1)

Gross additions include increases in the cost basis of investments resulting from new portfolio investments, PIK interest, the amortization of unearned income, the exchange of one or more existing securities of one or more new securities and the movement of an existing portfolio company into this category from a different category.

See notes to unaudited consolidated financial statements.

TABLE OF CONTENTS

FS Investment Corporation II

Unaudited Consolidated Schedule of Investments (continued)
As of June 30, 2019
(in thousands, except share amounts)

(2)

Gross reductions include decreases in the cost basis of investments resulting from principal collections related to investment repayments or sales, the exchange of one or more existing securities for one or more new securities and the movement of an existing portfolio company out of this category into a different category.

(3)

Interest, PIK and fee income presented for the six months ended June 30, 2019.

(4)

Security includes a partially unfunded commitment as of June 30, 2019 with an amortized cost of $2,143 and a fair value of $2,143.

See notes to unaudited consolidated financial statements.

TABLE OF CONTENTS

FS Investment Corporation II

Consolidated Schedule of Investments
As of December 31, 2018
(in thousands, except share amounts)

Portfolio Company(a)	Footnotes	Industry	Rate(b)	Floor		Maturity	Principal Amount(c)			Amortized Cost			Fair Value(d)
Senior Secured Loans—First Lien—128.3%
5 Arch Income Fund 2, LLC	(m)(q)	Diversified Financials	9.0%			11/18/23		$	39,540		$	39,561		$	39,540
5 Arch Income Fund 2, LLC	(m)(n)(q)	Diversified Financials	9.0%			11/18/23			34,461			34,461			34,461
Abaco Energy Technologies LLC	(h)(i)(t)	Energy	L+700, 2.5% PIK (2.5% Max PIK)		1.0%	11/20/20			24,428			23,941			24,153
ABB CONCISE Optical Group LLC	(t)	Retailing	L+500		1.0%	6/15/23			2,769			2,779			2,658
Accuride Corp	(j)(t)	Capital Goods	L+525		1.0%	11/17/23			540			520			518
Acosta Holdco Inc	(h)(t)	Commercial & Professional Services	L+325		1.0%	9/26/21			6,644			5,383			4,081
Addison Holdings	(f)(g)(h)(i)	Commercial & Professional Services	L+675		1.0%	12/29/23			83,832			83,832			83,974
Advanced Lighting Technologies Inc	(h)(u)	Materials	L+750		1.0%	10/4/22			9,125			7,933			9,125
Advantage Sales & Marketing Inc	(i)(t)	Commercial & Professional Services	L+325		1.0%	7/23/21			15,370			14,681			13,654
Aleris International Inc	(h)(t)	Materials	L+475			2/27/23			1,367			1,354			1,358
All Systems Holding LLC	(g)(h)(i)	Commercial & Professional Services	L+767		1.0%	10/31/23			111,623			111,623			112,739
Altus Power America Inc	(i)	Energy	L+750		1.5%	9/30/21			3,183			3,183			3,087
Altus Power America Inc	(n)	Energy	L+750		1.5%	9/30/21			140			140			136
American Tire Distributors Inc	(t)	Automobiles & Components	L+750		1.0%	8/30/24			4,031			3,521			3,319
American Tire Distributors Inc	(t)	Automobiles & Components	L+650, 1.0% PIK (1.0% Max PIK)		1.0%	9/1/23			634			593			593
Ammeraal Beltech Holding BV	(m)(t)	Capital Goods	E+375			7/30/25		€	1,491			1,725			1,701
Apex Group Limited	(m)(n)	Diversified Financials	L+650			6/15/23		$	2,302			2,238			1,970
Apex Group Limited	(f)(g)(m)	Diversified Financials	L+650		1.0%	6/15/25			15,565			15,271			14,948
Apex Group Limited	(m)(n)	Diversified Financials	L+650		1.0%	6/15/25			7,509			7,370			7,211
Apex Group Limited	(m)	Diversified Financials	L+650		1.0%	6/15/25			2,503			2,466			2,404
Apex Group Limited	(m)(n)	Diversified Financials	L+650		1.0%	6/15/25			3,754			3,699			3,606
Ascension Insurance Inc	(f)(g)(h)	Insurance	L+825		1.3%	3/5/19			77,635			77,567			77,635
Ascension Insurance Inc	(n)	Insurance	L+825		1.3%	3/5/19			27,800			27,800			27,800
Aspect Software Inc	(k)(l)	Software & Services	L+400, 6.5% PIK (6.5% Max PIK)			5/25/20			4,671			4,657			3,480
Aspect Software Inc	(h)(k)(l)	Software & Services	L+1100		1.0%	5/25/20			3,598			3,556			2,680
ATX Networks Corp	(f)(m)(t)	Technology Hardware & Equipment	L+600, 1.0% PIK (1.0% Max PIK)		1.0%	6/11/21			1,852			1,839			1,759
ATX Networks Corp	(f)(i)(m)(t)	Technology Hardware & Equipment	L+600, 1.0% PIK (1.0% Max PIK)		1.0%	6/11/21			24,804			24,368			23,564
AVF Parent LLC	(h)(i)	Retailing	L+725		1.3%	3/1/24			74,461			74,461			69,605
Belk Inc	(t)	Retailing	L+475		1.0%	12/12/22			22,635			19,743			18,366
Borden Dairy Co	(g)(h)	Food, Beverage & Tobacco	L+808		1.0%	7/6/23			52,500			52,500			47,738
Caprock Midstream LLC	(t)	Energy	L+475			11/3/25			6,046			5,916			5,638

See notes to unaudited consolidated financial statements.

TABLE OF CONTENTS

FS Investment Corporation II

Consolidated Schedule of Investments (continued)
As of December 31, 2018
(in thousands, except share amounts)

Portfolio Company(a)	Footnotes	Industry	Rate(b)	Floor		Maturity	Principal Amount(c)			Amortized Cost			Fair Value(d)
Cimarron Energy Inc		Energy	L+900		1.0%	6/30/21		$	7,500		$	7,500		$	7,500
Constellis Holdings LLC/Constellis Finance Corp		Capital Goods	L+575		1.0%	4/1/22			47,325			46,621			46,615
CSafe Global		Capital Goods	L+725		1.0%	11/1/21			626			626			632
CSafe Global	(n)	Capital Goods	L+725		1.0%	11/1/21			5,635			5,635			5,691
CSafe Global	(f)(g)(h)	Capital Goods	L+725		1.0%	10/31/23			53,605			53,605			54,141
CSM Bakery Products	(i)(t)	Food, Beverage & Tobacco	L+400		1.0%	7/3/20			5,217			5,071			4,845
Dade Paper and Bag Co Inc	(f)(g)(h)(i)	Capital Goods	L+750		1.0%	6/10/24			135,734			135,734			133,019
Dade Paper and Bag Co Inc	(f)(g)(h)	Capital Goods	L+700		1.0%	6/10/24			17,312			17,312			16,620
Dayton Superior Corp	(i)(t)	Materials	L+800, 6.0% PIK (6.0% Max PIK)		1.0%	11/15/21			11,790			11,585			9,874
Diamond Resorts International Inc	(i)(t)	Consumer Services	L+375		1.0%	9/2/23			14,085			13,795			13,170
Distribution International Inc	(t)	Retailing	L+500		1.0%	12/15/21			3,398			3,247			3,024
Eagle Family Foods Inc	(n)	Food, Beverage & Tobacco	L+650		1.0%	6/14/23			4,126			4,084			3,516
Eagle Family Foods Inc	(g)(h)	Food, Beverage & Tobacco	L+650		1.0%	6/14/24			27,368			27,082			26,950
Eagleclaw Midstream Ventures LLC	(i)(j)(t)	Energy	L+425		1.0%	6/24/24			11,455			10,917			10,747
EIF Van Hook Holdings LLC	(i)(t)	Energy	L+525			9/5/24			7,378			7,234			7,184
Empire Today LLC	(f)(g)(h)(i)	Retailing	L+700		1.0%	11/17/22			88,200			88,200			88,361
Fairway Group Holdings Corp	(k)(l)	Food & Staples Retailing	10.0% PIK (10.0% Max PIK)			11/27/23			1,964			1,733			258
Fairway Group Holdings Corp	(h)	Food & Staples Retailing	12.0% PIK (12.0% Max PIK)			11/27/23			3,072			3,072			2,984
Fairway Group Holdings Corp		Food & Staples Retailing	4.0%, 11.0% PIK (11.0% Max PIK)			8/28/23			212			210			212
Fairway Group Holdings Corp	(n)	Food & Staples Retailing	4.0%, 11.0% PIK (11.0% Max PIK)			8/28/23			455			455			455
Fairway Group Holdings Corp		Food & Staples Retailing	4.0%, 11.0% PIK (11.0% Max PIK)			8/28/23			1,070			1,055			1,070
Foresight Energy LLC	(h)(m)(t)	Materials	L+575		1.0%	3/28/22			10,591			10,575			10,423
Fox Head Inc	(h)(i)	Consumer Durables & Apparel	L+850		1.0%	12/19/20			5,051			5,051			4,989
Fox Head Inc	(h)(i)	Consumer Durables & Apparel	L+850		1.0%	12/19/20			47,253			47,253			46,671
FullBeauty Brands Holdings Corp	(k)(l)(t)	Retailing	L+475		1.0%	10/14/22			4,910			4,574			1,495
Gulf Finance LLC	(i)(t)	Energy	L+525		1.0%	8/25/23			4,687			4,585			3,615
HM Dunn Co Inc	(h)(k)(l)(u)	Capital Goods	L+875 PIK (L+875 Max PIK)			6/30/21			43,885			38,571			7,022
Hudson Technologies Co	(h)(i)(m)	Commercial & Professional Services	L+1025		1.0%	10/10/23			50,717			50,286			36,262
Icynene Group Ltd	(f)(h)(i)	Materials	L+700		1.0%	11/30/24			35,640			35,640			34,656
Industrial Group Intermediate Holdings LLC	(f)(g)(h)(i)	Materials	L+800		1.3%	5/31/20			118,840			118,840			118,098
Industry City TI Lessor LP	(h)	Consumer Services	10.8%, 1.0% PIK (1.0% Max PIK)			6/30/26			11,522			11,522			11,522
JAKKS Pacific Inc	(h)	Consumer Durables & Apparel	L+900		1.5%	6/14/21			2,793			2,775			2,803

See notes to unaudited consolidated financial statements.

TABLE OF CONTENTS

FS Investment Corporation II

Consolidated Schedule of Investments (continued)
As of December 31, 2018
(in thousands, except share amounts)

Portfolio Company(a)	Footnotes	Industry	Rate(b)	Floor		Maturity	Principal Amount(c)			Amortized Cost			Fair Value(d)
JC Penney Corp Inc	(m)(t)	Retailing	L+425		1.0%	6/23/23		$	1,205		$	1,149		$	1,034
JHC Acquisition LLC	(f)(g)(h)	Capital Goods	L+750		1.0%	1/29/24			121,947			121,947			121,947
JHC Acquisition LLC	(n)	Capital Goods	L+750		1.0%	1/29/24			35,269			35,268			35,269
Jo-Ann Stores Inc	(i)(t)	Retailing	L+500		1.0%	10/20/23			5,013			5,004			4,794
Jostens Inc	(j)(t)	Consumer Services	L+550			12/19/25			3,663			3,552			3,574
JSS Holdings Ltd	(f)(h)(i)	Capital Goods	L+800, 0.0% PIK (2.5% Max PIK)		1.0%	3/31/23			72,696			72,140			74,877
Kodiak BP LLC	(g)(h)(i)	Capital Goods	L+725		1.0%	12/1/24			110,681			110,681			108,329
Kodiak BP LLC	(n)	Capital Goods	L+725		1.0%	12/1/24			9,849			9,849			9,639
Lazard Global Compounders Fund	(m)	Diversified Financials	L+725		3.8%	4/1/26			38,356			38,356			38,644
Lazard Global Compounders Fund	(m)(n)	Diversified Financials	L+725		3.8%	4/1/26			6,644			6,644			6,694
LD Intermediate Holdings Inc	(i)(t)	Software & Services	L+588		1.0%	12/9/22			16,150			15,058			14,656
MB Precision Holdings LLC	(g)(h)(k)(l)(u)	Capital Goods	L+725, 2.3% PIK (2.3% Max PIK)		1.3%	1/23/21			21,339			20,364			21,339
Mitel US Holdings Inc	(i)(t)	Technology Hardware & Equipment	L+450			11/30/25			4,559			4,548			4,431
Monitronics International Inc	(j)(m)(t)	Commercial & Professional Services	L+550		1.0%	9/30/22			3,838			3,702			3,442
Murray Energy Corp	(h)	Energy	L+900		1.0%	2/12/21			10,891			10,824			10,842
NaviHealth Inc.	(i)(j)(t)	Health Care Equipment & Services	L+500			8/1/25			15,111			14,437			14,318
North Haven Cadence Buyer Inc	(n)	Consumer Services	L+500		1.0%	9/2/21			2,625			2,625			2,625
North Haven Cadence Buyer Inc	(h)	Consumer Services	L+777		1.0%	9/2/24			14,762			14,762			14,614
North Haven Cadence Buyer Inc	(h)(i)	Consumer Services	L+798		1.0%	9/2/24			51,187			51,187			50,676
North Haven Cadence Buyer Inc	(n)	Consumer Services	L+650		1.0%	9/2/24			10,500			10,500			10,395
P2 Energy Solutions, Inc.	(t)	Energy	L+400		1.3%	10/30/20			74			73			71
PAE Holding Corp	(j)(t)	Capital Goods	L+550		1.0%	10/20/22			9			9			9
Panda Liberty LLC	(f)(g)(t)	Energy	L+650		1.0%	8/21/20			11,515			11,525			10,383
Peak 10 Holding Corp	(j)(t)	Telecommunication Services	L+325		1.0%	8/1/24			8,965			8,329			8,181
PHRC License LLC	(g)(h)	Consumer Services	L+850, 0.3% PIK (0.3% Max PIK)		1.5%	4/28/22			66,842			66,842			68,262
Power Distribution Inc	(f)(i)	Capital Goods	L+725		1.3%	1/25/23			44,021			44,021			44,021
Production Resource Group LLC	(f)(g)(h)(i)	Media	L+700		1.0%	8/21/24			207,992			207,992			204,352
Propulsion Acquisition LLC	(f)(h)(i)(t)	Capital Goods	L+600		1.0%	7/13/21			58,267			56,734			57,684
PSKW LLC	(f)(h)	Health Care Equipment & Services	L+850		1.0%	11/25/21			56,025			55,983			56,166
Reliant Rehab Hospital Cincinnati LLC	(h)	Health Care Equipment & Services	L+675		1.0%	8/30/24			55,015			54,490			54,850
Roadrunner Intermediate Acquisition Co LLC	(f)	Health Care Equipment & Services	L+675		1.0%	3/15/23			7,165			7,165			6,673
Rogue Wave Software Inc	(h)	Software & Services	L+843		1.0%	9/25/21			72,434			72,434			72,343

See notes to unaudited consolidated financial statements.

TABLE OF CONTENTS

FS Investment Corporation II

Consolidated Schedule of Investments (continued)
As of December 31, 2018
(in thousands, except share amounts)

Portfolio Company(a)	Footnotes	Industry	Rate(b)	Floor		Maturity	Principal Amount(c)			Amortized Cost			Fair Value(d)
Safariland LLC	(g)(h)	Capital Goods	L+765		1.1%	11/18/23		$	70,234		$	70,234		$	62,947
Savers Inc	(t)	Retailing	L+375		1.3%	7/9/19			1,539			1,529			1,473
Sequa Corp	(i)(j)(t)	Materials	L+500		1.0%	11/28/21			18,467			18,212			17,705
Sequel Youth & Family Services LLC	(h)	Health Care Equipment & Services	L+700		1.0%	9/1/23			12,229			12,229			12,448
Sequel Youth & Family Services LLC	(f)(h)(i)	Health Care Equipment & Services	L+800			9/1/23			70,000			70,000			71,247
Sequential Brands Group Inc.	(g)(h)(i)	Consumer Durables & Apparel	L+875			2/7/24			118,929			116,976			118,929
SI Group Inc	(j)(t)	Materials	L+475			10/15/25			2,922			2,814			2,820
SIRVA Worldwide Inc	(i)(t)	Commercial & Professional Services	L+550			8/2/25			2,776			2,737			2,728
Sorenson Communications LLC	(f)(g)(h)(j)(t)	Telecommunication Services	L+575		2.3%	4/30/20			107,393			107,217			106,991
SSC (Lux) Limited S.a r.l.	(g)(h)(i)(m)	Health Care Equipment & Services	L+750		1.0%	9/10/24			104,545			104,545			105,591
Staples Canada	(m)	Retailing	L+700		1.0%	9/12/24		C$	56,874			44,009			42,101
Strike LLC	(i)(t)	Energy	L+800		1.0%	11/30/22		$	4,285			4,191			4,290
Sungard Availability Services Capital Inc	(f)(t)	Software & Services	L+700		1.0%	9/30/21			10,336			10,266			8,827
Sungard Availability Services Capital Inc	(t)	Software & Services	L+1000		1.0%	10/1/22			962			918			933
Sutherland Global Services Inc	(h)(i)(j)(m)(t)	Software & Services	L+538		1.0%	4/23/21			10,564			10,143			9,974
Sutherland Global Services Inc	(h)(i)(j)(m)(t)	Software & Services	L+538		1.0%	4/23/21			2,459			2,361			2,322
Swift Worldwide Resources Holdco Ltd	(f)(g)	Energy	L+1000, 1.0% PIK (1.0% Max PIK)		1.0%	7/20/21			19,492			19,492			19,492
Tangoe LLC		Software & Services	L+650		1.0%	11/28/25			52,024			51,511			51,504
Team Health Inc	(j)(t)	Health Care Equipment & Services	L+275		1.0%	2/6/24			78			71			70
Trace3 Inc	(f)(g)(h)(i)	Diversified Financials	L+675		1.0%	8/5/24			161,585			161,585			159,970
Virgin Pulse Inc	(h)(i)	Software & Services	L+650		1.0%	5/22/25			79,891			79,290			77,407
Vivint Inc	(i)(t)	Commercial & Professional Services	L+500			4/1/24			18,583			18,537			18,111
Warren Resources Inc	(h)(u)	Energy	L+1000, 1.0% PIK (1.0% Max PIK)		1.0%	5/22/20			14,652			14,652			14,652
York Risk Services Group Inc	(t)	Insurance	L+375		1.0%	10/1/21			980			975			919
Zeta Interactive Holdings Corp	(f)(h)	Software & Services	L+750		1.0%	7/29/22			37,112			37,112			37,483
Zeta Interactive Holdings Corp	(n)	Software & Services	L+750		1.0%	7/29/22			6,571			6,571			6,637
Total Senior Secured Loans—First Lien												3,539,497			3,450,630
Unfunded Loan Commitments												(157,339)			(157,339)
Net Senior Secured Loans—First Lien												3,382,158			3,293,291

See notes to unaudited consolidated financial statements.

TABLE OF CONTENTS

FS Investment Corporation II

Consolidated Schedule of Investments (continued)
As of December 31, 2018
(in thousands, except share amounts)

Portfolio Company(a)	Footnotes	Industry	Rate(b)	Floor		Maturity	Principal Amount(c)			Amortized Cost			Fair Value(d)
Senior Secured Loans—Second Lien—13.0%
Access CIG LLC	(t)	Software & Services	L+775			2/27/26		$	1,326		$	1,342		$	1,314
Advantage Sales & Marketing Inc	(t)	Commercial & Professional Services	L+650		1.0%	7/25/22			2,291			2,039			1,815
American Bath Group LLC	(i)(t)	Capital Goods	L+975		1.0%	9/30/24			7,000			6,588			6,965
Ammeraal Beltech Holding BV	(m)	Capital Goods	L+800			7/27/26			52,309			51,285			51,183
Arena Energy LP	(f)(h)	Energy	L+900, 4.0% PIK (4.0% Max PIK)		1.0%	1/24/21			25,872			25,872			25,872
Bellatrix Exploration Ltd	(m)	Energy	8.5%			7/26/23			4,500			4,076			3,979
Bellatrix Exploration Ltd	(m)	Energy	8.5%			7/26/23			1,872			1,872			1,866
Bellatrix Exploration Ltd	(m)(n)	Energy	8.5%			7/26/23			624			624			622
Byrider Finance LLC		Automobiles & Components	L+1000, 0.5% PIK (4.0% Max PIK)		1.3%	8/22/20			29,695			29,695			29,138
Catalina Marketing Corp	(i)(k)(l)(t)	Media	L+675		1.0%	4/11/22			10,000			9,958			237
Chisholm Oil & Gas Operating LLC	(h)	Energy	L+800		1.0%	3/21/24			16,000			16,000			15,811
Crossmark Holdings Inc	(i)(k)(l)(t)	Media	L+750		1.3%	12/21/20			7,778			7,786			311
Envigo Laboratories Inc	(h)(t)	Health Care Equipment & Services	L+775			4/29/20			3,272			3,189			3,051
Fairway Group Holdings Corp	(k)(l)	Food & Staples Retailing	11.0% PIK (11.0% Max PIK)			2/24/24			1,744			1,520			—
Grocery Outlet Inc	(t)	Food & Staples Retailing	L+725			10/22/26			2,287			2,265			2,273
Gruden Acquisition Inc	(h)(t)	Transportation	L+850		1.0%	8/18/23			15,000			14,511			15,038
Jazz Acquisition Inc	(f)(t)	Capital Goods	L+675		1.0%	6/19/22			3,700			3,729			3,460
LBM Borrower LLC	(f)(i)(j)(t)	Capital Goods	L+925		1.0%	8/20/23			29,332			29,090			28,746
One Call Care Management Inc	(h)	Insurance	L+375, 6.0% PIK (6.0% Max PIK)			4/11/24			12,472			12,362			11,946
OPE Inmar Acquisition Inc	(i)(t)	Software & Services	L+800		1.0%	5/1/25			2,615			2,583			2,589
P2 Energy Solutions, Inc.	(i)(t)	Energy	L+800		1.0%	4/30/21			14,500			14,614			13,920
Paradigm Acquisition Corp	(t)	Health Care Equipment & Services	L+750			10/26/26			1,599			1,595			1,607
Peak 10 Holding Corp	(i)(j)(t)	Telecommunication Services	L+725		1.0%	8/1/25			5,814			5,630			5,247
Pure Fishing Inc		Consumer Durables & Apparel	L+838		1.0%	12/31/26			46,828			46,362			46,359
Rise Baking Company	(i)	Food, Beverage & Tobacco	L+800		1.0%	8/9/26			17,990			17,817			17,822
Sequa Corp	(i)(t)	Materials	L+900		1.0%	4/28/22			7,462			7,416			7,089
SIRVA Worldwide Inc	(i)(t)	Commercial & Professional Services	L+950			8/2/26			2,494			2,312			2,207
SMG/PA	(j)(t)	Consumer Services	L+700			1/23/26			3,641			3,671			3,599
Spencer Gifts LLC	(i)(t)	Retailing	L+825		1.0%	6/29/22			20,000			20,063			17,100
Titan Energy LLC	(h)(k)(l)	Energy	L+1300 PIK (L+1300 Max PIK)		1.0%	2/23/20			89,408			67,595			8,316

See notes to unaudited consolidated financial statements.

