UNITED STATES


SECURITIES AND EXCHANGE COMMISSION


Washington, D.C. 20549





FORM 10-K/A


(Amendment No. 1)


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


For the fiscal year ended December 31, 2017


OR


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


For the transition period from                to


Commission File No. 000-55848


TCG BDC II, INC.


(Exact name of Registrant as specified in its charter)


Maryland81-5320146(State or other jurisdiction ofincorporation or organization)(I.R.S. EmployerIdentification Number)


520 Madison Avenue, 40th Floor, New York, NY 10022


(Address of principal executive office) (Zip Code)


(212) 813-4900


(Registrant’s telephone number, including area code)





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


None


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


Common Stock, par value $0.01 per share


(Title of Class)





Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.    Yes  ☐    No x


Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.    Yes  ☐    No x


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 x No  ☐


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


Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§ 229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.    ☐


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


Large accelerated filer☐Accelerated filer☐Non-accelerated filerx(Do not check if a smaller reporting company)Smaller reporting company☐


If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period 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 March 1, 2018 was 4,130,683 .


Documents Incorporated by Reference: Portions of the registrant’s Proxy Statement for its 2018 Annual Meeting of Stockholders to be filed not later than 120 days after the end of the fiscal year covered by this Annual Report on Form 10-K are incorporated by reference into Part III of this Form 10-K.





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Explanatory Note





This Amendment No. 1 on Form 10-K/A (“Amendment No. 1”) amends TCG BDC II, Inc.’s (the “Company”) Annual Report on Form 10-K for the fiscal year ended December 31, 2017, as filed with the U.S. Securities and Exchange Commission on March 1, 2018 (the “Original Filing” and the “Original Filing Date”).





This Amendment No. 1 is being filed solely to: i) include the phrase “including the schedule of investments” inadvertently omitted by Ernst & Young LLP from, and to update for certain other typographical items in, the first paragraph of its “Report of Independent Registered Public Accounting Firm” on the financial statements of the Company in Part II, Item 8 of the Original Filing, and ii) include the sentence “our procedures included confirmation of securities owned as of December 31, 2017 by correspondence with the custodian and debt agents” inadvertently omitted by Ernst & Young LLP from the last paragraph of its “Report of Independent Registered Public Accounting Firm” on the financial statements of the Company.  Pursuant to Rule 12b-15 promulgated under the Securities Exchange Act of 1934, as amended, we have included the entire text of Part II, Items 8 and 9A in this Amendment No. 1.





The changes to add the phrases to the filed copies of the reports of Ernst & Young LLP do not affect Ernst & Young LLP’s unqualified opinion on the Company’s financial statements included in the Original Filing and Amendment No. 1.





Item 15 has been included herein to reflect new Section 302 and Section 906 certifications. Except as noted above, no changes were made to the Original Filing. This amendment speaks as of the Original Filing Date, and does not reflect events that may have occurred subsequent to the Original Filing Date.





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PART II





Item 8. Financial Statements and Supplementary Data


TCG BDC II, INC.


INDEX TO FINANCIAL STATEMENTS





Report of Independent Registered Public Accounting Firm4Statement of Assets and Liabilities as of December 31, 20175Statement of Operations for the period from September 11, 2017 (commencement of operations) to December 31, 20176Statement of Changes in Net Assets for the period from September 11, 2017 (commencement of operations) to December 31, 20177Statement of Cash Flows for the period from September 11, 2017 (commencement of operations) to December 31, 20178Schedule of Investments as of December  31, 20179Notes to Financial Statements12





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Report of Independent Registered Public Accounting Firm





The Board of Directors and Stockholders of


TCG BDC II, Inc.





Opinion on the Financial Statements


We have audited the accompanying statement of assets and liabilities of TCG BDC II, Inc. (the “Company”), including the schedule of investments, as of December 31, 2017 , and the related statements of operations, changes in net assets and cash flows for the period from September 11, 2017 (commencement of operations) to December 31, 2017 , and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2017 , and the results of its operations, changes in its net assets and its cash flows for the period from September 11, 2017 (commencement of operations) to December 31, 2017 , in conformity with U.S. generally accepted accounting principles.





Basis for Opinion


These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company's financial statements based on our audit. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.





We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audit, we are required to obtain an understanding of internal control over financial reporting, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.





Our audit included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our procedures included confirmation of securities owned as of December 31, 2017 by correspondence with the custodian and debt agents. Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audit provides a reasonable basis for our opinion.





/s/ Ernst & Young LLP





We have served as the Company's auditor since 2017.





