TCG BDC II 10Q 2020 Q1 Quarterly report

TCG BDC II 10-Q2020 Q1 Quarterly report

Content analysis

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q



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

For the quarterly period ended March 31, 2020



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

For the transition period to

Commission File No. 814-01248

TCG BDC II, INC.

(Exact name of Registrant as specified in its charter)



Maryland		81-5320146
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification Number)

520 Madison Avenue, 40th Floor, New York, NY 10022		(212) 813-4900
(Address of principal executive office) (Zip Code)		(Registrant’s telephone number, including area code)

N/A

(Former name, former address and former fiscal year, if changed since last report)

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



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

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 every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☐ No ☐

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

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

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

The number of shares of the registrant’s common stock, $0.01 par value per share, outstanding at May 11, 2020 was 44,896,727.

TCG BDC II, INC.

INDEX




Part I.	Financial Information
Item 1.	Financial Statements
	Consolidated Statements of Assets and Liabilities as of March 31, 2020 (unaudited) and December 31, 2019	1
	Consolidated Statements of Operations for the three month periods ended March 31, 2020 (unaudited) and March 31, 2019 (unaudited)	2
	Consolidated Statements of Changes in Net Assets for the three month periods ended March 31, 2020 (unaudited) and March 31, 2019 (unaudited)	3
	Consolidated Statements of Cash Flows for the three month periods ended March 31, 2020 (unaudited) and March 31, 2019 (unaudited)	4
	Consolidated Schedules of Investments as of March 31, 2020 (unaudited) and December 31, 2019	5
	Notes to Consolidated Financial Statements (unaudited)	21
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	38
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	53
Item 4.	Controls and Procedures	53
Part II.	Other Information
Item 1.	Legal Proceedings	55
Item 1A.	Risk Factors	55
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	56
Item 3.	Defaults Upon Senior Securities	56
Item 4.	Mine Safety Disclosures	56
Item 5.	Other Information	56
Item 6.	Exhibits	56
	Signatures	57

TCG BDC II, INC.

CONSOLIDATED STATEMENTS OF ASSETS AND LIABILITIES

(dollar amounts in thousands, except per share data)



	March 31, 2020			December 31, 2019
ASSETS	(unaudited)
Investments—non-controlled/non-affiliated, at fair value (amortized cost of $1,484,081 and $1,368,431, respectively)	$	1,397,128		$	1,370,148
Cash and cash equivalents	47,543			18,937
Deferred financing costs	2,938			3,263
Receivable for investment sold	17,887			6,160
Interest receivable from non-controlled/non-affiliated investments	10,872			12,808
Prepaid expenses and other assets	18,876			2,330
Total assets	$	1,495,244		$	1,413,646
LIABILITIES
Secured borrowings (Note 5)	$	607,926		$	648,200
Payable for investments purchased	24,369			—
Due to Investment Adviser	458			516
Interest and credit facility fees payable (Note 5)	4,906			4,225
Dividend payable (Note 7)	18,958			17,275
Management and incentive fees payable (Note 4)	5,970			4,904
Administrative service fees payable (Note 4)	—			33
Other accrued expenses and liabilities	1,675			1,384
Total liabilities	664,262			676,537
Commitments and contingencies (Notes 6 and 9)
NET ASSETS
Common stock, $0.01 par value; 200,000,000 shares authorized; 44,896,727 shares and 35,769,223 shares issued and outstanding at March 31, 2020 and December 31, 2019, respectively	449			358
Paid-in capital in excess of par value	916,241			736,328
Total distributable earnings (loss)	(85,708		)	423
Total net assets	$	830,982		$	737,109
NET ASSETS PER SHARE	$	18.51		$	20.61

The accompanying notes are an integral part of these consolidated financial statements.

TCG BDC II, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(dollar amounts in thousands, except per share data)

(unaudited)



	For the three month periods ended
	March 31, 2020			March 31, 2019
Investment income:
From non-controlled/non-affiliated investments:
Interest income	$	30,864		$	13,941
Other income	1,972			1,161
Total investment income from non-controlled/non-affiliated investments	32,836			15,102
Total investment income	32,836			15,102
Expenses:
Management fees (Note 4)	2,573			1,057
Net investment income incentive fees (Note 4)	3,394			1,552
Professional fees	268			120
Administrative service fees (Note 4)	42			132
Interest expense (Note 5)	6,385			2,882
Credit facility fees (Note 5)	549			295
Directors’ fees and expenses	51			48
Other general and administrative	347			219
Total expenses	13,609			6,305
Net investment income (loss)	19,227			8,797
Net realized gain (loss) and change in unrealized appreciation (depreciation):
Net realized gain (loss) on investments:
Non-controlled/non-affiliated investments	(180		)	257
Currency gains (losses) on non-investment assets and liabilities	(164		)	—
Net change in unrealized appreciation (depreciation) on investments:
Non-controlled/non-affiliated investments	(88,670		)	2,295
Net change in unrealized currency gains (losses) on non-investment assets and liabilities	2,614			—
Net realized gain (loss) change in unrealized appreciation (depreciation) on investments and non-investment assets and liabilities	(86,400		)	2,552
Net increase (decrease) in net assets resulting from operations	$	(67,173	)	$	11,349
Basic and diluted earnings per common share (Note 8)	$	(1.86	)	$	0.71
Weighted-average shares of common stock outstanding—Basic and Diluted (Note 8)	36,149,388			16,051,688

The accompanying notes are an integral part of these consolidated financial statements.

TCG BDC II, INC.

CONSOLIDATED STATEMENTS OF CHANGES IN NET ASSETS

(dollar amounts in thousands)

(unaudited)



	For the three month periods ended
	March 31, 2020			March 31, 2019
Increase (decrease) in net assets resulting from operations:
Net investment income (loss)	$	19,227		$	8,797
Net realized gain (loss) on investments and non-investment assets and liabilities	(344		)	257
Net change in unrealized appreciation (depreciation) on investments and non-investment assets and liabilities	(86,056		)	2,295
Net increase (decrease) in net assets resulting from operations	(67,173		)	11,349
Capital transactions:
Common stock issued	180,004			99,940
Dividends declared (Note 10)	(18,958		)	(8,049		)
Net increase (decrease) in net assets resulting from capital share transactions	161,046			91,891
Net increase (decrease) in net assets	93,873			103,240
Net assets at beginning of period	737,109			289,214
Net assets at end of period	$	830,982		$	392,454

The accompanying notes are an integral part of these consolidated financial statements.

TCG BDC II, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(dollar amounts in thousands)

(unaudited)



	For the three month periods ended
	March 31, 2020			March 31, 2019
Cash flows from operating activities:
Net increase (decrease) in net assets resulting from operations	$	(67,173	)	$	11,349
Adjustments to reconcile net increase (decrease) in net assets resulting from operations to net cash provided by (used in) operating activities:
Amortization of deferred financing costs	350			239
Net accretion of discount on investments	(2,023		)	(464		)
Paid-in-kind interest	(180		)	—
Net realized (gain) loss on investments and non-investment assets and liabilities	344			(257		)
Net change in unrealized (appreciation) depreciation on investments	88,670			(2,295		)
Net change in unrealized currency (gains) losses on non-investment assets and liabilities	(2,614		)	—
Cost of investments purchased and change in payable for investments purchased	(179,103		)	(194,256		)
Proceeds from sales and repayments of investments and change in receivable for investments sold	78,296			10,175
Changes in operating assets:
Interest receivable	1,936			(1,090		)
Prepaid expenses and other assets	(16,546		)	(1,490		)
Changes in operating liabilities:
Due to Investment Adviser	(58		)	75
Interest and credit facility fees payable	681			726
Management and incentive fees payable	1,066			589
Administrative service fees payable	(33		)	49
Other accrued expenses and liabilities	291			236
Net cash provided by (used in) operating activities	(96,096		)	(176,414		)
Cash flows from financing activities:
Proceeds from issuance of common stock	180,004			99,940
Borrowings on SPV Credit Facility and Subscription Facility	178,000			146,200
Repayments of SPV Credit Facility and Subscription Facility	(216,000		)	(59,500		)
Dividends paid in cash	(17,275		)	(6,545		)
Debt issuance costs paid	(25		)	(25		)
Net cash provided by (used in) financing activities	124,704			180,070
Net increase (decrease) in cash and cash equivalents	28,608			3,656
Cash and cash equivalents, beginning of period	18,937			4,245
Cash and cash equivalents, end of period	$	47,545		$	7,901
Supplemental disclosures:
Interest paid during the period	$	5,690		$	2,127
Dividends declared during the period	$	18,958		$	8,049

The accompanying notes are an integral part of these consolidated financial statements.

TCG BDC II, INC.

CONSOLIDATED SCHEDULE OF INVESTMENTS

As of March 31, 2020

(dollar amounts in thousands)

(unaudited)



Investments—non-controlled/non-affiliated ⁽¹⁾		Footnotes	Industry	Reference Rate & Spread ⁽²⁾	Interest Rate ⁽²⁾	Acquisition Date	Maturity Date	Par/ Principal Amount		Amortized Cost ⁽⁴⁾		Fair Value ⁽⁵⁾		Percentage of Net Assets
First Lien Debt (81.44%)
Airnov, Inc. (Clariant)	^+	(2) (3) (6)	Containers, Packaging & Glass	L + 5.25%	6.37%	12/20/2019	12/19/2025	$	42,708	$	42,033	$	41,321	4.97	%
Alpine SG, LLC	^+	(2) (3)	High Tech Industries	L + 5.75%	7.20%	2/2/2018	11/16/2022	15,301		15,196		14,996		1.80
American Physician Partners, LLC	^+	(2) (3) (6)	Healthcare & Pharmaceuticals	L + 6.50%	7.95%	1/7/2019	12/21/2021	38,753		38,393		37,616		4.53
Analogic Corporation	^+	(2) (3) (6)	Capital Equipment	L + 5.25%	6.25%	6/22/2018	6/22/2024	25,875		25,489		24,496		2.95
Anchor Hocking, LLC	^	(2) (3)	Durable Consumer Goods	L + 8.75%	10.51%	1/25/2019	1/25/2024	10,418		10,143		9,872		1.19
Apptio, Inc.	^+	(2) (3) (6)	Software	L + 7.25%	8.25%	1/10/2019	1/10/2025	35,541		34,899		33,468		4.03
Aurora Lux FinCo S.Á.R.L. (Accelya) (Luxembourg)	+	(2) (3) (7)	Software	L + 6.00%	7.00%	12/24/2019	12/24/2026	37,500		36,589		35,104		4.22
Avenu Holdings, LLC	+	(2) (3)	Sovereign & Public Finance	L + 5.25%	6.70%	9/28/2018	9/28/2024	38,567		38,061		35,293		4.25
Barnes & Noble, Inc.	+	(2) (3) (10)	Retail	L + 5.50%	9.18%	8/7/2019	8/7/2024	17,414		17,023		15,634		1.88
BMS Holdings III Corp.	^+	(2) (3) (6)	Construction & Building	L + 5.25%	6.70%	9/30/2019	9/30/2026	23,217		22,514		21,839		2.63
Central Security Group, Inc.	+	(2) (3) (9)	Consumer Services	L + 5.63%	6.63%	4/5/2018	10/6/2021	2,845		2,780		1,252		0.15
Chartis Holding, LLC	^+	(2) (3) (6)	Business Services	L + 5.25%	6.63%	5/1/2019	5/1/2025	40,255		39,449		38,846		4.67
Chemical Computing Group ULC (Canada)	^+	(2) (3) (6) (7)	Software	L + 5.00%	6.00%	8/30/2018	8/30/2023	14,637		14,475		14,157		1.70
Circustrix Holdings, LLC	^+	(2) (3)	Hotel, Gaming & Leisure	L + 5.50% (100% PIK)	6.50%	2/2/2018	12/6/2021	9,397		9,336		7,800		0.94
Cobblestone Intermediate Holdco LLC	^	(2) (3) (6)	Consumer Services	L + 5.00%	6.77%	1/29/2020	1/29/2026	463		455		452		0.05
Comar Holding Company, LLC	^+	(2) (3) (6)	Containers, Packaging & Glass	L + 5.75%	6.75%	6/18/2018	6/18/2024	36,443		35,728		35,584		4.28
Cority Software Inc. (Canada)	^+	(2) (3) (6) (7)	Software	L + 5.75%	7.64%	7/2/2019	7/2/2026	56,920		55,796		55,722		6.71
Derm Growth Partners III, LLC (Dermatology Associates)	^	(2) (3) (9)	Healthcare & Pharmaceuticals	L + 6.25% (100% PIK)	7.70%	2/15/2018	5/31/2022	16,263		16,152		9,030		1.09
Digicel Limited (Jamaica)	^	(7)	Telecommunications	6.00%	6.00%	7/23/2019	4/15/2021	250		210		134		0.02
DTI Holdco, Inc.	^	(2) (3)	High Tech Industries	L + 4.75%	6.53%	12/18/2018	9/30/2023	1,969		1,873		1,383		0.17
Ensono, LP	+	(2) (3)	Telecommunications	L + 5.25%	6.24%	4/30/2018	6/27/2025	8,515		8,447		7,308		0.88
Ethos Veterinary Health LLC	+	(2) (3) (6)	Consumer Services	L + 4.75%	5.74%	5/17/2019	5/15/2026	10,850		10,733		10,298		1.24
iCIMS, Inc.	^+	(2) (3) (6)	Software	L + 6.50%	7.50%	9/12/2018	9/12/2024	23,930		23,525		22,762		2.74
Individual FoodService Holdings, LLC	^	(2) (3) (6)	Wholesale	L + 5.75%	6.75%	2/21/2020	11/22/2025	15,386		14,993		14,731		1.77
Innovative Business Services, LLC	+	(2) (3)	High Tech Industries	L + 5.50%	7.25%	4/5/2018	4/5/2023	18,334		17,976		17,791		2.14
Integrity Marketing Acquisition, LLC	^	(2) (3) (6)	Banking, Finance, Insurance & Real Estate	L + 5.75%	7.26%	1/15/2020	8/27/2025	3,548		3,173		2,139		0.26

TCG BDC II, INC.

CONSOLIDATED SCHEDULE OF INVESTMENTS (Continued)

As of March 31, 2020

(dollar amounts in thousands)

(unaudited)



Investments—non-controlled/non-affiliated ⁽¹⁾		Footnotes	Industry	Reference Rate & Spread ⁽²⁾	Interest Rate ⁽²⁾	Acquisition Date	Maturity Date	Par/ Principal Amount		Amortized Cost ⁽⁴⁾		Fair Value ⁽⁵⁾		Percentage of Net Assets
K2 Insurance Services, LLC	^+	(2) (3) (6)	Banking, Finance, Insurance & Real Estate	L + 5.00%	6.42%	7/3/2019	7/1/2024	$	23,116	$	22,603	$	22,492	2.71	%
Kaseya Inc.	^+	(2) (3) (6)	High Tech Industries	L + 5.50%, 1.00% PIK	7.95%	5/3/2019	5/2/2025	21,561		21,143		20,261		2.44
Lifelong Learner Holdings, LLC	^+	(2) (3) (6)	Business Services	L + 5.75%	6.76%	10/18/2019	10/18/2026	49,887		48,821		46,147		5.55
Liqui-Box Holdings, Inc.	^	(2) (3) (6)	Containers, Packaging & Glass	L + 4.50%	5.69%	6/3/2019	6/3/2024	2,279		2,254		2,147		0.26
Mailgun Technologies, Inc.	^+	(2) (3) (6)	High Tech Industries	L + 6.00%	7.19%	3/26/2019	3/26/2025	20,143		19,763		19,398		2.33
National Carwash Solutions, Inc.	^+	(2) (3) (6)	Automotive	L + 6.00%	7.54%	8/7/2018	4/28/2023	9,792		9,606		9,468		1.14
NES Global Talent Finance US, LLC (United Kingdom)	+	(2) (3) (7)	Energy: Oil & Gas	L + 5.50%	7.28%	5/9/2018	5/11/2023	9,865		9,746		9,253		1.12
Nexus Technologies, LLC	+	(2) (3)	High Tech Industries	L + 5.50%, 1.50% PIK	8.45%	12/11/2018	12/5/2023	6,188		6,140		5,053		0.61
Northland Telecommunications Corporation	^+	(2) (3) (6)	Media: Broadcasting & Subscription	L + 5.75%	6.96%	10/1/2018	10/1/2025	56,538		55,747		54,440		6.55
Paramit Corporation	^	(2) (3)	Capital Equipment	L + 4.50%	5.50%	5/3/2019	5/3/2025	6,298		6,268		6,040		0.73
PF Growth Partners, LLC	+	(2) (3) (6)	Hotel, Gaming & Leisure	L + 5.00%	6.00%	7/1/2019	7/11/2025	7,349		7,238		6,865		0.83
PPC Flexible Packaging, LLC	^+	(2) (3) (6)	Containers, Packaging & Glass	L + 5.25%	6.25%	11/23/2018	11/23/2024	16,862		16,661		16,431		1.98
Propel Insurance Agency, LLC	^	(2) (3)	Banking, Finance, Insurance & Real Estate	L + 4.25%	5.70%	4/30/2019	6/1/2024	2,357		2,342		2,298		0.28
Redwood Services Group, LLC	^+	(2) (3)	High Tech Industries	L + 6.00%	7.00%	11/13/2018	6/6/2023	8,406		8,347		8,217		0.99
Riveron Acquisition Holdings, Inc.	+	(2) (3)	Banking, Finance, Insurance & Real Estate	L + 6.00%	7.45%	5/22/2019	5/22/2025	19,918		19,572		19,379		2.33
RSC Acquisition, Inc.	^+	(2) (3) (6)	Banking, Finance, Insurance & Real Estate	L + 5.50%	7.26%	11/1/2019	11/1/2026	56,121		54,987		53,062		6.39
Sapphire Convention, Inc. (Smart City)	^+	(2) (3) (6)	Telecommunications	L + 5.25%	6.92%	11/20/2018	11/20/2025	30,769		30,222		29,612		3.56
Smile Doctors, LLC	^+	(2) (3) (6)	Healthcare & Pharmaceuticals	L + 6.25%	7.69%	10/6/2017	10/6/2022	23,541		23,424		22,644		2.73
Sovos Brands Intermediate, Inc.	+	(2) (3)	Beverage, Food & Tobacco	L + 5.00%	6.59%	11/16/2018	11/20/2025	19,849		19,681		18,916		2.28
SPay, Inc.	^+	(2) (3) (6)	Hotel, Gaming & Leisure	L + 5.75%	6.84%	6/15/2018	6/17/2024	20,512		20,195		15,558		1.87
Tank Holding Corp.	^	(2) (3) (6)	Capital Equipment	L + 4.00%	5.45%	3/26/2019	3/26/2024	45		45		43		0.01
TCFI Aevex LLC	+	(2) (3) (6)	Aerospace & Defense	L + 6.00%	7.00%	3/18/2020	3/18/2026	19,426		18,960		18,957		2.28
The Leaders Romans Bidco Limited (United Kingdom) Term Loan B	^	(2) (3) (7)	Banking, Finance, Insurance & Real Estate	L + 6.75%, 3.50% PIK	11.02%	7/23/2019	6/30/2024	£	20,074	24,420		23,465		2.82
The Leaders Romans Bidco Limited (United Kingdom) Term Loan C	^	(2) (3) (7)	Banking, Finance, Insurance & Real Estate	L + 6.75%, 3.50% PIK	11.02%	7/23/2019	6/30/2024	£	3,922	4,798		4,617		0.56
Trump Card, LLC	^+	(2) (3)	Transportation: Cargo	L + 5.50%	6.92%	6/26/2018	4/21/2022	8,287		8,239		8,064		0.97

TCG BDC II, INC.