TABLE OF CONTENTS

FS Investment Corporation II

Consolidated Schedule of Investments (continued)
As of December 31, 2018
(in thousands, except share amounts)

Portfolio Company(a)	Footnotes	Industry	Rate(b)	Floor		Maturity	Principal Amount(c)			Amortized Cost			Fair Value(d)
WireCo WorldGroup Inc	(t)	Capital Goods	L+900		1.0%	9/30/24		$	5,115		$	5,178		$	5,128
Total Senior Secured Loans—Second Lien												418,639			334,610
Unfunded Loan Commitments												(624)			(624)
Net Senior Secured Loans—Second Lien												418,015			333,986
Other Senior Secured Debt—7.7%
Advanced Lighting Technologies Inc	(k)(l)(u)	Materials	L+700, 10.0% PIK (10.0% Max PIK)		1.0%	10/4/23			11,342			10,663			3,630
Akzo Nobel Specialty Chemicals	(m)(t)	Materials	8.0%			10/1/26			2,019			2,019			1,890
Artesyn Embedded Technologies Inc	(t)	Technology Hardware & Equipment	9.8%			10/15/20			1,574			1,518			1,456
Black Swan Energy Ltd	(m)	Energy	9.0%			1/20/24			1,333			1,333			1,286
Boyne USA Inc	(t)	Consumer Services	7.3%			5/1/25			44			46			46
DJO Finance LLC/DJO Finance Corp	(t)	Health Care Equipment & Services	8.1%			6/15/21			6,838			6,886			7,060
FourPoint Energy LLC	(h)(i)	Energy	9.0%			12/31/21			46,313			45,107			45,502
Genesys Telecommunications Laboratories Inc	(t)	Technology Hardware & Equipment	10.0%			11/30/24			144			159			152
Global A&T Electronics Ltd	(i)(m)(t)	Semiconductors & Semiconductor Equipment	8.5%			1/12/23			15,949			16,079			14,155
JC Penney Corp Inc	(j)(m)(t)	Retailing	5.7%			6/1/20			126			117			101
JW Aluminum Co	(h)(t)(u)	Materials	10.3%			6/1/26			33,001			33,001			32,919
Lycra	(m)(t)	Consumer Durables & Apparel	7.5%			5/1/25			3,659			3,687			3,444
Mood Media Corp	(h)(u)	Media	L+1400 PIK (L+1400 Max PIK)		1.0%	6/28/24			28,478			28,383			28,478
Numericable-SFR	(m)(t)	Software & Services	8.1%			2/1/27			917			917			869
Pattonair Holdings Ltd	(m)(t)	Capital Goods	9.0%			11/1/22			4,111			4,252			4,153
Ply Gem Holdings Inc	(t)	Capital Goods	8.0%			4/15/26			7,807			7,453			7,182
Sorenson Communications LLC	(h)(t)	Telecommunication Services	9.0%, 0.0% PIK (9.0% Max PIK)			10/31/20			7,058			6,952			6,987
Sunnova Energy Corp		Energy	6.0%, 6.0% PIK (6.0% Max PIK)			7/31/19			1,123			1,123			1,116
Talos Production LLC	(h)(t)	Energy	11.0%			4/3/22			4,500			4,701			4,376
Velvet Energy Ltd	(i)(m)	Energy	9.0%			10/5/23			15,000			15,000			15,120
Vivint Inc	(h)(t)	Commercial & Professional Services	7.6%			9/1/23			7,309			6,707			5,981
Vivint Inc	(h)(t)	Commercial & Professional Services	7.9%			12/1/22			11,307			11,078			10,713
Total Other Senior Secured Debt												207,181			196,616

See notes to unaudited consolidated financial statements.

TABLE OF CONTENTS

FS Investment Corporation II

Consolidated Schedule of Investments (continued)
As of December 31, 2018
(in thousands, except share amounts)

Portfolio Company(a)	Footnotes	Industry	Rate(b)	Floor		Maturity	Principal Amount(c)			Amortized Cost			Fair Value(d)
Subordinated Debt—8.6%
All Systems Holding LLC		Commercial & Professional Services	10.0% PIK (10.0% Max PIK)			10/31/22		$	206		$	206		$	206
Ascent Resources Utica Holdings LLC/ARU Finance Corp	(h)(i)(t)	Energy	10.0%			4/1/22			26,026			26,026			26,635
Aurora Diagnostics Holdings LLC/Aurora Diagnostics Financing Inc	(h)(t)	Health Care Equipment & Services	12.3%, 1.5% PIK (1.5% Max PIK)			1/15/20			6,235			5,951			6,235
Avantor Inc	(i)(t)	Pharmaceuticals, Biotechnology & Life Sciences	9.0%			10/1/25			20,000			20,000			20,012
Byrider Finance LLC		Automobiles & Components	20.0% PIK (20.0% Max PIK)			3/31/22			1,458			1,458			1,458
CEC Entertainment Inc	(t)	Consumer Services	8.0%			2/15/22			18,510			18,397			16,659
ClubCorp Club Operations Inc	(h)(t)	Consumer Services	8.5%			9/15/25			10,733			10,361			9,660
Diamond Resorts International Inc	(t)	Consumer Services	10.8%			9/1/24			3,048			3,191			2,751
Eclipse Resources Corp	(m)(t)	Energy	8.9%			7/15/23			9,175			9,049			7,879
Great Lakes Dredge & Dock Corp	(m)(t)	Capital Goods	8.0%			5/15/22			5,276			5,276			5,364
Intelsat Jackson Holdings SA	(m)(t)	Media	5.5%			8/1/23			5,752			5,178			5,058
Ken Garff Automotive LLC	(t)	Retailing	7.5%			8/15/23			6,004			6,055			5,959
Lazard Global Compounders Fund	(m)(n)	Diversified Financials	L+650		4.5%	9/15/25			15,000			15,000			14,682
LifePoint Hospitals Inc	(t)	Health Care Equipment & Services	9.8%			12/1/26			7,656			7,571			7,295
Logan’s Roadhouse Inc	(l)	Consumer Services				11/1/24			4,907			4,857			4,855
PF Chang’s China Bistro Inc	(h)(i)(t)	Consumer Services	10.3%			6/30/20			28,977			28,320			26,460
Quorum Health Corp	(t)	Health Care Equipment & Services	11.6%			4/15/23			2,566			2,554			2,446
Sorenson Communications LLC	(h)(t)	Telecommunication Services	13.9%, 0.0% PIK (13.9% Max PIK)			10/31/21			5,364			5,170			5,498
SRS Distribution Inc	(h)(t)	Capital Goods	8.3%			7/1/26			11,667			11,476			10,734
Stars Group Holdings BV	(m)(t)	Consumer Services	7.0%			7/15/26			1,438			1,438			1,398
Sungard Availability Services Capital Inc	(t)	Software & Services	8.8%			4/1/22			5,900			4,860			1,322
Team Health Inc	(t)	Health Care Equipment & Services	6.4%			2/1/25			6,901			5,958			5,633
Vertiv Group Corp	(h)(t)	Technology Hardware & Equipment	9.3%			10/15/24			16,584			16,411			14,760
Vivint Inc	(h)(t)	Commercial & Professional Services	8.8%			12/1/20			7,602			7,328			7,250
York Risk Services Group Inc	(h)(i)(t)	Insurance	8.5%			10/1/22			38,070			35,701			26,649
Total Subordinated Debt												257,792			236,858
Unfunded Debt Commitments												(15,000)			(15,000)
Net Subordinated Debt												242,792			221,858

See notes to unaudited consolidated financial statements.

TABLE OF CONTENTS

FS Investment Corporation II

Consolidated Schedule of Investments (continued)
As of December 31, 2018
(in thousands, except share amounts)

Portfolio Company(a)	Footnotes	Industry	Rate(b)	Floor	Maturity	Principal Amount(c)/ Shares				Cost			Fair Value(d)
Asset Based Finance—1.9%
Altus Power America Inc, Preferred Stock	(r)	Energy	9.0%, 5.0% PIK		10/3/23			1,060,975			$	1,061		$	1,045
Australis Maritime, Private Equity	(l)(m)	Transportation						—				1,136			1,136
CGMS CLO 2013-3A Class Subord., 7/15/2025	(m)	Diversified Financials	27.8%		7/15/25		$	23,263				9,222			12,050
Global Jet Capital LLC, Preferred Stock	(e)(l)	Commercial & Professional Services						5,385,440				5,386			754
Global Jet Capital LLC, Preferred Stock	(e)(l)(m)	Commercial & Professional Services						843,426				843			118
Global Jet Capital LLC, Structured Mezzanine		Commercial & Professional Services	15.0% PIK (15.0% Max PIK)		1/30/25		$	986				971			986
Global Jet Capital LLC, Structured Mezzanine		Commercial & Professional Services	15.0% PIK (15.0% Max PIK)		4/30/25		$	6,267				6,174			6,267
Global Jet Capital LLC, Structured Mezzanine		Commercial & Professional Services	15.0% PIK (15.0% Max PIK)		9/3/25		$	1,295				1,276			1,295
Global Jet Capital LLC, Structured Mezzanine		Commercial & Professional Services	15.0% PIK (15.0% Max PIK)		9/29/25		$	1,219				1,201			1,219
Global Jet Capital LLC, Structured Mezzanine	(e)	Commercial & Professional Services	15.0% PIK (15.0% Max PIK)		12/4/25		$	7,287	��			7,179			7,287
Global Jet Capital LLC, Structured Mezzanine	(e)(m)	Commercial & Professional Services	15.0% PIK (15.0% Max PIK)		12/4/25		$	1,712				1,687			1,712
Global Jet Capital LLC, Structured Mezzanine	(e)	Commercial & Professional Services	15.0% PIK (15.0% Max PIK)		12/9/25		$	219				216			219
Global Jet Capital LLC, Structured Mezzanine	(e)(m)	Commercial & Professional Services	15.0% PIK (15.0% Max PIK)		12/9/25		$	1,253				1,234			1,253
Global Jet Capital LLC, Structured Mezzanine	(e)	Commercial & Professional Services	15.0% PIK (15.0% Max PIK)		1/29/26		$	625				616			625
Global Jet Capital LLC, Structured Mezzanine	(e)(m)	Commercial & Professional Services	15.0% PIK (15.0% Max PIK)		1/29/26		$	146				143			146
Global Jet Capital LLC, Structured Mezzanine		Commercial & Professional Services	15.0% PIK (15.0% Max PIK)		12/2/26		$	2,332				2,298			2,332
NewStar Clarendon 2014-1A Class Subord. B	(m)	Diversified Financials	L+435		1/25/27		$	1,060				1,014			1,055
NewStar Clarendon 2014-1A Class D	(m)	Diversified Financials	13.2%		1/25/27		$	12,140				7,758			8,661
Total Asset Based Finance												49,415			48,160

See notes to unaudited consolidated financial statements.

TABLE OF CONTENTS

FS Investment Corporation II

Consolidated Schedule of Investments (continued)
As of December 31, 2018
(in thousands, except share amounts)

Portfolio Company(a)	Footnotes	Industry	Rate(b)	Floor	Maturity		Principal Amount(c)/ Shares		Amortized Cost			Fair Value(d)
Equity/Other—10.3%
5 Arch Income Fund 2, LLC, Common Stock	(m)(p)	Diversified Financials						8,000		$	197		$	400
Abaco Energy Technologies LLC, Common Equity	(l)	Energy						3,055,556			3,056			1,299
Abaco Energy Technologies LLC, Preferred Equity	(l)	Energy						12,734,481			637			6,686
Advanced Lighting Technologies Inc, Common Stock	(l)(u)	Materials						265,747			7,471			—
Advanced Lighting Technologies Inc, Warrant	(l)(u)	Materials				10/4/27		4,189			39			—
All Systems Holding LLC, Common Stock		Commercial & Professional Services						124			1,201			1,384
Altus Power America Inc, Common Stock	(l)	Energy						462,008			462			81
Ascent Resources Utica Holdings LLC/ARU Finance Corp, Common Stock	(o)	Energy						13,555,557			12,900			3,768
Ascent Resources Utica Holdings LLC/ARU Finance Corp, Trade Claim	(o)	Energy						115,178,572			25,800			32,020
ASG Technologies, Common Stock	(l)(u)	Software & Services						625,178			13,475			31,743
ASG Technologies, Warrants	(l)(u)	Software & Services				6/27/22		253,704			7,231			7,364
Aspect Software Inc, Common Stock	(l)	Software & Services						38,574			9,932			—
ATX Networks Corp, Common Stock	(l)(m)	Technology Hardware & Equipment						72,635			116			56
Aurora Diagnostics Holdings LLC/Aurora Diagnostics Financing Inc, Warrant	(h)(l)	Health Care Equipment & Services				5/25/27		94,193			686			135
Byrider Finance LLC, Common Stock	(l)	Automobiles & Components						1,389			—			—
Chisholm Oil & Gas Operating LLC, Series A Units	(l)(p)	Energy						75,000			75			32
Cimarron Energy Inc, Common Stock	(l)	Energy						4,302,293			3,950			194
Cimarron Energy Inc, Participation Option	(l)	Energy						25,000,000			1,289			1,125
CSafe Global, Common Stock	(l)	Capital Goods						417,400			417			584
Eastman Kodak Co, Common Stock	(l)(t)	Consumer Durables & Apparel						354			7			1
Empire Today LLC, Common Stock	(l)	Retailing						411			1,227			1,189
Envigo Laboratories Inc, Warrant	(h)(l)(t)	Health Care Equipment & Services				4/29/24		10,924			—			—
Envigo Laboratories Inc, Warrant	(h)(l)(t)	Health Care Equipment & Services				4/29/24		17,515			—			—
Fairway Group Holdings Corp, Common Stock	(l)	Food & Staples Retailing						31,626			1,016			—
FourPoint Energy LLC, Common Stock, Class C—II—A Units	(l)(p)	Energy						13,000			13,000			2,909
FourPoint Energy LLC, Common Stock, Class D Units	(l)(p)	Energy						2,437			1,610			551
FourPoint Energy LLC, Common Stock, Class E—II Units	(l)(p)	Energy						29,730			7,432			6,652
FourPoint Energy LLC, Common Stock, Class E—III Units	(l)(p)	Energy						43,875			10,969			9,817
Fox Head Inc, Common Stock	(e)(l)	Consumer Durables & Apparel						8,857,143			8,857			3,947
Harvest Oil & Gas Corp, Common Stock	(e)(l)(t)	Energy						7,161			158			129
Harvey Industries Inc, Common Stock	(l)	Capital Goods						666,667			667			1,350
HM Dunn Co Inc, Preferred Stock, Series A	(h)(l)(u)	Capital Goods						12,857			—			—
HM Dunn Co Inc, Preferred Stock, Series B	(h)(l)(u)	Capital Goods						12,857			—			—
Industrial Group Intermediate Holdings LLC, Common Stock	(l)(p)	Materials						2,678,947			2,679			1,607

See notes to unaudited consolidated financial statements.

TABLE OF CONTENTS

FS Investment Corporation II

Consolidated Schedule of Investments (continued)
As of December 31, 2018
(in thousands, except share amounts)

Portfolio Company(a)	Footnotes	Industry	Rate(b)		Floor	Maturity		Principal Amount(c)/ Shares		Amortized Cost			Fair Value(d)
JHC Acquisition LLC, Common Stock	(l)	Capital Goods							1,449		$	1,449		$	1,946
JSS Holdings Ltd, Net Profits Interest	(l)	Capital Goods							—			—			471
JW Aluminum Co, Common Stock	(e)(i)(l)(u)	Materials							548			—			—
JW Aluminum Co, Preferred Stock	(e)(i)(u)	Materials		12.5%PIK			11/17/25		4,869			32,040			43,890
MB Precision Holdings LLC, Class A—2 Units	(g)(h)(l)(u)	Capital Goods							6,655,178			2,288			—
MB Precision Holdings LLC, Preferred Stock	(g)(h)(l)(p)(u)	Capital Goods							41,778,909			8,600			5,826
Mood Media Corp, Common Stock	(l)(u)	Media							17,400,835			12,644			15,842
North Haven Cadence Buyer Inc, Common Equity	(l)	Consumer Services							2,916,667			2,917			4,448
Power Distribution Inc, Common Stock	(l)	Capital Goods							2,076,923			2,077			1,090
Professional Plumbing Group Inc, Common Stock	(e)(l)	Capital Goods							3,000,000			3,000			7,800
Ridgeback Resources Inc, Common Stock	(e)(l)(m)(s)	Energy							817,308			5,022			4,043
Sequential Brands Group Inc., Common Stock	(e)(l)(t)	Consumer Durables & Apparel							408,685			5,517			327
Sorenson Communications LLC, Common Stock	(e)(l)	Telecommunication Services							43,796			—			36,026
SSC (Lux) Limited S.a r.l., Common Stock	(l)(m)	Health Care Equipment & Services							261,364			5,227			6,403
Sunnova Energy Corp, Common Stock	(l)	Energy							384,746			1,444			—
Sunnova Energy Corp, Preferred Stock	(l)	Energy							70,229			374			385
Swift Worldwide Resources Holdco Ltd, Common Stock	(l)	Energy							1,250,000			2,009			625
Templar Energy LLC, Common Stock	(e)(l)(p)(t)	Energy							717,718			6,101			449
Templar Energy LLC, Preferred Stock	(e)(l)(t)	Energy							475,758			4,751			1,427
Titan Energy LLC, Common Stock	(e)(l)(t)	Energy							200,040			6,321			60
Trace3 Inc, Common Stock		Diversified Financials							33,216			332			616
Warren Resources Inc, Common Stock	(l)(u)	Energy							2,371,337			11,145			5,573
White Star Petroleum LLC	(l)(p)	Energy							1,613,753			1,372			524
Zeta Interactive Holdings Corp, Preferred Stock, Series E—1	(l)	Software & Services							620,025			4,929			6,519
Zeta Interactive Holdings Corp, Preferred Stock, Series F	(l)	Software & Services							563,932			4,929			5,816
Zeta Interactive Holdings Corp, Warrant	(l)	Software & Services					4/20/27		84,590			—			240
Total Equity/Other												261,044			265,369
TOTAL INVESTMENTS—169.8%											$	4,560,605			4,359,280
LIABILITIES IN EXCESS OF ASSETS—(69.8%)															(1,791,871)
NET ASSETS—100.0%														$	2,567,409

See notes to unaudited consolidated financial statements.

TABLE OF CONTENTS

FS Investment Corporation II

Consolidated Schedule of Investments (continued)
As of December 31, 2018
(in thousands, except share amounts)

A summary of outstanding financial instruments as of December 31, 2018 is as follows:

Interest rate swaps

Counterparty	Notional Amount			Company Receives Floating Rate	Company Pays Fixed Rate		Termination Date	Premiums Paid/ (Received)			Value			Unrealized Depreciation
JP Morgan Chase Bank		$	80,000	3-Month LIBOR		2.78%	12/18/2023		$	—		$	(1,090)		$	(1,090)
JP Morgan Chase Bank		$	80,000	3-Month LIBOR		2.81%	12/18/2021			—			(653)			(653)
									$	—		$	(1,743)		$	(1,743)

(a)

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

(b)

Certain variable rate securities in the Company’s portfolio bear interest at a rate determined by a publicly disclosed base rate plus a basis point spread. As of December 31, 2018, the three-month London Interbank Offered Rate, or LIBOR or “L”, was 2.81%, and the U.S. Prime Lending Rate, or Prime, was 5.50%. PIK means paid-in-kind. PIK income accruals may be adjusted based on the fair value of underlying investment.

(c)

Denominated in U.S. dollars unless otherwise noted.

(d)

Fair value determined by the Company’s board of directors (see Note 8).

(e)

Security or portion thereof held within Cobbs Creek LLC and is pledged as collateral supporting the amounts outstanding under the revolving credit facility with ING Capital LLC (see Note 9).

(f)

Security or portion thereof held within Cooper River LLC and is pledged as collateral supporting the amounts outstanding under the revolving credit facility with Citibank, N.A. (see Note 9).

(g)

(h)

(i)

Security or portion thereof held within Green Creek LLC and is pledged as collateral supporting the amounts outstanding under a term loan credit facility with Goldman Sachs Bank USA (see Note 9).

(j)

Position or portion thereof unsettled as of December 31, 2018.

(k)

Security was on non-accrual status as of December 31, 2018.

(l)

Security is non-income producing.

(m)

The investment is not a qualifying asset under the Investment Company Act of 1940, as amended. A business development company may not acquire any asset other than qualifying assets, unless, at the time the acquisition is made, qualifying assets represent at least 70% of the company’s total assets. As of December 31, 2018, 88.2% of the Company’s total assets represented qualifying assets.

(n)

Security is an unfunded commitment. The stated rate reflects the spread disclosed at the time of commitment and may not indicate the actual rate received upon funding.

(o)

Security held within IC II American Energy Investments, Inc., a wholly-owned subsidiary of the Company.

(p)

Security held within FSIC II Investments, Inc., a wholly-owned subsidiary of the Company.

(q)

Security held within IC II Arches Investments, LLC, a wholly-owned subsidiary of the Company.

(r)

Security held within IC II Altus Investments, LLC, a wholly-owned subsidiary of the Company.

(s)

Investment denominated in Canadian dollars. Cost and fair value are converted into U.S. dollars at an exchange rate of CAD $1.00 to $0.73 as of December 31, 2018.

(t)

Security is classified as Level 1 or Level 2 in the Company’s fair value hierarchy (see Note 8).

See notes to unaudited consolidated financial statements.

TABLE OF CONTENTS

FS Investment Corporation II

Consolidated Schedule of Investments (continued)
As of December 31, 2018
(in thousands, except share amounts)

(u)

Under the 1940 Act, the Company generally is deemed to be an “affiliated person” of a portfolio company if it owns 5% or more of the portfolio company’s voting securities and generally is deemed to “control” a portfolio company if it owns more than 25% of the portfolio company’s voting securities or it has the power to exercise control over the management or policies of such portfolio company. As of December 31, 2018, the Company held investments in portfolio companies of which it is deemed to be an “affiliated person” but is not deemed to “control”. The following table presents certain financial information with respect to investments in portfolio companies of which the Company was deemed to be an affiliated person for the year ended December 31, 2018:

Portfolio Company	Fair Value at December 31, 2017			Transfers In or Out			Purchases and Paid-in-Kind Interest			Sales and Repayments			Accretion of Discount			Net Realized Gain (Loss)			Net Change in Unrealized Appreciation (Depreciation)			Fair Value at December 31, 2018			Interest Income(1)			PIK Income(1)			Fee Income(1)
Senior Secured Loans—First Lien
Advanced Lighting Technologies, Inc.		$	9,218		$	—		$	—		$	(92)		$	223		$	13		$	(237)		$	9,125		$	1,119		$	—		$	—
H.M. Dunn Co., Inc.(2)			—			64,286			—			—			—			(25,715)			(31,549)			7,022			1,656			—			—
Logan’s Roadhouse, Inc.(3)			4,669			—			2,223			(6,875)			—			(25)			8			—			17			710			—
Logan’s Roadhouse, Inc.			—			—			1,347			(1,333)			—			(14)			—			—			529			529			—
MB Precision Holdings LLC(2)			—			64,367			710			(12,581)			—			(32,132)			975			21,339			3,507			—			—
Warren Resources, Inc.			43,613			—			170			(28,068)			—			—			(1,063)			14,652			1,939			170			1,123
Senior Secured Loans—Second Lien
JW Aluminum Co.			34,382			—			—			(33,874)			1			7			(516)			—			1,492			—			—
Logan’s Roadhouse, Inc.			6,771			—			194			(1,839)			6			(13,001)			7,869			—			188			194			—
Other Senior Secured Debt
Advanced Lighting Technologies, Inc.			10,278			—			646			(261)			—			��			(7,033)			3,630			1,182			646			—
JW Aluminum Co.			—			—			33,001			—			—			—			(82)			32,919			1,983			—			—
Mood Media Corp.			23,219			—			5,274			—			5			—			(20)			28,478			4,429			1,901			—
Equity/Other
Advanced Lighting Technologies, Inc., Common Equity			5,900			—			—			—			—			—			(5,900)			—			—			—			—
Advanced Lighting Technologies, Warrants, 10/4/2027			26			—			—			—			—			—			(26)			—			—			—			—
ASG Everglades Holdings, Inc., Common Equity			30,727			—			—			—			—			—			1,016			31,743			—			—			—
ASG Everglades Holdings, Inc., 6/27/2022, Warrants			6,951			—			—			—			—			—			413			7,364			—			—			—
HM Dunn Aerosystems, Inc., Preferred Equity, Series A(2)			—			—			—			—			—			—			—			—			—			—			—
HM Dunn Aerosystems, Inc., Preferred Equity, Series B(2)			—			—			—			—			—			—			—			—			—			—			—
JW Aluminum Co., Common Equity			—			—			—			—			—			—			—			—			—			—			—
JW Aluminum Co., Preferred Equity			15,074			—			18,992			—			210			—			9,614			43,890			5,632			4,785			—

See notes to unaudited consolidated financial statements.