New York, NY


March 1, 2018





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TCG BDC II, INC.


STATEMENT OF ASSETS AND LIABILITIES


(dollar amounts in thousands, except per share data)





December 31, 2017ASSETSInvestments—non-controlled/non-affiliated, at fair value (amortized cost of $80,407)$81,289Cash and cash equivalents70,570Deferred financing costs1,090Deferred offering costs717Interest receivable from non-controlled/non-affiliated investments421Prepaid expenses and other assets371Total assets$154,458LIABILITIESSecured borrowings (Note 5)$60,750Payable for investments purchased7,463Due to Investment Adviser2,747Interest and credit facility fees payable (Note 5)146Management fees payable (Note 4)252Administrative service fees payable (Note 4)22Other accrued expenses and liabilities356Total liabilities71,736Commitments and contingencies (Notes 6 and 9)NET ASSETSCommon stock, $0.01 par value; 200,000,000 shares authorized; 4,130,683 shares issued and outstanding41Paid-in capital in excess of par value82,507Accumulated net investment income (loss)(708)Accumulated net unrealized appreciation (depreciation)882Total net assets$82,722NET ASSETS PER SHARE$20.03





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





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TCG BDC II, INC.


STATEMENT OF OPERATIONS


(dollar amounts in thousands, except per share data)





For the period from September 11, 2017 (commencement of operations) to December 31, 2017Investment income:From non-controlled/non-affiliated investments:Interest income$767Other income224Total investment income from non-controlled/non-affiliated investments991Total investment income991Expenses:Organization costs (Note 4)381Offering costs (Note 4)317Management fees (Note 4)252Professional fees163Administrative service fees (Note 4)52Interest expense (Note 5)83Credit facility fees (Note 5)185Directors’ fees and expenses49Other general and administrative217Total expenses1,699Net investment income (loss)(708)Net change in unrealized appreciation (depreciation) on investments:Net change in unrealized appreciation (depreciation):Non-controlled/non-affiliated investments882Net change in unrealized appreciation (depreciation) on investments882Net increase (decrease) in net assets resulting from operations$174Basic and diluted earnings per common share (Note 7)$0.12Weighted-average shares of common stock outstanding—Basic and Diluted (Note 7)1,421,700





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





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TCG BDC II, INC.


STATEMENT OF CHANGES IN NET ASSETS


(dollar amounts in thousands)





For the period from September 11, 2017 (commencement of operations) to December 31, 2017Increase (decrease) in net assets resulting from operations:Net investment income (loss)$(708)Net change in unrealized appreciation (depreciation) on investments882Net increase (decrease) in net assets resulting from operations174Capital transactions:Common stock issued82,548Net increase (decrease) in net assets resulting from capital share transactions82,548Net increase (decrease) in net assets82,722Net assets at beginning of period—Net assets at end of period$82,722





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





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TCG BDC II, INC.


STATEMENT OF CASH FLOWS


(dollar amounts in thousands)





For the period from September 11, 2017 (commencement of operations) to December 31, 2017Cash flows from operating activities:Net increase (decrease) in net assets resulting from operations$174Adjustments to reconcile net increase (decrease) in net assets resulting from operations to net cash provided by (used in) operating activities:Amortization of deferred financing costs98Amortization of deferred offering costs317Net accretion of discount on investments(16)Net change in unrealized (appreciation) depreciation on investments(882)Cost of investments purchased and change in payable for investments purchased(77,402)Proceeds from sales and repayments of investments and change in receivable for investments sold4,474Changes in operating assets:Interest receivable(421)Prepaid expenses and other assets(371)Changes in operating liabilities:Due to Investment Adviser538Interest and credit facility fees payable146Management fees payable252Administrative service fees payable22Other accrued expenses and liabilities343Net cash provided by (used in) operating activities(72,728)Cash flows from financing activities:Proceeds from issuance of common stock82,548Borrowings on Subscription Facility81,225Repayments of Subscription Facility(20,475)Net cash provided by (used in) financing activities143,298Net increase (decrease) in cash and cash equivalents70,570Cash and cash equivalents, beginning of period—Cash and cash equivalents, end of period$70,570Supplemental disclosures:Deferred financing costs due$1,188Deferred offering costs due$1,034Interest paid during the period$25


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





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TCG BDC II, INC.