CONSOLIDATED SCHEDULE OF INVESTMENTS (Continued)

As of March 31, 2020

(dollar amounts in thousands)

(unaudited)



Investments—non-controlled/non-affiliated ⁽¹⁾		Footnotes	Industry	Reference Rate & Spread ⁽²⁾	Interest Rate ⁽²⁾	Acquisition Date	Maturity Date	Par/ Principal Amount		Amortized Cost ⁽⁴⁾		Fair Value ⁽⁵⁾		Percentage of Net Assets
Turbo Buyer, Inc. (Portfolio Holdings, Inc.)	^+	(2) (3) (6)	Automotive	L + 6.00%	7.48%	12/2/2019	12/2/2025	$	29,978	$	29,146	$	29,105	3.50	%
Unifrutti Financing PLC (Cyprus)	+	(2) (7)	Beverage, Food & Tobacco	7.50%, 1.00% PIK	8.50%	9/15/2019	9/15/2026	€	18,261	19,163		18,333		2.21
USLS Acquisition, Inc.	^+	(2) (3) (6)	Business Services	L + 5.75%	6.82%	11/30/2018	11/30/2024	22,954		22,579		22,166		2.67
VRC Companies, LLC	^+	(2) (3) (6)	Business Services	L + 6.50%	7.99%	1/29/2019	3/31/2023	53,469		52,835		52,220		6.28
Westfall Technik, Inc.	^+	(2) (3) (6)	Chemicals, Plastics & Rubber	L + 5.75%	7.20%	9/13/2018	9/13/2024	28,341		27,743		25,520		3.07
WP CPP Holdings, LLC (CPP)	+	(2) (3)	Aerospace & Defense	L + 3.75%	5.53%	7/18/2019	4/30/2025	14,952		14,826		11,214		1.35
Zemax Software Holdings, LLC	^+	(2) (3) (6)	Software	L + 5.75%	7.20%	6/25/2018	6/25/2024	10,762		10,591		10,492		1.26
Zenith Merger Sub, Inc.	^+	(2) (3) (6)	Business Services	L + 5.25%	6.70%	12/13/2017	12/13/2023	17,512		17,325		16,947		2.04
First Lien Debt Total										$	1,190,871	$	1,137,852	136.96	%
Second Lien Debt (17.09% of fair value)
Access CIG, LLC	^	(2) (3)	Business Services	L + 7.75%	9.53%	2/14/2018	2/27/2026	$	2,700	$	2,681	$	2,196	0.26	%
AI Convoy S.A.R.L (Cobham) (United Kingdom)	^	(2) (3) (7)	Aerospace & Defense	L + 8.25%	10.09%	1/17/2020	1/17/2028	30,327		29,659		27,470		3.31
Aimbridge Acquisition Co., Inc.	+	(2) (3)	Hotel, Gaming & Leisure	L + 7.50%	9.08%	2/1/2019	2/1/2027	21,047		20,542		18,008		2.17
Brave Parent Holdings, Inc.	+	(2) (3)	Software	L + 7.50%	9.28%	10/3/2018	4/19/2026	19,062		18,683		17,323		2.08
Drilling Info Holdings, Inc.	^	(2) (3)	Energy: Oil & Gas	L + 8.25%	9.24%	2/11/2020	7/30/2026	18,600		18,098		17,307		2.08
Higginbotham Insurance Agency, Inc.	^	(2) (3)	Banking, Finance, Insurance & Real Estate	L + 7.50%	8.50%	12/3/2019	12/19/2025	2,500		2,476		2,344		0.28
Jazz Acquisition, Inc.	+	(2) (3)	Aerospace & Defense	L + 8.00%	8.99%	6/13/2019	6/18/2027	23,450		23,125		18,760		2.26
Le Tote, Inc.	^	(2) (3)	Retail	L + 6.75%	8.33%	11/8/2019	11/8/2024	21,428		20,929		19,367		2.33
Outcomes Group Holdings, Inc.	^	(2) (3)	Business Services	L + 7.50%	9.11%	10/23/2018	10/26/2026	4,500		4,490		4,184		0.50
Pharmalogic Holdings Corp.	^	(2) (3)	Healthcare & Pharmaceuticals	L + 8.00%	9.00%	6/7/2018	12/11/2023	800		797		777		0.09
Quartz Holding Company (QuickBase, Inc.)	+	(2) (3)	Software	L + 8.00%	8.86%	4/2/2019	4/2/2027	11,900		11,684		10,900		1.31
Stonegate Pub Company Limited (United Kingdom)	^	(2) (7)	Beverage, Food & Tobacco	L + 8.50%	9.23%	3/12/2020	3/12/2028	20,000		24,692		22,467		2.70
Tank Holding Corp.	^+	(2) (3)	Capital Equipment	L + 8.25%	9.17%	3/26/2019	3/26/2027	37,380		36,754		34,420		4.14
Ultimate Baked Goods MIDCO, LLC (Rise Baking)	+	(2) (3)	Beverage, Food & Tobacco	L + 8.00%	9.00%	8/9/2018	8/9/2026	8,333		8,191		7,913		0.95
World 50, Inc.	^	(2) (11)	Business Services	11.50%	11.50%	1/10/2020	1/9/2027	10,000		9,807		9,335		1.12
WP CPP Holdings, LLC (CPP)	+	(2) (3)	Aerospace & Defense	L + 7.75%	9.53%	7/18/2019	4/30/2026	39,500		39,136		25,940		3.12
Second Lien Debt Total										$	271,744	$	238,711	28.70	%

TCG BDC II, INC.

CONSOLIDATED SCHEDULE OF INVESTMENTS (Continued)

As of March 31, 2020

(dollar amounts in thousands)

(unaudited)



Investments—non-controlled/non-affiliated ⁽¹⁾		Footnotes	Industry	Type	Acquisition Date	Shares/ Units	Cost		Fair Value ⁽⁵⁾		Percentage of Net Assets
Equity Investments (1.47% of fair value)
ANLG Holdings, LLC	^	(8)	Healthcare & Pharmaceuticals	Common stock	6/22/2018	880	$	880	$	757	0.09	%
Avenu Holdings, LLC	^	(8)	Sovereign & Public Finance	Common stock	9/28/2018	172	172		74		0.01
Chartis Holding, LLC	^	(8)	Business Services	Common stock	5/1/2019	433	433		599		0.07
Cority Software Inc. (Canada)	^	(8)	Software	Common stock	7/2/2019	250	250		306		0.04
GRO Sub Holdco, LLC (Grand Rapids)	^	(8)	Healthcare & Pharmaceuticals	Common stock	3/29/2018	500	500		108		0.01
K2 Insurance Services, LLC	^	(8)	Banking, Finance, Insurance & Real Estate	Common stock	7/3/2019	433	433		465		0.06
Mailgun Technologies, Inc.	^	(8)	High Tech Industries	Common stock	3/26/2019	424	424		447		0.05
North Haven Goldfinch Topco, LLC	^	(8)	Containers, Packaging & Glass	Common stock	6/18/2018	2,315	2,315		2,359		0.28
Paramit Corporation	^	(8)	Capital Equipment	Common stock	6/17/2019	150	500		202		0.02
PPC Flexible Packaging, LLC	^	(8)	Containers, Packaging & Glass	Common stock	2/1/2019	965	965		1,112		0.13
SiteLock Group Holdings, LLC	^	(8)	High Tech Industries	Common stock	4/5/2018	446	446		506		0.06
Tank Holding Corp.	^	(8)	Capital Equipment	Common stock	3/26/2019	850	850		944		0.11
Titan DI Preferred Holdings, Inc. (Drilling Info)	^	(8)	Energy: Oil & Gas	Common stock	2/11/2020	10,000	9,700		9,100		1.10
Turbo Buyer, Inc. (Portfolio Holdings, Inc.)	^	(8)	Automotive	Common stock	12/2/2019	1,925	1,925		1,925		0.23
USLS Acquisition, Inc.	^	(8)	Business Services	Common stock	11/30/2018	641	641		588		0.07
W50 Parent LLC	^	(8)	Business Services	Common stock	1/10/2020	500	500		500		0.06
Zenith American Holding, Inc.	^	(8)	Business Services	Common stock	12/13/2017	440	220		328		0.04
Zillow Topco LP	^	(8)	Software	Common stock	6/25/2018	313	312		245		0.03
Equity Investments Total							$	21,466	$	20,565	2.46	%
Total investments—non-controlled/non-affiliated							$	1,484,081	$	1,397,128	168.12	%
Total investments							$	1,484,081	$	1,397,128	168.12	%

^ Denotes that all or a portion of the assets are owned by TCG BDC II, Inc. (together with its consolidated subsidiaries, “we,” “us,” “our,” “BDC II” or the “Company”). Accordingly, such assets are not available to creditors of TCG BDC II SPV LLC (the “SPV”).

+ Denotes that all or a portion of the assets are owned by the Company's wholly owned subsidiary, the SPV. The SPV has entered into a senior secured revolving credit facility (the “SPV Credit Facility” and, together with the Subscription Facility, the “Facilities”). The lenders of the SPV Credit Facility have a first lien security interest in substantially all of the assets of the SPV (see Note 5, Borrowings, to these consolidated financial statements). Accordingly, such assets are not available to creditors of the Company.

(1)

Unless otherwise indicated, issuers of debt and equity investments held by the Company are domiciled in the United States. Under the Investment Company Act of 1940, as amended (together with the rules and regulations promulgated thereunder, the “Investment Company Act”), the Company would be deemed to “control” a portfolio company if the Company owned more than 25% of its outstanding voting securities and/or held the power to exercise control over the management or policies of the portfolio company. As of March 31, 2020, the Company does not “control” any of these portfolio companies. Under the Investment Company Act, the Company would be deemed an “affiliated person” of a portfolio company if the Company owns 5% or more of the portfolio company’s outstanding voting securities. As of March 31, 2020, the Company is not an “affiliated person” of any of these portfolio companies. Certain portfolio company investments are subject to contractual restrictions on sales.

(2)

Variable rate loans to the portfolio companies bear interest at a rate that is determined by reference to either LIBOR (“L”) or an alternate base rate (commonly based on the Federal Funds Rate or the U.S. Prime Rate), which generally resets quarterly. For each such loan, the Company has indicated the reference rate used and provided the spread and the interest rate in effect as of March 31, 2020. As of March 31, 2020, the reference rates for all LIBOR loans were the 30-day LIBOR at 0.99%, the 90-day LIBOR at 1.45% and the 180-day LIBOR rate at 1.18%.

TCG BDC II, INC.

CONSOLIDATED SCHEDULE OF INVESTMENTS (Continued)

As of March 31, 2020

(dollar amounts in thousands)

(unaudited)


(3)	Loan includes interest rate floor feature, generally 1.00%.


(4)	Amortized cost represents original cost, including origination fees and upfront fees received that are deemed to be an adjustment to yield, adjusted for the accretion/amortization of discounts/premiums, as applicable, on debt investments using the effective interest method.

(5)

Fair value is determined in good faith by or under the direction of the Board of Directors of the Company (see Note 2, Significant Accounting Policies, and Note 3, Fair Value Measurements, to these consolidated financial statements), pursuant to the Company’s valuation policy. The fair value of all first lien and second lien debt investments and equity investments was determined using significant unobservable inputs.


(6)	As of March 31, 2020, the Company had the following unfunded commitments to fund delayed draw and revolving senior secured loans:



Investments—non-controlled/non-affiliated	Type	Unused Fee		Par/ Principal Amount		Fair Value
First and Second Lien Debt—unfunded delayed draw and revolving term loans commitments
Airnov, Inc. (Clariant)	Revolver	0.50	%	$	4,167	$	(123	)
American Physician Partners, LLC	Revolver	0.50		550		(17		)
Analogic Corporation	Revolver	0.50		2,352		(115		)
Apptio, Inc.	Revolver	0.50		2,367		(129		)
BMS Holdings III Corp.	Delayed Draw	2.63		6,667		(307		)
Chartis Holding, LLC	Delayed Draw	0.50		6,402		(193		)
Chemical Computing Group ULC (Canada)	Revolver	0.50		903		(28		)
Cobblestone Intermediate Holdco LLC	Delayed Draw	1.00		271		(4		)
Comar Holding Company, LLC	Revolver	0.50		2,201		(42		)
Comar Holding Company, LLC	Delayed Draw	1.00		6,330		(121		)
Cority Software Inc. (Canada)	Revolver	0.50		3,000		(60		)
Ethos Veterinary Health LLC	Delayed Draw	1.00		2,696		(110		)
iCIMS, Inc.	Revolver	0.50		1,252		(58		)
Individual FoodService Holdings, LLC	Revolver	0.50		1,600		(52		)
Individual FoodService Holdings, LLC	Delayed Draw	1.00		2,980		(98		)
Integrity Marketing Acquisition, LLC	Delayed Draw	1.00		21,443		(1,209		)
K2 Insurance Services, LLC	Revolver	0.50		1,145		(24		)
K2 Insurance Services, LLC	Delayed Draw	1.00		5,344		(113		)
Kaseya Inc.	Delayed Draw	0.75		2,800		(149		)
Kaseya Inc.	Revolver	0.50		15		(1		)
Lifelong Learner Holdings, LLC	Delayed Draw	—		5,756		(381		)
Lifelong Learner Holdings, LLC	Revolver	0.50		845		(56		)
Liqui-Box Holdings, Inc.	Revolver	0.50		351		(18		)
Mailgun Technologies, Inc.	Revolver	0.50		1,342		(47		)
National Carwash Solutions, Inc.	Revolver	0.50		5		—
National Carwash Solutions, Inc.	Delayed Draw	1.00		3,352		(83		)
Northland Telecommunications Corporation	Revolver	0.50		2,709		(96		)
PF Growth Partners, LLC	Delayed Draw	1.00		823		(49		)

TCG BDC II, INC.

CONSOLIDATED SCHEDULE OF INVESTMENTS (Continued)

As of March 31, 2020

(dollar amounts in thousands)

(unaudited)



Investments—non-controlled/non-affiliated	Type	Unused Fee		Par/ Principal Amount		Fair Value
PPC Flexible Packaging, LLC	Revolver	0.50	%	$	489	$	(12	)
RSC Acquisition, Inc.	Revolver	0.50		1,824		(94		)
RSC Acquisition, Inc.	Delayed Draw	1.00		1,695		(87		)
Sapphire Convention, Inc. (Smart City)	Revolver	0.50		2,264		(79		)
Smile Doctors, LLC	Delayed Draw	1.00		813		(30		)
Smile Doctors, LLC	Revolver	0.50		1		—
SPay, Inc.	Revolver	0.50		682		(159		)
Tank Holding Corp.	Revolver	0.50		2		—
TCFI Aevex LLC	Delayed Draw	1.00		4,019		(80		)
Turbo Buyer, Inc. (Portfolio Holdings, Inc.)	Delayed Draw	1.00		4,904		(123		)
USLS Acquisition, Inc.	Revolver	0.50		76		(3		)
VRC Companies, LLC	Delayed Draw	0.75		4,132		(90		)
Westfall Technik, Inc.	Delayed Draw	1.00		12,190		(848		)
Zemax Software Holdings, LLC	Revolver	0.50		642		(15		)
Zenith Merger Sub, Inc.	Revolver	0.50		609		(16		)
Zenith Merger Sub, Inc.	Delayed Draw	1.00		3,714		(96		)
Total unfunded commitments				$	127,724	$	(5,415	)


(7)	The Company has determined the indicated investments are non-qualifying assets under Section 55(a) of the Investment Company Act. Under the Investment Company Act, the Company may not acquire any non-qualifying assets unless, at the time such acquisition is made, qualifying assets represent at least 70% of the Company’s total assets.


(8)	Security acquired in transaction exempt from registration under the Securities Act of 1933, as amended (the “Securities Act”), and may be deemed to be “restricted securities” under the Securities Act, unless otherwise noted. As of March 31, 2020, the aggregate fair value of these securities is $20,565, or 2.46% of the Company's net assets.


(9)	Loan was on non-accrual status as of March 31, 2020.

(10)

In addition to the interest earned based on the stated interest rate of this loan, which is the amount reflected in this schedule, the Company is entitled to receive additional interest as a result of an agreement among lenders as follows: Barnes & Noble, Inc. (1.83%). Pursuant to the agreement among lenders in respect of this loan, this investment represents a first lien/last out loan, which has a secondary priority behind the first lien/first out loan with respect to principal, interest and other payments.


(11)	Represents a corporate mezzanine loan, which is subordinated to senior secured term loans of the portfolio investment.

As of March 31, 2020, investments at fair value consisted of the following:



Type	Amortized Cost		Fair Value		% of Fair Value
First Lien Debt (excluding First Lien/Last Out)	$	1,173,848	$	1,122,218	80.32	%
First Lien/Last Out Unitranche	17,023		15,634		1.12
Second Lien Debt	271,744		238,711		17.09
Equity Investments	21,466		20,565		1.47
Total	$	1,484,081	$	1,397,128	100.00	%

TCG BDC II, INC.

CONSOLIDATED SCHEDULE OF INVESTMENTS (Continued)

As of March 31, 2020

(dollar amounts in thousands)

(unaudited)

The rate type of debt investments at fair value as of March 31, 2020 was as follows:



Rate Type	Amortized Cost		Fair Value		% of Fair Value of First and Second Lien Debt
Floating Rate	$	1,433,435	$	1,348,761	97.98	%
Fixed Rate	29,180		27,802		2.02
Total	$	1,462,615	$	1,376,563	100.00	%

The industry composition of investments at fair value as of March 31, 2020 was as follows:



Industry	Amortized Cost		Fair Value		% of Fair Value
Aerospace & Defense	$	125,706	$	102,341	7.33	%
Automotive	40,677		40,498		2.90
Banking, Finance, Insurance & Real Estate	134,804		130,261		9.32
Beverage, Food & Tobacco	71,727		67,629		4.84
Business Services	199,781		194,056		13.89
Capital Equipment	69,906		66,145		4.73
Chemicals, Plastics & Rubber	27,743		25,520		1.83
Construction & Building	22,514		21,839		1.56
Consumer Services	13,968		12,002		0.86
Containers, Packaging & Glass	99,956		98,954		7.08
Durable Consumer Goods	10,143		9,872		0.71
Energy: Oil & Gas	37,544		35,660		2.55
Healthcare & Pharmaceuticals	80,146		70,932		5.08
High Tech Industries	91,308		88,052		6.30
Hotel, Gaming & Leisure	57,311		48,231		3.45
Media: Broadcasting & Subscription	55,747		54,440		3.90
Retail	37,952		35,001		2.51
Software	206,804		200,479		14.35
Sovereign & Public Finance	38,233		35,367		2.53
Telecommunications	38,879		37,054		2.65
Transportation: Cargo	8,239		8,064		0.58
Wholesale	14,993		14,731		1.05
Total	$	1,484,081	$	1,397,128	100.00	%

TCG BDC II, INC.

CONSOLIDATED SCHEDULE OF INVESTMENTS (Continued)

As of March 31, 2020

(dollar amounts in thousands)

(unaudited)

The geographical composition of investments at fair value as of March 31, 2020 was as follows:



Geography	Amortized Cost		Fair Value		% of Fair Value
Canada	$	70,521	$	70,185	5.02	%
Cyprus	19,163		18,333		1.31
Jamaica	210		134		0.01
Luxembourg	36,589		35,104		2.51
United Kingdom	93,315		87,272		6.25
United States	1,264,283		1,186,100		84.90
Total	$	1,484,081	$	1,397,128	100.00	%

The accompanying notes are an integral part of these consolidated financial statements.

TCG BDC II, INC.

CONSOLIDATED SCHEDULE OF INVESTMENTS

As of December 31, 2019

(dollar amounts in thousands)



Investments—non-controlled/non-affiliated ⁽¹⁾		Footnotes	Industry	Reference Rate & Spread⁽²⁾	Interest Rate ⁽²⁾	Acquisition Date	Maturity Date	Par/ Principal Amount		Amortized Cost ⁽⁴⁾		Fair Value⁽⁵⁾		Percentage of Net Assets
First Lien Debt (84.66%)
Aero Operating, LLC (Dejana Industries, Inc.)	^+	(2) (3) (6)	Business Services	L + 7.25%	9.03%	1/5/2018	12/29/2022	$	6,737	$	6,687	$	6,604	0.90	%
Airnov, Inc.	^+	(2) (3) (6)	Containers, Packaging & Glass	L + 5.25%	6.15%	12/20/2019	12/19/2025	42,708		42,009		42,006		5.70
Alpine SG, LLC	^+	(2) (3)	High Tech Industries	L + 6.50%	8.42%	2/2/2018	11/16/2022	15,301		15,187		15,244		2.07
American Physician Partners, LLC	^+	(2) (3) (6)	Healthcare & Pharmaceuticals	L + 6.50%	8.44%	1/7/2019	12/21/2021	38,235		37,820		38,110		5.17
Analogic Corporation	^+	(2) (3) (6)	Healthcare & Pharmaceuticals	L + 6.00%	7.79%	6/22/2018	6/22/2024	34,784		34,190		34,027		4.62
Anchor Hocking, LLC	^	(2) (3)	Durable Consumer Goods	L + 8.75%	10.65%	1/25/2019	1/25/2024	10,707		10,410		10,359		1.41
Apptio, Inc.	^+	(2) (3) (6)	Software	L + 7.25%	8.96%	1/10/2019	1/10/2025	35,541		34,872		35,237		4.78
Aurora Lux FinCo S.Á.R.L. (Accelya) (Luxembourg)	+	(2) (3) (7)	Software	L + 6.00%	5.46%	12/24/2019	12/24/2026	37,500		36,563		36,563		4.96
Avenu Holdings, LLC	+	(2) (3)	Sovereign & Public Finance	L + 5.25%	7.19%	9/28/2018	9/28/2024	38,665		38,126		37,227		5.05
Barnes & Noble, Inc.	^+	(2) (3) (10)	Retail	L + 5.50%	9.06%	8/7/2019	8/7/2024	17,637		17,223		17,196		2.33
BMS Holdings III Corp.	^+	(2) (3) (6)	Construction & Building	L + 5.25%	7.19%	9/30/2019	9/30/2026	23,275		22,549		23,182		3.14
Central Security Group, Inc.	+	(2) (3)	Consumer Services	L + 5.63%	7.42%	4/5/2018	10/6/2021	3,491		3,481		3,002		0.41
Chartis Holding, LLC	^+	(2) (3) (6)	Business Services	L + 5.25%	7.28%	5/1/2019	5/1/2025	37,949		37,107		37,565		5.10
Chemical Computing Group ULC (Canada)	^+	(2) (3) (6) (7)	Software	L + 5.25%	7.04%	8/30/2018	8/30/2023	14,674		14,500		14,539		1.97
Circustrix Holdings, LLC	^+	(2) (3)	Hotel, Gaming & Leisure	L + 5.50%	7.29%	2/2/2018	12/6/2021	9,397		9,331		9,247		1.25
Comar Holding Company, LLC	^+	(2) (3) (6)	Containers, Packaging & Glass	L + 5.25%	7.04%	6/18/2018	6/18/2024	27,783		27,253		27,101		3.68
Cority Software Inc. (Canada)	^+	(2) (3) (6) (7)	Software	L + 5.50%	7.59%	7/2/2019	7/2/2026	43,800		42,877		42,864		5.82
Derm Growth Partners III, LLC (Dermatology Associates)	^	(2) (3) (9)	Healthcare & Pharmaceuticals	L + 6.25% (100% PIK)	8.19%	2/15/2018	5/31/2022	16,262		16,136		11,469		1.56
Digicel Limited (Jamaica)	^+	(7)	Telecommunications	6.00%	6.00%	7/23/2019	4/15/2021	250		202		195		0.03
DTI Holdco, Inc.	^	(2) (3)	High Tech Industries	L + 4.75%	6.67%	12/18/2018	9/30/2023	1,974		1,872		1,841		0.25
Ensono, LP	+	(2) (3)	Telecommunications	L + 5.25%	7.04%	4/30/2018	6/27/2025	8,537		8,466		8,537		1.16
Ethos Veterinary Health LLC	^	(2) (3) (6)	Consumer Services	L + 4.75%	6.79%	5/17/2019	5/15/2026	10,869		10,747		10,807		1.47
GRO Sub Holdco, LLC (Grand Rapids)	^	(2) (3) (6)	Healthcare & Pharmaceuticals	L + 6.00%	7.94%	2/28/2018	2/22/2023	6,465		6,384		6,085		0.83
iCIMS, Inc.	^+	(2) (3) (6)	Software	L + 6.50%	8.29%	9/12/2018	9/12/2024	23,930		23,507		23,928		3.25

TCG BDC II, INC.