TABLE OF CONTENTS

FS Investment Corporation II

Consolidated Schedule of Investments (continued)
As of December 31, 2018
(in thousands, except share amounts)

Portfolio Company	Fair Value at December 31, 2017			Transfers In or Out			Purchases and Paid-in-Kind Interest			Sales and Repayments			Accretion of Discount			Net Realized Gain (Loss)			Net Change in Unrealized Appreciation (Depreciation)			Fair Value at December 31, 2018			Interest Income(1)			PIK Income(1)			Fee Income(1)
MB Precision Holdings LLC, Class A-2 Units(2)		$	—		$	2,288		$	—		$	—		$	—		$	—		$	(2,288)		$	—		$	—		$	—		$	—
MB Precision Holdings LLC, Preferred Stock			—			—			8,600			—			—			—			(2,774)			5,826			—			—			—
Mood Media Corp.			28,659			—			—			—			—			—			(12,817)			15,842			—			—			—
Roadhouse Holding Inc., Common Equity			—			—			—			—			—			(4,657)			4,657			—			—			—			—
Warren Resources, Inc., Common Equity			4,031			—			—			—			—			—			1,542			5,573			—			—			—
Total		$	223,518		$	130,941		$	71,157		$	(84,923)		$	445		$	(75,524)		$	(38,211)		$	227,403		$	23,673		$	8,935		$	1,123

(1)

Interest, PIK and fee income presented for the year ended December 31, 2018.

(2)

The Company held this investment as of December 31, 2017 but it was not deemed to be an “affiliated person” of the portfolio company or deemed to “control” the portfolio company as of December 31, 2017. Transfers in or out have been presented at amortized cost.

(3)

Security includes a partially unfunded commitment as of December 31, 2017 with an amortized cost of $760 and a fair value of $752.

See notes to unaudited consolidated financial statements.

TABLE OF CONTENTS

FS Investment Corporation II

Notes to Unaudited Consolidated Financial Statements
(in thousands, except share and per share amounts)

Note 1. Principal Business and Organization

FS Investment Corporation II, or the Company, was incorporated under the general corporation laws of the State of Maryland on July 13, 2011 and formally commenced investment operations on June 18, 2012. The Company is an externally managed, non-diversified, closed-end management investment company that has elected to be regulated as a business development company, or BDC, under the Investment Company Act of 1940, as amended, or the 1940 Act. In addition, the Company has elected to be treated for U.S. federal income tax purposes, and intends to qualify annually, as a regulated investment company, or RIC, as defined under Subchapter M of the Internal Revenue Code of 1986, as amended, or the Code. As of June 30, 2019, the Company had various wholly-owned subsidiaries, including special purpose financing subsidiaries and subsidiaries through which it holds interests in portfolio companies. The unaudited consolidated financial statements include both the Company’s accounts and the accounts of its wholly-owned subsidiaries as of June 30, 2019. All significant intercompany transactions have been eliminated in consolidation. Certain of the Company’s consolidated subsidiaries are subject to U.S. federal and state income taxes.

The Company’s investment objectives are to generate current income and, to a lesser extent, long-term capital appreciation. The Company’s portfolio is comprised primarily of investments in senior secured loans and second lien secured loans of private middle-market U.S. companies and, to a lesser extent, subordinated loans of private U.S. companies. In addition, a portion of the Company’s portfolio may be comprised of equity and equity-related securities, corporate bonds, structured products, other debt securities and derivatives, including total return swaps and credit default swaps.

The Company is externally managed by FS/KKR Advisor, LLC, or the Advisor, pursuant to an investment advisory and administrative services agreement, dated as of April 9, 2018, or the investment advisory and administrative services agreement. On April 9, 2018, GSO/Blackstone Debt Funds Management LLC, or GDFM, resigned as the investment sub-adviser to the Company and terminated the investment sub-advisory agreement, or the investment sub-advisory agreement, between FSIC II Advisor, LLC, or FSIC II Advisor, and GDFM, effective April 9, 2018. In connection with GDFM’s resignation as the investment sub-adviser to the Company, on April 9, 2018, the Company entered into the investment advisory and administrative services agreement, which replaced an investment advisory and administrative services agreement, dated February 8, 2012, or the FSIC II Advisor investment advisory and administrative services agreement, by and between the Company and FSIC II Advisor.

On May 31, 2019, the Company entered into an Agreement and Plan of Merger, or the Merger Agreement, with Corporate Capital Trust II, a Delaware statutory trust, or CCT II, FS Investment Corporation IV, a Maryland corporation, or FSIC IV, FS Investment Corporation III, a Maryland corporation, or FSIC III and, collectively with the Company, FSIC IV and CCT II, the Funds, NT Acquisition 1, Inc., a Maryland corporation and wholly-owned subsidiary of the Company or Merger Sub 1, NT Acquisition 2, Inc., a Delaware corporation and wholly-owned subsidiary of the Company, or Merger Sub 2, NT Acquisition 3, Inc., a Maryland corporation and wholly-owned subsidiary of the Company, or Merger Sub 3, and the Advisor. The Merger Agreement provides that, subject to the conditions set forth in the Merger Agreement, (i) Merger Sub 1 will merge with and into FSIC III, with FSIC III continuing as the surviving company and as a wholly-owned subsidiary of the Company, or Merger 1A, and, immediately thereafter, FSIC III will merge with and into the Company, with the Company continuing as the surviving company or, together with Merger 1A, Merger 1, (ii) Merger Sub 2 will merge with and into CCT II, with CCT II continuing as the surviving company and as a wholly-owned subsidiary of the Company, or Merger 2A, and, immediately thereafter, CCT II will merge with and into the Company, with the Company continuing as the surviving company or, together with Merger 2A, Merger 2, and (iii) Merger Sub 3 will merge with and into FSIC IV, with FSIC IV continuing as the surviving

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FS Investment Corporation II

Notes to Unaudited Consolidated Financial Statements (continued)
(in thousands, except share and per share amounts)

Note 1. Principal Business and Organization (continued)

company and as a wholly-owned subsidiary of the Company, or Merger 3A, and, immediately thereafter, FSIC IV will merge with and into the Company, with the Company continuing as the surviving company or, collectively with the Merger 3A, Merger 3 and, together with Merger 1 and Merger 2, the Mergers. See Note 12 for additional information.

Note 2. Summary of Significant Accounting Policies

Basis of Presentation: The accompanying unaudited consolidated financial statements of the Company have been prepared in accordance with accounting principles generally accepted in the United States of America, or GAAP, for interim financial information and with the instructions for Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. For a more complete discussion of significant accounting policies and certain other information, the Company’s interim unaudited consolidated financial statements should be read in conjunction with its audited consolidated financial statements as of and for the year ended December 31, 2018 included in the Company’s annual report on Form 10-K for the year ended December 31, 2018. Operating results for the three and six months ended June 30, 2019 are not necessarily indicative of the results that may be expected for the year ending December 31, 2019. The December 31, 2018 consolidated balance sheet and consolidated schedule of investments are derived from the Company’s audited consolidated financial statements as of and for the year ended December 31, 2018. The Company is considered an investment company under GAAP and follows the accounting and reporting guidance applicable to investment companies under Accounting Standards Codification, or ASC, Topic 946, Financial Services—Investment Companies.

Use of Estimates: The preparation of the unaudited consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, and disclosure of contingent assets and liabilities, at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

Capital Gains Incentive Fee: Pursuant to the terms of the investment advisory and administrative services agreement, the incentive fee on capital gains is determined and payable in arrears as of the end of each calendar year (or upon termination of the investment advisory and administrative services agreement). This fee equals 20.0% of the Company’s incentive fee capital gains, which equals the Company’s realized capital gains on a cumulative basis from inception, calculated as of the end of each calendar year, computed net of all realized capital losses and unrealized capital depreciation on a cumulative basis, less the aggregate amount of any capital gain incentive fees previously paid by the Company. On a quarterly basis, the Company accrues for the capital gains incentive fee by calculating such fees as if it were due and payable as of the end of such period.

The Company includes unrealized gains in the calculation of the capital gains incentive fee expense and related accrued capital gains incentive fee. This accrual reflects the incentive fees that would be payable to the Advisor if the Company’s entire portfolio was liquidated at its fair value as of the balance sheet date even though the Advisor is not entitled to an incentive fee with respect to unrealized gains unless and until such gains are actually realized.

Subordinated Income Incentive Fee: Pursuant to the terms of the investment advisory and administrative services agreement, the Advisor may also be entitled to receive a subordinated incentive fee on income. The subordinated incentive fee on income under the investment advisory and administrative services agreement, which is calculated and payable quarterly in arrears, equals 20.0% of the Company’s

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FS Investment Corporation II

Notes to Unaudited Consolidated Financial Statements (continued)
(in thousands, except share and per share amounts)

Note 2. Summary of Significant Accounting Policies (continued)

“pre-incentive fee net investment income” for the immediately preceding quarter and is subject to a hurdle rate, expressed as a rate of return on adjusted capital equal to 1.75% per quarter (1.875% under the FSIC II Advisor investment advisory and administrative services agreement), or an annualized hurdle rate of 7.0% (7.5% under the FSIC II Advisor investment advisory and administrative services agreement). For purposes of this fee, “adjusted capital” means cumulative gross proceeds generated from sales of the Company’s common stock (including proceeds from its distribution reinvestment plan) reduced for distributions paid to stockholders from proceeds of non-liquidating dispositions of the Company’s investments and amounts paid for share repurchases pursuant to the Company’s share repurchase program. As a result, the Advisor will not earn this incentive fee for any quarter until the Company’s pre-incentive fee net investment income for such quarter exceeds the hurdle rate of 1.75% (1.875% under the FSIC II Advisor investment advisory and administrative services agreement). Once the Company’s pre-incentive fee net investment income in any quarter exceeds the hurdle rate, the Advisor will be entitled to a “catch-up” fee equal to the amount of the pre-incentive fee net investment income in excess of the hurdle rate, until the Company’s pre-incentive fee net investment income for such quarter equals 2.1875%, or 8.75% annually (2.34375%, or 9.375% annually under the FSIC II Advisor investment advisory and administrative services agreement), of the Company’s adjusted capital. Thereafter, the Advisor will be entitled to receive 20.0% of the pre-incentive fee net investment income.

Reclassifications: Certain amounts in the unaudited consolidated financial statements as of and for the three and six months ended June 30, 2018 and the audited consolidated financial statements as of and for the year ended December 31, 2018 may have been reclassified to conform to the classifications used to prepare the unaudited consolidated financial statements as of and for the three and six months ended June 30, 2019.

As of June 30, 2019, the Company reclassified investments that were previously categorized as Equity/Other to Asset Based Finance. The Company has adjusted the presentation of its asset categories for all periods presented to conform to the current period presentation.

Revenue Recognition: Security transactions are accounted for on the trade date. The Company records interest income on an accrual basis to the extent that it expects to collect such amounts. The Company records dividend income on the ex-dividend date. Distributions received from limited liability company (“LLC”) and limited partnership (“LP”) investments are evaluated to determine if the distribution should be recorded as dividend income or a return of capital. The Company does not accrue as a receivable interest or dividends on loans and securities if it has reason to doubt its ability to collect such income. The Company’s policy is to place investments on non-accrual status when there is reasonable doubt that interest income will be collected. The Company considers many factors relevant to an investment when placing it on or removing it from non-accrual status including, but not limited to, the delinquency status of the investment, economic and business conditions, the overall financial condition of the underlying investment, the value of the underlying collateral, bankruptcy status, if any, and any other facts or circumstances relevant to the investment. If there is reasonable doubt that the Company will receive any previously accrued interest, then the interest income will be written-off. Payments received on non-accrual investments may be recognized as income or applied to principal depending upon the collectability of the remaining principal and interest. Non-accrual investments may be restored to accrual status when principal and interest become current and are likely to remain current based on the Company’s judgment.

Loan origination fees, original issue discount and market discount are capitalized and the Company amortizes such amounts as interest income over the respective term of the loan or security. Upon the prepayment of a loan or security, any unamortized loan origination fees and original issue discount are

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FS Investment Corporation II

Notes to Unaudited Consolidated Financial Statements (continued)
(in thousands, except share and per share amounts)

Note 2. Summary of Significant Accounting Policies (continued)

recorded as interest income. Structuring and other non-recurring upfront fees are recorded as fee income when earned. For the six months ended June 30, 2019, the Company recognized $7,276 in structuring fee revenue. The Company records prepayment premiums on loans and securities as fee income when it receives such amounts.

Derivative Instruments: The Company recognizes all derivative instruments as assets or liabilities at fair value in its consolidated financial statements. Derivative contracts entered into by the Company are not designated as hedging instruments, and as a result, the Company presents changes in fair value through net change in unrealized appreciation (depreciation) on derivative instruments in the consolidated statements of operations. Realized gains and losses that occur upon the cash settlement of the derivative instruments are included in net realized gains (losses) on derivative instruments in the consolidated statements of operations. As of June 30, 2019, the Company’s derivative instruments included interest rate swaps.

Recent Accounting Pronouncements: In August 2018, the Financial Accounting Standards Board, or FASB, issued Accounting Standards Update 2018-13, Fair Value Measurement—Disclosures Framework—Changes to Disclosure Requirements for Fair Value Measurement (Topic 820), or ASU 2018-13. ASU 2018-13 introduces new fair value disclosure requirements and eliminates and modifies certain existing fair value disclosure requirements. ASU 2018-13 is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. The Company is currently evaluating the impact of ASU 2018-13 on its financial statements.

Note 3. Share Transactions

Below is a summary of transactions with respect to shares of the Company’s common stock during the six months ended June 30, 2019 and 2018:

	Six Months Ended June 30,
	2019					2018
	Shares		Amount			Shares		Amount
Reinvestment of Distributions		6,310,424		$	50,698		6,590,215		$	56,981
Share Repurchase Program		(6,488,628)			(52,233)		(6,775,793)			(58,953)
Net Proceeds from Share Transactions		(178,204)		$	(1,535)		(185,578)		$	(1,972)

During the period from July 1, 2019 to August 9, 2019, the Company issued 1,042,846 shares of common stock pursuant to its distribution reinvestment plan, or DRP, for gross proceeds of $8,342,768 at an average price per share of $8.00. For additional information regarding the terms of the DRP, see Note 5.

Share Repurchase Program

Historically, the Company has conducted quarterly tender offers pursuant to its share repurchase program. The Company’s board of directors considers the following factors, among others, in making its determination regarding whether to cause the Company to offer to repurchase shares of common stock and under what terms:

•

the effect of such repurchases on the Company’s qualification as a RIC (including the consequences of any necessary asset sales);

•

the liquidity of the Company’s assets (including fees and costs associated with disposing of assets);

•

the Company’s investment plans and working capital requirements;

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FS Investment Corporation II

Notes to Unaudited Consolidated Financial Statements (continued)
(in thousands, except share and per share amounts)

Note 3. Share Transactions (continued)

•

the relative economies of scale with respect to the Company’s size;

•

the Company’s history in repurchasing shares of common stock or portions thereof; and

•

the condition of the securities markets.

Historically, the Company limited the number of shares of common stock to be repurchased during any calendar year to the lesser of (i) the number of shares of common stock that the Company could repurchase with the proceeds it received from the issuance of shares of common stock under the DRP and (ii) 10% of the weighted average number of shares of common stock outstanding in the prior calendar year, or 2.5% in each calendar quarter. On May 8, 2017, the board of directors of the Company amended the share repurchase program. As amended, the Company limits the maximum number of shares of common stock to be repurchased for any repurchase offer to the greater of (A) the number of shares of common stock that the Company can repurchase with the proceeds it has received from the sale of shares of common stock under the DRP during the twelve-month period ending on the date the applicable repurchase offer expires (less the amount of proceeds used to repurchase shares of common stock on each previous repurchase date for repurchase offers conducted during such twelve-month period) (the Company refers to this limitation as the twelve-month repurchase limitation) and (B) the number of shares of common stock that the Company can repurchase with the proceeds it received from the sale of shares of common stock under the DRP during the three-month period ending on the date the applicable repurchase offer expires (the Company refers to this limitation as the three-month repurchase limitation). In addition to this limitation, the maximum number of shares of common stock to be repurchased for any repurchase offer will also be limited to 10% of the weighted average number of shares of common stock outstanding in the prior calendar year, or 2.5% in each calendar quarter. As a result, the maximum number of shares of common stock to be repurchased for any repurchase offer will not exceed the lesser of (i) 10% of the weighted average number of shares of common stock outstanding in the prior calendar year, or 2.5% in each calendar quarter, and (ii) whichever is greater of the twelve-month repurchase limitation described in clause (A) above and the three-month repurchase limitation described in clause (B) above. At the discretion of the Company’s board of directors, the Company may also use cash on hand, cash available from borrowings and cash from the liquidation of securities investments as of the end of the applicable period to repurchase shares of common stock. The actual number of shares of common stock that the Company offers to repurchase may be less in light of the limitations noted above. The Company’s board of directors may amend, suspend or terminate the share repurchase program at any time upon 30 days’ notice.

Under the Company’s share repurchase program, the Company intends to offer to repurchase shares of common stock at a price equal to the price at which shares of common stock are issued pursuant to the DRP on the distribution date coinciding with the applicable share repurchase date. The price at which shares of common stock are issued under the DRP is determined by the Company’s board of directors or a committee thereof, in its sole discretion, and will be (i) not less than the net asset value per share of the Company’s common stock as determined in good faith by the Company’s board of directors or a committee thereof, in its sole discretion, immediately prior to the payment date of the distribution and (ii) not more than 2.5% greater than the net asset value per share as of such date.

In conjunction with the announced Merger Agreement, the Company’s board of directors suspended the Company’s share repurchase program.

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FS Investment Corporation II

Notes to Unaudited Consolidated Financial Statements (continued)
(in thousands, except share and per share amounts)

Note 3. Share Transactions (continued)

The following table provides information concerning the Company’s repurchases of shares of common stock pursuant to its share repurchase program during the six months ended June 30, 2019 and 2018:

For the Three Months Ended	Repurchase Date	Shares Repurchased		Percentage of Shares Tendered That Were Repurchased		Percentage of Outstanding Shares Repurchased as of the Repurchase Date		Repurchase Price Per Share			Aggregate Consideration for Repurchased Shares
Fiscal 2018
December 31, 2017	January 12, 2018		3,408,305		28.0%		1.04%		$	8.800		$	29,993
March 31, 2018	April 2, 2018		3,367,488		21.0%		1.03%		$	8.600			28,960
Total			6,775,793									$	58,953
Fiscal 2019
December 31, 2018	January 2, 2019		3,297,056		16.7%		1.01%		$	8.050		$	26,541
March 31, 2019	April 1, 2019		3,191,572		14.2%		0.98%		$	8.050			25,692
Total			6,488,628									$	52,233

Note 4. Related Party Transactions

Compensation of the Investment Adviser

Pursuant to the investment advisory and administrative services agreement, the Advisor is entitled to a base management fee calculated at an annual rate of 1.50% of the average weekly value of the Company’s gross assets (gross assets equal the total assets of the Company as set forth on the Company’s consolidated balance sheets) and an incentive fee based on the Company’s performance. The base management fee is payable quarterly in arrears. All or any part of the base management fee not taken as to any quarter will be deferred without interest and may be taken in such other quarter as the Advisor determines. See Note 2 for a discussion of the capital gains and subordinated income incentive fees that the Advisor may be entitled to under the investment advisory and administrative services agreement.

Pursuant to the FSIC II Advisor investment advisory and administrative services agreement, which was in effect until April 9, 2018, FSIC II Advisor was entitled to an annual base management fee equal to 2.0% of the average value of the Company’s gross assets (gross assets equal the total assets of the Company as set forth on the Company’s consolidated balance sheets) and an incentive fee based on the Company’s performance. Effective March 5, 2015, FSIC II Advisor had agreed to permanently waive 0.25% of its base management fee to which it was entitled under the FSIC II Advisor investment advisory and administrative services agreement, so that the fee received equaled 1.75% of the average value of the Company’s gross assets. Pursuant to the investment sub-advisory agreement, GDFM was entitled to receive 50% of all management and incentive fees payable to FSIC II Advisor under the FSIC II Advisor investment advisory and administrative services agreement with respect to each year.

Pursuant to the investment advisory and administrative services agreement, the Advisor oversees the Company’s day-to-day operations, including the provision of general ledger accounting, fund accounting, legal services, investor relations, certain government and regulatory affairs activities, and other administrative services. The Advisor also performs, or oversees the performance of, the Company’s corporate operations and required administrative services, which includes being responsible for the financial records that the Company is required to maintain and preparing reports for the Company’s stockholders and reports filed with the U.S. Securities and Exchange Commission, or the SEC. In addition, the Advisor

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FS Investment Corporation II

Notes to Unaudited Consolidated Financial Statements (continued)
(in thousands, except share and per share amounts)

Note 4. Related Party Transactions (continued)

assists the Company in calculating its 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.

Pursuant to the investment advisory and administrative services agreement, the Company reimburses the Advisor for expenses necessary to perform services related to its administration and operations, including the Advisor’s allocable portion of the compensation and related expenses of certain personnel of Franklin Square Holdings, L.P. (which does business as FS Investments), and KKR Credit Advisors (US), LLC, or KKR Credit, for providing administrative services to the Company on behalf of the Advisor. The Company reimburses the Advisor no less than monthly for expenses necessary to perform services related to the Company’s administration and operations. The amount of this reimbursement is set at the lesser of (1) the Advisor’s actual costs incurred in providing such services and (2) the amount that the Company estimates it would be required to pay alternative service providers for comparable services in the same geographic location. The Advisor allocates the cost of such services to the Company based on factors such as total assets, revenues, time allocations and/or other reasonable metrics. The Company’s board of directors reviews the methodology employed in determining how the expenses are allocated to the Company and the proposed allocation of administrative expenses among the Company and certain affiliates of the Advisor. The Company’s board of directors then assesses the reasonableness of such reimbursements for expenses allocated to it based on the breadth, depth and quality of such services as compared to the estimated cost to the Company of obtaining similar services from third-party service providers known to be available. In addition, the Company’s board of directors considers whether any single third-party service provider would be capable of providing all such services at comparable cost and quality. Finally, the Company’s board of directors compares the total amount paid to the Advisor for such services as a percentage of the Company’s net assets to the same ratio as reported by other comparable BDCs. The administrative services provisions of the FSIC II Advisor investment advisory and administrative services agreement were substantially similar to the administrative services provisions of the investment advisory and administrative services agreement.

The following table describes the fees and expenses accrued under the investment advisory and administrative services agreement and the FSIC II Advisor investment advisory and administrative services agreement, as applicable, during the three and six months ended June 30, 2019 and 2018:

			Three Months Ended June 30,						Six Months Ended June 30,
Related Party	Source Agreement	Description	2019			2018			2019			2018
The Advisor and FSIC II Advisor	FS/KKR Advisor Investment Advisory and Administrative Services Agreement and FSIC II Advisor Investment Advisory and Administrative Services Agreement	Base Management Fee(1)		$	16,982		$	18,660		$	34,846		$	40,740
The Advisor and FSIC II Advisor	FS/KKR Advisor Investment Advisory and Administrative Services Agreement and FSIC II Advisor Investment Advisory and Administrative Services Agreement	Subordinated Incentive Fee on Income(2)		$	8,736		$	1,480		$	19,867		$	7,055
The Advisor and FSIC II Advisor	FS/KKR Advisor Investment Advisory and Administrative Services Agreement and FSIC II Advisor Investment Advisory and Administrative Services Agreement	Administrative Services Expenses(3)		$	647		$	790		$	1,554		$	1,572

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FS Investment Corporation II

Notes to Unaudited Consolidated Financial Statements (continued)
(in thousands, except share and per share amounts)

Note 4. Related Party Transactions (continued)

(1)

FSIC II Advisor agreed, effective March 5, 2015, to permanently waive a portion of the base management fee to which it was entitled under the FSIC II Advisor investment advisory and administrative services agreement so that the fee received equaled 1.75% of the average value of the Company’s gross assets. As a result, the amount shown for the three and six months ended June 30, 2018 is net of waivers of $278 and $3,432, respectively. During the six months ended June 30, 2019 and 2018, $35,120 and $44,675, respectively, in base management fees were paid to FSIC II Advisor and the Advisor. As of June 30, 2019, $16,982 in base management fees were payable to the Advisor.

(2)

During the six months ended June 30, 2019 and 2018, $16,927 and $24,704, respectively, of subordinated incentive fees on income were paid to the Advisor and FSIC II Advisor. As of June 30, 2019, a subordinated incentive fee on income of $8,736 was payable to the Advisor.