CONSOLIDATED SCHEDULE OF INVESTMENTS (Continued)

As of December 31, 2019

(dollar amounts in thousands)



Investments—non-controlled/non-affiliated ⁽¹⁾		Footnotes	Industry	Reference Rate & Spread⁽²⁾	Interest Rate ⁽²⁾	Acquisition Date	Maturity Date	Par/ Principal Amount		Amortized Cost ⁽⁴⁾			Fair Value⁽⁵⁾			Percentage of Net Assets
Innovative Business Services, LLC	^+	(2) (3) (6)	High Tech Industries	L + 5.50%	7.52%	4/5/2018	4/5/2023	$	16,143	$	15,768		$	15,880		2.15	%
K2 Insurance Services, LLC	^+	(2) (3) (6)	Banking, Finance, Insurance & Real Estate	L + 5.00%	7.21%	7/3/2019	7/1/2024	22,027		21,485			22,062			2.99
Kaseya Inc.	^	(2) (3) (6)	High Tech Industries	L + 5.50%, 1.00% PIK	7.71%	5/3/2019	5/2/2025	19,545		19,149			19,590			2.66
Lifelong Learner Holdings, LLC	^+	(2) (3) (6)	Business Services	L + 5.75%	7.49%	10/18/2019	10/18/2026	47,046		45,944			46,479			6.31
Liqui-Box Holdings, Inc.	^	(2) (3) (6)	Containers, Packaging & Glass	L + 4.50%	6.41%	6/3/2019	6/3/2024	—		(26		)	(37		)	(0.01	)
Mailgun Technologies, Inc.	^	(2) (3) (6)	High Tech Industries	L + 5.00%	6.95%	3/26/2019	3/26/2025	20,194		19,798			19,870			2.70
National Carwash Solutions, Inc.	^+	(2) (3) (6)	Automotive	L + 6.00%	7.69%	8/7/2018	4/28/2023	9,511		9,301			9,411			1.28
NES Global Talent Finance US, LLC (United Kingdom)	+	(2) (3) (7)	Energy: Oil & Gas	L + 5.50%	7.42%	5/9/2018	5/11/2023	9,890		9,763			9,763			1.32
Nexus Technologies, LLC	+	(2) (3)	High Tech Industries	L + 5.50%, 1.50% PIK	7.44%	12/11/2018	12/5/2023	6,172		6,121			5,621			0.76
Northland Telecommunications Corporation	^+	(2) (3) (6)	Media: Broadcast & Subscription	L + 5.75%	7.54%	10/1/2018	10/1/2025	55,749		54,938			55,660			7.55
Paramit Corporation	^	(2) (3)	Capital Equipment	L + 4.50%	6.22%	5/3/2019	5/3/2025	6,298		6,244			6,268			0.85
PF Growth Partners, LLC	^	(2) (3) (6)	Hotel, Gaming & Leisure	L + 5.00%	6.79%	7/1/2019	7/11/2025	7,161		7,045			7,135			0.97
PPC Flexible Packaging, LLC	+	(2) (3) (6)	Containers, Packaging & Glass	L + 5.50%	7.21%	11/23/2018	11/23/2024	15,433		15,218			15,291			2.07
Pretium Packaging, LLC	+	(2) (3)	Containers, Packaging & Glass	L + 5.00%	6.90%	8/15/2019	11/14/2023	19,224		19,050			19,224			2.61
Propel Insurance Agency, LLC	^	(2) (3)	Banking, Finance, Insurance & Real Estate	L + 4.25%	6.44%	4/30/2019	6/1/2024	2,363		2,347			2,353			0.32
Redwood Services Group, LLC	^+	(2) (3)	High Tech Industries	L + 6.00%	8.12%	11/13/2018	6/6/2023	8,427		8,363			8,342			1.13
Riveron Acquisition Holdings, Inc.	+	(2) (3)	Banking, Finance, Insurance & Real Estate	L + 6.00%	8.19%	5/22/2019	5/22/2025	19,969		19,608			19,587			2.66
RSC Acquisition, Inc.	^+	(2) (3) (6)	Banking, Finance, Insurance & Real Estate	L + 5.50%	7.38%	11/1/2019	11/1/2026	55,950		54,778			55,514			7.53
Sapphire Convention, Inc. (Smart City)	^+	(2) (3) (6)	Telecommunications	L + 5.25%	7.26%	11/20/2018	11/20/2025	28,577		28,006			28,329			3.84
Smile Doctors, LLC	^+	(2) (3) (6)	Healthcare & Pharmaceuticals	L + 6.00%	7.94%	10/6/2017	10/6/2022	22,227		22,100			21,996			2.98
Sovos Brands Intermediate, Inc.	+	(2) (3)	Beverage, Food & Tobacco	L + 5.00%	6.79%	11/16/2018	11/20/2025	19,899		19,725			19,750			2.68
SPay, Inc.	^+	(2) (3) (6)	Hotel, Gaming & Leisure	L + 5.75%	7.54%	6/15/2018	6/17/2024	20,512		20,179			18,694			2.54
Tank Holding Corp.	^	(2) (3) (6)	Capital Equipment	L + 4.00%	5.76%	3/26/2019	3/26/2024	—		—			—			—
The Leaders Romans Bidco Limited (United Kingdom)	^	(2) (3) (6) (7)	Banking, Finance, Insurance & Real Estate	L + 6.75%, 3.50% PIK	7.54%	7/23/2019	6/30/2024	£	19,612	24,887			26,566			3.60
Transform SR Holdings, LLC	+	(2) (3)	Retail	L + 7.25%	9.18%	2/11/2019	2/12/2024	19,050		18,887			18,860			2.56
Trump Card, LLC	^+	(2) (3) (6)	Transportation: Cargo	L + 5.50%	7.44%	6/26/2018	4/21/2022	7,918		7,865			7,869			1.07

TCG BDC II, INC.

CONSOLIDATED SCHEDULE OF INVESTMENTS (Continued)

As of December 31, 2019

(dollar amounts in thousands)



Investments—non-controlled/non-affiliated ⁽¹⁾		Footnotes	Industry	Reference Rate & Spread⁽²⁾	Interest Rate ⁽²⁾	Acquisition Date	Maturity Date	Par/ Principal Amount		Amortized Cost ⁽⁴⁾		Fair Value⁽⁵⁾		Percentage of Net Assets
Turbo Buyer, Inc. (Portfolio Holdings, Inc.)	^+	(2) (3) (6)	Automotive	L + 6.00%	7.69%	12/2/2019	12/2/2025	$	27,897	$	27,033	$	27,439	3.72	%
USLS Acquisition, Inc.	^+	(2) (3) (6)	Business Services	L + 5.75%	7.69%	11/30/2018	11/30/2024	22,139		21,746		21,674		2.94
Unifrutti Financing PLC (Cyprus)	^	(2) (3) (7)	Beverage, Food & Tobacco	7.50%, 1.00% PIK	8.50%	9/15/2019	9/15/2026	€	18,170	19,036		19,397		2.63
VRC Companies, LLC	+	(2) (3) (6)	Business Services	L + 6.50%	8.29%	1/29/2019	3/31/2023	44,731		44,231		44,681		6.06
Westfall Technik, Inc.	^+	(2) (3) (6)	Chemicals, Plastics & Rubber	L + 5.75%	7.66%	9/13/2018	9/13/2024	27,973		27,346		26,962		3.66
WP CPP Holdings, LLC (CPP)	^	(2) (3)	Aerospace & Defense	L + 3.75%	5.55%	7/18/2019	4/30/2025	20,000		19,818		19,826		2.69
Zemax Software Holdings, LLC	^+	(2) (3) (6)	Software	L + 5.75%	7.69%	6/25/2018	6/25/2024	10,146		9,966		10,087		1.37
Zenith Merger Sub, Inc.	^+	(2) (3) (6)	Business Services	L + 5.25%	7.19%	12/13/2017	12/13/2023	16,948		16,751		16,828		2.28
First Lien Debt Total										$	1,159,969	$	1,159,906	157.36	%
Second Lien Debt (14.43%)
Access CIG, LLC	^	(2) (3)	Business Services	L + 7.75%	9.44%	2/14/2018	2/27/2026	$	2,700	$	2,680	$	2,681	0.36	%
Aimbridge Acquisition Co., Inc.	^	(2) (3)	Hotel, Gaming & Leisure	L + 7.50%	9.19%	2/1/2019	2/1/2027	21,047		20,528		20,862		2.83
Brave Parent Holdings, Inc.	+	(2) (3)	Software	L + 7.50%	9.42%	10/3/2018	4/19/2026	19,062		18,672		18,261		2.48
Outcomes Group Holdings, Inc.	^	(2) (3)	Business Services	L + 7.50%	9.40%	10/23/2018	10/26/2026	4,500		4,490		4,487		0.61
Higginbotham Insurance Agency, Inc.	^	(2) (3)	Banking, Finance, Insurance & Real Estate	L + 7.50%	9.29%	12/3/2019	12/19/2025	2,500		2,475		2,493		0.34
Jazz Acquisition, Inc.	^	(2) (3)	Aerospace & Defense	L + 8.00%	9.94%	6/13/2019	6/18/2027	23,450		23,117		23,225		3.15
Le Tote, Inc.	^	(2) (3)	Retail	L + 6.75%	8.50%	11/8/2019	11/8/2024	21,428		20,907		20,892		2.83
Pathway Vet Alliance, LLC	^	(2) (3) (6)	Consumer Services	L + 8.50%	10.44%	11/14/2019	12/23/2025	8,050		7,814		8,074		1.10
Pharmalogic Holdings Corp.	^	(2) (3)	Healthcare & Pharmaceuticals	L + 8.00%	9.79%	6/7/2018	12/11/2023	800		797		796		0.11
Quartz Holding Company (QuickBase, Inc.)	^	(2) (3)	Software	L + 8.00%	9.71%	4/2/2019	4/2/2027	11,900		11,679		11,662		1.58
Tank Holding Corp.	+	(2) (3)	Capital Equipment	L + 8.25%	11.03%	3/26/2019	3/26/2027	37,380		36,725		37,223		5.05
Ultimate Baked Goods MIDCO, LLC (Rise Baking)	+	(2) (3)	Beverage, Food & Tobacco	L + 8.00%	9.79%	8/9/2018	8/9/2026	8,333		8,187		8,243		1.12
WP CPP Holdings, LLC (CPP)	+	(2) (3)	Aerospace & Defense	L + 7.75%	9.68%	7/18/2019	4/30/2026	39,500		39,125		38,833		5.27
Second Lien Debt Total										$	197,196	$	197,732	26.83	%

TCG BDC II, INC.

CONSOLIDATED SCHEDULE OF INVESTMENTS (Continued)

As of December 31, 2019

(dollar amounts in thousands)



Investments—non-controlled/non-affiliated ⁽¹⁾		Footnotes	Industry	Acquisition Date	Shares/ Units	Cost		Fair Value ⁽⁵⁾		Percentage of Net Assets
Equity Investment (0.91%)(5)(8)
ANLG Holdings, LLC	^	(8)	Healthcare & Pharmaceuticals	6/22/2018	880	$	880	$	973	0.13	%
Avenu Holdings, LLC	^	(8)	Sovereign & Public Finance	9/28/2018	172	172		154		0.02
Chartis Holding, LLC	^	(8)	Business Services	5/1/2019	433	433		589		0.08
Cority Software Inc. (Canada)	^	(8)	Software	7/2/2019	250	250		306		0.04
GRO Sub Holdco, LLC (Grand Rapids)	^	(8)	Healthcare & Pharmaceuticals	3/29/2018	500	500		137		0.02
K2 Insurance Services, LLC	^	(8)	Banking, Finance, Insurance & Real Estate	7/3/2019	433	433		486		0.07
Mailgun Technologies, Inc.	^	(8)	High Tech Industries	3/26/2019	424	424		605		0.08
North Haven Goldfinch Topco, LLC	^	(8)	Containers, Packaging & Glass	6/18/2018	2,315	2,315		2,542		0.34
Paramit Corporation	^	(8)	Capital Equipment	6/17/2019	150	500		501		0.07
PPC Flexible Packaging, LLC	^	(8)	Containers, Packaging & Glass	2/1/2019	965	965		1,174		0.16
SiteLock Group Holdings, LLC	^	(8)	High Tech Industries	4/5/2018	446	446		587		0.08
Tank Holding Corp.	^	(8)	Capital Equipment	3/26/2019	850	850		1,035		0.14
Turbo Buyer, Inc. (Portfolio Holdings, Inc.)	^	(8)	Automotive	12/2/2019	1,925	1,925		1,925		0.26
USLS Acquisition, Inc.	^	(8)	Business Services	11/30/2018	641	641		720		0.10
Zenith American Holding, Inc.	^	(8)	Business Services	12/13/2017	440	220		418		0.06
Zillow Topco LP	^	(8)	Software	6/25/2018	313	312		358		0.05
Equity Investments Total						$	11,266	$	12,510	1.71	%
Total investments—non-controlled/non-affiliated						$	1,368,431	$	1,370,148	185.88	%
Total investments						$	1,368,431	$	1,370,148	185.88	%

^ Denotes that all or a portion of the assets are owned by the Company. Accordingly, such assets are not available to creditors of the SPV.

+ Denotes that all or a portion of the assets are owned by the Company's wholly owned subsidiary, the SPV. The SPV has entered into the SPV Credit Facility. The lenders of the SPV Credit Facility have a first lien security interest in substantially all of the assets of the SPV (see Note 5, Borrowings, to these consolidated financial statements). Accordingly, such assets are not available to creditors of the Company.

(1)

Unless otherwise indicated, issuers of debt and equity investments held by the Company are domiciled in the United States. Under the Investment Company Act, the Company would be deemed to “control” a portfolio company if the Company owned more than 25% of its outstanding voting securities and/or held the power to exercise control over the management or policies of the portfolio company. As of December 31, 2019, the Company does not “control” any of these portfolio companies. Under the Investment Company Act, the Company would be deemed an “affiliated person” of a portfolio company if the Company owns 5% or more of the portfolio company’s outstanding voting securities. As of December 31, 2019, the Company is not an “affiliated person” of any of these portfolio companies. Certain portfolio company investments are subject to contractual restrictions on sales.

(2)

Variable rate loans to the portfolio companies bear interest at a rate that is determined by reference to either LIBOR (“L”) or an alternate base rate (commonly based on the Federal Funds Rate or the U.S. Prime Rate), which generally resets quarterly. For each such loan, the Company has indicated the reference rate used and provided the spread and the interest rate in effect as of December 31, 2019. As of December 31, 2019, the reference rates for all LIBOR loans were the 30-day LIBOR at 1.76%, the 90-day LIBOR at 1.91% and the 180-day LIBOR rate at 1.91%.


(3)	Loan includes interest rate floor feature, which is generally 1.00%.


(4)	Amortized cost represents original cost, including origination fees and upfront fees received that are deemed to be an adjustment to yield, adjusted for the accretion/amortization of discounts/premiums, as applicable, on debt investments using the effective interest method.

(5)

TCG BDC II, INC.

CONSOLIDATED SCHEDULE OF INVESTMENTS (Continued)

As of December 31, 2019

(dollar amounts in thousands)


(6)	As of December 31, 2019, the Company had the following unfunded commitments to fund delayed draw and revolving senior secured loans:



Investments—non-controlled/non-affiliated	Type	Unused Fee		Par/ Principal Amount		Fair Value
First and Second Lien Debt—unfunded delayed draw and revolving term loans commitments
Aero Operating, LLC (Dejana Industries, Inc.)	Revolver	1.00	%	$	333	$	(6	)
Airnov, Inc.	Revolver	0.50		4,167		(63		)
American Physician Partners, LLC	Revolver	0.50		1,500		(5		)
Analogic Corporation	Revolver	0.50		3,029		(61		)
Apptio, Inc.	Revolver	0.50		2,367		(19		)
BMS Holdings III Corp.	Delayed Draw	1.00		6,667		(21		)
Chartis Holding, LLC	Revolver	0.50		2,401		(20		)
Chartis Holding, LLC	Delayed Draw	0.50		6,402		(52		)
Chemical Computing Group ULC (Canada)	Revolver	0.50		903		(8		)
Comar Holding Company, LLC	Delayed Draw	1.00		5,136		(103		)
Comar Holding Company, LLC	Revolver	0.50		1,168		(23		)
Cority Software Inc. (Canada)	Revolver	0.50		3,000		(60		)
Ethos Veterinary Health LLC	Delayed Draw	1.00		2,696		(12		)
GRO Sub Holdco, LLC (Grand Rapids)	Revolver	0.50		1,071		(54		)
iCIMS, Inc.	Revolver	0.50		1,252		—
Innovative Business Services, LLC	Revolver	0.50		2,232		(32		)
K2 Insurance Services, LLC	Revolver	0.50		2,290		3
K2 Insurance Services, LLC	Delayed Draw	1.00		5,344		6
Kaseya Inc.	Revolver	0.50		661		1
Kaseya Inc.	Delayed Draw	0.50		1,918		4
Lifelong Learner Holdings, LLC	Revolver	0.50		3,802		(38		)
Lifelong Learner Holdings, LLC	Delayed Draw	—		5,756		(58		)
Liqui-Box Holdings, Inc.	Revolver	0.50		2,630		(37		)
Mailgun Technologies, Inc.	Revolver	0.50		1,342		(20		)
National Carwash Solutions, Inc.	Revolver	0.50		310		(2		)
National Carwash Solutions, Inc.	Delayed Draw	1.00		3,352		(25		)
Northland Telecommunications Corporation	Revolver	0.50		3,646		(5		)
Pathway Vet Alliance, LLC	Delayed Draw	1.00		7,950		12
PF Growth Partners, LLC	Delayed Draw	1.00		1,028		(3		)
PPC Flexible Packaging, LLC	Revolver	0.50		1,957		(16		)
RSC Acquisition, Inc.	Revolver	0.50		1,824		(13		)
RSC Acquisition, Inc.	Delayed Draw	1.00		1,994		(15		)
Sapphire Convention, Inc. (Smart City)	Revolver	0.50		4,528		(34		)

TCG BDC II, INC.

CONSOLIDATED SCHEDULE OF INVESTMENTS (Continued)

As of December 31, 2019

(dollar amounts in thousands)



Investments—non-controlled/non-affiliated	Type	Unused Fee	Par/ Principal Amount		Fair Value
Smile Doctors, LLC	Revolver	0.50	707		(7		)
Smile Doctors, LLC	Delayed Draw	1.00	1,477		(14		)
SPay, Inc.	Revolver	0.50	682		(58		)
Tank Holding Corp.	Revolver	0.50	47		—
The Leaders Romans Bidco Limited (United Kingdom)	Delayed Draw	1.69	£	3,533	(94		)
Trump Card, LLC	Revolver	0.50	369		(2		)
Turbo Buyer, Inc. (Portfolio Holdings, Inc.)	Revolver	0.50	2,151		(28		)
Turbo Buyer, Inc. (Portfolio Holdings, Inc.)	Delayed Draw	1.00	4,904		(64		)
USLS Acquisition, Inc.	Revolver	0.50	946		(19		)
VRC Companies, LLC	Delayed Draw	0.75	5,095		(5		)
Westfall Technik, Inc.	Revolver	0.50	431		(11		)
Westfall Technik, Inc.	Delayed Draw	1.00	12,190		(304		)
Zemax Software Holdings, LLC	Revolver	0.50	1,284		(7		)
Zenith Merger Sub, Inc.	Delayed Draw	1.00	3,714		(20		)
Zenith Merger Sub, Inc.	Revolver	0.50	1,219		(7		)
Total unfunded commitments			$	133,405	$	(1,419	)


(7)	The Company has determined the indicated investments are non-qualifying assets under Section 55(a) of the Investment Company Act. Under the Investment Company Act, the Company may not acquire any non-qualifying assets unless, at the time such acquisition is made, qualifying assets represent at least 70% of the Company’s total assets.


(8)	Security acquired in transaction exempt from registration under the Securities Act of 1933, as amended (the “Securities Act”), and may be deemed to be “restricted securities” under the Securities Act, unless otherwise noted. As of December 31, 2019, the aggregate fair value of these securities is $12,510, or 1.71% of the Company's net assets.


(9)	Loan was on non-accrual status as of December 31, 2019.

(10)

As of December 31, 2019, investments at fair value consisted of the following:



Type	Amortized Cost		Fair Value		% of Fair Value
First Lien Debt (excluding First Lien/Last Out)	$	1,123,859	$	1,123,850	82.03	%
First Lien/Last Out Unitranche	36,110		36,056		2.63
Second Lien Debt	197,196		197,732		14.43
Equity Investments	11,266		12,510		0.91
Total	$	1,368,431	$	1,370,148	100.00	%

TCG BDC II, INC.

CONSOLIDATED SCHEDULE OF INVESTMENTS (Continued)

As of December 31, 2019

(dollar amounts in thousands)

The rate type of debt investments at fair value as of December 31, 2019 was as follows:



Rate Type	Amortized Cost		Fair Value		% of Fair Value of First and Second Lien Debt
Floating Rate	$	1,337,927	$	1,338,046	98.56	%
Fixed Rate	19,238		19,592		1.44
Total	$	1,357,165	$	1,357,638	100.00	%

The industry composition of investments at fair value as of December 31, 2019 was as follows:



Industry	Amortized Cost		Fair Value		% of Fair Value
Aerospace & Defense	$	82,060	$	81,884	5.98	%
Automotive	38,259		38,775		2.83
Banking, Finance, Insurance & Real Estate	126,013		129,061		9.42
Beverage, Food & Tobacco	46,948		47,390		3.46
Business Services	180,930		182,726		13.34
Capital Equipment	44,319		45,027		3.29
Chemicals, Plastics & Rubber	27,346		26,962		1.97
Construction & Building	22,549		23,182		1.69
Consumer Services	22,042		21,883		1.60
Containers, Packaging & Glass	106,784		107,301		7.83
Durable Consumer Goods	10,410		10,359		0.76
Energy: Oil & Gas	9,763		9,763		0.71
Healthcare & Pharmaceuticals	118,807		113,593		8.29
High Tech Industries	87,128		87,580		6.39
Hotel, Gaming & Leisure	57,083		55,938		4.08
Media: Broadcast & Subscription	54,938		55,660		4.06
Retail	57,017		56,948		4.16
Software	193,198		193,805		14.14
Sovereign & Public Finance	38,298		37,381		2.73
Telecommunications	36,674		37,061		2.70
Transportation: Cargo	7,865		7,869		0.57
Total	$	1,368,431	$	1,370,148	100.00	%

TCG BDC II, INC.

CONSOLIDATED SCHEDULE OF INVESTMENTS (Continued)

As of December 31, 2019

(dollar amounts in thousands)

The geographical composition of investments at fair value as of December 31, 2019 was as follows:



Geography	Amortized Cost		Fair Value		% of Fair Value
Canada	$	57,627	$	57,709	4.21	%
Cyprus	19,036		19,397		1.42
Jamaica	202		195		0.01
Luxembourg	36,563		36,563		2.67
United Kingdom	34,650		36,329		2.65
United States	1,220,353		1,219,955		89.04
Total	$	1,368,431	$	1,370,148	100.00	%

The accompanying notes are an integral part of these consolidated financial statements.

TCG BDC II, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

As of March 31, 2020

(dollar amounts in thousands, except per share data)

1. ORGANIZATION

TCG BDC II, Inc. (together with its consolidated subsidiaries, “BDC II” or the “Company”) is a Maryland corporation formed on February 10, 2017 with the name Carlyle Private Credit, Inc., which was changed to TCG BDC II, Inc. on March 3, 2017. The Company is structured as an externally managed, non-diversified closed-end investment company. The Company is managed by its investment adviser, Carlyle Global Credit Investment Management L.L.C. (“CGCIM” or “Investment Adviser”), a wholly owned subsidiary of The Carlyle Group Inc. (formerly, The Carlyle Group L.P.). The Company has elected to be regulated as a business development company (“BDC”) under the Investment Company Act of 1940, as amended (together with the rules and regulations promulgated thereunder, the “Investment Company Act”). In addition, the Company has elected to be treated, and intends to continue to comply with the requirements to qualify annually, as a regulated investment company (“RIC”) under Subchapter M of the Internal Revenue Code of 1986, as amended (together with the rules and regulations promulgated thereunder, the “Code”).

The Company’s investment objective is to generate attractive risk adjusted returns and current income primarily by investing in senior secured term loans to U.S. middle market companies in which private equity sponsors hold, directly or indirectly, a financial interest in the form of debt and/or equity. The Company's core investment strategy focuses on lending to U.S. middle market companies, which the Company defines as companies with approximately $25 million to $100 million of earnings before interest, taxes, depreciation and amortization (“EBITDA”), which the Company believes is a useful proxy for cash flow. The Company complements this core strategy with additive, diversifying assets including, but not limited to, specialty lending investments. The Company seeks to achieve its investment objective primarily through direct originations of secured debt, including first lien senior secured loans (which may include stand-alone first lien loans, first lien/last out loans, and "unitranche" loans) and second lien senior secured loans (collectively, “Middle Market Senior Loans”), with the balance of its assets invested in higher yielding investments (which may include unsecured debt, mezzanine debt and investments in equities).

The Company invests primarily in loans to middle market companies whose debt, if rated, is rated below investment grade and, if not rated, would likely be rated below investment grade if it were rated (that is, below BBB- or Baa3, which is often referred to as "junk"). Exposure to below investment grade instruments involves certain risks, including speculation with respect to the borrower's capacity to pay interest and repay principal.

On September 11, 2017, the Company completed its initial closing of capital commitments (the “Initial Closing”) and subsequently commenced substantial investment operations.

The Company is an “emerging growth company” as defined in the Jumpstart Our Business Startups Act of 2012.

The Company is externally managed by the Investment Adviser, an investment adviser registered under the Investment Advisers Act. Carlyle Global Credit Administration L.L.C. (“CGCA” or the “Administrator”) provides the administrative services necessary for the Company to operate. Both the Investment Adviser and the Administrator are wholly owned subsidiaries of Carlyle Investment Management L.L.C., a subsidiary of The Carlyle Group Inc. “Carlyle” refers to The Carlyle Group Inc. and its affiliates and its consolidated subsidiaries (other than portfolio companies of its affiliated funds), a global investment firm publicly traded on the Nasdaq Global Select Market under the symbol “CG”. Refer to the sec.gov website for further information on Carlyle.

TCG BDC II SPV LLC (the “SPV”) is a Delaware limited liability company that was formed on January 28, 2019. The SPV invests in first and second lien senior secured loans. The SPV is a wholly owned subsidiary of the Company and is consolidated in these consolidated financial statements commencing from the date of its formation, January 28, 2019.

TCG BDC II SPV 2 LLC (“SPV2”, collectively with the SPV, the “SPVs”) is a Delaware limited liability company that was formed on March 10, 2020. SPV2 is a wholly owned subsidiary of the Company and is consolidated in these consolidated financial statements commencing from the date of its formation, March 10, 2020.

As a BDC, the Company is required to comply with certain regulatory requirements. As part of these requirements, the Company must not acquire any assets other than “qualifying assets” specified in the Investment Company Act unless, at the time the acquisition is made, at least 70% of its total assets are qualifying assets (with certain limited exceptions).

To qualify as a RIC, the Company must, among other things, meet certain source-of-income and asset diversification requirements and timely distribute to its stockholders generally at least 90% of its investment company taxable income, as defined by the Code, for each year. Pursuant to this election, the Company generally does not have to pay corporate level taxes on any income that it distributes to stockholders, provided that the Company satisfies those requirements.

2. SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

The consolidated financial statements have been prepared on the accrual basis of accounting in accordance with accounting principles generally accepted in the United States (“U.S. GAAP”). The Company is an investment company for the purposes of accounting and financial reporting in accordance with Financial Accounting Standards Board ("FASB") Accounting Standards Codification (“ASC”) Topic 946, Financial Services—Investment Companies ("ASC 946"). The consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries, the SPVs. All significant intercompany balances and transactions have been eliminated. U.S. GAAP for an investment company requires investments to be recorded at fair value. The carrying value for all other assets and liabilities approximates their fair value.

The interim consolidated financial statements have been prepared in accordance with U.S. GAAP for interim financial information and pursuant to the requirements for reporting on Form 10-Q and Articles 6 and 10 of Regulation S-X. Accordingly, certain disclosures accompanying the annual consolidated financial statements prepared in accordance with U.S. GAAP are omitted. In the opinion of management, all adjustments considered necessary for the fair presentation of consolidated financial statements for the interim periods presented have been included. These adjustments are of a normal, recurring nature. This Form 10-Q should be read in conjunction with the Company’s annual report on Form 10-K for the year ended December 31, 2019. The results of operations for the three month period ended March 31, 2020 are not necessarily indicative of the operating results to be expected for the full year.

Use of Estimates

The preparation of consolidated financial statements in conformity with U.S. GAAP requires management to make assumptions and estimates that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Management’s estimates are based on historical experiences and other factors, including expectations of future events that management believes to be reasonable under the circumstances. It also requires management to exercise judgment in the process of applying the Company’s accounting policies. Assumptions and estimates regarding the valuation of investments and their resulting impact on management and incentive fees involve a higher degree of judgment and complexity and these assumptions and estimates may be significant to the consolidated financial statements. Actual results could differ from these estimates and such differences could be material.

Investments

Investment transactions are recorded on the trade date. Realized gains or losses are measured by the difference between the net proceeds from the repayment or sale and the amortized cost basis of the investment using the specific identification method without regard to unrealized appreciation or depreciation previously recognized, and includes investments charged off during the period, net of recoveries. Net change in unrealized appreciation or depreciation on investments as presented in the accompanying Consolidated Statements of Operations reflects the net change in the fair value of investments, including the reversal of previously recorded unrealized appreciation or depreciation when gains or losses are realized. See Note 3 for further information about fair value measurements.

Cash and Cash Equivalents

Cash and cash equivalents consist of demand deposits and highly liquid investments (e.g., money market funds, U.S. treasury notes) with original maturities of three months or less. Cash equivalents are carried at amortized cost, which approximates fair value. The Company’s cash and cash equivalents are held with two large financial institutions and cash held in such financial institutions may, at times, exceed the Federal Deposit Insurance Corporation insured limit.

Revenue Recognition

Interest from Investments and Realized Gain/Loss on Investments

Interest income is recorded on an accrual basis and includes the accretion of discounts and amortization of premiums. Discounts from and premiums to par value on debt investments purchased are accreted/amortized into interest income over the life of the respective security using the effective interest method. The amortized cost of debt investments represents the original cost, including origination fees and upfront fees received that are deemed to be an adjustment to yield, adjusted for the accretion of discounts and amortization of premiums, if any. At time of exit, the realized gain or loss on an investment is the difference between the amortized cost at time of exit and the cash received at exit using the specific identification method.

The Company may have loans in its portfolio that contain payment-in-kind (“PIK”) provisions. PIK represents interest that is accrued and recorded as interest income at the contractual rates, increases the loan principal on the respective capitalization dates, and is generally due at maturity. Such income is included in interest income in the Consolidated Statements of Operations. As of March 31, 2020 and December 31, 2019, the fair value of the loans in the portfolio with PIK provisions was $88,559 and $82,643, respectively, which represented approximately 6.3% and 6.0%, respectively, of total investments at fair value. For the three month period ended March 31, 2020, the Company earned $386 in PIK income, included in interest income in the accompanying Consolidated Statements of Operations. For the three month period ended March 31, 2019, no loans in the portfolio contained PIK provisions.

Other Income

Other income may include income such as consent, waiver, amendment, unused, underwriting, arranger and prepayment fees associated with the Company’s investment activities as well as any fees for managerial assistance services rendered by the Company to the portfolio companies. Such fees are recognized as income when earned or the services are rendered. The Company may receive fees for guaranteeing the outstanding debt of a portfolio company. Such fees are amortized into other income over the life of the guarantee. The unamortized amount, if any, is included in other assets in the accompanying Consolidated Statements of Assets and Liabilities. For the three month periods ended March 31, 2020 and 2019, the Company earned $1,972 and $1,161, respectively, in other income, primarily from underwriting and prepayment fees.

Non-Accrual Income

Loans are generally placed on non-accrual status when principal or interest payments are past due 30 days or more or when there is reasonable doubt that principal or interest will be collected in full. Accrued and unpaid interest is generally reversed when a loan is placed on non-accrual status. Interest payments received on non-accrual loans may be recognized as income or applied to principal depending upon management’s judgment regarding collectability. Non-accrual loans are restored to accrual status when past due principal and interest are paid current and, in management’s judgment, are likely to remain current. Management may determine not to place a loan on non-accrual status if the loan has sufficient collateral value and is in the process of collection. As of March 31, 2020 and December 31, 2019, the fair value of loans on non-accrual status was $10,282 and $11,469, which represented approximately 0.7% and 0.8% of the total investments at fair value. The remaining first and second lien debt investments were performing and current on their interest payments as of March 31, 2020 and December 31, 2019 and for the periods then ended.

Credit Facilities – Related Costs, Expenses and Deferred Financing Costs

Interest expense and unused commitment fees on the Facilities are recorded on an accrual basis. Unused commitment fees are included in credit facility fees in the accompanying Consolidated Statements of Operations.

The Facilities are recorded at carrying value, which approximates fair value.

Deferred financing costs include capitalized expenses related to the closing or amendments of the Facilities. Amortization of deferred financing costs for each credit facility is computed on the straight-line basis over the respective term of each credit facility. The unamortized balance of such costs is included in deferred financing costs in the accompanying Consolidated Statements of Assets and Liabilities. The amortization of such costs is included in credit facility fees in the accompanying Consolidated Statements of Operations.

Organization and Offering Costs

The Company agreed to reimburse the Investment Adviser for initial organization and offering costs incurred on behalf of the Company up to $1,500. As of both March 31, 2020 and December 31, 2019, $1,500 of initial organization and offering

costs had been incurred by the Company and $629 of excess initial organization and offering costs had been incurred by the Investment Adviser. The $1,500 of incurred organization and offering costs are allocated to all stockholders based on their respective capital commitment and are re-allocated amongst all stockholders at the time of each capital drawdown subsequent to the Initial Closing. The Company’s initial organization costs incurred were expensed and the initial offering costs are being amortized over one year.

Income Taxes

For federal income tax purposes, the Company has elected to be treated as a RIC under the Code, and intends to make the required distributions to its stockholders as specified therein. In order to qualify as a RIC, the Company must meet certain minimum distribution, source-of-income and asset diversification requirements. If such requirements are met, then the Company is generally required to pay income taxes only on the portion of its taxable income and gains it does not distribute.

The minimum distribution requirements applicable to RICs require the Company to distribute to its stockholders at least 90% of its investment company taxable income (“ICTI”), as defined by the Code, each year. Depending on the level of ICTI earned in a tax year, the Company may choose to carry forward ICTI in excess of current year distributions into the next tax year. Any such carryover ICTI must be distributed before the end of that next tax year through a dividend declared prior to filing the final tax return related to the year which generated such ICTI.

In addition, based on the excise distribution requirements, the Company is subject to a 4% nondeductible federal excise tax on undistributed income unless the Company distributes in a timely manner an amount at least equal to the sum of (1) 98% of its ordinary income for each calendar year, (2) 98.2% of capital gain net income (both long-term and short-term) for the one-year period ending October 31 in that calendar year and (3) any income realized, but not distributed, in the preceding year. For this purpose, however, any ordinary income or capital gain net income retained by the Company that is subject to corporate income tax is considered to have been distributed.

The Company evaluates tax positions taken or expected to be taken in the course of preparing its consolidated financial statements to determine whether the tax positions are “more likely than not” to be sustained by the applicable tax authority. All penalties and interest associated with income taxes, if any, are included in income tax expense. The SPVs are disregarded entities for tax purposes and are consolidated with the tax return of the Company. All penalties and interest associated with income taxes, if any, are included in income tax expense.

Dividends and Distributions to Common Stockholders

To the extent that the Company has taxable income available, the Company intends to make quarterly distributions to its common stockholders. Dividends and distributions to common stockholders are recorded on the record date. The amount to be distributed is determined by the Board of Directors each quarter and is generally based upon the taxable earnings estimated by management and available cash. Net realized capital gains, if any, are generally distributed at least annually, although the Company may decide to retain such capital gains for investment.

Dividends and distributions, if any, are paid in cash to common stockholders.

Functional Translations

The functional currency of the Company is the U.S. Dollar. Investments are generally made in the local currency of the country in which the investments are domiciled and are translated into U.S. Dollars with foreign currency translation gains or losses recorded within net change in unrealized appreciation (depreciation) on investments in the accompanying Consolidated Statements of Operations. Foreign currency translation gains and losses on non-investment assets and liabilities are separately reflected in the accompanying Consolidated Statements of Operations.

Recent Accounting Standards Updates

On June 16, 2016, the FASB issued ASU 2016-13, Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. This ASU is intended to introduce new guidance for the accounting for credit losses on instruments within scope based on an estimate of current expected credit losses. The guidance was effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. The Company adopted the new requirement within Form 10-Q filings starting with the quarter that began January 1, 2020, which did not have a material impact on the Company's consolidated financial statements.

3. FAIR VALUE MEASUREMENTS

The Company applies fair value accounting in accordance with the terms of FASB ASC Topic 820, Fair Value Measurement (“ASC 820”). ASC 820 defines fair value as the amount that would be exchanged to sell an asset or transfer a liability in an orderly transfer between market participants at the measurement date. The Company values securities/instruments traded in active markets on the measurement date by multiplying the closing price of such traded securities/instruments by the quantity of shares or amount of the instrument held. The Company may also obtain quotes with respect to certain of its investments, such as its securities/instruments traded in active markets and its liquid securities/instruments that are not traded in active markets, from pricing services, brokers, or counterparties (i.e., “consensus pricing”). When doing so, the Company determines whether the quote obtained is sufficient according to U.S. GAAP to determine the fair value of the security. The Company may use the quote obtained or alternative pricing sources may be utilized including valuation techniques typically utilized for illiquid securities/instruments.

Securities/instruments that are illiquid or for which the pricing source does not provide a valuation or methodology or provides a valuation or methodology that, in the judgment of the Investment Adviser or the Company’s Board of Directors, does not represent fair value shall each be valued as of the measurement date using all techniques appropriate under the circumstances and for which sufficient data is available. These valuation techniques may vary by investment and include comparable public market valuations, comparable precedent transaction valuations and/or discounted cash flow analyses. The process generally used to determine the applicable value is as follows: (i) the value of each portfolio company or investment is initially reviewed by the investment professionals responsible for such portfolio company or investment and, for non-traded investments, a standardized template designed to approximate fair market value based on observable market inputs, updated credit statistics and unobservable inputs is used to determine a preliminary value, which is also reviewed alongside consensus pricing, where available; (ii) preliminary valuation conclusions are documented and reviewed by a valuation committee comprised of members of senior management; (iii) the Board of Directors engages a third-party valuation firm to provide positive assurance on portions of the Middle Market Senior Loans and equity investments portfolio each quarter (such that each non-traded investment is reviewed by a third-party valuation firm at least once on a rolling twelve month basis) including a review of management’s preliminary valuation and conclusion on fair value; (iv) the Audit Committee of the Board of Directors (the “Audit Committee”) reviews the assessments of the Investment Adviser and the third-party valuation firm and provides the Board of Directors with any recommendations with respect to changes to the fair value of each investment in the portfolio; and (v) the Board of Directors discusses the valuation recommendations of the Audit Committee and determines the fair value of each investment in the portfolio in good faith based on the input of the Investment Adviser and, where applicable, the third-party valuation firm.

All factors that might materially impact the value of an investment are considered, including, but not limited to the assessment of the following factors, as relevant:


•	the nature and realizable value of any collateral;


•	call features, put features and other relevant terms of debt;


•	the portfolio company’s leverage and ability to make payments;


•	the portfolio company’s public or private credit rating;


•	the portfolio company’s actual and expected earnings and discounted cash flow;


•	prevailing interest rates and spreads for similar securities and expected volatility in future interest rates;


•	the markets in which the portfolio company does business and recent economic and/or market events; and


•	comparisons to comparable transactions and publicly traded securities.

Investment performance data utilized are the most recently available financial statements and compliance certificates received from the portfolio companies as of the measurement date which in many cases may reflect a lag in information.