(3)

During the six months ended June 30, 2019 and 2018, $1,132 and $1,297, respectively, of the accrued administrative services expenses related to the allocation of costs of administrative personnel for services rendered to the Company by the Advisor and FSIC II Advisor and the remainder related to other reimbursable expenses, including reimbursement of fees related to transactional expenses for prospective investments, such as fees and expenses associated with performing due diligence reviews of investments that do not close, often referred to as “broken deal” costs. Broken deal costs were $235 and $43 for the six months ended June 30, 2019 and 2018, respectively. The Company paid $1,254 and $1,210 in administrative services expenses to the Advisor and FSIC II Advisor during the six months ended June 30, 2019 and 2018, respectively.

Potential Conflicts of Interest

The members of the senior management and investment teams of the Advisor serve or may serve as officers, directors or principals of entities that operate in the same or a related line of business as the Company does, or of investment vehicles managed by the same personnel. For example, the Advisor is the investment adviser to FS KKR Capital Corp., FS Investment Corporation III, FS Investment Corporation IV, and Corporate Capital Trust II, and the officers, managers and other personnel of the Advisor may serve in similar or other capacities for the investment advisers to future investment vehicles affiliated with FS Investments or KKR Credit. In serving in these multiple and other capacities, they may have obligations to other clients or investors in those entities, the fulfillment of which may not be in the Company’s best interests or in the best interest of the Company’s stockholders. The Company’s investment objectives may overlap with the investment objectives of such investment funds, accounts or other investment vehicles. For additional information regarding potential conflicts of interest, see the Company’s annual report on Form 10-K for the year ended December 31, 2018.

Exemptive Relief

As a BDC, the Company is subject to certain regulatory restrictions in making its investments. For example, BDCs generally are not permitted to co-invest with certain affiliated entities in transactions originated by the BDC or its affiliates in the absence of an exemptive order from the SEC. However, BDCs are permitted to, and may, simultaneously co-invest in transactions where price is the only negotiated term.

In an order dated June 4, 2013, or the FS Order, the SEC granted exemptive relief permitting the Company, subject to the satisfaction of certain conditions, to co-invest in certain privately negotiated investment transactions with certain affiliates of FSIC II Advisor, including FS Energy and Power Fund, FS KKR Capital Corp., FS Investment Corporation III, FS Investment Corporation IV and any future BDCs that are advised by FSIC II Advisor or its affiliated investment advisers. However, in connection with the investment advisory relationship with the Advisor, and in an effort to mitigate potential future conflicts of interest, the Company’s board of directors authorized and directed that the Company (i) withdraw from the FS Order, except with respect to any transaction in which the Company participated in reliance on the FS Order prior to April 9, 2018, and (ii) rely on an exemptive relief order, dated April 3, 2018, that permits the Company, subject to the satisfaction of certain conditions, to co-invest in certain privately negotiated investment transactions, including investments originated and directly negotiated by the Advisor or KKR Credit, with certain affiliates of the Advisor.

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FS Investment Corporation II

Notes to Unaudited Consolidated Financial Statements (continued)
(in thousands, except share and per share amounts)

Note 5. Distributions

The following table reflects the cash distributions per share that the Company declared and paid on its common stock during the six months ended June 30, 2019 and 2018:

	Distribution
For the Three Months Ended	Per Share			Amount
Fiscal 2018
March 31, 2018		$	0.1885		$	61,153
June 30, 2018			0.1885			61,146
Total		$	0.3770		$	122,299
Fiscal 2019
March 31, 2019		$	0.1885		$	61,114
June 30, 2019			0.1885			61,108
Total		$	0.3770		$	122,222

The Company intends to declare regular cash distributions on a quarterly basis and pay such distributions on a monthly basis. On April 30, 2019, the Company’s board of directors declared regular monthly cash distributions for July 2019 through September 2019, each in the amount of $0.06283 per share. These distributions have been or will be paid monthly to stockholders of record as of monthly record dates previously determined by the Company’s board of directors. The timing and amount of any future distributions to stockholders are subject to applicable legal restrictions and the sole discretion of the Company’s board of directors.

The Company has adopted an “opt in” distribution reinvestment plan for its stockholders. As a result, if the Company makes a cash distribution, its stockholders will receive the distribution in cash unless they specifically “opt in” to the DRP so as to have their cash distributions reinvested in additional shares of the Company’s common stock. However, certain state authorities or regulators may impose restrictions from time to time that may prevent or limit a stockholder’s ability to participate in the DRP.

Under the Company’s DRP, cash distributions to participating stockholders will be reinvested in additional shares of the Company’s common stock at a purchase price determined by the Company’s board of directors, or a committee thereof, in its sole discretion, that is (i) not less than the net asset value per share of the Company’s common stock as determined in good faith by the Company’s board of directors or a committee thereof, in its sole discretion, immediately prior to the payment of the distribution and (ii) not more than 2.5% greater than the net asset value per share of the Company’s common stock as of such date. Although distributions paid in the form of additional shares of common stock will generally be subject to U.S. federal, state and local taxes in the same manner as cash distributions, stockholders who elect to participate in the Company’s DRP will not receive any corresponding cash distributions with which to pay any such applicable taxes. Stockholders receiving distributions in the form of additional shares of common stock will be treated as receiving a distribution in the amount of the fair market value of the Company’s shares of common stock.

The Company may fund its cash distributions to stockholders from any sources of funds legally available to it, including proceeds from the sale of the Company’s common stock, borrowings, net investment income from operations, capital gains proceeds from the sale of assets, gains from interest rate swaps, non-capital gains proceeds from the sale of assets and dividends or other distributions paid to the Company on account of preferred and common equity investments in portfolio companies. The Company has not established limits on the amount of funds it may use from available sources to make distributions. During certain periods, the Company’s distributions may exceed its earnings. As a result, it is possible that a portion of the distributions the Company makes may represent a return of capital. A return of capital generally is a return of a stockholder’s investment rather than a return of earnings or gains derived from the Company’s investment activities. Each year a statement on Form 1099-DIV identifying the sources of the

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FS Investment Corporation II

Notes to Unaudited Consolidated Financial Statements (continued)
(in thousands, except share and per share amounts)

Note 5. Distributions (continued)

distributions (i.e., paid from ordinary income, paid from net capital gains on the sale of securities, and/or a return of capital, which is a nontaxable distribution) will be mailed to the Company’s stockholders. There can be no assurance that the Company will be able to pay distributions at a specific rate or at all.

The following table reflects the sources of the cash distributions on a tax basis that the Company paid on its common stock during the six months ended June 30, 2019 and 2018:

	Six Months Ended June 30,
	2019					2018
Source of Distribution	Distribution Amount			Percentage		Distribution Amount			Percentage
Offering proceeds		$	—		—		$	—		—
Borrowings			—		—			—		—
Net investment income(1)			122,222		100%			122,299		100%
Short-term capital gains proceeds from the sale of assets			—		—			—		—
Long-term capital gains proceeds from the sale of assets			—		—			—		—
Non-capital gains proceeds from the sale of assets			—		—			—		—
Distributions on account of preferred and common equity			—		—			—		—
Total		$	122,222		100%		$	122,299		100%

(1)

During the six months ended June 30, 2019 and 2018, 94.1% and 95.3%, respectively, of the Company’s gross investment income was attributable to cash income earned, 1.9% and 1.1%, respectively, was attributable to non-cash accretion of discount and 4.0% and 3.6%, respectively, was attributable to paid-in-kind, or PIK, interest.

The Company’s net investment income on a tax basis for the six months ended June 30, 2019 and 2018 was $114,339 and $118,325, respectively. As of June 30, 2019 and December 31, 2018, the Company had $50,144 and $58,028, respectively, of undistributed net investment income and $232,671 and $194,360, respectively, of accumulated capital losses on a tax basis.

The difference between the Company’s GAAP-basis net investment income and its tax-basis net investment income is primarily due to the reclassification of unamortized original issue discount and prepayment fees recognized upon prepayment of loans from income for GAAP purposes to realized gains or deferred to future periods for tax purposes, the impact of consolidating certain subsidiaries for purposes of computing GAAP-basis net investment income but not for purposes of computing tax-basis net investment income and income recognized for tax purposes on certain transactions but not recognized for GAAP purposes.

The following table sets forth a reconciliation between GAAP-basis net investment income and tax-basis net investment income during the six months ended June 30, 2019 and 2018:

	Six Months Ended June 30,
	2019			2018
GAAP-basis net investment income		$	116,222		$	120,454
Income subject to tax not recorded for GAAP (income recorded for GAAP not subject to tax)			(807)			3,500
GAAP versus tax-basis impact of consolidation of certain subsidiaries			3,586			3,569
Reclassification of unamortized original issue discount, prepayment fees and other income			(4,636)			(8,525)
Other miscellaneous differences			(26)			(673)
Tax-basis net investment income		$	114,339		$	118,325

TABLE OF CONTENTS

FS Investment Corporation II

Notes to Unaudited Consolidated Financial Statements (continued)
(in thousands, except share and per share amounts)

Note 5. Distributions (continued)

The determination of the tax attributes of the Company’s distributions is made annually as of the end of the Company’s fiscal year based upon the Company’s taxable income for the full year and distributions paid for the full year. Therefore, a determination made on a quarterly basis may not be representative of the actual tax attributes of the Company’s distributions for a full year. The actual tax characteristics of distributions to stockholders are reported to stockholders annually on Form 1099-DIV.

As of June 30, 2019 and December 31, 2018, the components of accumulated earnings on a tax basis were as follows:

	June 30, 2019 (Unaudited)			December 31, 2018
Distributable ordinary income		$	50,144		$	58,028
Distributable realized gains			—			—
Capital loss carryover(1)			(232,671)			(194,360)
Other temporary differences			(126)			(139)
Net unrealized appreciation (depreciation) on investments and interest rate swaps and gain (loss) on foreign currency(2)			(246,598)			(287,442)
Total		$	(429,251)		$	(423,913)

(1)

Net capital losses recognized may be carried forward indefinitely, and their character is retained as short-term or long-term losses. As of June 30, 2019, the Company had short-term and long-term capital loss carryforwards available to offset future realized capital gains of $0 and $232,671, respectively.

(2)

As of June 30, 2019 and December 31, 2018, the gross unrealized appreciation on the Company’s investments and interest rate swaps and gain on foreign currency was $169,761 and $135,578, respectively. As of June 30, 2019 and December 31, 2018, the gross unrealized depreciation on the Company’s investments and interest rate swaps and loss on foreign currency was $416,359 and $423,020, respectively.

The aggregate cost of the Company’s investments for U.S. federal income tax purposes totaled $4,274,397 and $4,647,131 as of June 30, 2019 and December 31, 2018, respectively. The aggregate net unrealized appreciation (depreciation) on investments on a tax basis was $(233,688) and $(287,851) as of June 30, 2019 and December 31, 2018, respectively.

As of June 30, 2019, the Company had a deferred tax liability of $7,001 resulting from unrealized appreciation on investments held by the Company’s wholly-owned taxable subsidiaries and a deferred tax asset of $20,412 resulting from net operating losses of the Company’s wholly-owned taxable subsidiaries. As of June 30, 2019, certain wholly-owned taxable subsidiaries anticipated that they would be unable to fully utilize their generated net operating losses, therefore the deferred tax asset was offset by a valuation allowance of $13,411. For the six months ended June 30, 2019, the Company did not record a provision for taxes related to its wholly-owned taxable subsidiaries.

TABLE OF CONTENTS

FS Investment Corporation II

Notes to Unaudited Consolidated Financial Statements (continued)
(in thousands, except share and per share amounts)

Note 6. Investment Portfolio

The following table summarizes the composition of the Company’s investment portfolio at cost and fair value as of June 30, 2019 and December 31, 2018:

	June 30, 2019 (Unaudited)								December 31, 2018
	Amortized Cost(1)			Fair Value			Percentage of Portfolio		Amortized Cost(1)			Fair Value			Percentage of Portfolio
Senior Secured Loans—First Lien		$	2,945,007		$	2,863,504		71%		$	3,382,158		$	3,293,291		75%
Senior Secured Loans—Second Lien			453,302			371,930		9%			418,015			333,986		8%
Other Senior Secured Debt			218,865			211,199		5%			207,181			196,616		5%
Subordinated Debt			219,711			218,371		6%			242,792			221,858		5%
Asset Based Finance			97,842			94,569		2%			49,415			48,160		1%
Equity/Other			255,871			281,136		7%			261,044			265,369		6%
Total		$	4,190,598		$	4,040,709		100%		$	4,560,605		$	4,359,280		100%

(1)

Amortized cost represents the original cost adjusted for the amortization of premiums and/or accretion of discounts, as applicable, on investments.

In general, under the 1940 Act, the Company would be presumed to “control” a portfolio company if it owned more than 25% of its voting securities or it had the power to exercise control over the management or policies of such portfolio company, and would be an “affiliated person” of a portfolio company if it owned 5% or more of its voting securities.

As of June 30, 2019, the Company did not “control” any of its portfolio companies. As of June 30, 2019, the Company held investments in seven portfolio companies of which it is deemed to be an “affiliated person” but is not deemed to “control.” For additional information with respect to such portfolio companies, see footnote (t) to the unaudited consolidated schedule of investments as of June 30, 2019 in this quarterly report on Form 10-Q.

As of December 31, 2018, the Company did not “control” any of its portfolio companies. As of December 31, 2018, the Company held investments in seven portfolio companies of which it was deemed to be an “affiliated person” but was not deemed to “control.” For additional information with respect to such portfolio companies, see footnote (u) to the consolidated schedule of investments as of December 31, 2018 in this quarterly report on Form 10-Q.

The Company’s investment portfolio may contain loans and other unfunded arrangements that are in the form of lines of credit, revolving credit facilities, delayed draw credit facilities or other investments, pursuant to which the Company may be required to provide funding when requested by portfolio companies in accordance with the terms of the underlying agreements. As of June 30, 2019, the Company had unfunded debt investments with aggregate unfunded commitments of $126,735 and unfunded equity/other commitments of $202,224. As of December 31, 2018, the Company had unfunded debt investments with aggregate unfunded commitments of $172,963 and an unfunded commitment to purchase up to $47 in shares of preferred stock of Altus Power America Holdings, LLC. The Company maintains sufficient cash on hand, available borrowings and liquid securities to fund such unfunded commitments should the need arise. For additional details regarding the Company’s unfunded debt investments, see the Company’s unaudited consolidated schedule of investments as of June 30, 2019 and audited consolidated schedule of investments as of December 31, 2018.

TABLE OF CONTENTS

FS Investment Corporation II

Notes to Unaudited Consolidated Financial Statements (continued)
(in thousands, except share and per share amounts)

Note 6. Investment Portfolio (continued)

The table below describes investments by industry classification and enumerates the percentage, by fair value, of the total portfolio assets in such industries as of June 30, 2019 and December 31, 2018:

	June 30, 2019 (Unaudited)					December 31, 2018
Industry Classification	Fair Value			Percentage of Portfolio		Fair Value			Percentage of Portfolio
Automobiles & Components		$	35,674		1%		$	34,508		1%
Capital Goods			620,383		15%			893,250		21%
Commercial & Professional Services			280,551		7%			328,760		8%
Consumer Durables & Apparel			218,800		5%			227,470		5%
Consumer Services			246,322		6%			231,589		5%
Diversified Financials			162,990		4%			277,500		6%
Energy			341,367		8%			372,720		9%
Food & Staples Retailing			145,449		4%			6,797		0%
Food, Beverage & Tobacco			97,460		2%			96,787		2%
Health Care Equipment & Services			356,370		9%			361,228		8%
Insurance			63,625		2%			117,149		3%
Materials			191,169		5%			295,084		7%
Media			254,816		6%			254,278		6%
Pharmaceuticals, Biotechnology & Life Sciences			22,417		1%			20,012		0%
Real Estate			30,931		1%			—		—
Retailing			297,447		7%			257,260		6%
Semiconductors & Semiconductor Equipment			—		—			14,155		0%
Software & Services			451,265		11%			339,451		8%
Technology Hardware & Equipment			81,509		2%			46,178		1%
Telecommunication Services			121,790		3%			168,930		4%
Transportation			20,374		1%			16,174		0%
Total		$	4,040,709		100%		$	4,359,280		100%

TABLE OF CONTENTS

FS Investment Corporation II

Notes to Unaudited Consolidated Financial Statements (continued)
(in thousands, except share and per share amounts)

Note 7. Financial Instruments

The following is a summary of the fair value and location of the Company’s derivative instruments in the consolidated balance sheets held as of June 30, 2019 and December 31, 2018:

Derivative Instrument	Statement Location	Fair Value
Derivative Instrument	Statement Location	June 30, 2019 (Unaudited)			December 31, 2018
Interest rate swaps	Unrealized appreciation on interest rate swaps		$	—		$	—
Interest rate swaps	Unrealized depreciation on interest rate swaps			(12,396)			(1,743)
Total			$	(12,396)		$	(1,743)

Net realized and unrealized gains and losses on derivative instruments recorded by the Company for the six months ended June 30, 2019 and 2018 are in the following locations in the consolidated statements of operations:

		Net Realized Gains (Losses)						Net Realized Gains (Losses)
		Three Months Ended June 30,						Six Months Ended June 30,
Derivative Instrument	Statement Location	2019			2018			2019			2018
Interest Rate Swaps	Net realized gains (losses) on interest rate swaps		$	—		$	—		$	—		$	—
Total			$	—		$	—		$	—		$	—

		Net Unrealized Gains (Losses)						Net Unrealized Gains (Losses)
		Three Months Ended June 30,						Six Months Ended June 30,
Derivative Instrument	Statement Location	2019			2018			2019			2018
Interest Rate Swaps	Net change in unrealized appreciation (depreciation) on interest rate swaps		$	(6,657)		$	—		$	(10,653)		$	—
Total			$	(6,657)		$	—		$	(10,653)		$	—

TABLE OF CONTENTS

FS Investment Corporation II

Notes to Unaudited Consolidated Financial Statements (continued)
(in thousands, except share and per share amounts)

Note 7. Financial Instruments (continued)

Offsetting of Derivative Instruments

The Company has derivative instruments that are subject to master netting agreements. These agreements include provisions to offset positions with the same counterparty in the event of default by one of the parties. The Company’s unrealized appreciation and depreciation on derivative instruments are reported as gross assets and liabilities, respectively, in the condensed consolidated statements of assets and liabilities. The following tables present the Company’s assets and liabilities related to derivatives by counterparty, net of amounts available for offset under a master netting arrangement and net of any collateral received or pledged by the Company for such assets and liabilities as of June 30, 2019 and December 31, 2018:

As of June 30, 2019 (Unaudited)

Counterparty

Derivative Assets
Subject to Master
Netting Agreement

Derivatives
Available
for Offset

Non-cash
Collateral
Received(1)

Cash
Collateral
Received(1)

Net Amount
of Derivative
Assets(2)

JP Morgan Chase Bank

—

ING Capital Markets

—

Total

—

Counterparty	Derivative Liabilities Subject to Master Netting Agreement			Derivatives Available for Offset			Non-cash Collateral Received(1)			Cash Collateral Pledged(1)			Net Amount of Derivative Liabilities(3)
JP Morgan Chase Bank		$	6,043		$	—		$	—		$	6,043		$	—
ING Capital Markets			6,353			—			—			6,353			—
Total		$	12,396		$	—		$	—		$	12,396		$	—

As of December 31, 2018

Counterparty

Derivative Assets
Subject to Master
Netting Agreement

Derivatives
Available
for Offset

Non-cash
Collateral
Received(1)

Cash
Collateral
Received(1)

Net Amount
of Derivative
Assets(2)

JP Morgan Chase Bank

—

Total

—

Counterparty	Derivative Liabilities Subject to Master Netting Agreement			Derivatives Available for Offset			Non-cash Collateral Received(1)			Cash Collateral Pledged(1)			Net Amount of Derivative Liabilities(3)
JP Morgan Chase Bank		$	1,743		$	—		$	—		$	—		$	1,743
Total		$	1,743		$	—		$	—		$	—		$	1,743

(1)

In some instances, the actual amount of the collateral received and/or pledged may be more than the amount shown due to overcollateralization.

(2)

Net amount of derivative assets represents the net amount due from the counterparty to the Company.

(3)

Net amount of derivative liabilities represents the net amount due from the Company to the counterparty.

TABLE OF CONTENTS

FS Investment Corporation II

Notes to Unaudited Consolidated Financial Statements (continued)
(in thousands, except share and per share amounts)

Note 7. Financial Instruments (continued)

Interest Rate Swaps

Interest rate swap contracts are privately negotiated agreements between the Company and a counterparty. Pursuant to interest rate swap agreements, the Company makes fixed-rate payments to a counterparty in exchange for payments on a floating benchmark interest rate. Payments received or made are recorded as realized gains or losses. During the term of the outstanding swap agreement, changes in the underlying value of the swap are recorded as unrealized gains or losses. The value of the swap is determined by changes in the relationship between two rates of interest. The Company is exposed to credit loss in the event of non-performance by the swap counterparty. Risk may also arise from movements in interest rates. The Company attempts to limit counterparty risk by dealing only with well-known counterparties.

The interest rate swaps open at the end of the period are generally indicative of the volume of activity during the period.

As of June 30, 2019 and December 31, 2018, the Company’s open interest rate swaps were as follows:

As of June 30, 2019 (Unaudited)
Counterparty	Notional Amount			Company Receives Floating Rate	Company Pays Fixed Rate		Termination Date	Premiums Paid/ (Received)			Value			Unrealized Appreciation (Depreciation)
JP Morgan Chase Bank		$	80,000	3-Month LIBOR		2.78%	12/18/2023		$	—		$	(3,881)		$	(3,881)
JP Morgan Chase Bank		$	80,000	3-Month LIBOR		2.81%	12/18/2021			—			(2,162)			(2,162)
ING Capital Markets		$	100,000	3-Month LIBOR		2.59%	1/14/2024			—			(4,055)			(4,055)
ING Capital Markets		$	100,000	3-Month LIBOR		2.62%	1/14/2022			—			(2,298)			(2,298)
									$	—		$	(12,396)		$	(12,396)

As of December 31, 2018
Counterparty	Notional Amount			Company Receives Floating Rate	Company Pays Fixed Rate		Termination Date	Premiums Paid/ (Received)			Value			Unrealized Appreciation (Depreciation)
JP Morgan Chase Bank		$	80,000	3-Month LIBOR		2.78%	12/18/2023		$	—		$	(1,090)		$	(1,090)
JP Morgan Chase Bank		$	80,000	3-Month LIBOR		2.81%	12/18/2021			—			(653)			(653)
									$	—		$	(1,743)		$	(1,743)

Note 8. Fair Value of Financial Instruments

Under existing accounting guidance, fair value is defined as the price that the Company would receive upon selling an investment or pay to transfer a liability in an orderly transaction to a market participant in the principal or most advantageous market for the investment. This accounting guidance emphasizes valuation techniques that maximize the use of observable market inputs and minimize the use of unobservable inputs. Inputs refer broadly to the assumptions that market participants would use in pricing an asset or liability, including assumptions about risk. Inputs may be observable or unobservable. Observable inputs are inputs that reflect the assumptions market participants would use in pricing an asset or liability developed based on market data obtained from sources independent of the Company. Unobservable inputs are inputs that reflect the assumptions market participants would use in pricing an asset or liability developed based on the best information available in the circumstances. The Company classifies the inputs used to measure these fair values into the following hierarchy as defined by current accounting guidance:

Level 1: Inputs that are quoted prices (unadjusted) in active markets for identical assets or liabilities.

TABLE OF CONTENTS

FS Investment Corporation II

Notes to Unaudited Consolidated Financial Statements (continued)
(in thousands, except share and per share amounts)

Note 8. Fair Value of Financial Instruments (continued)

Level 2: Inputs that are quoted prices for similar assets or liabilities in active markets.

Level 3: Inputs that are unobservable for an asset or liability.

A financial instrument’s categorization within the valuation hierarchy is based upon the lowest level of input that is significant to the fair value measurement.