Due to the inherent uncertainty of determining the fair value of investments that do not have a readily available market value, the fair value of the Company’s investments may fluctuate from period to period. Because of the inherent uncertainty of valuation, these estimated values may differ significantly from the values that would have been reported had a ready market for the investments existed, and it is reasonably possible that the difference could be material.

In addition, changes in the market environment and other events that may occur over the life of the investments may cause the realized gains or losses on investments to be different from the net change in unrealized appreciation or depreciation currently reflected in the consolidated financial statements as of March 31, 2020 and December 31, 2019.

U.S. GAAP establishes a hierarchical disclosure framework which ranks the level of observability of market price inputs used in measuring investments at fair value. The observability of inputs is impacted by a number of factors, including the type of investment and the characteristics specific to the investment and state of the marketplace, including the existence and transparency of transactions between market participants. Investments with readily available quoted prices or for which fair value can be measured from quoted prices in active markets generally have a higher degree of market price observability and a lesser degree of judgment applied in determining fair value.

Investments measured and reported at fair value are classified and disclosed based on the observability of inputs used in the determination of fair values, as follows:

•

Level 1—inputs to the valuation methodology are quoted prices available in active markets for identical investments as of the reporting date. Financial instruments in this category generally include unrestricted securities, including equities and derivatives, listed in active markets. The Company does not adjust the quoted price for these investments, even in situations where the Company holds a large position and a sale could reasonably impact the quoted price.

•

Level 2—inputs to the valuation methodology are either directly or indirectly observable as of the reporting date and are those other than quoted prices in active markets. Financial instruments in this category generally include less liquid and restricted securities listed in active markets, securities traded in other than active markets, government and agency securities, and certain over-the-counter derivatives where the fair value is based on observable inputs.

•

Level 3—inputs to the valuation methodology are unobservable and significant to overall fair value measurement. The inputs into the determination of fair value require significant management judgment or estimation. Financial instruments in this category generally include investments in privately-held entities, and certain over-the-counter derivatives where the fair value is based on unobservable inputs.

In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, an investment’s level within the fair value hierarchy is based on the lowest level of input that is significant to the overall fair value measurement. The Investment Adviser’s assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment, and considers factors specific to the investment.

Transfers between levels, if any, are recognized at the beginning of the quarter in which the transfers occur. For the three month periods ended March 31, 2020 and 2019, there were no transfers between levels.

The following tables summarize the Company’s investments measured at fair value on a recurring basis by the above fair value hierarchy levels as of March 31, 2020 and December 31, 2019:



	March 31, 2020
	Level 1		Level 2		Level 3		Total
Assets
First Lien Debt	$	—	$	—	$	1,137,852	$	1,137,852
Second Lien Debt	—		—		238,711		238,711
Equity Investments	—		—		20,565		20,565
Total	$	—	$	—	$	1,397,128	$	1,397,128



	December 31, 2019
	Level 1		Level 2		Level 3		Total
Assets
First Lien Debt	$	—	$	—	$	1,159,906	$	1,159,906
Second Lien Debt	—		—		197,732		197,732
Equity Investments	—		—		12,510		12,510
Total	$	—	$	—	$	1,370,148	$	1,370,148

The changes in the Company’s investments at fair value for which the Company has used Level 3 inputs to determine fair value and net change in unrealized appreciation (depreciation) included in earnings for Level 3 investments still held are as follows:



	Financial Assets For the three month period ended March 31, 2020
	First Lien Debt			Second Lien Debt			Equity Investments			Total
Balance, beginning of period	$	1,159,906		$	197,732		$	12,510		$	1,370,148
Purchases	104,222			89,408			10,200			203,830
Sales	(5,395		)	—			—			(5,395		)
Paydowns	(69,396		)	(15,232		)	—			(84,628		)
Accretion of discount	1,651			372			—			2,023
Net realized gains (losses)	(180		)	—			—			(180		)
Net change in unrealized appreciation (depreciation)	(52,956		)	(33,569		)	(2,145		)	(88,670		)
Balance, end of period	$	1,137,852		$	238,711		$	20,565		$	1,397,128
Net change in unrealized appreciation (depreciation) included in earnings related to investments still held at the reporting date included in net change in unrealized appreciation (depreciation) on investments on the Consolidated Statements of Operations	$	(53,191	)	$	(33,309	)	$	(2,145	)	$	(88,645	)



	Financial Assets For the three month period ended March 31, 2019
	First Lien Debt			Second Lien Debt		Equity Investments			Total
Balance, beginning of period	$	438,742		$	66,207	$	5,478		$	510,427
Purchases	143,954			46,193		2,239			192,386
Sales	(1,042		)	—		(486		)	(1,528		)
Paydowns	(7,404		)	—		—			(7,404		)
Accretion of discount	432			32		—			464
Net realized gains (losses)	(12		)	—		269			257
Net change in unrealized appreciation (depreciation)	1,536			555		204			2,295
Balance, end of period	$	576,206		$	112,987	$	7,704		$	696,897
Net change in unrealized appreciation (depreciation) included in earnings related to investments still held at the reporting date included in net change in unrealized appreciation (depreciation) on investments on the Consolidated Statements of Operations	$	1,519		$	555	$	338		$	2,412

The Company generally uses the following framework when determining the fair value of investments that are categorized as Level 3:

Investments in debt securities are initially evaluated to determine whether the enterprise value of the portfolio company is greater than the applicable debt. The enterprise value of the portfolio company is estimated using a market approach and an income approach. The market approach utilizes market value (EBITDA) multiples of publicly traded comparable companies and available precedent sales transactions of comparable companies. The Company carefully considers numerous factors when selecting the appropriate companies whose multiples are used to value its portfolio companies. These factors include, but are not limited to, the type of organization, similarity to the business being valued, relevant risk factors, as well as size, profitability and growth expectations. The income approach typically uses a discounted cash flow analysis of the portfolio company.

Investments in debt securities that do not have sufficient coverage through the enterprise value analysis are valued based on an expected probability of default and discount recovery analysis.

Investments in debt securities with sufficient coverage through the enterprise value analysis are generally valued using a discounted cash flow analysis of the underlying security. Projected cash flows in the discounted cash flow typically represent the relevant security’s contractual interest, fees and principal payments plus the assumption of full principal recovery at the

security’s expected maturity date. The discount rate to be used is determined using an average of two market-based methodologies. Investments in debt securities may also be valued using consensus pricing.

Investments in equities are generally valued using a market approach and/or an income approach. The market approach utilizes EBITDA multiples of publicly traded comparable companies and available precedent sales transactions of comparable companies. The income approach typically uses a discounted cash flow analysis of the portfolio company.

The following tables summarize the quantitative information related to the significant unobservable inputs for Level 3 instruments which are carried at fair value as of March 31, 2020 and December 31, 2019:



	Fair Value as of March 31, 2020		Valuation Techniques	Significant Unobservable Inputs	Range
	Fair Value as of March 31, 2020		Valuation Techniques	Significant Unobservable Inputs	Low		High		Weighted Average
Investments in First Lien Debt	$	1,033,962	Discounted Cash Flow	Discount Rate	6.24	%	15.24	%	9.35	%
	94,860		Consensus Pricing	Indicative Quotes	44.00	%	98.00	%	91.32	%
	9,030		Income Approach	Discount Rate	16.28	%	16.28	%	16.28	%
			Market Approach	Comparable Multiple	8.55x		8.55x		8.55x
Total First Lien Debt	1,137,852
Investments in Second Lien Debt	172,449		Discounted Cash Flow	Discount Rate	10.34	%	13.87	%	11.95	%
	66,262		Consensus Pricing	Indicative Quotes	65.67	%	90.38	%	77.47	%
Total Second Lien Debt	238,711
Investments in Equity	20,565		Income Approach	Discount Rate	7.93	%	12.63	%	9.33	%
			Market Approach	Comparable Multiple	6.05x		16.40x		10.40x
Total Equity Investments	20,565
Total Level 3 Investments	$	1,397,128



	Fair Value as of December 31, 2019		Valuation Techniques	Significant Unobservable Inputs	Range
	Fair Value as of December 31, 2019		Valuation Techniques	Significant Unobservable Inputs	Low		High		Weighted Average
Investments in First Lien Debt	$	850,376	Discounted Cash Flow	Discount Rate	4.04	%	16.36	%	7.52	%
	309,530		Consensus Pricing	Indicative Quotes	77.94	%	100.00	%	98.13	%
Total First Lien Debt	1,159,906
Investments in Second Lien Debt	138,007		Discounted Cash Flow	Discount Rate	7.40	%	9.76	%	8.64	%
	59,725		Consensus Pricing	Indicative Quotes	97.50	%	98.31	%	98.03	%
Total Second Lien Debt	197,732
Investments in Equity	12,510		Income Approach	Discount Rate	7.76	%	12.09	%	7.94	%
			Market Approach	Comparable Multiple	6.37x		16.65x		9.22x
Total Equity Investments	12,510
Total Level 3 Investments	$	1,370,148

The significant unobservable inputs used in the fair value measurement of the Company’s investments in first and second lien debt securities are discount rates, indicative quotes and comparable EBITDA multiples. Significant increases in discount rates in isolation would result in a significantly lower fair value measurement. Significant decreases in indicative quotes or comparable EBITDA multiples in isolation would result in a significantly lower fair value measurement.

The significant unobservable inputs used in the fair value measurement of the Company’s investments in equities are discount rates and comparable EBITDA multiples. Significant increases in discount rates in isolation would result in a significantly lower fair value measurement. Significant decreases in comparable EBITDA multiples in isolation would result in a significantly lower fair value measurement.

Financial instruments disclosed but not carried at fair value

The following table presents the carrying value and fair value of the Company’s secured borrowings disclosed but not carried at fair value as of March 31, 2020 and December 31, 2019:



	March 31, 2020				December 31, 2019
	Carrying Value		Fair Value		Carrying Value		Fair Value
Secured borrowings	$	607,926	$	607,926	$	648,200	$	648,200
Total	$	607,926	$	607,926	$	648,200	$	648,200

The carrying values of the secured borrowings approximate their respective fair values and are categorized as Level 3 within the hierarchy. Secured borrowings are valued generally using discounted cash flow analysis. The significant unobservable inputs used in the fair value measurement of the Company’s secured borrowings are discount rates. Significant increases in discount rates would result in a significantly lower fair value measurement.

The carrying value of other financial assets and liabilities approximates their fair value based on the short term nature of these items.

4. RELATED PARTY TRANSACTIONS

Investment Advisory Agreement

On June 26, 2017, the Company entered into an investment advisory agreement (the “Investment Advisory Agreement”) with the Investment Adviser. The initial term of the Investment Advisory Agreement was two years from June 26, 2017 and, unless terminated earlier, the Investment Advisory Agreement will renew automatically for successive annual periods, provided that such continuance is specifically approved at least annually by the vote of the Board of Directors and by the vote of a majority of the directors who are not “interested persons” as defined in Section 2(a)(19) of the Investment Company Act (the “Independent Directors”). On May 6, 2019, the Company’s Board of Directors, including a majority of the Independent Directors, approved at an in-person meeting the continuance of the Company’s Investment Advisory Agreement with the Adviser for an additional one year term. The Investment Advisory Agreement will automatically terminate in the event of an assignment and may be terminated by either party without penalty upon at least 60 days’ written notice to the other party. Pursuant to the Investment Advisory Agreement and subject to the overall supervision of the Board of Directors, the Investment Adviser provides investment advisory services to the Company. For providing these services, the Investment Adviser receives fees from the Company consisting of two components—a management fee and an incentive fee.

The management fee has been calculated and payable quarterly in arrears at an annual rate of 1.25% of the Company’s average Capital Under Management (as defined below) at the end of the then-current quarter and the prior calendar quarter (and, in the case of the Company’s first quarter, the Company’s Capital Under Management as of such quarter-end). “Capital Under Management” means cumulative capital called, less cumulative distributions categorized as Returned Capital. “Returned Capital” means unused capital commitments increased by the aggregate amount of (i) any portion of distributions made by the Company to an investor during the Investment Period which represents (A) proceeds realized from the sale or repayment of any investment (as opposed to investment income) during the Investment Period (but not in excess of the cost of any such investment) or (B) a return of such investor’s capital contributions to the Company, as determined by the Board of Directors, and (ii) any amount drawn down by the Company from unused capital commitments to pay management fees, incentive fees, organizational expenses or Company expenses, to the extent such investor receives subsequent distributions. The “Investment Period” commenced on September 11, 2017 and will continue until September 11, 2021, provided that it may be extended by the Board of Directors, in its discretion, for one additional one-year period, and, such end date may be further extended thereafter with the approval of holders of a majority of the shares of the Company’s common stock. For the avoidance of doubt, Capital Under Management does not include capital acquired through the use of leverage, and Returned Capital does not include distributions of the Company’s investment income (i.e., proceeds received in respect of interest payments, dividends or fees, net of expenses) or net realized capital gains to the investors.

The incentive fee consists of two parts. The first part has been calculated and payable quarterly in arrears and equals 15% of pre-incentive fee net investment income for the immediately preceding calendar quarter, subject to a preferred return of 1.75% per quarter (7% annualized), or “hurdle rate,” and a “catch-up” feature. The second part is determined and payable in arrears as of the end of each calendar year in an amount equal to 15% of realized capital gains, if any, on a cumulative basis from inception through the end of each calendar year, computed net of all realized capital losses on a cumulative basis and unrealized capital depreciation less the aggregate amount of any previously paid capital gain incentive fees, provided that no

incentive fee on capital gains is payable to the Investment Adviser unless cumulative total return exceeds a 7% annual return on weighted average cumulative capital called less cumulative distributions categorized as Returned Capital.

Below is a summary of the base management fees and incentive fees incurred during the three month periods ended March 31, 2020 and 2019:



	For the three month periods ended
	March 31, 2020		March 31, 2019
Base management fees	$	2,573	$	1,057
Incentive fees on pre-incentive fee net investment income	3,394		1,552
Realized capital gains incentive fees	—		—
Accrued capital gains incentive fees	—		—
Total capital gains incentive fees	—		—
Total incentive fees	3,394		1,552
Total base management fees and incentive fees	$	5,967	$	2,609

Accrued capital gains incentive fees are based upon the cumulative net realized and unrealized appreciation (depreciation) from inception. Accordingly, the accrual for any capital gains incentive fee under U.S. GAAP in a given period may result in an additional expense if such cumulative amount is greater than in the prior period or a reduction of previously recorded expense if such cumulative amount is less than in the prior period. If such cumulative amount is negative, then there is no accrual.

As of March 31, 2020 and December 31, 2019, $5,970 and $4,904, respectively, were included in management and incentive fees payable in the accompanying Consolidated Statements of Assets and Liabilities.

On June 26, 2017, the Investment Adviser entered into a personnel agreement with The Carlyle Group Employee Co., L.L.C. (“Carlyle Employee Co.”), an affiliate of the Investment Adviser, pursuant to which Carlyle Employee Co. provides the Investment Adviser with access to investment professionals.

Administration Agreement

On April 18, 2017, the Company entered into an administration agreement (the “Administration Agreement”) with the Administrator. Pursuant to the Administration Agreement, the Administrator furnishes the Company with office facilities, equipment and clerical, bookkeeping and record keeping services at such facilities. Under the Administration Agreement, the Administrator also performs, or oversees the performance of, required administrative services, which include, among other things, providing assistance in accounting, tax, legal, compliance, operations, technology and investor relations, and being responsible for the financial records of the Company. Payments under the Administration Agreement are equal to an amount that reimburses the Administrator for its costs and expenses and the Company's allocable portion of overhead incurred by the Administrator in performing its obligations under the Administration Agreement, including the allocable portion of the compensation paid to or compensatory distributions received by the Company’s officers (including the Chief Compliance Officer and Treasurer) and respective staff who provide services to the Company, operations staff who provide services to the Company, and internal audit staff in their role of performing the internal control assessment under the Sarbanes-Oxley Act of 2002 (the “Sarbanes-Oxley Act”). The Administration Agreement may be terminated by either party without penalty upon 60 days’ written notice to the other party.

The initial term of the Administration Agreement was two years from April 18, 2017 and, unless terminated earlier, the Administration Agreement will renew automatically for successive annual periods, provided that such continuance is specifically approved at least annually by (i) the vote of the Board of Directors or by a majority vote of the outstanding voting securities of the Company and (ii) the vote of a majority of the Company’s Independent Directors. On May 6, 2019, the Company’s Board of Directors, including a majority of the Independent Directors, approved at an in-person meeting the continuance of the Company’s Administration Agreement with the Administrator for an additional one year term. The Administration Agreement may not be assigned by a party without the consent of the other party and may be terminated by either party without penalty upon at least 60 days’ written notice to the other party.

For the three month periods ended March 31, 2020 and 2019, the Company incurred $42 and $132, respectively, in fees under the Administration Agreement, which were included in administrative service fees in the accompanying Consolidated

Statements of Operations. As of March 31, 2020 and December 31, 2019, $0 and $33, respectively, was unpaid and included in administrative service fees payable in the accompanying Consolidated Statements of Assets and Liabilities.

Sub-Administration Agreements

On June 26, 2017, the Administrator entered into sub-administration agreements with Carlyle Employee Co. (the “Carlyle Sub-Administration Agreement”). Pursuant to the Carlyle Sub-Administration Agreement, Carlyle Employee Co. provides the Administrator with access to personnel.

On June 22, 2017, the Administrator entered into a sub-administration agreement with State Street Bank and Trust Company (“State Street” and, such agreement, the “State Street Sub-Administration Agreement” and, together with the Carlyle Sub-Administration Agreements, the “Sub-Administration Agreements”).

On May 6, 2019, the Company’s Board of Directors, including a majority of the Independent Directors, approved at an in-person meeting the continuance of the Company’s Sub-Administration Agreements for an additional one year term.

For the three month periods ended March 31, 2020 and 2019, fees incurred in connection with the State Street Sub-Administration Agreement, which amounted to $174 and $154, respectively, were included in other general and administrative in the accompanying Consolidated Statements of Operations. As of March 31, 2020 and December 31, 2019, $1,207 and $1,033, respectively, was unpaid and included in other accrued expenses and liabilities in the accompanying Consolidated Statements of Assets and Liabilities.

Placement Fees

On June 26, 2017, the Company entered into a placement fee arrangement with TCG Securities, L.L.C. (“TCG”), a licensed broker-dealer and an affiliate of the Investment Adviser, which may require stockholders to pay a placement fee to TCG for TCG’s services.

For the three month periods ended March 31, 2020 and 2019, TCG earned $472 and $413, respectively, in placement fees from the Company’s stockholders in connection with the issuance or sale of the Company’s common stock and paid $472 and $413, respectively, in placement fees to sub-placement agents.

Board of Directors

The Company’s Board of Directors currently consists of five members, three of whom are Independent Directors. The Board of Directors has established an audit committee and a pricing committee of the Board of Directors, and may establish additional committees in the future. For the three month periods ended March 31, 2020 and 2019, the Company incurred $51 and $48, respectively, in fees and expenses associated with its Independent Directors’ services on the Company’s Board of Directors and its committees. As of March 31, 2020 and December 31, 2019, there were no unpaid directors’ fees and expenses.

5. BORROWINGS

The Company and the SPV are party to the Facilities. In accordance with the Investment Company Act, the Company is currently only allowed to borrow amounts such that its asset coverage, as defined in the Investment Company Act, is at least 200% after such borrowing. As of March 31, 2020 and December 31, 2019, asset coverage was 236.69% and 213.72%, respectively, and the Company and the SPV were in compliance with all covenants and other requirements under the Facilities as of March 31, 2020 and December 31, 2019. Below is a summary of the borrowings and repayments under the Facilities for the periods ended March 31, 2020 and March 31, 2019.



	For the three month periods ended
	March 31, 2020			March 31, 2019
Outstanding borrowing, beginning of period	$	648,200		$	217,700
Borrowings	178,000			146,200
Repayments	(216,000		)	(59,500		)
Foreign currency translation	(2,274		)	—
Outstanding borrowing, end of period	$	607,926		$	304,400

Subscription Facility

The Company closed on October 3, 2017 on the Subscription Facility, which was subsequently amended on March 14, 2018 and November 16, 2018. The maximum principal amount of the Subscription Facility was $235,000 as of March 31, 2020 (reduced from $265,000 as of December 31, 2019), and is subject to availability under the Subscription Facility, which is based on certain of the Company’s unfunded investor equity capital commitments, and restrictions imposed on borrowings under the Investment Company Act. The Subscription Facility has a maturity date of October 3, 2020, with two one-year extension options, subject to the Company's and lender's consent. The Company may borrow amounts in U.S. Dollars or certain other permitted currencies. Borrowings under the Subscription Facility bear interest initially at LIBOR plus an applicable spread of 1.75% per year. The Company also pays a fee of 0.25% on undrawn amounts under the Subscription Facility.

Subject to certain exceptions, the Subscription Facility is secured by a first lien security interest in the Company’s unfunded investor equity capital commitments. The Subscription Facility includes customary covenants, including certain financial covenants related to shareholders’ equity and liquidity, certain limitations on the incurrence of additional indebtedness and liens, and other maintenance covenants, as well as usual and customary events of default for senior secured revolving credit facilities of this nature.

SPV Credit Facility

The SPV entered into the SPV Credit Facility with a lender on April 1, 2019, which was subsequently amended October 25, 2019. The SPV Credit Facility provides for secured borrowings of $600,000 (increased from $300,000 at the closing of the facility on April 1, 2019), subject to availability under the SPV Credit Facility and restrictions imposed on borrowings under the Investment Company Act. The SPV Credit Facility has a maturity date of April 1, 2024, with one one-year extension option, subject to the Company's and lender's consent. The SPV may borrow amounts in U.S. Dollars or certain other permitted currencies. Borrowings under the SPV Credit Facility bear interest initially at LIBOR (or, if applicable, a rate based on the prime rate or federal funds rate) plus 2.25% per year with a 0.45% step-up based on collateral coverage and asset mix. The SPV is also required to pay an undrawn commitment fee of between 0.50% and 0.75% per year. Payments under the SPV Credit Facility are made quarterly. The lenders have a first lien security interest on substantially all of the assets of the SPV.

Summary of Facilities

The Facilities consisted of the following as of March 31, 2020 and December 31, 2019:



	March 31, 2020
	Total Facility		Borrowings Outstanding		Unused Portion ⁽¹⁾		Amount Available ⁽²⁾
Subscription Facility	$	235,000	$	109,926	$	125,074	$	67,186
SPV Credit Facility	600,000		498,000		102,000		102,000
Total	$	835,000	$	607,926	$	227,074	$	169,186

	December 31, 2019
	Total Facility		Borrowings Outstanding		Unused Portion ⁽¹⁾		Amount Available ⁽²⁾
Subscription Facility	$	265,000	$	231,700	$	33,300	$	25,749
SPV Credit Facility	600,000		416,500		183,500		183,500
Total	$	865,000	$	648,200	$	216,800	$	209,249


(1)	The unused portion is the amount upon which commitment fees are based.


(2)	Available for borrowing based on the computation of collateral to support the borrowings and subject to compliance with applicable covenants and financial ratios.

For the three month periods ended March 31, 2020 and 2019, the components of interest expense and credit facility fees were as follows:



	For the three month periods ended
	March 31, 2020			March 31, 2019
Interest expense	$	6,385		$	2,882
Facility unused commitment fee	199			56
Amortization of deferred financing costs	350			239
Total interest expense and credit facility fees	$	6,934		$	3,177
Cash paid for interest expense	$	5,690		$	2,127

Average principal debt outstanding	$	684,893		$	284,768
Weighted average interest rate	3.69		%	4.05		%

As of March 31, 2020 and December 31, 2019, the components of interest and credit facility fees payable were as follows:



	As of
	March 31, 2020			December 31, 2019
Interest expense payable	$	4,750		$	3,988
Unused commitment fees payable	156			237
Total interest expense and credit facility fees payable	$	4,906		$	4,225
Weighted average interest rate⁽¹⁾	3.92		%	3.91		%

(1) Based on floating LIBOR rates.

6. COMMITMENTS AND CONTINGENCIES

A summary of significant contractual payment obligations was as follows as of March 31, 2020 and December 31, 2019:



	Secured Borrowings
Payment Due by Period	March 31, 2020		December 31, 2019
Less than 1 Year	$	109,926	$	231,700
1-3 Years	—		—
3-5 Years	498,000		416,500
More than 5 Years	—		—
Total	$	607,926	$	648,200

In the ordinary course of its business, the Company enters into contracts or agreements that contain indemnification or warranties. Future events could occur that lead to the execution of these provisions against the Company. The Company believes that the likelihood of such an event is remote; however, the maximum potential exposure is unknown. No accrual has been made in the consolidated financial statements as of March 31, 2020 and December 31, 2019 for any such exposure.

We have in the past, currently are and may in the future become obligated to fund commitments such as revolving credit facilities, bridge financing commitments, or delayed draw commitments. The Company had the following unfunded commitments to fund delayed draw and revolving senior secured loans as of the indicated dates:



	Par Value as of
	March 31, 2020		December 31, 2019
Unfunded delayed draw commitments	$	96,331	$	79,156
Unfunded revolving term loan commitments	31,393		54,249
Total unfunded commitments	$	127,724	$	133,405

7. NET ASSETS

The Company has the authority to issue 200,000,000 shares of common stock, $0.01 per share par value.

During the three month period ended March 31, 2020, the Company issued 9,127,504 shares for $180,004. The following table summarizes capital activity during the three month period ended March 31, 2020:



	Common Stock			Capital in Excess of Par Value		Accumulated Net Investment Income (Loss)			Accumulated Net Realized Gain (Loss)			Accumulated Net Unrealized Appreciation (Depreciation)			Total Net Assets
	Shares	Amount		Capital in Excess of Par Value		Accumulated Net Investment Income (Loss)			Accumulated Net Realized Gain (Loss)			Accumulated Net Unrealized Appreciation (Depreciation)			Total Net Assets
Balance, beginning of period	35,769,223	$	358	$	736,328	$	691		$	149		$	(417	)	$	737,109
Common stock issued	9,127,504	91		179,913		—			—			—			180,004
Net investment income (loss)	—	—		—		19,227			—			—			19,227
Net realized gain (loss)	—	—		—		—			(344		)	—			(344		)
Net change in unrealized appreciation (depreciation) on investments	—	—		—		—			—			(88,670		)	(88,670		)
Net change in unrealized currency gains (losses) on non-investment assets and liabilities												2,614			2,614
Dividends declared	—	—		—		(18,958		)	—			—			(18,958		)
Balance, end of period	44,896,727	$	449	$	916,241	$	960		$	(195	)	$	(86,473	)	$	830,982

During the three month period ended March 31, 2019, the Company issued 4,835,526 shares for $99,940. The following table summarizes capital activity during the three month period ended March 31, 2019:



	Common Stock			Capital in Excess of Par Value		Subscribed But Unissued Shares			Subscription Receivable			Accumulated Net Investment Income (Loss)			Accumulated Net Realized Gain (Loss)			Accumulated Net Unrealized Appreciation (Depreciation)			Total Net Assets
	Shares	Amount		Capital in Excess of Par Value		Subscribed But Unissued Shares			Subscription Receivable			Accumulated Net Investment Income (Loss)			Accumulated Net Realized Gain (Loss)			Accumulated Net Unrealized Appreciation (Depreciation)			Total Net Assets
Balance, beginning of period	14,229,500	$	142	$	291,820	$	24,953		$	(24,953	)	$	(141	)	$	(24	)	$	(2,583	)	$	289,214
Common stock issued	4,835,526	49		99,891		—			—			—			—			—			99,940
Subscribed but unissued shares	—	—		—		(24,953		)	—			—			—			—			(24,953		)
Subscription receivable	—	—		—		—			24,953			—			—			—			24,953
Net investment income (loss)	—	—		—		—			—			8,797			—			—			8,797
Net realized gain (loss)	—	—		—		—			—			—			257			—			257
Net change in unrealized appreciation (depreciation)	—	—		—		—			—			—			—			2,295			2,295
Dividends declared	—	—		—		—			—			(8,049		)	—			—			(8,049		)
Balance, end of period	19,065,026	$	191	$	391,711	$	—		$	—		$	607		$	233		$	(288	)	$	392,454

The following table summarizes total shares issued and proceeds received related to capital activity during the three month period ended March 31, 2020:



	Shares Issued	Proceeds Received
March 18, 2020	1,959,038	$	40,004
March 31, 2020	7,168,466	140,000
Total	9,127,504	$	180,004

The following table summarizes total shares issued and proceeds received related to capital activity during the three month period ended March 31, 2019:



	Shares Issued	Proceeds Received
January 10, 2019	1,218,407	$	24,953
February 28, 2019	1,677,049	35,000
March 26, 2019	1,940,070	39,990
Total	4,835,526	$	99,943

Subscription transactions during the three month periods ended March 31, 2020 and 2019 were executed at an offering price at a premium to net asset value in order to effect a reallocation of organizational costs to subsequent investors. For the three month periods ended March 31, 2020 and 2019, such subscription transactions increased net asset value by $0.01 per share and $0.03 per share, respectively.

The Company computes earnings per common share in accordance with ASC 260, Earnings Per Share. Basic earnings per common share were calculated by dividing net increase (decrease) in net assets resulting from operations attributable to the Company by the weighted-average number of common shares outstanding for the period.

Basic and diluted earnings per common share were as follows:



	For the three month periods ended
	March 31, 2020			March 31, 2019
Net increase (decrease) in net assets resulting from operations	$	(67,173	)	$	11,349
Weighted-average common shares outstanding	36,149,388			16,051,688
Basic and diluted earnings per common share	$	(1.86	)	$	0.71

The following table summarizes the Company’s dividends declared since inception:



Date Declared	Record Date	Payment Date	Per Share Amount
March 12, 2018	March 12, 2018	April 17, 2018	$	0.30
June 6, 2018	June 6, 2018	July 18, 2018	$	0.37
September 13, 2018	September 13, 2018	October 18, 2018	$	0.40
December 26, 2018	December 26, 2018	January 18, 2019	$	0.46
March 12, 2019	March 12, 2019	April 18, 2019	$	0.47
June 11, 2019	June 11, 2019	July 18, 2019	$	0.51
September 10, 2019	September 10, 2019	October 18, 2019	$	0.50
December 10, 2019	December 10, 2019	January 17, 2020	$	0.50
March 4, 2020	March 4, 2020	April 17, 2020	$	0.53

8. CONSOLIDATED FINANCIAL HIGHLIGHTS

The following is a schedule of consolidated financial highlights for the three month periods ended March 31, 2020 and 2019:



	For the three month periods ended
	March 31, 2020			March 31, 2019
Per Share Data:
Net asset value per share, beginning of period	$	20.61		$	20.32
Net investment income (loss) ⁽¹⁾	0.53			0.55
Net realized gain (loss) and net change in unrealized appreciation (depreciation) on investments and non-investment assets and liabilities	(2.11		)	0.16
Net increase (decrease) in net assets resulting from operations	(1.58		)	0.71
Dividends declared ⁽²⁾	(0.53		)	(0.47		)
Effect of offering price of subscriptions ⁽³⁾	0.01			0.03
Net asset value per share, end of period	$	18.51		$	20.59

Number of shares outstanding, end of period	44,896,727			19,065,026
Total return based on net asset value ⁽⁴⁾	(7.62		)%	3.64		%
Net assets, end of period	$	830,982		$	392,454
Ratio to average net assets ⁽⁵⁾:
Expenses before incentive fees	1.34		%	0.33		%
Expenses after incentive fees	1.78		%	0.44		%
Net investment income (loss)	2.51		%	0.62		%
Interest expense and credit facility fees	0.91		%	0.22		%
Ratios/Supplemental Data:
Asset coverage, end of period	236.69		%	228.93		%
Portfolio turnover	5.59		%	1.68		%
Total committed capital, end of period	$	1,227,687		$	1,227,753
Ratio of total contributed capital to total committed capital, end of period	74.76		%	31.99		%
Weighted-average shares outstanding	36,149,388			16,051,688


(1)	Net investment income (loss) per share was calculated as net investment income (loss) for the period divided by the weighted average number of shares outstanding for the period.


(2)	Dividends declared per share was calculated as the sum of dividends declared during the period divided by the number of shares outstanding at the quarter-end date (refer to Note 7, Net Assets to these consolidated financial statements).


(3)	Increase (decrease) is due to the offering price of subscriptions during the period (refer to Note 7, Net Assets, to these consolidated financial statements).

(4)

Total return based on net asset value (not annualized) is based on the change in net asset value per share during the period plus the declared dividends divided by the beginning net asset value for the period. Total return for the three month periods ended March 31, 2020 and 2019 is inclusive of $0.01 and $0.03, respectively, per share increase (decrease) in net asset value for the period related to the offering price of subscriptions. Excluding the effects of these common stock issuances, total return (not annualized) would have been (7.67)% and 3.49%, respectively, (refer to Note 7, Net Assets, to these consolidated financial statements).


(5)	These ratios to average net assets have not been annualized.

9. LITIGATION

The Company may become party to certain lawsuits in the ordinary course of business. The Company does not believe that the outcome of current matters, if any, will materially impact the Company or its consolidated financial statements. As of March 31, 2020 and December 31, 2019, the Company was not subject to any material legal proceedings, nor, to the Company’s knowledge, is any material legal proceeding threatened against the Company.

In addition, portfolio investments of the Company could be the subject of litigation or regulatory investigations in the ordinary course of business. The Company does not believe that the outcome of any current contingent liabilities of its portfolio investments, if any, will materially affect the Company or these consolidated financial statements.

10. TAX

The Company has not recorded a liability for any uncertain tax positions pursuant to the provisions of ASC 740, Income Taxes, as of March 31, 2020 and March 31, 2019.

In the normal course of business, the Company is subject to examination by federal and certain state, local and foreign tax regulators. The Company elected a tax year-end of June 30.

The Company's taxable income for each period is an estimate and will not be finally determined until the Company files its tax return for each year. Therefore, the final taxable income earned in each period and carried forward for distribution in the following period may be different than this estimate. The tax character of the distributions paid for the period from July 1, 2019 to March 31, 2020 and for the period from July 1, 2018 to March 31, 2019 was as follows:




	For the period from July 1, 2019 to March 31, 2020		For the period from July 1, 2018 to March 31, 2019
Ordinary income	$	49,575	$	18,855
Tax return of capital	—		—

11. SUBSEQUENT EVENTS

Subsequent events have been evaluated through the date the consolidated financial statements were issued. There have been no subsequent events that require recognition or disclosure through the date the consolidated financial statements were issued, except as disclosed below.

Subsequent to March 31, 2020, the Company borrowed $44,726 under the Subscription Facility and SPV Credit Facility to fund investment acquisitions.

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

(dollar amounts in thousands, except per share data, unless otherwise indicated)

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

We have included or incorporated by reference in this Form 10-Q, and from time to time our management may make, “forward-looking statements”. These forward-looking statements are not historical facts, but instead relate to future events or the future performance or financial condition of TCG BDC II, Inc. (together with its consolidated subsidiaries, “we,” “us,” “our,” “BDC II” or the “Company”). These statements are based on current expectations, estimates and projections about us, our current or prospective portfolio investments, our industry, our beliefs, and our assumptions. The forward-looking statements contained in this Form 10-Q involve a number of risks and uncertainties, including statements concerning:


•	our, or our portfolio companies’, future business, operations, operating results or prospects, including our and their ability to achieve our respective objectives as a result of the current COVID-19 pandemic;


•	the return or impact of current and future investments;


•	the general economy and its impact on the industries in which we invest, and the impact of the current COVID-19 pandemic thereon;


•	the impact of any protracted decline in the liquidity of credit markets on our business and the impact of the current COVID-19 pandemic thereon;


•	the impact of fluctuations in interest rates on our business;


•	our future operating results and the impact of the current COVID-19 pandemic thereon;


•	the impact of changes in laws, policies or regulations (including the interpretation thereof) affecting our operations or the operations of our portfolio companies;


•	the valuation of our investments in portfolio companies, particularly those having no liquid trading market, and the impact of the current COVID-19 pandemic thereon;


•	our ability to recover unrealized losses;


•	market conditions and our ability to access alternative debt markets and additional debt and equity capital, and the impact of the current COVID-19 pandemic thereon;


•	our contractual arrangements and relationships with third parties;


•	uncertainty surrounding the financial stability of the United States, Europe and China;


•	the social, geopolitical, financial, trade and legal implications of Brexit;


•	the financial condition of and ability of our current and prospective portfolio companies to achieve their objectives, and the impact of the current COVID-19 pandemic thereon;


•	competition with other entities and our affiliates for investment opportunities;


•	the speculative and illiquid nature of our investments;


•	the use of borrowed money to finance a portion of our investments;


•	our expected financings and investments;


•	the adequacy of our cash resources and working capital;


•	the timing, form and amount of any dividend distributions;


•	the timing of cash flows, if any, from the operations of our portfolio companies, and the impact of the COVID-19 pandemic thereon;


•	the ability to consummate transactions;


•	the ability of our investment adviser to locate suitable investments for us and to monitor and administer our investments, and the impact of the current COVID-19 pandemic thereon;


•	currency fluctuations could adversely affect the results of our investments in foreign companies, particularly to the extent that we receive payments denominated in foreign currency rather than U.S. dollars;


•	the ability of The Carlyle Group Employee Co., L.L.C. to attract and retain highly talented professionals that can provide services to our investment adviser and administrator;


•	our ability to maintain our status as a business development company;


•	an inability to replicate the historical success of Carlyle; and


•	our intent to satisfy the requirements of a regulated investment company under Subchapter M of the Internal Revenue Code of 1986, as amended.

We use words such as “anticipates,” “believes,” “expects,” “intends,” “will,” “should,” “may,” “plans,” “continue,” “believes,” “seeks,” “estimates,” “would,” “could,” “targets,” “projects,” “outlook,” “potential,” “predicts” and variations of these words and similar expressions to identify forward-looking statements, although not all forward-looking statements include these words. Our actual results and condition could differ materially from those implied or expressed in the forward-looking statements for any reason, including the factors set forth in “Risk Factors” in Part I, Item 1A of our annual report on Form 10-K for the year ended December 31, 2019 and Part II, Item 1A of and elsewhere in this Form 10-Q.

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

OVERVIEW

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with Part I, Item 1 of this Form 10-Q “Financial Statements.” This discussion contains forward-looking statements and involves numerous risks and uncertainties, including, but not limited to those described in "Risk Factors" in Part I, Item 1A of our annual report on Form 10-K for the year ended December 31, 2019 and Part II, Item 1A of this Form 10-Q. Our actual results could differ materially from those anticipated by such forward-looking statements due to factors discussed under “Risk Factors” and “Cautionary Statements Regarding Forward-Looking Statements” appearing elsewhere in this Form 10-Q.

We were incorporated on February 10, 2017 as a Maryland corporation with the name Carlyle Private Credit, Inc., and our name was changed to TCG BDC II, Inc. on March 3, 2017. We are structured as an externally managed, non-diversified closed-end investment company. We are conducting the private offering of our shares of common stock to investors in reliance on exemptions from the registration requirements of the Securities Act of 1933, as amended. We have elected to be regulated as a BDC under the Investment Company Act. We have elected to be treated, and intend to continue to comply with the requirements to qualify annually, as a RIC under Subchapter M of the Code.

Our investment objective is to generate attractive risk adjusted returns and current income primarily by investing in senior secured term loans to U.S. middle market companies in which private equity sponsors hold, directly or indirectly, a financial interest in the form of debt and/or equity. Our core investment strategy focuses on lending to U.S. middle market companies, which we define as companies with approximately $25 million to $100 million of earnings before interest, taxes, depreciation and amortization (“EBITDA”), which we believe is a useful proxy for cash flow. We complement this core strategy with additive, diversifying assets including, but not limited to, specialty lending investments. We seek to achieve our investment objective through direct originations of secured debt, including first lien senior secured loans, “unitranche” loans and second lien senior secured loans (collectively, “Middle Market Senior Loans”), with the balance our assets invested in investments that are typically higher yielding than Middle Market Senior Loans (which may include unsecured debt, mezzanine debt and investments in equities).

We invest primarily in loans to middle market companies whose debt, if rated, is rated below investment grade and, if not rated, would likely be rated below investment grade if it were rated (that is, BBB- or Baa3, which is often referred to as "junk"). Exposure to below investment grade instruments involves certain risks, including speculation with respect to the borrower's capacity to pay interest and repay principal.

We are externally managed by our Investment Adviser, an investment adviser registered under the Advisers Act. Our Administrator provides the administrative services necessary for us to operate. Both our Investment Adviser and our Administrator are wholly owned subsidiaries of Carlyle Investment Management L.L.C., a subsidiary of Carlyle.

In conducting our investment activities, we believe that we benefit from the significant scale, relationships and resources of Carlyle, including our Investment Adviser and its affiliates.

KEY COMPONENTS OF OUR RESULTS OF OPERATIONS

Investments

Our level of investment activity can and does vary substantially from period to period depending on many factors, including the amount of debt available to middle market companies, the general economic environment and the competitive environment for the type of investments we make.

Revenue

We generate revenue primarily in the form of interest income on debt investments we hold. In addition, we generate income from dividends on direct equity investments, capital gains on the sales of loans and debt and equity securities and various loan origination and other fees. Our debt investments generally have a stated term of five to eight years and generally bear interest at a floating rate usually determined on the basis of a benchmark such as LIBOR. Interest on these debt investments is generally paid quarterly. In some instances, we receive payments on our debt investments based on scheduled amortization of the outstanding balances. In addition, we receive repayments of some of our debt investments prior to their scheduled maturity date. The frequency or volume of these repayments fluctuates significantly from period to period. Our portfolio activity also reflects the proceeds of sales of securities. We may also generate revenue in the form of commitment, origination, amendment, structuring or due diligence fees, fees for providing managerial assistance and consulting fees.