As of June 30, 2019 and December 31, 2018, the Company’s investments were categorized as follows in the fair value hierarchy:

Valuation Inputs	June 30, 2019 (Unaudited)			December 31, 2018
Level 1—Price quotations in active markets		$	233		$	517
Level 2—Significant other observable inputs			825,998			906,192
Level 3—Significant unobservable inputs			3,214,478			3,452,571
Total		$	4,040,709		$	4,359,280

As of June 30, 2019 and December 31, 2018, the Company’s interest rate swaps were categorized as follows in the fair value hierarchy:

	June 30, 2019 (Unaudited)						December 31, 2018
Valuation Inputs	Assets			Liability			Asset			Liability
Level 1—Price quotations in active markets		$	—		$	—		$	—		$	—
Level 2—Significant other observable inputs			—			(12,396)			—			(1,743)
Level 3—Significant unobservable inputs			—			—			—			—
Total		$	—		$	(12,396)		$	—		$	(1,743)

The Company’s investments consist primarily of debt investments that were acquired directly from the issuer. Debt investments, for which broker quotes are not available, are valued by independent valuation firms, which determine the fair value of such investments by considering, among other factors, the borrower’s ability to adequately service its debt, prevailing interest rates for like investments, expected cash flows, call features, anticipated repayments and other relevant terms of the investments. Except as described below, all of the Company’s equity/other investments are also valued by independent valuation firms, which determine the fair value of such investments by considering, among other factors, contractual rights ascribed to such investments, as well as various income scenarios and multiples of earnings before interest, taxes, depreciation and amortization, or EBITDA, cash flows, net income, revenues or, in limited instances, book value or liquidation value. An investment that is newly issued and purchased near the date of the financial statements is valued at cost if the Company’s board of directors determines that the cost of such investment is the best indication of its fair value. Such investments described above are typically classified as Level 3 within the fair value hierarchy. Investments that are traded on an active public market are valued at their closing price as of the date of the financial statements and are classified as Level 1 within the fair value hierarchy. Except as described above, the Company typically values its other investments and interest rate swaps by using the midpoint of the prevailing bid and ask prices from dealers on the date of the relevant period end, which are provided by independent third-party pricing services and screened for validity by such services and are typically classified as Level 2 within the fair value hierarchy.

The Company periodically benchmarks the bid and ask prices it receives from the third-party pricing services and/or dealers and independent valuation firms as applicable, against the actual prices at which the Company purchases and sells its investments. Based on the results of the benchmark analysis and the experience of the Company’s management in purchasing and selling these investments, the Company

TABLE OF CONTENTS

FS Investment Corporation II

Notes to Unaudited Consolidated Financial Statements (continued)
(in thousands, except share and per share amounts)

Note 8. Fair Value of Financial Instruments (continued)

believes that these prices are reliable indicators of fair value. The valuation committee and the board of directors reviewed and approved the valuation determinations made with respect to these investments in a manner consistent with the Company’s valuation policy.

The following is a reconciliation for the six months ended June 30, 2019 and 2018 of investments for which significant unobservable inputs (Level 3) were used in determining fair value:

	For the Six Months Ended June 30, 2019
	Senior Secured Loans— First Lien			Senior Secured Loans— Second Lien			Other Senior Secured Debt			Subordinated Debt			Asset Based Finance			Equity/ Other			Total
Fair value at beginning of period		$	2,827,812		$	212,290		$	95,132		$	6,201		$	48,160		$	262,976		$	3,452,571
Accretion of discount (amortization of premium)			1,412			150			251			4			1			207			2,025
Net realized gain (loss)			(1,587)			—			26			—			114			(10,181)			(11,628)
Net change in unrealized appreciation (depreciation)			(2,993)			(9,934)			(1,960)			784			(1,760)			22,218			6,355
Purchases			388,555			75,744			14,371			32,615			48,649			5,136			565,070
Paid-in-kind interest			1,616			1,110			1,180			306			1,076			3,604			8,892
Sales and repayments			(797,836)			(5,979)			(1,185)			—			(1,765)			(3,775)			(810,540)
Net transfers in or out of Level 3			1,733			—			—			—			—			—			1,733
Fair value at end of period		$	2,418,712		$	273,381		$	107,815		$	39,910		$	94,475		$	280,185		$	3,214,478
The amount of total gains or losses for the period included in changes in net assets attributable to the change in unrealized gains or losses relating to investments still held at the reporting date		$	(6,300)		$	(10,038)		$	(3,005)		$	465		$	(1,537)		$	14,679		$	(5,736)

TABLE OF CONTENTS

FS Investment Corporation II

Notes to Unaudited Consolidated Financial Statements (continued)
(in thousands, except share and per share amounts)

Note 8. Fair Value of Financial Instruments (continued)

	For the Six Months Ended June 30, 2018
	Senior Secured Loans— First Lien			Senior Secured Loans— Second Lien			Other Senior Secured Debt			Subordinated Debt			Asset Based Finance			Equity/ Other			Total
Fair value at beginning of period		$	3,436,962		$	311,243		$	125,003		$	345,263		$	52,779		$	319,976		$	4,591,226
Accretion of discount (amortization of premium)			321			30			302			—			3			24			680
Net realized gain (loss)			(25,735)			611			(1,852)			—			—			13,751			(13,225)
Net change in unrealized appreciation (depreciation)			(60,268)			(32,049)			(3,462)			(596)			(3,186)			(7,301)			(106,862)
Purchases			391,526			18,824			—			18,783			575			31,202			460,910
Paid-in-kind interest			2,472			844			1,650			—			1,545			1,473			7,984
Sales and repayments			(421,497)			(38,711)			(18,155)			(58,151)			(1,034)			(71,409)			(608,957)
Net transfers in or out of Level 3			(392,341)			(82,452)			(7,058)			(303,910)			—			(5,686)			(791,447)
Fair value at end of period		$	2,931,440		$	178,340		$	96,428		$	1,389		$	50,682		$	282,030		$	3,540,309
The amount of total gains or losses for the period included in changes in net assets attributable to the change in unrealized gains or losses relating to investments still held at the reporting date		$	(57,506)		$	(31,176)		$	(4,508)		$	—		$	(3,186)		$	(4,896)		$	(101,272)

TABLE OF CONTENTS

FS Investment Corporation II

Notes to Unaudited Consolidated Financial Statements (continued)
(in thousands, except share and per share amounts)

Note 8. Fair Value of Financial Instruments (continued)

The valuation techniques and significant unobservable inputs used in recurring Level 3 fair value measurements as of June 30, 2019 and December 31, 2018 were as follows:

Type of Investment

Fair Value at
June 30, 2019
(Unaudited)(1)

Valuation
Technique(2)

Unobservable Input

Range(3)

Impact to
Valuation from
an Increase in
Input(4)

Senior Debt

2,493,050

Discounted Cash Flow

Discount Rate

7.3% – 16.5% (10.2%)

Decrease

244,930

Waterfall

EBITDA Multiple

0.1x – 12.5x (5.0x)

Increase

46,502

Cost

9,859

Other(5)

5,567

Indicative Dealer Quotes

84.9% – 84.9% (84.9%)

Increase

Subordinated Debt

39,704

Discounted Cash Flow

Discount Rate

13.8% – 18.8% (14.1%)

Decrease

206

Waterfall

EBITDA Multiple

10.2x – 10.2x (10.2x)

Increase

Asset Based Finance

44,784

Cost

26,337

Waterfall

EBITDA Multiple

1.0x – 12.5x (1.3x)

Increase

19,198

Indicative Dealer Quotes

49.6% – 63.0% (55.0%)

Increase

3,608

Discounted Cash Flow

Discount Rate

7.9% – 7.9% (7.9%)

Decrease

548

Other(5)

Equity/Other

222,847

Waterfall

EBITDA Multiple

0.7x – 14.5x (7.0x)

Increase

56,934

Other(5)

404

Option Pricing Model

Equity Illiquidity Discount

15.0% – 15.0% (15.0%)

Decrease

Total

3,214,478

(1)

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

(2)

For the assets and investments that have more than one valuation technique, the Company may rely on the stated techniques individually or in the aggregate based on a weight ascribed to each valuation technique, ranging from 0 – 100%. Indicative dealer quotes obtained for valuation purposes are reviewed by the Company relative to other valuation techniques.

(3)

Weighted average amounts are based on the estimated fair values.

(4)

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

(5)

Fair value based on expected outcome of proposed corporate transactions and/or other factors.

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FS Investment Corporation II

Notes to Unaudited Consolidated Financial Statements (continued)
(in thousands, except share and per share amounts)

Note 8. Fair Value of Financial Instruments (continued)

Type of Investment

Fair Value at
December 31, 2018

Valuation
Technique(1)

Unobservable Input

Range

Weighted
Average

Senior Secured Loans—
First Lien

2,668,002

Market Comparables

Market Yield (%)

5.5% – 16.8%

10.5%

EBITDA Multiples (x)

5.3x – 9.5x

6.9x

Revenue Multiples (x)

0.1x – 0.1x

0.1x

61,692

Other(2)

Other

N/A

98,118

Cost

99.0% – 100.0%

99.5%

Senior Secured Loans—
Second Lien

157,615

Market Comparables

Market Yield (%)

8.9% – 15.0%

12.6%

8,316

Other(2)

Other

N/A

46,359

Cost

98.5% – 98.5%

98.5%

Other Senior Secured
Debt

95,132

Market Comparables

Market Yield (%)

8.2% – 13.6%

9.7%

EBITDA Multiples (x)

7.0x – 8.5x

7.5x

Subordinated Debt

6,201

Market Comparables

Market Yield (%)

12.0% – 20.0%

14.3%

EBITDA Multiples (x)

9.6x – 10.1x

9.9x

Asset Based Finance

24,385

Market Comparables

Market Yield (%)

17.7% – 19.0%

18.4%

Net Aircraft Book Value Multiple (x)

1.0x – 1.0x

1.0x

21,767

Market Quotes

Indicative Dealer Quotes

51.8% – 99.6%

61.9%

Equity/Other

223,197

Market Comparables

Capacity Multiple ($/kW)

$1,875.0 – $2,125.0

$2,000.0

EBITDA Multiples (x)

4.0x – 14.3x

7.6x

Net Aircraft Book Value Multiple (x)

1.0x – 1.0x

1.0x

Price to Book Multiple (x)

1.0x – 1.0x

1.0x

Production Multiples (Mboe/d)

$25,000.0 – $38,750.0

$28,034.2

Production Multiples (MMcfe/d)

$4,708.0 – $5,167.0

$4,937.5

Proved Reserves Multiples (Bcfe)

$1.2 – $1.3

$1.2

Proved Reserves Multiples (Mmboe)

$3.5 – $13.8

$5.4

PV-10 Multiples (x)

0.8x – 2.3x

1.7x

19,929

Discounted Cash
Flow

Discount Rate (%)

11.8% – 13.8%

12.8%

471

Option Valuation
Model

Volatility (%)

30.0% – 30.0%

30.0%

20,251

Other(2)

Other

N/A

1,136

Cost

100.0% – 100.0%

100.0%

Total

3,452,571

(1)

Investments using a market quotes valuation technique were primarily valued by using the midpoint of the prevailing bid and ask prices from dealers on the date of the relevant period end, which were provided by independent third-party pricing services and screened for validity by such services. Investments valued using an EBITDA multiple or a revenue multiple pursuant to the market comparables valuation technique may be conducted using an enterprise valuation waterfall analysis. For investments utilizing a market comparables valuation technique, a significant increase (decrease) in the market yield, in isolation, would result in a significantly lower (higher) fair value measurement, and a significant increase (decrease) in any of the valuation multiples, in isolation, would result in a significantly higher (lower) fair value measurement. For investments utilizing a discounted cash flow valuation technique, a significant increase (decrease) in the discount rate, in isolation, would result in a significantly lower (higher) fair value measurement. For investments utilizing an option valuation model valuation technique, a significant increase (decrease) in the volatility, in isolation, would result in a significantly higher (lower) fair value measurement.

(2)

Fair value based on expected outcome of proposed corporate transactions and/or other factors.

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FS Investment Corporation II

Notes to Unaudited Consolidated Financial Statements (continued)
(in thousands, except share and per share amounts)

Note 9. Financing Arrangements

The following tables present summary information with respect to the Company’s outstanding financing arrangements as of June 30, 2019 and December 31, 2018. For additional information regarding these financing arrangements, see the notes to the Company’s audited consolidated financial statements contained in its annual report on Form 10-K for the year ended December 31, 2018. Any significant changes to the Company’s financing arrangements during the three months ended June 30, 2019 are discussed below.

As of June 30, 2019
(Unaudited)

Arrangement(1)

Type of Arrangement

Rate

Amount
Outstanding

Amount
Available

Maturity
Date

Green Creek Credit Facility

Term Loan Credit Facility

L+2.50%

500,000

—

December 15, 2019

Cooper River Credit Facility

Revolving Credit Facility

L+2.25%

87,500

112,500

March 31, 2021

Darby Creek Credit Facility

Revolving Credit Facility

L+1.95%

185,000

65,000

February 26, 2024

Juniata River Credit Facility

Revolving Credit Facility

L+2.68%

680,000

170,000

October 11, 2020

Senior Secured Revolving Credit Facility

Revolving Credit Facility

L+2.00% –
2.25%(2)

296,256(3)

428,744

August 9, 2023

Total

1,748,756

776,244

As of December 31, 2018

Arrangement(1)

Type of Arrangement

Rate

Amount
Outstanding

Amount
Available

Maturity
Date

Green Creek Credit Facility

Term Loan Credit Facility

L+2.50%

500,000

—

December 15, 2019

Cooper River Credit Facility

Revolving Credit Facility

L+2.25%

107,000

93,000

May 29, 2020

Darby Creek Credit Facility

Revolving Credit Facility

L+2.50%

135,000

115,000

August 19, 2020

Juniata River Credit Facility

Term Loan Credit Facility

L+2.68%

850,000

—

October 11, 2020

Senior Secured Revolving Credit Facility

Revolving Credit Facility

L+2.00% –
2.25%(2)

298,254(4)

351,746

August 9, 2023

Total

1,890,254

559,746

(1)

The carrying amount outstanding under the facility approximates its fair value.

(2)

The spread over LIBOR is determined by reference to the ratio of the value of the borrowing base to the aggregate amount of certain outstanding indebtedness of the Company.

(3)

Amount includes borrowings in U.S. dollars, Euros, Canadian dollars, and pound sterling. Euro balance outstanding of €9,100 has been converted to U.S. dollars at an exchange rate of €1.00 to $1.14 as of June 30, 2019 to reflect total amount outstanding in U.S. dollars. Canadian dollar balance outstanding of CAD $107,250 has been converted to U.S. dollars at an exchange rate of CAD $1.00 to $0.76 as of June 30, 2019 to reflect total amount outstanding in U.S. dollars. Pound sterling balance outstanding of £22,500 has been converted to U.S. dollars at an exchange rate of £1.00 to $1.27 as of June 30, 2019 to reflect total amount outstanding in U.S. dollars.

(4)

Amount includes borrowings in U.S. dollars, Euros, and Canadian Dollars. Euro balance outstanding of €1,500 has been converted to U.S. dollars at an exchange rate of €1.00 to $1.13 as of December 31, 2018 to reflect total amount outstanding in U.S. dollars. Canadian dollar balance outstanding of CAD $63,500 has been converted to U.S. dollars at an exchange rate of CAD $1.00 to $0.77 as of December 31, 2018 to reflect total amount outstanding in U.S. dollars.

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FS Investment Corporation II

Notes to Unaudited Consolidated Financial Statements (continued)
(in thousands, except share and per share amounts)

Note 9. Financing Arrangements (continued)

For the three months ended June 30, 2019 and 2018, the components of total interest expense for the Company’s financing arrangements were as follows:

	Three Months Ended June 30,
	2019									2018
Arrangement(1)	Direct Interest Expense(2)			Amortization of Deferred Financing Costs			Total Interest Expense			Direct Interest Expense(2)			Amortization of Deferred Financing Costs			Total Interest Expense
Green Creek Credit Facility		$	6,552		$	135		$	6,687		$	6,077		$	1		$	6,078
Cooper River Credit Facility			1,214			128			1,342			2,278			116			2,394
Wissahickon Creek Credit Facility			—			—			—			2,612			264			2,876
Darby Creek Credit Facility			2,236			130			2,366			2,730			138			2,868
Dunning Creek Credit Facility			—			—			—			1,281			44			1,325
Juniata River Credit Facility			9,810			372			10,182			10,618			364			10,982
FSIC II Revolving Credit Facility			—			—			—			315			13			328
Senior Secured Revolving Credit Facility			4,672			254			4,926			—			—			—
Total		$	24,484		$	1,019		$	25,503		$	25,911		$	940		$	26,851

(1)

Borrowings of each of the Company’s wholly owned, special-purpose financing subsidiaries are considered borrowings of the Company for purposes of complying with the asset coverage requirements applicable to BDCs under the 1940 Act.

(2)

Direct interest expense includes the effect of non-usage fees.

	Six Months Ended June 30,
	2019									2018
Arrangement(1)	Direct Interest Expense(2)			Amortization of Deferred Financing Costs			Total Interest Expense			Direct Interest Expense(2)			Amortization of Deferred Financing Costs			Total Interest Expense
Green Creek Credit Facility	��	$	12,989		$	268		$	13,257		$	11,038		$	268		$	11,306
Cooper River Credit Facility			2,909			253			3,162			3,975			230			4,205
Wissahickon Creek Credit Facility			—			—			—			5,224			526			5,750
Darby Creek Credit Facility			4,709			260			4,969			5,516			388			5,904
Dunning Creek Credit Facility			—			—			—			2,646			136			2,782
Juniata River Credit Facility			21,502			733			22,235			19,860			725			20,585
FSIC II Revolving Credit Facility			—			—			—			477			25			502
Senior Secured Revolving Credit Facility			10,960			495			11,455			—			—			—
Total		$	53,069		$	2,009		$	55,078		$	48,736		$	2,298		$	51,034

(1)

(2)

Direct interest expense includes the effect of non-usage fees.

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FS Investment Corporation II

Notes to Unaudited Consolidated Financial Statements (continued)
(in thousands, except share and per share amounts)

Note 9. Financing Arrangements (continued)

The Company’s average borrowings and weighted average interest rate, including the effect of non-usage fees, for the six months ended June 30, 2019 were $2,018,950 and 5.23%, respectively. As of June 30, 2019, the Company’s weighted average effective interest rate on borrowings, including the effect of non-usage fees, was 5.21%.

The Company’s average borrowings and weighted average interest rate, including the effect of non-usage fees, for the six months ended June 30, 2018 were $2,140,267 and 4.53%, respectively. As of June 30, 2018, the Company’s weighted average effective interest rate on borrowings, including the effect of non-usage fees, was 5.01%.

Under its financing arrangements, the Company has made certain representations and warranties and is required to comply with various covenants, reporting requirements and other customary requirements for similar financing arrangements. The Company was in compliance with all covenants required by its financing arrangements as of June 30, 2019 and December 31, 2018.

Note 10. Commitments and Contingencies

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

The Company is not currently subject to any material legal proceedings and, to the Company’s knowledge, no material legal proceedings are threatened against the Company. From time to time, the Company may be a party to certain legal proceedings in the ordinary course of business, including proceedings relating to the enforcement of the Company’s rights under contracts with its portfolio companies. While the outcome of these legal proceedings cannot be predicted with certainty, the Company does not expect that any such proceedings will have a material effect upon its financial condition or results of operations.

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FS Investment Corporation II

Notes to Unaudited Consolidated Financial Statements (continued)
(in thousands, except share and per share amounts)

Note 10. Commitments and Contingencies (continued)

Unfunded commitments to provide funds to portfolio companies are not recorded in the Company’s condensed consolidated statements of assets and liabilities. Since these commitments may expire without being drawn upon, the total commitment amount does not necessarily represent future cash requirements. The Company has sufficient liquidity to fund these commitments. As of June 30, 2019, the Company’s unfunded commitments consisted of the following:

Category/Company(1)	Commitment Amount
Senior Secured Loans—First Lien
5 Arch Income Fund 2, LLC		$	36,271
Altus Power America Inc			203
Apex Group Limited			2,245
Aspect Software Inc			865
Conservice LLC			5,243
CSafe Global			18,783
Eagle Family Foods Inc			3,089
Fairway Group Holdings Corp			227
HM Dunn Co Inc			2,143
Kodiak BP LLC			7,344
Lazard Global Compounders Fund			5,157
Lipari Foods LLC			25,220
North Haven Cadence Buyer Inc			2,625
North Haven Cadence Buyer Inc			292
Sungard Availability Services Capital Inc			712
Zeta Interactive Holdings Corp			3,286
Asset Based Finance
Home Partners JV, Structured Mezzanine			13,030
Total		$	126,735
Unfunded equity/other commitments		$	202,224

(1)

May be commitments to one or more entities affiliated with the named company.

As of June 30, 2019, the Company’s unfunded debt commitments have a fair value representing unrealized appreciation (depreciation) of $(227). The Company funds its equity investments as it receives funding notices from the portfolio companies. As of June 30, 2019, the Company’s unfunded equity/other commitments have a fair value of zero.

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FS Investment Corporation II

Notes to Unaudited Consolidated Financial Statements (continued)
(in thousands, except share and per share amounts)

Note 11. Financial Highlights

The following is a schedule of financial highlights of the Company for the six months ended June 30, 2019 and the year ended December 31, 2018:

	Six Months Ended June 30, 2019 (Unaudited)			Year Ended December 31, 2018
Per Share Data:(1)
Net asset value, beginning of period		$	7.86		$	8.73
Results of operations(2)
Net investment income			0.36			0.73
Net realized gain (loss) and unrealized appreciation (depreciation)			0.00			(0.85)
Net increase (decrease) in net assets resulting from operations			0.36			(0.12)
Stockholder distributions(3)
Distributions from net investment income			(0.38)			(0.75)
Net decrease in net assets resulting from stockholder distributions			(0.38)			(0.75)
Capital share transactions
Issuance of common stock(4)			—			—
Repurchases of common stock(5)			—			—
Net increase (decrease) in net assets resulting from capital share transactions			—			—
Net asset value, end of period		$	7.84		$	7.86
Shares outstanding, end of period			326,267,116			326,445,320
Total return(6)			4.52%			(1.64)%
Total return (without assuming reinvestment of distributions)(6)			4.58%			(1.37)%
Ratio/Supplemental Data:
Net assets, end of period		$	2,557,664		$	2,567,409
Ratio of net investment income to average net assets(7)			9.09%			8.68%
Ratio of operating expenses and excise taxes to average net assets(7)			9.04%			8.12%
Ratio of net operating expenses and excise taxes to average net assets(7)			9.04%			7.99%
Portfolio turnover(8)			16.70%			43.12%
Total amount of senior securities outstanding, exclusive of treasury securities		$	1,748,756		$	1,890,254
Asset coverage per unit(9)			2.46			2.36

(1)

Per share data may be rounded in order to recompute the ending net asset value per share.

(2)

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

(3)

The per share data for distributions reflects the actual amount of distributions paid per share during the applicable period.

(4)

The issuance of common stock on a per share basis reflects the incremental net asset value changes as a result of the issuance of shares of common stock pursuant to the Company’s distribution reinvestment plan. The issuance of common stock at a price that is greater than the net asset value per share results in an increase in net asset value per share.

(5)

The per share impact of the Company’s distribution reinvestment plan is a reduction to net asset value of less than $0.01 per share during the period.

(6)

The total return based on net asset value for each period presented was calculated by taking the net asset value per share as of the end of the applicable period, adding the cash distributions per share that were declared during the applicable period and dividing the total by the net asset value per share at the beginning of the applicable period. Total return based on net asset value does not consider the effect of any sales commissions or charges that may be incurred in connection with the sale of shares of the Company’s common stock. The historical calculation of total return based on net asset value in the table should not be considered a representation of the Company’s future total return based on net asset value, which may be greater or less than the

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FS Investment Corporation II

Notes to Unaudited Consolidated Financial Statements (continued)
(in thousands, except share and per share amounts)

Note 11. Financial Highlights (continued)

return shown in the table due to a number of factors, including the Company’s ability or inability to make investments in companies that meet its investment criteria, the interest rates payable on the debt securities the Company acquires, the level of the Company’s expenses, variations in and the timing of the recognition of realized and unrealized gains or losses, the degree to which the Company encounters competition in its markets and general economic conditions. As a result of these factors, results for any previous period should not be relied upon as being indicative of performance in future periods. The total return calculations set forth above represent the total return on the Company’s investment portfolio during the applicable period and do not represent an actual return to stockholders.

(7)

Weighted average net assets during the applicable period are used for this calculation. Ratios for the six months ended June 30, 2019 are annualized. Annualized ratios for the six months ended June 30, 2019 are not necessarily indicative of the ratios that may be expected for the year ending December 31, 2019. The following is a schedule of supplemental ratios for the six months ended June 30, 2019 and the year ended December 31, 2018:

	Six Months Ended June 30, 2019 (Unaudited)		Year Ended December 31, 2018
Ratio of subordinated income incentive fees to average net assets		1.55%		0.91%
Ratio of interest expense to average net assets		4.31%		3.78%
Ratio of excise taxes to average net assets		—		0.09%

(8)

Portfolio turnover for the six months ended June 30, 2019 is not annualized.

(9)

Asset coverage per unit is the ratio of the carrying value of the Company’s total consolidated assets, less liabilities and indebtedness not represented by senior securities, to the aggregate amount of senior securities representing indebtedness.

Note 12. Fund Mergers

Pending Mergers with FSIC III, FSIC IV and CCT II

On May 31, 2019, the Funds entered into the Merger Agreement with Merger Sub 1, Merger Sub 2, Merger Sub 3 and the Advisor. The Merger Agreement provides that, subject to the conditions set forth in the Merger Agreement, (i) Merger Sub 1 will merge with and into FSIC III, with FSIC III continuing as the surviving company and as a wholly-owned subsidiary of the Company, and, immediately thereafter, FSIC III will merge with and into the Company, with the Company continuing as the surviving company, (ii) Merger Sub 2 will merge with and into CCT II, with CCT II continuing as the surviving company and as a wholly-owned subsidiary of the Company, and, immediately thereafter, CCT II will merge with and into the Company, with the Company continuing as the surviving company and (iii) Merger Sub 3 will merge with and into FSIC IV, with FSIC IV continuing as the surviving company and as a wholly-owned subsidiary of the Company, and, immediately thereafter, FSIC IV will merge with and into the Company, with the Company continuing as the surviving company. The parties to the Merger Agreement intend the Mergers to be treated as a “reorganization” within the meaning of Section 368(a) of the Internal Revenue Code of 1986, as amended.

In the Mergers, each share of FSIC III common stock, CCT II common stock and FSIC IV common stock issued and outstanding immediately prior to the effective time of Merger 1A, Merger 2A and Merger 3A, respectively, will be converted into the right to receive a number of shares of the Company’s common stock equal to an exchange ratio with respect to the applicable Merger, to be determined in connection with the closing of such Merger, or each, the applicable Exchange Ratio. The Exchange Ratio for each of Merger 1A, Merger 2A and Merger 3A will equal the net asset value per share of FSIC III common stock, CCT II common stock and FSIC IV common stock, respectively (determined, in each case, no earlier than 48 hours (excluding Sundays and holidays) prior to the closing date of the applicable Merger), divided by the net asset value per share of the Company’s common stock (determined, in each case, no earlier than 48 hours (excluding Sundays and holidays) prior to the closing date of the applicable Merger).

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FS Investment Corporation II

Notes to Unaudited Consolidated Financial Statements (continued)
(in thousands, except share and per share amounts)

Note 12. Fund Mergers (continued)

stockholders, (2) certain required charter amendments for each of the Funds, (3) the absence of certain legal impediments to the consummation of the Mergers, (4) effectiveness of the registration statement on Form N-14, which includes a joint proxy statement of the Funds and a prospectus of the Company, and (5) subject to certain exceptions, the accuracy of the representations and warranties and compliance with the covenants of each party to the Merger Agreement. Merger 1A (involving a wholly-owned subsidiary of the Company and FSIC III) is a condition precedent to each of the Mergers. Therefore, Merger 2A (including a wholly-owned subsidiary of the Company and CCT II) and Merger 3A (including a wholly-owned subsidiary of the Company and FSIC IV) will not occur unless Merger 1A also occurs. No other Merger is a condition precedent to any other Merger.

The Merger Agreement also contains certain termination rights in favor of each Fund including if the Mergers are not completed on or before May 31, 2020 or if the requisite approvals of the applicable Fund’s stockholders are not obtained.

The Mergers are expected to be accounted for as asset acquisitions in accordance with the asset acquisition method of accounting as detailed in ASC 805-50, Business Combinations—Related Issues. Generally, under asset acquisition accounting, acquiring assets in groups not only requires ascertaining the cost of the asset (or net assets), but also allocating that cost to the individual assets (or individual assets and liabilities) that make up the group. The cost of the group of assets acquired in an asset acquisition is allocated to the individual assets acquired or liabilities assumed based on their relative fair values of net identifiable assets acquired other than certain “non-qualifying” assets (for example cash) and does not give rise to goodwill. The final allocation of the purchase price will be determined after the Mergers are completed and after completion of a final analysis to determine the estimated relative fair values of CCT II’s, FSIC III’s and FSIC IV’s assets and liabilities.

In connection with the Mergers, the Company is seeking approval of an amendment to the investment advisory and administrative services agreement, to (a) reduce the annual base management fee from 1.5% to 1.0% on all assets financed using leverage over 1.0x debt to equity and exclude cash and cash equivalents from the gross assets on which the annual base management fee is calculated, (b) amend the hurdle rate applicable to the Company’s payment of a subordinated incentive fee on income to be based on net assets rather than adjusted capital, (c) revise the definition of pre-incentive net investment income to exclude interest expense and dividends paid on certain shares of preferred stock, (d) introduce a cap on subordinated incentive fees, (e) incorporate in the calculation of the incentive fee on capital gains the historical net realized losses and unrealized depreciation of FSIC III, CCT II and FSIC IV in addition to the Company and (f) implement certain other revisions to bring the investment advisory agreement of the Company in line with those of other listed business development companies.

Following the closing of the Mergers and subject to approval of the board of directors of the combined company, the Company currently intends to issue perpetual preferred stock of the Company with an aggregate liquidation preference representing approximately 20% of the combined company’s net asset value to holders of the Company’s common stock following the Mergers, or the Recapitalization Transaction. In addition, the Company currently intends to pursue a listing of the Company’s common stock on a national securities exchange, or the Listing, following the Mergers and the Recapitalization Transaction, subject to final board approval and market conditions. No assurance can be made regarding the timing of the Recapitalization Transaction or the Listing, or that the Listing or the Recapitalization Transaction will occur at all.

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Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations.
(in thousands, except share and per share amounts)

The information contained in this section should be read in conjunction with our unaudited consolidated financial statements and related notes thereto appearing elsewhere in this quarterly report on Form 10-Q.

Forward-Looking Statements

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;

•

our business prospects and the prospects of the companies in which we may invest;

•

the impact of the investments that we expect to make;

•

the ability of our portfolio companies to achieve their objectives;

•

our current and expected financings and investments;

•

changes in the general interest rate environment;

•

the adequacy of our cash resources, financing sources and working capital;

•

the timing and amount of cash flows, distributions and dividends, if any, from our portfolio companies;

•

our contractual arrangements and relationships with third parties;

•

actual and potential conflicts of interest with the other funds advised by the Advisor, their respective current or future investment advisers or any of their affiliates.

•

the dependence of our future success on the general economy and its effect on the industries in which we may invest;

•

our use of financial leverage;

•

the ability of the Advisor to locate suitable investments for us and to monitor and administer our investments;

•

the ability of the Advisor or its affiliates to attract and retain highly talented professionals;

•

our ability to maintain our qualification as a RIC and as a BDC;

•

the impact on our business of the Dodd-Frank Wall Street Reform and Consumer Protection Act, as amended, and the rules and regulations issued thereunder;

•

the effect of changes to tax legislation on us and the portfolio companies in which we may invest and our and their tax position;

•

the tax status of the enterprises in which we may invest; and

•

the Mergers, the likelihood the Mergers are completed and the anticipated timing of their completion.

In addition, words such as “anticipate,” “believe,” “expect” and “intend” indicate a forward-looking statement, 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. Factors that could cause actual results to differ materially include:

•

changes in the economy;

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•

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

•

future changes in laws or regulations and conditions in our operating areas.

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 on Form 10-Q. Except as required by the federal securities laws, we undertake no obligation to revise or update any forward-looking statements, whether as a result of new information, future events or otherwise. Stockholders are advised to consult any additional disclosures that we may make directly to stockholders or through reports that we may file in the future with the SEC, including annual reports on Form 10-K, quarterly reports on Form 10-Q and current reports on Form 8-K. The forward-looking statements and projections contained in this quarterly report on Form 10-Q are excluded from the safe harbor protection provided by Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, or the Exchange Act.

Overview

We were incorporated under the general corporation laws of the State of Maryland on July 13, 2011 and formally commenced investment operations on June 18, 2012. We are an externally managed, non-diversified, closed-end management investment company that has elected to be regulated as a BDC under the 1940 Act and has elected to be treated for U.S. federal income tax purposes, and intends to qualify annually, as a RIC under Subchapter M of the Code. In March 2014, we closed our continuous public offering of shares of common stock to new investors.

We are externally managed by the Advisor pursuant to the investment advisory and administrative services agreement and supervised by our board of directors, a majority of whom are independent. On April 9, 2018, GSO/Blackstone Debt Funds Management LLC, or GDFM, resigned as our investment sub-adviser and terminated its investment sub-advisory agreement effective April 9, 2018. In connection with GDFM’s resignation as our investment sub-adviser, on April 9, 2018, we entered into the investment advisory and administrative services agreement with the Advisor, which replaced an investment advisory and administrative services agreement, or the FSIC II Advisor investment advisory and administrative services agreement with our former investment adviser, FSIC II Advisor, LLC, or FSIC II Advisor.

Our investment objectives are to generate current income and, to a lesser extent, long-term capital appreciation. We pursue our investment objective by investing primarily in the debt of middle market U.S. companies with a focus on originated transactions sourced through the network of the Advisor and its affiliates. We define direct originations as any investment where the Advisor or its affiliates negotiates the terms of the transaction beyond just the price, which, for example, may include negotiating financial covenants, maturity dates or interest rate terms. These directly originated transactions include participation in other originated transactions where there may be third parties involved, or a bank acting as an intermediary, for a closely held club, or similar transactions.

Our portfolio is comprised primarily of investments in senior secured loans and second lien secured loans of private middle market U.S. companies and, to a lesser extent, subordinated loans of private U.S. companies. Although we do not expect a significant portion of our portfolio to be comprised of subordinated loans, there is no limit on the amount of such loans in which we may invest. We may purchase interests in loans or make other debt investments, including investments in senior secured bonds, through secondary market transactions in the “over-the-counter” market or directly from our target companies as primary market or directly originated investments. In connection with our debt investments, we may on occasion receive equity interests such as warrants or options as additional consideration. We may also purchase or otherwise acquire interests in the form of common or preferred equity or equity-related securities, such as rights and warrants that may be converted into or exchanged for common stock or other equity or the cash value of common stock or other equity, in our target companies, generally in conjunction with one of our debt investments, including through the restructuring of such investments, or through a co-investment with a financial sponsor, such as an institutional investor or private equity firm. In addition, a portion of our portfolio may be comprised of corporate bonds, structured products, other debt securities and derivatives, including total return swaps and credit default swaps. The Advisor will seek to tailor our

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investment focus as market conditions evolve. Depending on market conditions, we may increase or decrease our exposure to less senior portions of the capital structure or otherwise make opportunistic investments, such as where the market price of loans, bonds or other securities reflects a lower value than deemed warranted by the Advisor’s fundamental analysis, which may occur due to general dislocations in the markets, a misunderstanding by the market of a particular company or an industry being out of favor with the broader investment community and may include event driven investments, anchor orders and structured products. The senior secured loans, second lien secured loans and senior secured bonds in which we invest generally have stated terms of three to seven years and subordinated debt investments that we make generally have stated terms of up to ten years, but the expected average life of such securities is generally between three and seven years. However, there is no limit on the maturity or duration of any security in our portfolio. Our debt investments may be rated by a NRSRO and, in such case, generally will carry a rating below investment grade (rated lower than “Baa3” by Moody’s, or lower than “BBB-” by S&P). We also invest in non-rated debt securities.

Revenues

The principal measure of our financial performance is net increase in net assets resulting from operations, which includes net investment income, net realized gain or loss on investments, net realized gain or loss on foreign currency, net unrealized appreciation or depreciation on investments, and net unrealized appreciation or depreciation on foreign currency. Net investment income is the difference between our income from interest, dividends, fees and other investment income and our operating and other expenses. Net realized gain or loss on investments is the difference between the proceeds received from dispositions of portfolio investments and their amortized cost, including the respective realized gain or loss on foreign currency for those foreign denominated investment transactions. Net realized gain or loss on foreign currency is the portion of realized gain or loss attributable to foreign currency fluctuations. Net unrealized appreciation or depreciation on investments is the net change in the fair value of our investment portfolio, including the respective unrealized gain or loss on foreign currency for those foreign denominated investments. Net unrealized gain or loss on foreign currency is the net change in the value of receivables or accruals due to the impact of foreign currency fluctuations.

We principally generate revenues in the form of interest income on the debt investments we hold. In addition, we generate revenues in the form of non-recurring commitment, closing, origination, structuring or diligence fees, monitoring fees, fees for providing managerial assistance, consulting fees, prepayment fees and performance-based fees. We may also generate revenues in the form of dividends and other distributions on the equity or other securities we hold.

Expenses

Our primary operating expenses include the payment of management and incentive fees and other expenses under the investment advisory and administrative services agreement, interest expense from financing arrangements and other indebtedness, and other expenses necessary for our operations. The management and incentive fees compensate the Advisor for its work in identifying, evaluating, negotiating, executing, monitoring and servicing our investments.

The Advisor oversees our day-to-day operations, including the provision of general ledger accounting, fund accounting, legal services, investor relations, certain government and regulatory affairs activities, and other administrative services. The Advisor also performs, or oversees the performance of, our corporate operations and required administrative services, which includes being responsible for the financial records that we are required to maintain and preparing reports for our stockholders and reports filed with the SEC. In addition, the Advisor assists us in calculating our net asset value, overseeing the preparation and filing of tax returns and the printing and dissemination of reports to our stockholders, and generally overseeing the payment of our expenses and the performance of administrative and professional services rendered to us by others.

Pursuant to the investment advisory and administrative services agreement, we reimburse the Advisor for expenses necessary to perform services related to our administration and operations, including the Advisor’s allocable portion of the compensation and related expenses of certain personnel of FS Investments and KKR Credit providing administrative services to us on behalf of the Advisor. We

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reimburse the Advisor no less than monthly for expenses necessary to perform services related to our administration and operations. The amount of this reimbursement is set at the lesser of (1) the Advisor’s actual costs incurred in providing such services and (2) the amount that we estimate we would be required to pay alternative service providers for comparable services in the same geographic location. The Advisor allocates the cost of such services to us based on factors such as total assets, revenues, time allocations and/or other reasonable metrics. Our board of directors reviews the methodology employed in determining how the expenses are allocated to us and the proposed allocation of administrative expenses among us and certain affiliates of the Advisor. Our board of directors then assesses the reasonableness of such reimbursements for expenses allocated to us based on the breadth, depth and quality of such services as compared to the estimated cost to us of obtaining similar services from third-party service providers known to be available. In addition, our board of directors considers whether any single third-party service provider would be capable of providing all such services at comparable cost and quality. Finally, our board of directors compares the total amount paid to the Advisor for such services as a percentage of our net assets to the same ratio as reported by other comparable BDCs.

We bear all other expenses of our operations and transactions, including (without limitation) fees and expenses relating to:

•

corporate and organization expenses relating to offerings of our securities, subject to limitations included in the investment advisory and administrative services agreement;

•

the cost of calculating our net asset value, including the cost of any third-party pricing or valuation services;

•

the cost of effecting sales and repurchases of shares of our common stock and other securities;

•

investment advisory fees;

•

fees payable to third parties relating to, or associated with, making investments and valuing investments, including fees and expenses associated with performing due diligence reviews of prospective investments;

•

interest payments on our debt or related obligations;

•

transfer agent and custodial fees;

•

research and market data (including news and quotation equipment and services, and any computer hardware and connectivity hardware (e.g., telephone and fiber optic lines) incorporated into the cost of obtaining such research and market data);

•

fees and expenses associated with marketing efforts;

•

federal and state registration fees;

•

federal, state and local taxes;

•

fees and expenses of directors not also serving in an executive officer capacity for us or the Advisor;

•

costs of proxy statements, stockholders’ reports, notices and other filings;

•

fidelity bond, directors and officers/errors and omissions liability insurance and other insurance premiums;

•

direct costs such as printing, mailing, long distance telephone and staff;

•

fees and expenses associated with accounting, corporate governance, government and regulatory affairs activities, independent audits and outside legal costs;

•

costs associated with our reporting and compliance obligations under the 1940 Act and applicable federal and state securities laws, including compliance with the Sarbanes-Oxley Act;

•

brokerage commissions for our investments;

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•

and all other expenses incurred by the Advisor or us in connection with administering our business, including expenses incurred by the Advisor in performing administrative services for us and administrative personnel paid by the Advisor, to the extent they are not controlling persons of the Advisor or any of its affiliates, subject to the limitations included in the investment advisory and administrative services agreement.

In addition, we have contracted with State Street Bank and Trust Company to provide various accounting and administrative services, including, but not limited to, preparing preliminary financial information for review by the Advisor, preparing and monitoring expense budgets, maintaining accounting and corporate books and records, processing trade information provided by us and performing testing with respect to RIC compliance.

Pending Mergers with FSIC III, FSIC IV and CCT II

On May 31, 2019, the Funds, Merger Sub 1, Merger Sub 2, Merger Sub 3, and the Advisor entered into the Merger Agreement. The Merger Agreement provides that, subject to the conditions set forth in the Merger Agreement, (i) Merger Sub 1 will merge with and into FSIC III, with FSIC III continuing as the surviving company and as a wholly-owned subsidiary of the Company, or Merger 1A, and, immediately thereafter, FSIC III will merge with and into the Company, with the Company continuing as the surviving company, or Merger 1, (ii) Merger Sub 2 will merge with and into CCT II, with CCT II continuing as the surviving company and as a wholly-owned subsidiary of the Company, or Merger 2A, and, immediately thereafter, CCT II will merge with and into the Company, with the Company continuing as the surviving company, or Merger 2, and (iii) Merger Sub 3 will merge with and into FSIC IV, with FSIC IV continuing as the surviving company and as a wholly-owned subsidiary of the Company, or Merger 3A, and, immediately thereafter, FSIC IV will merge with and into the Company, with the Company continuing as the surviving company. See Note 12 for additional information. The parties to the Merger Agreement intend the Mergers to be treated as a “reorganization” within the meaning of Section 368(a) of the Code.

In the Mergers, each share of FSIC III common stock, CCT II common stock and FSIC IV common stock issued and outstanding immediately prior to the effective time of Merger 1A, Merger 2A and Merger 3A, respectively, will be converted into the right to receive a number of shares of the Company’s common stock equal to the applicable Exchange Ratio. The Exchange Ratio for each of Merger 1A, Merger 2A and Merger 3A will equal the net asset value per share of FSIC III common stock, CCT II common stock and FSIC IV common stock, respectively (determined, in each case, no earlier than 48 hours (excluding Sundays and holidays) prior to the closing date of the applicable Merger), divided by the net asset value per share of the Company’s common stock (determined, in each case, no earlier than 48 hours (excluding Sundays and holidays) prior to the closing date of the applicable Merger).

The Merger Agreement contains representations, warranties and covenants, including, among others, covenants relating to the operation of each of the Funds’ and the Advisor’s businesses during the period prior to the closing of the Mergers. The Funds have agreed to convene and hold meetings of their respective stockholders for the purpose of obtaining the required approvals of the Funds’ stockholders, respectively, and have agreed to recommend that their stockholders approve their respective proposals.

The Merger Agreement provides that the board of directors or trustees of each Fund may not solicit proposals relating to alternative transactions, or, subject to certain exceptions, enter into discussions or negotiations or provide information in connection with any proposal for an alternative transaction. However, each of the Funds may, subject to certain conditions, change its recommendation to its respective stockholders, terminate the Merger Agreement and enter into an agreement with respect to a superior alternative proposal if the board of directors or trustees of such Fund determines in its reasonable good faith judgment, after consultation with its outside legal counsel, that the failure to take such action would be reasonably likely to breach its standard of conduct under applicable law (taking into account any changes to the Merger Agreement proposed by the other Funds).

Consummation of the Mergers, which is currently anticipated to occur during the fourth quarter of 2019, is subject to certain closing conditions, including (1) requisite approvals of the Funds’ stockholders, (2) certain required charter amendments for each of the Funds, (3) the absence of certain legal impediments to the consummation of the Mergers, (4) effectiveness of the registration statement on Form N-14, which

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includes a joint proxy statement of the Company, FSIC III, CCT II, and FSIC IV and a prospectus of the Company, and (5) subject to certain exceptions, the accuracy of the representations and warranties and compliance with the covenants of each party to the Merger Agreement. Merger 1A (involving a wholly-owned subsidiary of the Company and FSIC III) is a condition precedent to each of the Mergers. Therefore, Merger 2A (including a wholly-owned subsidiary of the Company and CCT II) and Merger 3A (including a wholly-owned subsidiary of the Company and FSIC IV) will not occur unless Merger 1A also occurs. No other Merger is a condition precedent to any other Merger.

Following the closing of the Mergers and subject to approval of the board of directors of the combined company, the Company currently intends to issue perpetual preferred stock of the Company with an aggregate liquidation preference representing approximately 20% of the combined company’s net asset value to holders of the Company’s common stock following the Mergers. In addition, the Company currently intends to pursue a listing of the Company’s common stock on a national securities exchange following the Mergers and the Recapitalization Transaction, subject to final board approval and market conditions. No assurance can be made regarding the timing of the Recapitalization Transaction or the Listing, or that the Listing or the Recapitalization Transaction will occur at all.

Portfolio Investment Activity for the Three and Six Months Ended June 30, 2019 and for the Year Ended December 31, 2018

Total Portfolio Activity

The following tables present certain selected information regarding our portfolio investment activity for the three and six months ended June 30, 2019 and the year ended December 31, 2018:

Net Investment Activity	For the Three Months Ended June 30, 2019			For the Six Months Ended June 30, 2019
Purchases		$	275,811		$	729,410
Sales and Repayments			(869,553)			(1,072,656)
Net Portfolio Activity		$	(593,742)		$	(343,246)

	For the Three Months Ended June 30, 2019					For the Six Months Ended June 30, 2019
New Investment Activity by Asset Class	Purchases			Percentage		Purchases			Percentage
Senior Secured Loans—First Lien		$	170,187		62%		$	520,699		71%
Senior Secured Loans—Second Lien			3,684		1%			68,261		9%
Other Senior Secured Debt			40,298		15%			41,507		6%
Subordinated Debt			15,826		6%			49,004		7%
Asset Based Finance			45,572		16%			49,001		7%
Equity/Other			244		0%			938		0%
Total		$	275,811		100%		$	729,410		100%

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The following table summarizes the composition of our investment portfolio at cost and fair value as of June 30, 2019 and December 31, 2018:

	June 30, 2019 (Unaudited)								December 31, 2018
	Amortized Cost(1)			Fair Value			Percentage of Portfolio		Amortized Cost(1)			Fair Value			Percentage of Portfolio
Senior Secured Loans—First Lien		$	2,945,007		$	2,863,504		71%		$	3,382,158		$	3,293,291		75%
Senior Secured Loans—Second Lien			453,302			371,930		9%			418,015			333,986		8%
Other Senior Secured Debt			218,865			211,199		5%			207,181			196,616		5%
Subordinated Debt			219,711			218,371		6%			242,792			221,858		5%
Asset Based Finance			97,842			94,569		2%			49,415			48,160		1%
Equity/Other			255,871			281,136		7%			261,044			265,369		6%
Total		$	4,190,598		$	4,040,709		100%		$	4,560,605		$	4,359,280		100%

(1)

Amortized cost represents the original cost adjusted for the amortization of premiums and/or accretion of discounts, as applicable, on investments.