Expenses

Our primary operating expenses include the payment of: (i) investment advisory fees, including management fees and incentive fees, to our Investment Adviser pursuant to an investment advisory agreement (the “Investment Advisory Agreement”) between us and our Investment Adviser; (ii) costs and other expenses and our allocable portion of overhead incurred by our Administrator in performing its administrative obligations under an administration agreement (the “Administration Agreement”) between us and our Administrator; and (iii) other operating expenses as detailed below:


•	our organization expenses and initial offering costs incurred prior to the filing of our election to be regulated as a BDC (the initial offering costs amortized over the 12 months beginning on the Initial Drawdown Date) in an amount of $1,500;


•	administration fees payable under our Administration Agreement and Sub-Administration Agreements, including related expenses;


•	the costs of any offerings of our common stock and other securities, if any;


•	calculating individual asset values and our net asset value (including the cost and expenses of any independent valuation firms);


•	expenses, including travel expenses, incurred by our Investment Adviser, or members of our Investment Adviser team managing our investments, or payable to third parties, performing due diligence on prospective portfolio companies and, if necessary, expenses of enforcing our rights;


•	the management fee and any incentive fee payable under our Investment Advisory Agreement;


•	certain costs and expenses relating to distributions paid on our shares;


•	debt service and other costs of borrowings or other financing arrangements;


•	the allocated costs incurred by our Investment Adviser in providing managerial assistance to those portfolio companies that request it;


•	amounts payable to third parties relating to, or associated with, making or holding investments;


•	the costs associated with subscriptions to data service, research-related subscriptions and expenses and quotation equipment and services used in making or holding investments;


•	transfer agent and custodial fees;


•	costs of hedging;


•	commissions and other compensation payable to brokers or dealers;


•	federal and state registration fees;


•	any U.S. federal, state and local taxes, including any excise taxes;


•	independent director fees and expenses;

•

costs of preparing financial statements and maintaining books and records, costs of preparing tax returns, costs of Sarbanes-Oxley Act compliance and attestation and costs of filing reports or other documents with the SEC (or other regulatory bodies), and other reporting and compliance costs, including registration and listing fees, and the compensation of professionals responsible for the preparation or review of the foregoing;


•	the costs of any reports, proxy statements or other notices to our stockholders (including printing and mailing costs), the costs of any stockholders’ meetings and the compensation of investor relations personnel responsible for the preparation of the foregoing and related matters;


•	the costs of specialty and custom software for monitoring risk, compliance and overall portfolio, including any development costs incurred prior to the filing of our election to be regulated as a BDC;


•	our fidelity bond;


•	directors and officers/errors and omissions liability insurance, and any other insurance premiums;


•	indemnification payments;


•	direct fees and expenses associated with independent audits, agency, consulting and legal costs; and


•	all other expenses incurred by us or our Administrator in connection with administering our business, including our allocable share of certain officers and their staff compensation.

We expect our general and administrative expenses to be relatively stable or to decline as a percentage of total assets during periods of asset growth and to increase during periods of asset declines.

PORTFOLIO AND INVESTMENT ACTIVITY

Below is a summary of certain characteristics of our investment portfolio as of March 31, 2020 and December 31, 2019.



	As of
	March 31, 2020		December 31, 2019
Number of investments	89		87
Number of portfolio companies	72		68
Number of industries	22		21
Number of sponsors	41		45
Percentage of total investment fair value:
First Lien Debt (excluding First Lien/Last Out)	80.3	%	82.0	%
First Lien/Last Out Unitranche	1.1	%	2.6	%
Second Lien Debt	17.1	%	14.4	%
Total secured debt	98.5	%	99.0	%
Equity investments	1.5	%	0.9	%
Percentage of debt investment fair value:
Floating rate ⁽¹⁾	98.0	%	98.6	%
Fixed interest rate	2.0	%	1.4	%

(1) Primarily subject to interest rate floors.

Our investment activity for the three month periods ended March 31, 2020 and 2019 is presented below (information presented herein is at amortized cost unless otherwise indicated):



	For the three month periods ended
	March 31, 2020			March 31, 2019
Investments:
Total investments, beginning of period	$	1,368,431		$	513,010
New investments purchased	203,830			192,386
Net accretion of discount on investments	2,023			464
Net realized gain (loss) on investments	(180		)	257
Investments sold or repaid	(90,023		)	(8,932		)
Total Investments, end of period	$	1,484,081		$	697,185
Principal amount of investments funded:
First Lien Debt (excluding First Lien/Last Out)	$	105,437		$	127,385
First Lien/Last Out Unitranche	—			19,050
Second Lien Debt	86,109			47,104
Equity Investments	10,500			2,239
Total	$	202,046		$	195,778
Principal amount of investments sold or repaid:
First Lien Debt (excluding First Lien/Last Out)	$	(55,698	)	$	(8,454	)
First Lien/Last Out Unitranche	(19,273		)	—
Second Lien Debt	(15,232		)	—
Total	$	(90,203	)	$	(8,454	)
Number of new funded investments	10			12
Average amount of new funded investments	$	12,825		$	16,032
Percentage of new funded debt investments at floating interest rates	92		%	100		%
Percentage of new funded debt investments at fixed interest rates	8		%	—		%

As of March 31, 2020 and December 31, 2019, investments consisted of the following:



	March 31, 2020				December 31, 2019
	Amortized Cost		Fair Value		Amortized Cost		Fair Value
First Lien Debt (excluding First Lien/Last Out)	$	1,173,848	$	1,122,218	$	1,123,859	$	1,123,850
First Lien/Last Out Unitranche	17,023		15,634		36,110		36,056
Second Lien Debt	271,744		238,711		197,196		197,732
Equity Investments	21,466		20,565		11,266		12,510
Total	$	1,484,081	$	1,397,128	$	1,368,431	$	1,370,148

The weighted average yields ⁽¹⁾ for our first and second lien debt, based on the amortized cost and fair value as of March 31, 2020 and December 31, 2019, were as follows:



	March 31, 2020				December 31, 2019
	Amortized Cost		Fair Value		Amortized Cost		Fair Value
First Lien Debt (excluding First Lien/Last Out)	7.55	%	7.90	%	8.06	%	8.06	%
First Lien/Last Out Unitranche	9.91	%	10.79	%	9.63	%	9.65	%
First Lien Debt Total	7.59	%	7.94	%	8.11	%	8.11	%
Second Lien Debt	9.76	%	11.11	%	10.24	%	10.21	%
First and Second Lien Debt Total	7.99	%	8.49	%	8.42	%	8.42	%

(1)

Weighted average yields include the effect of accretion of discounts and amortization of premiums and are based on interest rates as of March 31, 2020 and December 31, 2019. Weighted average yield on debt and income producing securities at fair value is computed as (a) the annual stated interest rate or yield earned plus the net annual amortization of original issue discount ("OID") and market discount earned on accruing debt included in such securities, divided by (b) total first lien and second lien debt at fair value included in such securities. Weighted average yield on debt and

income producing securities at amortized cost is computed as (a) the annual stated interest rate or yield earned plus the net annual amortization of OID and market discount earned on accruing debt included in such securities, divided by (b) total first lien and second lien debt at amortized cost included in such securities. Actual yields earned over the life of each investment could differ materially from the yields presented above.

Total weighted average yields (which includes the effect of accretion of discount and amortization of premiums) of our first and second lien debt investments as measured on an amortized cost basis decreased from 8.42% to 7.99% from December 31, 2019 to March 31, 2020, primarily due to the decrease in LIBOR.

The following table summarizes the fair value of our performing and non-accrual/non-performing investments as of March 31, 2020 and December 31, 2019:



	March 31, 2020				December 31, 2019
	Fair Value		Percentage		Fair Value		Percentage
Performing	$	1,386,846	99.26	%	$	1,358,679	99.16	%
Non-accrual ⁽¹⁾	10,282		0.74	%	11,469		0.84	%
Total	$	1,397,128	100.00	%	$	1,370,148	100.00	%

(1) For information regarding our non-accrual policy, see Note 2, Significant Accounting Policies, to our consolidated financial statements in Part I, Item 1 of this Form 10-Q.

See the Consolidated Schedules of Investments as of March 31, 2020 and December 31, 2019 in our consolidated financial statements in Part I, Item 1 of this Form 10-Q for more information on our investments, including a list of companies and type and amount of investments.

As part of the monitoring process, our Investment Adviser has developed risk policies pursuant to which it regularly assesses the risk profile of each of our debt investments and rates each of them based on the following categories, which we refer to as “Internal Risk Ratings”:

Internal Risk Ratings Definitions



Rating		Definition
1		Performing—Low Risk: Borrower is operating more than 10% ahead of the base case.

2		Performing—Stable Risk: Borrower is operating within 10% of the base case (above or below). This is the initial rating assigned to all new borrowers.

3		Performing—Management Notice: Borrower is operating more than 10% below the base case. A financial covenant default may have occurred, but there is a low risk of payment default.

4		Watch List: Borrower is operating more than 20% below the base case and there is a high risk of covenant default, or it may have already occurred. Payments are current although subject to greater uncertainty, and there is moderate to high risk of payment default.

5		Watch List—Possible Loss: Borrower is operating more than 30% below the base case. At the current level of operations and financial condition, the borrower does not have the ability to service and ultimately repay or refinance all outstanding debt on current terms. Payment default is very likely or may have occurred. Loss of principal is possible.

6		Watch List—Probable Loss: Borrower is operating more than 40% below the base case, and at the current level of operations and financial condition, the borrower does not have the ability to service and ultimately repay or refinance all outstanding debt on current terms. Payment default is very likely or may have already occurred. Additionally, the prospects for improvement in the borrower’s situation are sufficiently negative that impairment of some or all principal is probable.

Our Investment Adviser’s risk rating model is based on evaluating portfolio company performance in comparison to the base case when considering certain credit metrics including, but not limited to, adjusted EBITDA and net senior leverage as well as specific events including, but not limited to, default and impairment.

Our Investment Adviser monitors and, when appropriate, changes the investment ratings assigned to each debt investment in our portfolio. In connection with our quarterly valuation process, our Investment Adviser reviews our investment ratings on a regular basis. The following table summarizes the Internal Risk Ratings as of March 31, 2020 and December 31, 2019:



	March 31, 2020				December 31, 2019
	Fair Value		% of Fair Value		Fair Value		% of Fair Value
(dollar amounts in millions)
Internal Risk Rating 1	$	36.2	2.63	%	$	36.7	2.70	%
Internal Risk Rating 2	1,169.3		84.95		1,202.7		88.60
Internal Risk Rating 3	132.3		9.61		73.2		5.39
Internal Risk Rating 4	28.4		2.06		33.4		2.46
Internal Risk Rating 5	—		—		11.5		0.85
Internal Risk Rating 6	10.3		0.75		—		—
Total	$	1,376.5	100.00	%	$	1,357.5	100.00	%

As of March 31, 2020 and December 31, 2019, the weighted average Internal Risk Rating of our debt investment portfolio was 2.1. As of March 31, 2020 and December 31, 2019, 5 and 5 of our debt investments, with an aggregate fair value of $38.7 million and $44.9 million, respectively, were assigned an Internal Risk Rating of 4-6. As of March 31, 2020 and December 31, 2019, 2 and 1 of our debt investments, with an aggregate fair value of $10.3 million and $11.5 million, respectively, were on non-accrual status, which represented 0.8% and 0.8%, respectively, of total investments at fair value. The remaining first and second lien debt investments were performing and current on their interest payments as of March 31, 2020 and December 31, 2019.

During the three month period ended March 31, 2020, one investment with fair value of $7.8 million was downgraded to an Internal Risk Rating of 4 due to changes in financial condition and performance of the portfolio company and one investment on the Watch List with a fair value of $6.1 million was repaid in full.

CONSOLIDATED RESULTS OF OPERATIONS

For the three month periods ended March 31, 2020 and 2019

The net increase or decrease in net assets from operations may vary substantially from period to period as a result of various factors, including the recognition of realized gains and losses and net change in unrealized appreciation and depreciation. As a result, quarterly comparisons may not be meaningful.

Investment Income

Investment income for the three month periods ended March 31, 2020 and 2019 was as follows:



	For the three month periods ended
	March 31, 2020		March 31, 2019
First Lien Debt	$	25,837	$	12,179
Second Lien Debt	6,778		2,923
Equity Investments	185		—
Cash	36		—
Total investment income	$	32,836	$	15,102

The increase in investment income for the three month period ended March 31, 2020 from the comparable period in 2019 was primarily driven by our deployment of capital and increasing invested balance. The size of our portfolio increased to $1,484,081 as of March 31, 2020 from $697,185 as of March 31, 2019 at amortized cost, and total principal amount of investments outstanding increased to $1,433,903 as of March 31, 2020 from $709,734 as of March 31, 2019. As of March 31, 2020, the weighted average yield of our first and second lien debt investments decreased to 7.99% from 9.29% as of March 31, 2019, on amortized cost primarily due to the decrease in LIBOR.

Interest income on our first and second lien debt investments is dependent on the composition and credit quality of the portfolio. Generally, we expect the portfolio to generate predictable quarterly interest income based on the terms stated in each loan’s credit agreement. As of March 31, 2020 and for the period then ended, 2 of our first lien debt investments were on non-

accrual status. The fair value of loans in the portfolio on non-accrual status was $10,282, which represents approximately 0.8% of total investments at fair value. The remaining first and second lien debt investments were performing and current on their interest payments. As of March 31, 2019, and for the period then ended, all of our first and second lien debt investments were performing and current on their interest payments.

Net investment income for the three month periods ended March 31, 2020 and 2019 was as follows:



	For the three month periods ended
	March 31, 2020		March 31, 2019
Total investment income	$	32,836	$	15,102
Total expenses	13,609		6,305
Net investment income (loss)	$	19,227	$	8,797

Expenses

Expenses for the three month periods ended March 31, 2020 and 2018 were comprised of the following:



	For the three month periods ended
	March 31, 2020		March 31, 2019
Management fees	$	2,573	$	1,057
Net investment income incentive fees	3,394		1,552
Professional fees	268		120
Administrative service fees	42		132
Interest expense	6,385		2,882
Credit facility fees	549		295
Directors’ fees and expenses	51		48
Other general and administrative	347		219
Total expenses	$	13,609	$	6,305

Interest expense and credit facility fees for the three month periods ended March 31, 2020 and 2019 were comprised of the following:



	For the three month periods ended
	March 31, 2020		March 31, 2019
Interest expense	$	6,385	$	2,882
Facility unused commitment fee	199		56
Amortization of deferred financing costs	350		239
Total interest expense and credit facility fees	$	6,934	$	3,177
Cash paid for interest expense	$	5,690	$	2,127

The increase in interest expense for the three month period ended March 31, 2020 compared to the comparable period in 2019 was driven by increased drawings under the Subscription Facility and SPV Credit Facility related to increased deployment of capital for investments. For the three month period ended March 31, 2020, the average interest rate decreased to 3.69% from 4.05% for the comparable period in 2019, and average principal debt outstanding increased to $684,893 from $284,768 for the comparable period in 2019.

The increase in management fees and incentive fees for the three month period ended March 31, 2020 was driven by our increased deployment of capital. For the three month periods ended March 31, 2020 and 2019, management fees were $2,573 and $1,057, respectively, incentive fees related to pre-incentive fee net investment income were $3,394 and $1,552 respectively, and there were no incentive fees related to realized capital gains as computed in accordance with the Investment Advisory Agreement. For the three month periods ended March 31, 2020 and 2019, there were no accrued capital gains incentive fees based upon the cumulative net realized and unrealized appreciation (depreciation). The accrual for any capital gains incentive fee under accounting principles generally accepted in the United States (“U.S. GAAP”) in a given period may result in an additional expense if such cumulative amount is greater than in the prior period or a reduction of previously recorded expense if such cumulative amount is less than in the prior period. If such cumulative amount is negative, then there is no accrual. No

incentive fees on capital gains have been paid through March 31, 2020. See Note 4 to the consolidated financial statements included in Part I, Item 1 of this Form 10-Q for more information on the incentive and management fees.

Professional fees include legal, rating agencies, audit, tax, valuation, technology and other professional fees incurred related to the management of the Company. Administrative service fees represent fees paid to the Administrator for our allocable portion of overhead and other expenses incurred by the Administrator in performing its obligations under the administration agreement, including our allocable portion of the cost of certain of our executive officers and their respective staff. Other general and administrative expenses include insurance, filing, research, subscriptions, sub-administrative fees and other costs.

Net Change in Unrealized Appreciation (Depreciation) on Investments

During the three month period ended March 31, 2020, we recorded realized gain of approximately $6 on one investment and realized loss of approximately $186 on one investment. We recorded a change in unrealized appreciation on five investments totaling approximately $427 and a change in unrealized depreciation on 89 investments of approximately $89,097.

During the three month period ended March 31, 2019, we had realized gains on two investments, totaling $269 which was offset by a change in realized loss on one investment totaling $12. We recorded a change in unrealized appreciation on 41 investments totaling approximately $4,576 and a change in unrealized depreciation on 14 investments totaling approximately $2,281.

Net realized gain (loss) and net change in unrealized appreciation (depreciation) for the three month periods ended March 31, 2020 and 2019 were as follows:



	For the three month periods ended
	March 31, 2020			March 31, 2019
Net realized gain (loss) on investments	$	(180	)	$	257
Net change in unrealized appreciation (depreciation) on investments	(88,670		)	2,295
Net realized gain (loss) and net change in unrealized appreciation (depreciation) on investments	$	(88,850	)	$	2,552

Net realized gain (loss) and net change in unrealized appreciation (depreciation) by the type of investments for the three month periods ended March 31, 2020 and 2019 were as follows:



	For the three month periods ended
	March 31, 2020						March 31, 2019
	Net realized gain (loss)			Net change in unrealized appreciation (depreciation)			Net realized gain (loss)			Net change in unrealized appreciation (depreciation)
First Lien Debt	$	(180	)	$	(52,956	)	$	(12	)	$	1,536
Second Lien Debt	—			(33,569		)	—			555
Equity Investments	—			(2,145		)	269			204
Total	$	(180	)	$	(88,670	)	$	257		$	2,295

Net change in unrealized depreciation in our investments for the three month period ended March 31, 2020 was primarily due to higher market spreads related to the COVID-19 pandemic, as well as to changes in other inputs utilized under our valuation methodology, including, but not limited to, leverage multiples and borrower ratings, and the impact of exits.

FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES

We generate cash from the net proceeds of offerings of our common stock and through cash flows from operations, including investment sales and repayments as well as income earned on investments and cash equivalents. We may also fund a portion of our investments through borrowings under the Facilities, as well as through securitization of a portion of our existing investments. The primary use of existing funds and any funds raised in the future is expected to be for investments in portfolio companies, repayment of indebtedness, cash distributions to our stockholders and for other general corporate purposes.

We expect that the market and business disruption created by the COVID-19 pandemic will impact certain aspects of our liquidity, and we are therefore continuously and critically monitoring our operating results, liquidity and anticipated capital requirements. For example, we saw an unprecedented level of calls for revolver fundings and a slowing in our expected repayments in March. High market spreads and other economic volatility resulted in significant depreciation in the valuations of our investments, which may adversely impact collateral eligibility, which would reduce the availability under the Facilities. However, our capacity under the Facilities as of March 31, 2020 is well in excess of our unfunded commitments. We believe our current cash position, available capacity on our revolving credit facilities and net cash provided by operating activities will provide us with sufficient resources to meet our obligations and continue to support our investment objectives, including reserving for the capital needs which may arise at our portfolio companies.

We entered into a revolving credit facility with a lender on October 3, 2017, which was subsequently amended on March 14, 2018 and November 16, 2018 (as amended, the “Subscription Facility”). The maximum principal amount of the Subscription Facility was $235,000 as of March 31, 2020 (reduced from $265,000 as of December 31, 2019), and is subject to availability under the Subscription Facility, which is based on certain of the Company's unfunded investor equity capital commitments, and restrictions imposed on borrowings under the Investment Company Act. The Subscription Facility has a maturity date of October 3, 2020, with two one-year extension options, subject to the Company’s and the lender’s consent. The Company may borrow amounts in U.S. Dollars or certain other permitted currencies. Borrowings under the Subscription Facility bear interest initially at LIBOR plus 1.75% per year. The Company is also required to pay an undrawn commitment fee of 0.25% per year. Subject to certain exceptions, the Subscription Facility is secured by a first lien security interest in our equity investors’ unfunded capital commitments.

We entered into a senior secured revolving credit facility with a lender on April 1, 2019 (the “SPV Credit Facility”), which was subsequently amended on October 25, 2019. The maximum principal amount of the SPV Credit Facility was $600,000 as of March 31, 2020 and is subject to availability under the SPV Credit Facility and restrictions imposed on borrowings under the Investment Company Act. The SPV Credit Facility has a maturity date of April 1, 2024, with one one-year extension option, subject to the SPV's and lender's consent. The SPV may borrow amounts in U.S. Dollars or certain other permitted currencies. Borrowings under the SPV Credit Facility bear interest initially at LIBOR (or, if applicable, a rate based on the prime rate or federal funds rate) plus 2.25% per year with a step-up based on collateral coverage and asset mix. The SPV is also required to pay an undrawn commitment fee of between 0.50% and 0.75% per year. The SPV Credit Facility is secured by a first lien security interest on substantially all of the assets of the SPV.