The following table presents certain selected information regarding the composition of our investment portfolio as of June 30, 2019 and December 31, 2018:

	June 30, 2019	December 31, 2018
Number of Portfolio Companies	164	160
% Variable Rate Debt Investments (based on fair value)(1)(2)	79.1%	81.4%
% Fixed Rate Debt Investments (based on fair value)(1)(2)	14.3%	12.2%
% Other Income Producing Investments (based on fair value)(3)	1.1%	0.1%
% Non-Income Producing Investments (based on fair value)(2)	5.1%	5.2%
% of Investments on Non-Accrual (based on fair value)	0.4%	1.1%
Weighted Average Annual Yield on Accruing Debt Investments(2)(4)	10.0%	10.5%
Weighted Average Annual Yield on All Debt Investments(5)	9.6%	10.1%

(1)

“Debt Investments” means investments that pay or are expected to pay a stated interest rate, stated dividend rate or other similar stated return.

(2)

Does not include investments on non-accrual status.

(3)

“Other Income Producing Investments” means investments that pay or are expected to pay interest, dividends or other income to the Company on an ongoing basis but do not have a stated interest rate, stated dividend rate or other similar stated return.

(4)

The Weighted Average Annual Yield on Accruing Debt Investments is computed as (i) the sum of (a) the stated annual interest rate, dividend rate or other similar stated return of each accruing Debt Investment, multiplied by its par amount, adjusted to U.S. dollars and for any partial income accrual when necessary, as of the end of the applicable reporting period, plus (b) the annual amortization of the purchase or original issue discount or premium of each accruing Debt Investment; divided by (ii) the total amortized cost of Debt Investments included in the calculated group as of the end of the applicable reporting period.

(5)

The Weighted Average Annual Yield on All Debt Investments is computed as (i) the sum of (a) the stated annual interest rate, dividend rate or other similar stated return of each Debt Investment, multiplied by its par amount, adjusted to U.S. dollars and for any partial income accrual when necessary, as of the end of the applicable reporting period, plus (b) the annual amortization of the purchase or original issue discount or premium of each Debt Investment; divided by (ii) the total amortized cost of Debt Investments included in the calculated group as of the end of the applicable reporting period.

Based on our regular monthly cash distribution amount of $0.06283 per share as of June 30, 2019 and our distribution reinvestment price of $8.00 per share, the annualized distribution rate to stockholders as of June 30, 2019 was 9.43%. The annualized distribution rate to stockholders is expressed as a percentage

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equal to the projected annualized distribution amount per share divided by our distribution reinvestment price per share. Our annualized distribution rate to stockholders may include income, realized capital gains and a return of investors’ capital. During the six months ended June 30, 2019, our total return was 4.52% and our total return without assuming reinvestment of distributions was 4.58%.

Based on our regular monthly cash distribution amount of $0.06283 per share as of December 31, 2018 and our distribution reinvestment price of $8.05 per share, the annualized distribution rate to stockholders as of December 31, 2018 was 9.37%. During the year ended December 31, 2018, our total was (1.64)% and our total return without assuming reinvestment of distributions was (1.37)%.

Our weighted average annual yield on accruing debt investments may be higher than a stockholder’s yield on an investment in shares of our common stock. Our weighted average annual yield on accruing debt investments does not reflect operating expenses that may be incurred by us, nor does it include all of our investments. In addition, our weighted average annual yield on accruing debt investments and total return figures disclosed above do not consider the effect of any sales commissions or charges that may have been incurred in connection with the sale of shares of our common stock. Our weighted average annual yield on accruing debt investments, total return and annualized distribution rate to stockholders do not represent actual investment returns to stockholders, are subject to change and, in the future, may be greater or less than the rates set forth above. See the section entitled “Item 1A. Risk Factors” in our annual report on Form 10-K for the year ended December 31, 2018 and our other periodic reports filed with the SEC for a discussion of the uncertainties, risks and assumptions associated with these statements. See footnote 6 to the financial highlights table included in Note 11 to our unaudited consolidated financial statements included herein for information regarding the calculations of our total return.

Direct Originations

The following table presents certain selected information regarding our direct originations as of June 30, 2019 and December 31, 2018:

Characteristics of All Direct Originations Held in Portfolio	June 30, 2019	December 31, 2018
Number of Portfolio Companies	78	74
% of Investments on Non-Accrual (based on fair value)	0.4%	1.2%
Total Cost of Direct Originations	$3,273,642	$3,615,151
Total Fair Value of Direct Originations	$3,141,002	$3,497,141
% of Total Investments, at Fair Value	77.7%	80.2%
Weighted Average Annual Yield on Accruing Debt Investments(1)	10.1%	10.5%
Weighted Average Annual Yield on All Debt Investments(2)	9.5%	10.1%

(1)

(2)

Portfolio Composition by Industry Classification

See Note 6 to our unaudited consolidated financial statements included herein for additional information regarding the composition of our investment portfolio by industry classification.

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Portfolio Asset Quality

In addition to various risk management and monitoring tools, the Advisor uses an investment rating system to characterize and monitor the expected level of returns on each investment in our portfolio. The Advisor uses an investment rating scale of 1 to 4. The following is a description of the conditions associated with each investment rating:

Investment Rating			Summary Description
1			Performing Investment-generally executing in accordance with plan and there are no concerns about the portfolio company’s performance or ability to meet covenant requirements.
2			Performing investment-no concern about repayment of both interest and our cost basis but company’s recent performance or trends in the industry require closer monitoring.
3			Underperforming investment-some loss of interest or dividend possible, but still expecting a positive return on investment.
4			Underperforming investment-concerns about the recoverability of principal or interest.

The following table shows the distribution of our investments on the 1 to 4 investment rating scale at fair value as of June 30, 2019 and December 31, 2018:

	June 30, 2019					December 31, 2018
Investment Rating	Fair Value			Percentage of Portfolio		Fair Value			Percentage of Portfolio
1		$	2,501,343		62%		$	2,817,253		65%
2			1,384,464		34%			1,377,931		32%
3			75,587		2%			95,013		2%
4			79,315		2%			69,083		1%
Total		$	4,040,709		100%		$	4,359,280		100%

The amount of the portfolio in each grading category may vary substantially from period to period resulting primarily from changes in the composition of the portfolio as a result of new investment, repayment and exit activities. In addition, changes in the grade of investments may be made to reflect our expectation of performance and changes in investment values.

Results of Operations

Comparison of the Three and Six Months Ended June 30, 2019 and 2018

Revenues

Our investment income for the three and six months ended June 30, 2019 and 2018 was as follows:

	Three Months Ended June 30,										Six Months Ended June 30,
	2019					2018					2019					2018
	Amount			Percentage of Total Income		Amount			Percentage of Total Income		Amount			Percentage of Total Income		Amount			Percentage of Total Income
Interest income		$	101,290		90%		$	100,380		93%		$	209,158		90%		$	200,536		89%
Paid-in-kind interest income			4,368		4%			3,213		3%			9,324		4%			8,191		4%
Fee income			6,225		6%			4,509		4%			13,269		6%			9,583		4%
Dividend income			—		—			—		—			71		0%			7,494		3%
Total investment income(1)		$	111,883		100%		$	108,102		100%		$	231,822		100%		$	225,804		100%

(1)

For the three months ended June 30, 2019 and 2018, such revenues represent $105,471 and $103,826, respectively, of cash income earned as well as $6,412 and $4,276, respectively, in non-cash portions relating to accretion of discount and PIK interest. For the six months ended June 30, 2019 and 2018, such revenues represent $218,140

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and $215,208, respectively, of cash income earned as well as $13,682 and $10,596, respectively, in non-cash portions relating to accretion of discount and PIK interest. Cash flows related to such non-cash revenues may not occur for a number of reporting periods or years after such revenues are recognized.

The level of interest income we receive is generally related to the balance of income-producing investments, multiplied by the weighted average yield of our investments. Fee income is transaction based and typically consists of prepayment fees and structuring fees. As such, fee income is generally dependent on new direct origination investments and the occurrence of events at existing portfolio companies resulting in such fees.

The increase in interest income during the six months ended June 30, 2019 compared to the six months ended June 30, 2018 was primarily due to the higher average invested balance during the six months ended June 30, 2019, compared to the six months ended June 30, 2018.

The increase in fee income during the three and six months ended June 30, 2019 compared to the three and six months ended June 30, 2018 was primarily due to the increase in prepayment and origination activity.

The decrease in dividend income during the six months ended June 30, 2019 compared to the six months ended June 30, 2018 was primarily due to a one-time dividend paid in respect of one of our investments during the six months ended June 30, 2018.

Expenses

Our operating expenses for the three and six months ended June 30, 2019 and 2018 were as follows:

	Three Months Ended June 30,						Six Months Ended June 30,
	2019			2018			2019			2018
Management fees		$	16,982		$	18,938		$	34,846		$	44,172
Subordinated income incentive fees			8,736			1,480			19,867			7,055
Administrative services expenses			647			790			1,554			1,572
Stock transfer agent fees			501			501			1,206			996
Accounting and administrative fees			311			411			744			832
Interest expense			25,503			26,851			55,078			51,034
Directors’ fees			75			295			217			799
Expenses associated with our independent audit and related fees			126			75			199			201
Legal fees			275			290			388			324
Printing fees			205			140			548			193
Other			414			546			953			1,604
Total operating expenses		$	53,775		$	50,317		$	115,600		$	108,782
Management fee waiver			—			(278)			—			(3,432)
Net operating expenses		$	53,775		$	50,039		$	115,600		$	105,350

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The following table reflects selected expense ratios as a percent of average net assets for the three and six months ended June 30, 2019 and 2018:

	Three Months Ended June 30,				Six Months Ended June 30,
	2019		2018		2019		2018
Ratio of operating expenses to average net assets		2.11%		1.84%		4.52%		3.91%
Ratio of management fee waiver to average net assets		—		(0.01)%		—		(0.12)%
Ratio of net operating expenses to average net assets		2.11%		1.83%		4.52%		3.79%
Ratio of incentive fees and interest expense to average net assets(1)		1.35%		1.04%		2.93%		2.09%
Ratio of net operating expenses, excluding certain expenses, to average net assets		0.76%		0.79%		1.59%		1.70%

(1)

Ratio data may be rounded in order to recompute the ending ratio of net operating expenses, excluding certain expenses, to average net assets.

Incentive fees and interest expense, among other things, may increase or decrease our expense ratios relative to comparative periods depending on portfolio performance and changes in amounts outstanding under our financing arrangements and benchmark interest rates such as LIBOR, among other factors.

Net Investment Income

Our net investment income totaled $58,108 ($0.18 per share) and $58,063 ($0.18 per share) for the three months ended June 30, 2019 and 2018, respectively.

Our net investment income totaled $116,222 ($0.36 per share) and $120,454 ($0.37 per share) for the six months ended June 30, 2019 and 2018, respectively. The decrease in net investment income for the six months ended June 30, 2019 can be attributed to the increase in interest income as discussed above, offset by higher incentive fees and interest expense.

Net Realized Gains or Losses

Our net realized gains (losses) on investments and foreign currency for the three and six months ended June 30, 2019 and 2018 were as follows:

	Three Months Ended June 30,						Six Months Ended June 30,
	2019			2018			2019			2018
Net realized gain (loss) on investments(1)		$	(21,957)		$	(10,015)		$	(40,443)		$	(29,309)
Net realized gain (loss) on foreign currency			112			(339)			115			(666)
Total net realized gain (loss)		$	(21,845)		$	(10,354)		$	(40,328)		$	(29,975)

(1)

We sold investments and received principal repayments, respectively, of $30,531 and $839,022 during the three months ended June 30, 2019 and $219,863 and $272,738 during the three months ended June 30, 2018. We sold investments and received principal repayments, respectively, of $145,261 and $927,395 during the six months ended June 30, 2019 and $275,532 and $518,139 during the six months ended June 30, 2018.

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Net Change in Unrealized Appreciation (Depreciation)

Our net change in unrealized appreciation (depreciation) on investments and interest rate swaps and unrealized gain (loss) on foreign currency for the three and six months ended June 30, 2019 and 2018 were as follows:

	Three Months Ended June 30,						Six Months Ended June 30,
	2019			2018			2019			2018
Net change in unrealized appreciation (depreciation) on investments		$	15,178		$	(17,322)		$	51,436		$	(105,934)
Net change in unrealized appreciation (depreciation) on interest rate swaps			(6,657)			—			(10,653)			—
Net change in unrealized gain (loss) on foreign currency			(1,541)			367			(2,665)			777
Total net change in unrealized appreciation (depreciation)		$	6,980		$	(16,955)		$	38,118		$	(105,157)

During the three and six months ended June 30, 2019, the net change in unrealized appreciation (depreciation) was driven primarily by higher valuations from Level 2 categorized assets.

Net Increase (Decrease) in Net Assets Resulting from Operations

For the three months ended June 30, 2019 and 2018, the net increase in net assets resulting from operations was $43,243 ($0.13 per share) and $30,754 ($0.09 per share), respectively.

For the six months ended June 30, 2019, the net increase in net assets resulting from operations was $114,012 ($0.35 per share) compared to a net decrease in net assets resulting from operations of $(14,678) ($(0.05) per share) during the six months ended June 30, 2018.

Financial Condition, Liquidity and Capital Resources

Overview

As of June 30, 2019, we had $269,385 in cash and foreign currency, which we and our wholly-owned financing subsidiaries held in custodial accounts, and $776,244 in borrowings available under our financing arrangements, subject to borrowing base and other limitations. As of June 30, 2019, we also had broadly syndicated investments and opportunistic investments that could be sold to create additional liquidity. As of June 30, 2019, we had unfunded debt investments with aggregate unfunded commitments of $126,735 and unfunded equity/other commitments of $202,224. We maintain sufficient cash on hand, available borrowings and liquid securities to fund such unfunded commitments should the need arise.

We currently generate cash primarily from cash flows from fees, interest and dividends earned from our investments as well as from the issuance of shares under the DRP, and principal repayments and proceeds from sales of our investments. To seek to enhance our returns, we also employ leverage as market conditions permit and at the discretion of the Advisor, but in no event will leverage employed exceed 50% of the value of our assets, as required by the 1940 Act. See “—Financing Arrangements.”

Prior to investing in securities of portfolio companies, we invest the cash received from fees, interest and dividends earned from our investments and from the issuance of shares under the distribution reinvestment plan, as well as principal repayments and proceeds from sales of our investments primarily in cash, cash equivalents, including money market funds, U.S. government securities, repurchase agreements and high-quality debt instruments maturing in one year or less from the time of investment, consistent with our BDC election and our election to be taxed as a RIC.

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Financing Arrangements

The following table presents summary information with respect to our outstanding financing arrangements as of June 30, 2019:

Arrangement(1)

Type of Arrangement

Rate

Amount
Outstanding

Amount
Available

Maturity
Date

Green Creek Credit Facility

Term Loan Credit Facility

L+2.50%

500,000

—

December 15, 2019

Cooper River Credit Facility

Revolving Credit Facility

L+2.25%

87,500

112,500

March 31, 2021

Darby Creek Credit Facility

Revolving Credit Facility

L+1.95%

185,000

65,000

February 26, 2024

Juniata River Credit Facility

Revolving Credit Facility

L+2.68%

680,000

170,000

October 11, 2020

Senior Secured Revolving Credit Facility

Revolving Credit Facility

L+2.00% –
2.25%(2)

296,256(3)

428,744

August 9, 2023

Total

1,748,756

776,244

(1)

The carrying amount outstanding under the facility approximates its fair value.

(2)

The spread over LIBOR is determined by reference to the ratio of the value of the borrowing base to the aggregate amount of certain outstanding indebtedness of the Company.

(3)

Amount includes borrowing in U.S. dollars, Euros, Canadian dollars, and pound sterling. Euro balance outstanding of €9,100 has been converted to U.S. dollars at an exchange rate of €1.00 to $1.14 as of June 30, 2019 to reflect total amount outstanding in U.S. dollars. Canadian dollar balance outstanding of CAD $107,250 has been converted to U.S. dollars at an exchange rate of CAD $1.00 to $0.76 as of June 30, 2019 to reflect total amount outstanding in U.S. dollars. Pound sterling balance outstanding of £22,500 has been converted to U.S. dollars at an exchange rate of £1.00 to $1.27 as of June 30, 2019 to reflect total amount outstanding in U.S. dollars.

For additional information regarding our financing arrangements, see Note 9 to our unaudited consolidated financial statements included herein.

RIC Status and Distributions

We have elected to be subject to tax as a RIC under Subchapter M of the Code. In order to qualify for RIC tax treatment, we must, among other things, make distributions of an amount at least equal to 90% of our investment company taxable income, determined without regard to any deduction for distributions paid, each tax year. As long as the distributions are declared by the later of the fifteenth day of the ninth month following the close of a tax year or the due date of the tax return for such tax year, including extensions, distributions paid up to twelve months after the current tax year can be carried back to the prior tax year for determining the distributions paid in such tax year. We intend to make sufficient distributions to our stockholders to qualify for and maintain our RIC tax status each tax year. We are also subject to a 4% nondeductible federal excise tax on certain undistributed income unless we make distributions in a timely manner to our stockholders generally of an amount at least equal to the sum of (1) 98% of our net ordinary income (taking into account certain deferrals and elections) for the calendar year, (2) 98.2% of our capital gain net income, which is the excess of capital gains in excess of capital losses, or “capital gain net income” (adjusted for certain ordinary losses), for the one-year period ending October 31 of that calendar year and (3) any net ordinary income and capital gain net income for the preceding years that were not distributed during such years and on which we paid no U.S. federal income tax. Any distribution declared by us during October, November or December of any calendar year, payable to stockholders of record on a specified date in such a month and actually paid during January of the following calendar year, will be treated as if it had been paid by us, as well as received by our stockholders, on December 31 of the calendar year in which the distribution was declared. We can offer no assurance that we will achieve results that will permit us to pay any cash distributions. If 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 1940 Act or if distributions are limited by the terms of any of our borrowings.

Subject to applicable legal restrictions and the sole discretion of our board of directors, we intend to declare regular cash distributions on a quarterly basis and pay such distributions on a monthly basis. We will calculate each stockholder’s specific distribution amount for the period using record and declaration

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dates and each stockholder’s distributions will begin to accrue on the date that shares of our common stock are issued to such stockholder. From time to time, we may also pay special interim distributions in the form of cash or shares of our common stock at the discretion of our board of directors. The timing and amount of any future distributions to stockholders are subject to applicable legal restrictions and the sole discretion of our board of directors.

During certain periods, our distributions may exceed our earnings. As a result, it is possible that a portion of the distributions we make may represent a return of capital. A return of capital generally is a return of a stockholder’s investment rather than a return of earnings or gains derived from our investment activities. Each year a statement on Form 1099-DIV identifying the sources of the distributions will be mailed to our stockholders. No portion of the distributions paid during the six months ended June 30, 2019 and 2018 represented a return of capital.

We intend to continue to make our regular distributions in the form of cash, out of assets legally available for distribution, except for those stockholders who receive their distributions in the form of shares of our common stock under our distribution reinvestment plan. Any distributions reinvested under the plan will nevertheless remain taxable to a U.S. stockholder.

The following table reflects the cash distributions per share that we have declared and paid on our common stock during the six months ended June 30, 2019 and 2018:

	Distribution
For the Three Months Ended	Per Share			Amount
Fiscal 2018
March 31, 2018		$	0.1885		$	61,153
June 30, 2018			0.1885			61,146
Total		$	0.3770		$	122,299
Fiscal 2019
March 31, 2019		$	0.1885		$	61,114
June 30, 2019			0.1885			61,108
Total		$	0.3770		$	122,222

See Note 5 to our unaudited consolidated financial statements included herein for additional information regarding our distributions, including a reconciliation of our GAAP-basis net investment income to our tax-basis net investment income for the six months ended June 30, 2019 and 2018.

Critical Accounting Policies

Our financial statements are prepared in conformity with GAAP, which requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Critical accounting policies are those that require the application of management’s most difficult, subjective or complex judgments, often because of the need to make estimates about the effect of matters that are inherently uncertain and that may change in subsequent periods. In preparing the financial statements, management has made estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. In preparing the financial statements, management has utilized available information, including our past history, industry standards and the current economic environment, among other factors, in forming its estimates and judgments, giving due consideration to materiality. Actual results may differ from these estimates. In addition, other companies may utilize different estimates, which may impact the comparability of our results of operations to those of companies in similar businesses.

Valuation of Portfolio Investments

We determine the fair value of our investment portfolio each quarter. Securities are valued at fair value as determined in good faith by our board of directors. In connection with that determination, the Advisor provides our board of directors with portfolio company valuations which are based on relevant inputs, including, but not limited to, indicative dealer quotes, values of like securities, recent portfolio company financial statements and forecasts, and valuations prepared by independent third-party valuation services.

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Accounting Standards Codification Topic 820, Fair Value Measurements and Disclosure, or ASC Topic 820, issued by the FASB, clarifies the definition of fair value and requires companies to expand their disclosure about the use of fair value to measure assets and liabilities in interim and annual periods subsequent to initial recognition. ASC Topic 820 defines fair value as the price that would be received from the sale of an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. ASC Topic 820 also establishes a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value. These tiers include: Level 1, defined as observable inputs such as quoted prices in active markets; Level 2, which includes inputs such as quoted prices for similar securities in active markets and quoted prices for identical securities where there is little or no activity in the market; and Level 3, defined as unobservable inputs for which little or no market data exists, therefore requiring an entity to develop its own assumptions.

With respect to investments for which market quotations are not readily available, we undertake a multi-step valuation process each quarter, as described below:

•

our quarterly fair valuation process begins with the Advisor reviewing and documenting valuations of each portfolio company or investment, which valuations are obtained from an independent third-party valuation service and provide a valuation range;

•

the Advisor then provides the valuation committee of our board of directors, or the valuation committee, with its valuation recommendation for each portfolio company or investment, along with supporting materials;

•

preliminary valuations are then discussed with the valuation committee;

•

our valuation committee reviews the preliminary valuations and the Advisor, together with our independent third-party valuation services, if applicable, supplement the preliminary valuations to reflect any comments provided by the valuation committee;

•

following its review, the valuation committee will recommend that our board of directors approve our fair valuations; and

•

our board of directors discusses the valuations and determines the fair value of each such investment in our portfolio in good faith based on various statistical and other factors, including the input and recommendation of the Advisor, the valuation committee and any independent third-party valuation services, if applicable.

Determination of fair value involves subjective judgments and estimates. Accordingly, the notes to our consolidated financial statements refer to the uncertainty with respect to the possible effect of such valuations and any change in such valuations on our consolidated financial statements. In making its determination of fair value, our board of directors may use any approved independent third-party pricing or valuation services. However, our board of directors is not required to determine fair value in accordance with the valuation provided by any single source, and may use any relevant data, including information obtained from the Advisor or any approved independent third-party valuation or pricing service that our board of directors deems to be reliable in determining fair value under the circumstances. Below is a description of factors that the Advisor, any approved independent third party valuation services and our board of directors may consider when determining the fair value of our investments.

Valuation of fixed income investments, such as loans and debt securities, depends upon a number of factors, including prevailing interest rates for like securities, expected volatility in future interest rates, call features, put features and other relevant terms of the debt. For investments without readily available market prices, we may incorporate these factors into discounted cash flow models to arrive at fair value. Other factors that may be considered include the borrower’s ability to adequately service its debt, the fair market value of the borrower in relation to the face amount of its outstanding debt and the quality of collateral securing our debt investments.

For convertible debt securities, fair value generally approximates the fair value of the debt plus the fair value of an option to purchase the underlying security (i.e., the security into which the debt may convert) at the conversion price. To value such an option, a standard option pricing model may be used.

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Our equity interests in portfolio companies for which there is no liquid public market are valued at fair value. Our board of directors, in its determination of fair value, may consider various factors, such as multiples of EBITDA, cash flows, net income, revenues or, in limited instances, book value or liquidation value. All of these factors may be subject to adjustments based upon the particular circumstances of a portfolio company or our actual investment position. For example, adjustments to EBITDA may take into account compensation to previous owners or acquisition, recapitalization, restructuring or other related items.

The Advisor, any approved independent third-party valuation services and our board of directors may also consider private merger and acquisition statistics, public trading multiples discounted for illiquidity and other factors, valuations implied by third-party investments in the portfolio companies or industry practices in determining fair value. The Advisor, any approved independent third-party valuation services and our board of directors may also consider the size and scope of a portfolio company and its specific strengths and weaknesses, and may apply discounts or premiums, where and as appropriate, due to the higher (or lower) financial risk and/or the smaller size of portfolio companies relative to comparable firms, as well as such other factors as our board of directors, in consultation with the Advisor and any approved independent third party valuation services, if applicable, may consider relevant in assessing fair value. Generally, the value of our equity interests in public companies for which market quotations are readily available is based upon the most recent closing public market price. Portfolio securities that carry certain restrictions on sale are typically valued at a discount from the public market value of the security.