Although we believe that we and the SPV will remain in compliance, there are no assurances that we or the SPV will continue to comply with the covenants in the Subscription Facility and SPV Credit Facility, as applicable. Failure to comply with these covenants could result in a default under the Subscription Facility and/or the SPV Credit Facility that, if we were unable to obtain a waiver from the applicable lenders, could result in the immediate acceleration of the amounts due under the Subscription Facility and/or SPV Credit Facility, and thereby have a material adverse impact on our business, financial condition and results of operations. Moreover, to the extent that we cannot meet our financing obligations, we risk the loss of some or all of our assets to liquidation or sale to satisfy the obligations. In such an event, we may be forced to sell assets at significantly depressed prices due to market conditions or otherwise, which may result in losses.

For more information on the Subscription Facility and the SPV Credit Facility, see Note 5 to the consolidated financial statements in Part I, Item 1 of this Form 10-Q.

As of March 31, 2020 and December 31, 2019, the Company had $47,543 and $18,937, respectively, in cash and cash equivalents. The Secured Borrowings consisted of the following as of March 31, 2020 and December 31, 2019:



	March 31, 2020
	Total Facility		Borrowings Outstanding		Unused Portion ⁽¹⁾		Amount Available ⁽²⁾
Subscription Facility	$	235,000	$	109,926	$	125,074	$	67,186
SPV Credit Facility	600,000		498,000		102,000		102,000
Total	$	835,000	$	607,926	$	227,074	$	169,186



	December 31, 2019
	Total Facility		Borrowings Outstanding		Unused Portion ⁽¹⁾		Amount Available ⁽²⁾
Subscription Facility	$	265,000	$	231,700	$	33,300	$	25,749
SPV Credit Facility	$	600,000	$	416,500	$	183,500	$	183,500
Total	$	865,000	$	648,200	$	216,800	$	209,249


(1)	The unused portion is the amount upon which commitment fees are based.


(2)	Available for borrowing based on the computation of collateral to support the borrowings and subject to compliance with applicable covenants and financial ratios.

Equity Activity

Shares issued as of March 31, 2020 and December 31, 2019 were 44,896,727 and 14,299,500, respectively.

The following table summarizes activity in the number of shares of our common stock outstanding during the three month periods ended March 31, 2020 and 2019:



	For the three month periods ended
	March 31, 2020	March 31, 2019
Shares outstanding, beginning of period	35,769,223	14,229,500
Common stock issued	9,127,504	4,835,526
Shares outstanding, end of period	44,896,727	19,065,026

Contractual Obligations

A summary of our significant contractual payment obligations was as follows as of March 31, 2020 and December 31, 2019:



	SPV Credit Facility and Credit Facility
Payment Due by Period	March 31, 2020		December 31, 2019
Less than 1 Year	$	109,926	$	231,700
1-3 Years	—		—
3-5 Years	498,000		416,500
More than 5 Years	—		—
Total	$	607,926	$	648,200

As of March 31, 2020 and December 31, 2019, $607,926 and $231,700, respectively, of secured borrowings were outstanding under the Subscription Facility and SPV Credit Facility. For the three month periods ended March 31, 2020 and 2019, we incurred $6,385 and $2,882, respectively, of interest expense and $199 and $56, respectively, of unused commitment fees.

OFF BALANCE SHEET ARRANGEMENTS

In the ordinary course of our business, we enter into contracts or agreements that contain indemnifications or warranties. Future events could occur which may give rise to liabilities arising from these provisions against us. We believe that the likelihood of such an event is remote; however, the maximum potential exposure is unknown. No accrual has been made in these consolidated financial statements as of March 31, 2020 and December 31, 2019 included in Part I, Item 1 of this Form 10-Q for any such exposure.

We have in the past, currently are and may in the future become obligated to fund commitments such as revolving credit facilities, bridge financing commitments, or delayed draw commitments.

We had the following unfunded commitments to fund delayed draw and revolving senior secured loans as of the indicated dates:



	Par Value as of
	March 31, 2020		December 31, 2019
Unfunded delayed draw commitments	$	96,331	$	79,156
Unfunded revolving term loan commitments	31,393		54,249
Total unfunded commitments	$	127,724	$	133,405

DIVIDENDS AND DISTRIBUTIONS TO COMMON STOCKHOLDERS

The following table summarizes our dividends declared and payable since inception through March 31, 2020:



Date Declared	Record Date	Payment Date	Per Share Amount
March 12, 2018	March 12, 2018	April 17, 2018	$	0.30
June 6, 2018	June 6, 2018	July 18, 2018	$	0.37
September 13, 2018	September 13, 2018	October 18, 2018	$	0.40
December 26, 2018	December 26, 2018	January 18, 2019	$	0.46
March 12, 2019	March 12, 2019	April 18, 2019	$	0.47
June 11, 2019	June 11, 2019	July 18, 2019	$	0.51
September 10, 2019	September 10, 2019	October 18, 2019	$	0.50
December 10, 2019	December 10, 2019	January 17, 2020	$	0.50
March 4, 2020	March 4, 2020	April 17, 2020	$	0.53

CRITICAL ACCOUNTING POLICIES

The preparation of our consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues, and expenses. Changes in the economic environment, financial markets, and any other parameters used in determining such estimates could cause actual results to differ. Our critical accounting policies, including those relating to the valuation of our investment portfolio, are described below. The critical accounting policies should be read in connection with our consolidated financial statements in Part I, Item 1 of this Form 10-Q and in Part II, Item 8 of the Company’s annual report on Form 10-K for the year ended December 31, 2019.

Fair Value Measurements

The Company applies fair value accounting in accordance with the terms of Financial Accounting Standards Board ASC Topic 820, Fair Value Measurement (“ASC 820”). ASC 820 defines fair value as the amount that would be exchanged to sell an asset or transfer a liability in an orderly transfer between market participants at the measurement date. The Company values securities/instruments traded in active markets on the measurement date by multiplying the closing price of such traded securities/instruments by the quantity of shares or amount of the instrument held. The Company may also obtain quotes with respect to certain of its investments, such as its securities/instruments traded in active markets and its liquid securities/instruments that are not traded in active markets, from pricing services, brokers, or counterparties (i.e., “consensus pricing”). When doing so, the Company determines whether the quote obtained is sufficient according to U.S. GAAP to determine the fair value of the security. The Company may use the quote obtained or alternative pricing sources may be utilized including valuation techniques typically utilized for illiquid securities/instruments.

Securities/instruments that are illiquid or for which the pricing source does not provide a valuation or methodology or provides a valuation or methodology that, in the judgment of the Investment Adviser or the Board of Directors, does not represent fair value shall each be valued as of the measurement date using all techniques appropriate under the circumstances and for which sufficient data is available. These valuation techniques may vary by investment and include comparable public market valuations, comparable precedent transaction valuations and/or discounted cash flow analyses. The process generally used to determine the applicable value is as follows: (i) the value of each portfolio company or investment is initially reviewed by the investment professionals responsible for such portfolio company or investment and, for non-traded investments, a standardized template designed to approximate fair market value based on observable market inputs, updated credit statistics and unobservable inputs is used to determine a preliminary value, which is also reviewed alongside consensus pricing, where available; (ii) preliminary valuation conclusions are documented and reviewed by a valuation committee comprised of members of senior management; (iii) the Board of Directors engages a third-party valuation firm to provide positive assurance on portions of the Middle Market Senior Loans and equity investments portfolio each quarter (such that each non-traded investment is reviewed by a third-party valuation firm at least once on a rolling twelve month basis) including a review of management’s preliminary valuation and conclusion on fair value; (iv) the Audit Committee of the Board of Directors (the “Audit Committee”) reviews the assessments of the Investment Adviser and the third-party valuation firm and provides the Board of Directors with any recommendations with respect to changes to the fair value of each investment in the portfolio; and (v) the Board of Directors discusses the valuation recommendations of the Audit Committee and determines the fair value of each investment in the portfolio in good faith based on the input of the Investment Adviser and, where applicable, the third-party valuation firm.

All factors that might materially impact the value of an investment are considered, including, but not limited to the assessment of the following factors, as relevant:


•	the nature and realizable value of any collateral;


•	call features, put features and other relevant terms of debt;


•	the portfolio company’s leverage and ability to make payments;


•	the portfolio company’s public or private credit rating;


•	the portfolio company’s actual and expected earnings and discounted cash flow;


•	prevailing interest rates and spreads for similar securities and expected volatility in future interest rates;


•	the markets in which the portfolio company does business and recent economic and/or market events; and


•	comparisons to comparable transactions and publicly traded securities.

For further information on the fair value hierarchies, our framework for determining fair value and the composition of our portfolio, see Note 3 to the consolidated financial statements in Part I, Item 1 of this Form 10-Q.

Use of Estimates

The preparation of consolidated financial statements in Part I, Item 1 of this Form 10-Q in conformity with U.S. GAAP requires management to make assumptions and estimates 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. Management’s estimates are based on historical experiences and other factors, including expectations of future events that management believes to be reasonable under the circumstances. It also requires management to exercise judgment in the process of applying the Company’s accounting policies. Assumptions and estimates regarding the valuation of investments and their resulting impact on management and incentive fees involve a higher degree of judgment and complexity and these assumptions and estimates may be significant to the consolidated financial statements in Part I, Item 1 of this Form 10-Q. Actual results could differ from these estimates and such differences could be material.

Investments

Investment transactions are recorded on the trade date. Realized gains or losses are measured by the difference between the net proceeds from the repayment or sale and the amortized cost basis of the investment using the specific identification method without regard to unrealized appreciation or depreciation previously recognized, and includes investments charged off during the period, net of recoveries. Net change in unrealized appreciation or depreciation on investments as presented in the Consolidated Statements of Operations in Part I, Item 1 of this Form 10-Q reflects the net change in the fair value of investments, including the reversal of previously recorded unrealized appreciation or depreciation when gains or losses are realized.

Revenue Recognition

Interest from Investments and Realized Gain/Loss on Investments

Other Income

Other income may include income such as consent, waiver, amendment, unused, underwriting, arranger and prepayment fees associated with the Company’s investment activities as well as any fees for managerial assistance services rendered by the Company to the portfolio companies. Such fees are recognized as income when earned or the services are rendered. The Company may receive fees for guaranteeing the outstanding debt of a portfolio company. Such fees are amortized into other income over the life of the guarantee. The unamortized amount, if any, is included in other assets in the Consolidated Statements of Assets and Liabilities included in Part I, Item 1 of this Form 10-Q.

Non-Accrual Income

Income Taxes

The SPVs are disregarded entities for tax purposes and are consolidated with the tax return of the Company.

Dividends and Distributions to Common Stockholders

Item 3. Quantitative and Qualitative Disclosures About Market Risk.

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

Valuation Risk

Our investments generally do not have a readily available market price, and we value these investments at fair value as determined in good faith by our Board of Directors in accordance with our valuation policy. There is no single standard for determining fair value in good faith. As a result, determining fair value requires that judgment be applied to the specific facts and circumstances of each portfolio investment while employing a consistently applied valuation process for the types of investments we make. Due to the inherent uncertainty of determining the fair value of investments that do not have a readily available market value, the fair value of our investments may fluctuate from period to period. In addition, because of the inherent uncertainty of valuation, these estimated values may differ significantly from the values that would have been used had a ready market for the investments existed, and it is possible that the difference could be material.

Interest Rate Risk

As of March 31, 2020, on a fair value basis, all of our debt investments bear interest at a floating rate, which primarily are subject to interest rate floors. Interest rates on the investments held within our portfolio of investments are typically based on floating LIBOR, with many of these investments also having a LIBOR floor. Additionally, our Subscription Facility and the SPV Credit Facility are subject to floating interest rates and are currently paid based on floating LIBOR rates.

Interest rate sensitivity refers to the change in earnings that may result from changes in the level of interest rates. There can be no assurance that a significant change in market interest rates will not have a material adverse effect on our income in the future.

The following table estimates the potential changes in net cash flow generated from interest income, should interest rates increase or decrease by 100, 200 or 300 basis points. These hypothetical interest income calculations are based on a model of the settled debt investments in our portfolio, held as of March 31, 2020 and December 31, 2019, and are only adjusted for assumed changes in the underlying base interest rates and the impact of that change on interest income. Interest expense is calculated based on outstanding secured borrowings as of March 31, 2020 and December 31, 2019 and based on the terms of our Subscription Facility. Interest expense on our Subscription Facility is calculated using the interest rate as of March 31, 2020 and 2019, adjusted for the hypothetical changes in rates, as shown below. We intend to continue to finance a portion of our investments with borrowings and the interest rates paid on our borrowings may impact significantly our net interest income.

We regularly measure exposure to interest rate risk. We assess interest rate risk and manage interest rate exposure on an ongoing basis by comparing our interest rate sensitive assets to our interest rate sensitive liabilities. Based on that review, we determine whether or not any hedging transactions are necessary to mitigate exposure to changes in interest rates.

Based on our Consolidated Statements of Assets and Liabilities as of March 31, 2020 and December 31, 2019, the following table shows the annual impact on net investment income of base rate changes in interest rates for our settled debt investments (considering interest rate floors for variable rate instruments) and outstanding secured borrowings assuming no changes in our investment and borrowing structure:



	March 31, 2020									December 31, 2019
Basis Point Change	Interest Income			Interest Expense			Net Investment Income			Interest Income			Interest Expense			Net Investment Income
Up 300 basis points	$	42,857		$	(18,242	)	$	24,615		$	40,344		$	(19,382	)	$	20,962
Up 200 basis points	$	28,571		$	(12,161	)	$	16,410		$	26,896		$	(12,921	)	$	13,975
Up 100 basis points	$	14,286		$	(6,081	)	$	8,205		$	13,448		$	(6,461	)	$	6,987
Down 100 basis points	$	(6,326	)	$	6,073		$	(253	)	$	(11,620	)	$	6,461		$	(5,159	)
Down 200 basis points	$	(6,614	)	$	9,536		$	2,922		$	(13,878	)	$	11,996		$	(1,882	)
Down 300 basis points	$	(6,614	)	$	9,536		$	2,922		$	(14,265	)	$	11,996		$	(2,269	)

Item 4. Controls and Procedures.

Evaluation of Disclosure Controls and Procedures

As of the end of the period covered by this report, we carried out an evaluation, under the supervision and with the participation of our management, including our Chief Executive Officer (Principal Executive Officer) and our Chief Financial Officer (Principal Financial Officer), of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rule 13a-15 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Based on that evaluation, our Chief Executive Officer and our Chief Financial Officer have concluded that our current disclosure controls and procedures are effective in timely alerting them of material information relating to the Company that is required to be disclosed by us in the reports we file or submit under the Exchange Act.

Changes in Internal Controls over Financial Reporting

There have been no changes in our internal control over financial reporting during the three month period ended March 31, 2020 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II—OTHER INFORMATION

Item 1. Legal Proceedings

The Company may become party to certain lawsuits in the ordinary course of business, including proceedings relating to the enforcement of our rights under contracts with our portfolio companies. The Company is not currently subject to any material legal proceedings, nor, to our knowledge, is any material legal proceeding threatened against the Company. See also Note 9 to the consolidated financial statements in Part I, Item 1 of this Form 10-Q.

Item 1A. Risk Factors.

In addition to the other information set forth within this Form 10-Q, consideration should be given to the information disclosed in “Risk Factors” in Part I, Item 1A of our annual report on Form 10-K for the year ended December 31, 2019 and the following risk factors we have added regarding the impacts of the COVID-19 pandemic, which reemphasizes and in some cases updates certain risk factors we have previously disclosed and provides specific context under the current environment.

The COVID-19 pandemic could materially and adversely affect our portfolio companies and the results of our operations.

In late 2019 and early 2020, SARS-CoV-2 and COVID-19 emerged in China and spread rapidly to across the world, including to the U.S. This outbreak has led and for an unknown period of time will continue to lead to disruptions in local, regional, national and global markets and economies affected thereby. With respect to the U.S. credit markets (in particular for middle market loans), this outbreak has resulted in, and until fully resolved is likely to continue to result in, the following among other things: (i) government imposition of various forms of “stay at home” orders and the closing of “non-essential” businesses, resulting in significant disruption to the businesses of many middle-market loan borrowers including supply chains, demand and practical aspects of their operations, as well as in lay-offs of employees, and, while these effects are hoped to be temporary, some effects could be persistent or even permanent; (ii) increased draws by borrowers on revolving lines of credit; (iii) increased requests by borrowers for amendments and waivers of their credit agreements to avoid default, increased defaults by such borrowers and/or increased difficulty in obtaining refinancing at the maturity dates of their loans; (iv) volatility and disruption of these markets including greater volatility in pricing and spreads and difficulty in valuing loans during periods of increased volatility, and liquidity issues; and (v) rapidly evolving proposals and/or actions by state and federal governments to address problems being experienced by the markets and by businesses and the economy in general which will not necessarily adequately address the problems facing the loan market and middle market businesses. This outbreak is having, and any future outbreaks could have, an adverse impact on our portfolio companies and us and on the markets and the economy in general, and that impact could be material.

Further, from an operational perspective, our Investment Adviser’s investment professionals are currently working remotely. An extended period of remote work arrangements could strain our business continuity plans, introduce operational risk, including but not limited to cybersecurity risks, and impair our ability to manage our business. In addition, we are highly dependent on third party services providers for certain communication and information systems. As a result, we rely upon the successful implementation and execution of the business continuity planning of such providers in the current environment. If one or more of these third parties to whom we outsource certain critical business activities experience operational failures as a result of the impacts from the spread of COVID-19, or claim that they cannot perform due to a force majeure, it may have a material adverse effect on our business, financial condition, results of operations, liquidity and cash flows.

We are currently operating in a period of capital markets disruption and economic uncertainty.

The U.S. capital markets have experienced extreme volatility and disruption following the spread of COVID-19 in the United States. Some economists and major investment banks have expressed concern that the continued spread of the virus globally could lead to a world-wide economic downturn. Disruptions in the capital markets have increased the spread between the yields realized on risk-free and higher risk securities, resulting in illiquidity in parts of the capital markets. These and future market disruptions and/or illiquidity would be expected to have an adverse effect on our business, financial condition, results of operations and cash flows. Unfavorable economic conditions also would be expected to increase our funding costs, limit our access to the capital markets or result in a decision by lenders not to extend credit to us. These events have limited and could continue to limit our investment originations, and limit our ability to grow and could have a material negative impact on our operating results and the fair values of our debt and equity investments.

If the current period of capital market disruption and instability continues for an extended period of time, there is a risk that our stockholders may not receive distributions or that our distributions may not grow over time and a portion of our distributions to you may be a return of capital for U.S. federal income tax purposes.

We intend to make distributions on a quarterly basis to our stockholders out of assets legally available for distribution. We cannot assure you that we will achieve investment results that will allow us to make a specified level of cash distributions or year-to-year increases in cash distributions. Our ability to pay distributions might be adversely affected by the impact of one or more of the risk factors described in this prospectus or incorporated herein by reference, including the COVID-19 pandemic described above. For example, if the temporary closure of many corporate offices, retail stores, and manufacturing facilities and factories in the jurisdictions, including the United States, affected by the COVID-19 pandemic were to continue for an extended period of time it could result in reduced cash flows to us from our existing portfolio companies, which could reduce cash available for distribution to our stockholders. If we declare a dividend and if enough stockholders opt to receive cash distributions rather than participate in our dividend reinvestment plan, we may be forced to sell some of our investments in order to make cash dividend payments. In addition, due to the asset coverage test applicable to us as a BDC, we may be limited in our ability to make distributions. The Facilities may also limit our ability to declare dividends if we default under certain provisions. Further, if we invest a greater amount of assets in equity securities that do not pay current dividends, it could reduce the amount available for distribution. The above referenced restrictions on distributions may also inhibit our ability to make required interest payments to holders of our debt, which may cause a default under the terms of our debt agreements. Such a default could materially increase our cost of raising capital, as well as cause us to incur penalties under the terms of our debt agreements.

The distributions we pay to our stockholders in a year may exceed our taxable income for that year and, accordingly, a portion of such distributions may constitute a return of capital for U.S. federal income tax purposes that would reduce a stockholder’s adjusted tax basis in its shares of our common stock or preferred stock and correspondingly increase such stockholder’s gain, or reduce such stockholder’s loss, on disposition of such shares. Distributions in excess of a stockholder’s adjusted tax basis in its shares of our common stock or preferred stock will constitute capital gains to such stockholder.

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

Except as previously reported by the Company on Form 8-K, we did not sell any equity securities during the period covered in this report that were not registered under the Securities Act of 1933, as amended.

Item 3. Defaults Upon Senior Securities.

Not applicable.

Item 4. Mine Safety Disclosures.

Not applicable.

Item 5. Other Information.

None.

Item 6. Exhibits.



31.1		Certification of Chief Executive Officer (Principal Executive Officer) Pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934, as amended.*

31.2		Certification of Chief Financial Officer (Principal Financial Officer) Pursuant to Rule 13a-14 of the Securities Exchange Act of 1934, as amended.*

32.1		Certification of Chief Executive Officer (Principal Executive Officer) Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.*

32.2		Certification of Chief Financial Officer (Principal Financial Officer) Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.*

* Filed herewith

SIGNATURES

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



	TCG BDC II, INC.

Dated: May 11, 2020	By	/s/ Thomas M. Hennigan
		Thomas M. Hennigan Chief Financial Officer (principal financial officer)

Positive
Negative
Uncertain
Constraining
Legalese
Litigous
Readability	H.S. sophomore Avg

Large accelerated filer

Accelerated filer

Non-accelerated filer

Smaller reporting company

Emerging growth company