When we receive warrants or other equity securities at nominal or no additional cost in connection with an investment in a debt security, the cost basis in the investment will be allocated between the debt securities and any such warrants or other equity securities received at the time of origination. Our board of directors subsequently values these warrants or other equity securities received at their fair value.

The fair values of our investments are determined in good faith by our board of directors. Our board of directors is responsible for the valuation of our portfolio investments at fair value as determined in good faith pursuant to our valuation policy and consistently applied valuation process. Our board of directors has delegated day-to-day responsibility for implementing our valuation policy to the Advisor, and has authorized the Advisor to utilize independent third-party valuation and pricing services that have been approved by our board of directors. The valuation committee is responsible for overseeing the Advisor’s implementation of the valuation process.

See Note 8 to our unaudited consolidated financial statements included herein for additional information regarding the fair value of our financial instruments.

Revenue Recognition

Security transactions are accounted for on the trade date. We record interest income on an accrual basis to the extent that we expect to collect such amounts. We record dividend income on the ex-dividend date. Distributions received from limited liability company (“LLC”) and limited partnership (“LP”) investments are evaluated to determine if the distribution should be recorded as dividend income or a return of capital. We do not accrue as a receivable interest or dividends on loans and securities if we have reason to doubt our ability to collect such income. Our policy is to place investments on non-accrual status when there is reasonable doubt that interest income will be collected. We consider many factors relevant to an investment when placing it on or removing it from non-accrual status including, but not limited to, the delinquency status of the investment, economic and business conditions, the overall financial condition of the underlying investment, the value of the underlying collateral, bankruptcy status, if any, and any other facts or circumstances relevant to the investment. If there is reasonable doubt that we will receive any previously accrued interest, then the interest income will be written-off. Payments received on non-accrual investments may be recognized as income or applied to principal depending upon the collectability of the remaining principal and interest. Non-accrual investments may be restored to accrual status when principal and interest become current and are likely to remain current based on our judgment.

Loan origination fees, original issue discount and market discount are capitalized and we amortize such amounts as interest income over the respective term of the loan or security. Upon the prepayment of a loan or security, any unamortized loan origination fees and original issue discount are recorded as interest

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income. Structuring and other non-recurring upfront fees are recorded as fee income when earned. For the six months ended June 30, 2019, we recognized $7,276 in structuring fee revenue. We record prepayment premiums on loans and securities as fee income when we receive such amounts.

Net Realized Gains or Losses, Net Change in Unrealized Appreciation or Depreciation and Net Change in Unrealized Gains or Losses on Foreign Currency

Gains or losses on the sale of investments are calculated by using the specific identification method. We measure realized gains or losses by the difference between the net proceeds from the repayment or sale and the amortized cost basis of the investment, without regard to unrealized appreciation or depreciation previously recognized, but considering unamortized fees. Net change in unrealized appreciation or depreciation reflects the change in portfolio investment values during the reporting period, including any reversal of previously recorded unrealized gains or losses when gains or losses are realized. Net change in unrealized gains or losses on foreign currency reflects the change in the value of receivables or accruals during the reporting period due to the impact of foreign currency fluctuations.

Uncertainty in Income Taxes

We evaluate our tax positions to determine if the tax positions taken meet the minimum recognition threshold in connection with accounting for uncertainties in income tax positions taken or expected to be taken for the purposes of measuring and recognizing tax benefits or liabilities in our consolidated financial statements. Recognition of a tax benefit or liability with respect to an uncertain tax position is required only when the position is “more likely than not” to be sustained assuming examination by taxing authorities. We recognize interest and penalties, if any, related to unrecognized tax liabilities as income tax expense in our consolidated statements of operations. During the six months ended June 30, 2019 and 2018, we did not incur any interest or penalties.

Derivative Instruments

Our derivative instruments include foreign currency forward contracts and cross currency swaps. We recognize all derivative instruments as assets or liabilities at fair value in our consolidated financial statements. Derivative contracts entered into by us are not designated as hedging instruments, and as a result, we present changes in fair value through net change in unrealized appreciation (depreciation) on derivative instruments in the consolidated statements of operations. Realized gains and losses that occur upon the cash settlement of the derivative instruments are included in net realized gains (losses) on derivative instruments in the consolidated statements of operations.

See Note 2 to our unaudited consolidated financial statements included herein for additional information regarding our significant accounting policies.

Contractual Obligations

We have entered into an agreement with the Advisor to provide us with investment advisory and administrative services. Payments for investment advisory services under the investment advisory and administrative services agreement are equal to (a) an annual base management fee based on the average weekly value of our gross assets and (b) an incentive fee based on our performance. The Advisor is reimbursed for administrative expenses incurred on our behalf. See Note 4 to our unaudited consolidated financial statements included herein for a discussion of this agreement and for the amount of fees and expenses accrued under similar agreements with FSIC II Advisor during the three and six months ended June 30, 2019 and 2018.

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A summary of our significant contractual payment obligations related to the repayment of our outstanding indebtedness at June 30, 2019 is as follows:

		Payments Due By Period
	Maturity Date(1)	Total			Less than 1 year			1 – 3 years			3 – 5 years			More than 5 years
Green Creek Credit Facility(2)	December 15, 2019		$	500,000		$	500,000			—			—		—
Cooper River Credit Facility(3)	March 31, 2021		$	87,500			—		$	87,500			—		—
Darby Creek Credit Facility(4)	February 26, 2024		$	185,000			—			—		$	185,000		—
Juniata River Credit Facility(5)	October 11, 2020		$	680,000			—		$	680,000			—		—
Senior Secured Revolving Credit Facility(6)	August 9, 2023		$	296,256			—			—		$	296,256		—

(1)

Amounts outstanding under the financing arrangements will mature, and all accrued and unpaid interest thereunder will be due and payable, on the maturity date.

(2)

At June 30, 2019, no amounts remained unused under the financing arrangement.

(3)

At June 30, 2019, $112,500 remained unused under the Cooper River credit facility.

(4)

At June 30, 2019, $65,000 remained unused under the Darby Creek credit facility.

(5)

At June 30, 2019, $170,000 remained unused under the Darby Creek credit facility.

(6)

At June 30, 2019, $428,744 remained unused under the Senior Secured Revolving Credit Facility.

Off-Balance Sheet Arrangements

We currently have no off-balance sheet arrangements, including any risk management of commodity pricing or other hedging practices.

Recently Issued Accounting Standards

In August 2018, the FASB issued Accounting Standards Update 2018-13, Fair Value Measurement—Disclosures Framework—Changes to Disclosure Requirements for Fair Value Measurement (Topic 820), or ASU 2018-13. ASU 2018-13 introduces new fair value disclosure requirements and eliminates and modifies certain existing fair value disclosure requirements. ASU 2018-13 is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. We are currently evaluating the impact of ASU 2018-13 on our financial statements.

Item 3.

Quantitative and Qualitative Disclosures About Market Risk.

Interest Rate Risk

We are subject to financial market risks, including changes in interest rates. As of June 30, 2019, 79.1% of our portfolio investments (based on fair value) were debt investments paying variable interest rates and 14.3% were debt investments paying fixed interest rates, while 1.1% were other income producing investments, 5.1% were of non-income producing investments and the remaining 0.4% consisting of investments on non-accrual status. A rise in the general level of interest rates can be expected to lead to higher interest rates applicable to any variable rate investments we hold and to declines in the value of any fixed rate investments we hold. However, many of our variable rate investments provide for an interest rate floor, which may prevent our interest income from increasing until benchmark interest rates increase beyond a threshold amount. To the extent that a substantial portion of our investments may be in variable rate investments, an increase in interest rates beyond this threshold would make it easier for us to meet or exceed the hurdle rate applicable to the subordinated incentive fee on income, and may result in a substantial increase in our net investment income and to the amount of incentive fees payable to the Advisor with respect to our increased pre-incentive fee net investment income.

Subject to the requirements of the 1940 Act, we may hedge against interest rate fluctuations by using standard hedging instruments such as futures, options and forward contracts. Although hedging activities may insulate us against adverse changes in interest rates, they may also limit our ability to participate in the

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benefits of lower interest rates. As of June 30, 2019, we have four pay-fixed, receive-floating interest rate swaps which we pay an annual fixed rate of 2.59% to 2.81% and receive three-month LIBOR on an aggregate notional amount of $360 million. The interest rate swaps have quarterly settlement payments.

Pursuant to the terms of all of our financing arrangements, borrowings are at a floating rate based on LIBOR. To the extent that any present or future credit facilities, total return swap agreements or other financing arrangements that we or any of our subsidiaries enter into are based on a floating interest rate, we will be subject to risks relating to changes in market interest rates. In periods of rising interest rates when we or our subsidiaries have such debt outstanding or financing arrangements in effect, our interest expense would increase, which could reduce our net investment income, especially to the extent we hold fixed rate investments.

The following table shows the effect over a twelve month period of changes in interest rates on our interest income, interest expense and net interest income, assuming no changes in the composition of our investment portfolio, including the accrual status of our investments, and our financing arrangements in effect as of June 30, 2019 (dollar amounts are presented in thousands):

Basis Point Change in Interest Rates	Increase (Decrease) in Interest Income(1)			Increase (Decrease) in Interest Expense			Increase (Decrease) in Net Interest Income			Percentage Change in Net Interest Income
Down 100 basis points		$	(32,331)		$	(17,488)		$	(14,843)		(5.1)%
No change			—			—			—		—
Up 100 basis points		$	32,426		$	17,488		$	14,938		5.1%
Up 300 basis points		$	98,006		$	52,463		$	45,543		15.5%
Up 500 basis points		$	163,758		$	87,438		$	76,320		26.0%

(1)

Assumes no defaults or prepayments by portfolio companies over the next twelve months.

We expect that our long-term investments will be financed primarily with equity and debt. If deemed prudent, we may use interest rate risk management techniques in an effort to minimize our exposure to interest rate fluctuations. These techniques may include various interest rate hedging activities to the extent permitted by the 1940 Act. Adverse developments resulting from changes in interest rates or hedging transactions could have a material adverse effect on our business, financial condition and results of operations.

In addition, we may have risk regarding portfolio valuation. See “Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations—Critical Accounting Policies—Valuation of Portfolio Investments.”

Item 4.

Controls and Procedures.

Evaluation of Disclosure Controls and Procedures

As required by Rule 13a-15(b) under the Exchange Act, we carried out an evaluation, under the supervision and with the participation of our management, including our chief executive officer and chief financial officer, of the effectiveness of the design and operation of our disclosure controls and procedures as of June 30, 2019.

Based on the foregoing, our chief executive officer and chief financial officer concluded that our disclosure controls and procedures were effective to provide reasonable assurance that we would meet our disclosure obligations.

Changes in Internal Control Over Financial Reporting

There was no change in our internal control over financial reporting (as defined in Rules 13a-15(f) or 15d-15(f) promulgated under the Exchange Act) that occurred during the three-month period ended June 30, 2019 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

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PART II—OTHER INFORMATION

Item 1.

Legal Proceedings.

We are not currently subject to any material legal proceedings, nor, to our knowledge, is any material legal proceeding threatened against us. From time to time, we may be party to certain legal proceedings in the ordinary course of business, including proceedings relating to the enforcement of our rights under contracts with our portfolio companies. While the outcome of any legal proceedings cannot be predicted with certainty, we do not expect that these proceedings will have a material adverse effect upon our financial condition or results of operations.

Item 1A.

Risk Factors.

You should carefully consider the risk factors set forth in our annual report on Form 10-K for the year ended December 31, 2018, as supplemented by our definitive proxy statement for the Mergers (filed on August 13, 2019).

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds.

The table below provides information concerning our repurchases of shares of our common stock during the three months ended June 30, 2019, pursuant to our share repurchase program.

Period	Total Number of Shares Purchased		Average Price Paid per Share			Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs		Maximum Number of Shares that May Yet Be Purchased Under the Plans or Programs
April 1, 2019 through April 30, 2019		3,191,572		$	8.05		3,191,572	(1)
May 1, 2019 through May 31, 2019		—			—		—		—
June 1, 2019 through June 30, 2019		—			—		—		—
Total		3,191,572		$	8.05		3,191,572	(1)

(1)

The maximum number of shares available for repurchase on April 1, 2019 was 3,191,572. A description of the calculation of the maximum number of shares of our common stock that may be repurchased under our share repurchase program is set forth in Note 3 to our unaudited consolidated financial statements included herein.

See Note 3 to our unaudited consolidated financial statements included herein for a more detailed discussion of the terms of our share repurchase program.

Item 3.

Defaults upon Senior Securities.

Not applicable.

Item 4.

Mine Safety Disclosures.

Not applicable.

Item 5.

Other Information.

Not applicable.

Item 6.

Exhibits.

	2.1			Agreement and Plan of Merger, dated as of May 31, 2019, by and among FS Investment Corporation II, Corporate Capital Trust II, FS Investment Corporation III, FS Investment Corporation IV, NT Acquisition 1, Inc., NT Acquisition 2, Inc., NT Acquisition 3, Inc. and FS/KKR Advisor, LLC. (Incorporated by reference to Exhibit 2.1 to the Company’s Current Report on Form 8-K filed on June 3, 2019.)
	3.1			Articles of Amendment and Restatement of the Company. (Incorporated by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K filed on June 14, 2012.)

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	3.2			Articles Supplementary of the Company. (Incorporated by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K filed on June 1, 2017.)
	3.3			Articles Supplementary of the Company. (Incorporated by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K filed on June 13, 2017.)
	3.4			Third Amended and Restated Bylaws of the Company. (Incorporated by reference to Exhibit 3.2 to the Company’s Current Report on Form 8-K filed on June 13, 2017.)
	3.5			Amendment No. 1 to the Third Amended and Restated Bylaws of the Company. (Incorporated by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K filed on June 3, 2019.)
	4.1			Amended and Restated Distribution Reinvestment Plan of the Company, effective as of March 26, 2014. (Incorporated by reference to Exhibit 4.1 to the Company’s Current Report on Form 8-K filed on February 24, 2014.)
	10.1			Investment Advisory and Administrative Services Agreement, dated as of April 9, 2018, by and between FS Investment Corporation II and FS/KKR Advisor, LLC. (Incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K filed on April 9, 2018.)
	10.2			Custodian Agreement, dated as of February 8, 2012, by and between the Company and State Street Bank and Trust Company. (Incorporated by reference to Exhibit (j) filed with Pre-Effective Amendment No. 3 to the Company’s registration statement on Form N-2 (File No. 333-175654) filed on February 10, 2012.)
	10.3			Amended and Restated Credit Agreement, dated as of May 29, 2015, by and among Cooper River LLC, as borrower, Citibank, N.A., as administrative agent, Citibank, N.A. acting through its Agency and Trust division, as collateral custodian and collateral agent, each of the lenders from time to time party thereto and Virtus Group, LP, as collateral administrator. (Incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on June 4, 2015.)
	10.4			Second Amendment, dated as of June 1, 2018, by and among Cooper River LLC, as borrower, Citibank, N.A., as administrative agent, Citibank, N.A. acting through its Agency and Trust division, as collateral custodian and collateral agent, each of the lenders from time to time party thereto and Virtus Group, LP, as collateral administrator. (Incorporated by reference to Exhibit 10.12 to the Company’s Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2018 filed on August 14, 2018.)
	10.5			Third Amendment, dated as of July 30, 2018, by and among Cooper River LLC, as borrower, Citibank, N.A., as administrative agent, Citibank, N.A. acting through its Agency and Trust division, as collateral custodian and collateral agent, each of the lenders from time to time party thereto and Virtus Group, LP, as collateral administrator. (Incorporated by reference to Exhibit 10.7 to the Company’s Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2018 filed on November 14, 2018.)
	10.6			Fourth Amendment, dated as of September 10, 2018, by and among Cooper River LLC, as borrower, Citibank, N.A., as administrative agent, Citibank, N.A. acting through its Agency and Trust division, as collateral custodian and collateral agent, each of the lenders from time to time party thereto and Virtus Group, LP, as collateral administrator. (Incorporated by reference to Exhibit 10.8 to the Company’s Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2018 filed on November 14, 2018.)
	10.7			Fifth Amendment, dated as of November 30, 2018, by and among Cooper River LLC, as borrower, Citibank, N.A., as administrative agent, Citibank, N.A. acting through its Agency and Trust division, as collateral custodian and collateral agent, each of the lenders from time to time party thereto and Virtus Group, LP, as collateral administrator. (Incorporated by reference to Exhibit 10.9 to the Company’s Quarterly Report on Form 10-K filed on March 19, 2019.)

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	10.8			Omnibus Sixth Amendment to Amended and Restated Credit and Security Agreement and Lender Fee Letter, dated as of March 29, 2019, between Cooper River LLC, as borrower, Citibank N.A., as administrative agent, the lenders party thereto, Citibank, N.A., acting through its agency & trust division, as collateral custodian and collateral agent, and Virtus Group, LP, as collateral administrator. (Incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on April 3, 2019.)
	10.9			Loan Financing and Servicing Agreement, dated as of February 20, 2014, by and among Darby Creek LLC, as borrower, Deutsche Bank AG, New York Branch, as administrative agent, Wells Fargo Bank, National Association, as collateral agent and collateral custodian, and the other lenders and lender agents from time to time party thereto. (Incorporated by reference to Exhibit 10.5 to the Company’s Current Report on Form 8-K filed on February 25, 2014.)
	10.10			Amendment No. 1 to Loan Financing and Servicing Agreement, dated as of January 12, 2015, by and among Darby Creek LLC, as borrower, Deutsche Bank AG, New York Branch, as administrative agent, Wells Fargo Bank, National Association, as collateral agent and collateral custodian, and the other lenders and lender agents from time to time party thereto. (Incorporated by reference to Exhibit 10.27 to the Company’s Annual Report on Form 10-K filed on March 25, 2016.)
	10.11			Amendment No. 2 to Loan Financing and Servicing Agreement, dated as of February 3, 2015, by and among Darby Creek LLC, as borrower, Deutsche Bank AG, New York Branch, as administrative agent, Wells Fargo Bank, National Association, as collateral agent and collateral custodian, and the other lenders and lender agents from time to time party thereto. (Incorporated by reference to Exhibit 10.28 to the Company’s Annual Report on Form 10-K filed on March 25, 2016.)
	10.12			Amendment No. 3 to Loan Financing and Servicing Agreement, dated as of May 7, 2015, by and among Darby Creek LLC, as borrower, Deutsche Bank AG, New York Branch, as administrative agent, Wells Fargo Bank, National Association, as collateral agent and collateral custodian, and the other lenders and lender agents from time to time party thereto. (Incorporated by reference to Exhibit 10.29 to the Company’s Annual Report on Form 10-K filed on March 25, 2016.)
	10.13			Amendment No. 4 to Loan Financing and Servicing Agreement, dated as of October 8, 2015, by and among Darby Creek LLC, as borrower, Deutsche Bank AG, New York Branch, as administrative agent, Wells Fargo Bank, National Association, as collateral agent and collateral custodian, and the other lenders and lender agents from time to time party thereto. (Incorporated by reference to Exhibit 10.30 to the Company’s Annual Report on Form 10-K filed on March 25, 2016.)
	10.14			Amendment No. 6 to Loan Financing and Servicing Agreement, dated as of August 19, 2016, by and among Darby Creek LLC, as borrower, Deutsche Bank AG, New York Branch, as administrative agent, Wells Fargo Bank, National Association, as collateral agent and collateral custodian, and the other lenders and lender agents from time to time party thereto. (Incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on August 22, 2016.)
	10.15			Amendment No. 7 to Loan Financing and Servicing Agreement, dated as of February 15, 2019, by and among Darby Creek LLC, as borrower, Deutsche Bank AG, New York Branch, as administrative agent, Wells Fargo Bank, National Association, as collateral agent and collateral custodian, and the other lenders and lender agents from time to time party thereto. (Incorporated by reference to Exhibit 10.16 to the Company’s Quarterly Report on Form 10-K filed on March 19, 2019.)

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	10.16			Omnibus Amendment, dated as of February 20, 2019, between Darby Creek LLC, as borrower, Deutsche Bank AG, New York Branch, as facility agent, each lender party thereto, each agent party thereto, and Wells Fargo Bank, National Association, as collateral agent and collateral custodian. (Incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on February 25, 2019.)
	10.17			Loan Agreement, dated as of November 14, 2014, by and among Juniata River LLC, as borrower, JPMorgan Chase Bank, National Association, as administrative agent and lender, Citibank, N.A., as collateral agent and Virtus Group, LP as collateral administrator. (Incorporated by reference to Exhibit 10.51 to the Company’s Annual Report on Form 10-K filed on March 18, 2015.)
	10.18			Amendment No. 1 to Loan Agreement, dated as of October 11, 2016, by and among Juniata River LLC, as borrower, JPMorgan Chase Bank, National Association, as administrative agent and lender, Citibank, N.A., as collateral agent and Virtus Group, LP as collateral administrator. (Incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on October 13, 2016.)
	10.19			Amended and Restated Loan and Security Agreement, dated as of March 13, 2019, by and between Juniata River LLC, as borrower, JPMorgan Chase Bank, National Association, as administrative agent, the lenders party thereto, and Wells Fargo Bank, National Association, as collateral administrator, collateral agent and securities intermediary. (Incorporated by reference to Exhibit 10.20 to the Company’s Quarterly Report on Form 10-K filed on March 19, 2019.)
	10.20			Credit Agreement, dated as of May 15, 2017, among Green Creek LLC, Goldman Sachs Bank USA, as lender, sole lead arranger and administrative agent, Citibank, N.A., as collateral agent, and Virtus Group, LP, as collateral administrator. (Incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K filed on May 16, 2017.)
	10.21			Senior Secured Revolving Credit Agreement, dated as of August 9, 2018, among Corporate Capital Trust, Inc., FS Investment Corporation, FS Investment Corporation II, FS Investment Corporation III, each other person designated as a “borrower” thereunder pursuant to section 9.19 thereof, the lenders party thereto, JPMorgan Chase Bank, N.A., as administrative agent, and ING Capital LLC, as collateral agent. (Incorporated by reference to Exhibit 10.56 to the Company’s Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2018 filed on August 14, 2018.)
	10.22			Commitment Increase Agreement, dated as of November 8, 2018, among BNP Paribas, Corporate Capital Trust, Inc., FS Investment Corporation, FS Investment Corporation II, FS Investment Corporation III, JPMorgan Chase Bank, N.A., Bank of Montreal, Suntrust Bank, and ING Capital LLC. (Incorporated by reference to Exhibit 10.23 to the Company’s Quarterly Report on Form 10-K filed on March 19, 2019.)
	10.23			Commitment Increase Agreement, dated as of November 8, 2018, among U.S. Bank National Association, Corporate Capital Trust, Inc., FS Investment Corporation, FS Investment Corporation II, FS Investment Corporation III, JPMorgan Chase Bank, N.A., Bank of Montreal, Suntrust Bank, and ING Capital LLC. (Incorporated by reference to Exhibit 10.24 to the Company’s Quarterly Report on Form 10-K filed on March 19, 2019.)
	31.1*			Certification of Chief Executive Officer pursuant to Rule 13a-14 of the Securities Exchange Act of 1934, as amended.
	31.2*			Certification of Chief Financial Officer pursuant to Rule 13a-14 of the Securities Exchange Act of 1934, as amended.
	32.1*			Certification of Chief Executive Officer and Chief Financial Officer pursuant to Section 1350, Chapter 63 of Title 18, United States Code, as adopted pursuant to Section 906 of the Sarbanes Oxley Act of 2002.

Filed herewith.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this quarterly report to be signed on its behalf by the undersigned, thereunto duly authorized on August 14, 2019.

				FS INVESTMENT CORPORATION II
				By:			/s/ Michael C. Forman Michael C. Forman Chief Executive Officer (Principal Executive Officer)
				By:			/s/ William Goebel William Goebel Chief Financial Officer (Principal Financial and Accounting Officer)

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FS KKR Capital Corp. II (FSKR) 10-Q2019 Q2 Quarterly report

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