SCHEDULE OF INVESTMENTS


As of December 31, 2017


(dollar amounts in thousands)


Investments—non-controlled/non-affiliated(1)IndustryInterest Rate(2)Maturity DatePar/ Principal AmountAmortized Cost(4)Fair Value(5)Percentage of Net AssetsFirst Lien Debt (61.56%)BeyondTrust Software, Inc.(2)(3)SoftwareL + 6.25% (1.00% Floor)11/21/2023$8,000$7,886$7,9589.62%Datto, Inc.(2)(3)(6)High Tech IndustriesL + 8.00% (1.00% Floor)12/7/202217,66717,39817,76221.47Radiology Partners Inc.(2)(3)(6)Healthcare & PharmaceuticalsL + 5.75% (1.00% Floor)12/4/20238,5978,4998,54710.34Smile Doctors, LLC(2)(3)(6)Healthcare & PharmaceuticalsL + 5.75% (1.00% Floor)10/6/20229,0598,9118,99310.87Zenith Merger Sub, Inc.(2)(3)(6)Business ServicesL + 5.50% (1.00% Floor)12/12/20236,8266,7276,7858.20First Lien Debt Total$49,421$50,04560.50%Second Lien Debt (37.90%)Argon Medical Devices Holdings, Inc.(2)(3)Healthcare & PharmaceuticalsL + 8.00% (1.00% Floor)1/23/2026$7,500$7,464$7,5159.08%Paradigm Acquisition Corp.(2)(3)Business ServicesL + 8.50% (1.00% Floor)10/12/20259,6009,5069,58411.59Pathway Partners Vet Management Company LLC(2)(3)(6)Consumer ServicesL + 8.00% (1.00% Floor)10/10/20256,1386,0546,1337.41Santa Cruz Holdco, Inc.(2)(3)Non-durable Consumer GoodsL + 8.25% (1.00% Floor)12/13/20247,6007,5247,5749.16Second Lien Debt Total$30,548$30,80637.24%


Investments—non-controlled/non-affiliated(1)IndustryShares/ UnitsCostFair Value(5)Percentage of Net AssetsEquity Investments (0.54%)Zenith American Holding, Inc.Business Services438,356$438$4380.53%Equity Investments Total$438$4380.53%Total investments—non-controlled/non-affiliated$80,407$81,28998.27%





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TCG BDC II, INC.


SCHEDULE OF INVESTMENTS (Continued)


As of December 31, 2017


(dollar amounts in thousands)





|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Unless otherwise indicated, issuers of debt and equity investments held by TCG BDC II, Inc. (“we,” “us,” “our,” “BDC II” or 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 ofDecember 31, 2017, 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 ofDecember 31, 2017, the Company is not an “affiliated person” of any of these portfolio companies.

|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(2) | Variable rate loans to the portfolio companies bear interest at a rate that may be 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 provided the interest rate in effect as ofDecember 31, 2017. As ofDecember 31, 2017, all of our LIBOR loans were indexed to the90-day LIBOR rate at1.69%.

|    |                                           
|--- | ------------------------------------------
|(3) | Loan includes interest rate floor feature.

|    |                                                                                                                                                                                                                                                                                   
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(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), 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 ofDecember 31, 2017, the Company had the following unfunded commitments to fund delayed draw and revolving senior secured loans:

Investments—non controlled/non-affiliatedTypeUnused FeePar/ Principal AmountFair ValueFirst and Second Lien Debt—unfunded delayed draw and revolving term loans commitmentsDatto, Inc.Revolver0.50%$360$2Pathway Partners Vet Management Company LLCDelayed Draw1.002,701(2)Radiology Partners Inc.Delayed Draw1.00828(4)Radiology Partners Inc.Revolver0.50575(3)Smile Doctors, LLCDelayed Draw1.006,345(26)Smile Doctors, LLCRevolver0.50827(3)Zenith Merger Sub, Inc.Revolver0.50736(4)Total unfunded commitments$12,372$(40)











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TCG BDC II, INC.


SCHEDULE OF INVESTMENTS


As of December 31, 2017


(dollar amounts in thousands)


As of December 31, 2017 , investments at fair value consisted of the following:


TypeAmortized CostFair Value% of Fair ValueFirst Lien Debt$49,421$50,04561.56%Second Lien Debt30,54830,80637.90Equity Investments4384380.54Total$80,407$81,289100.00%


The rate type of debt investments at fair value as of December 31, 2017 was as follows:


Rate TypeAmortized CostFair Value% of Fair ValueFloating Rate$79,969$80,851100.00%Total$79,969$80,851100.00%


The industry composition of investments at fair value as of December 31, 2017 was as follows:


IndustryAmortized CostFair Value% of Fair ValueBusiness Services$16,671$16,80720.68%Consumer Services6,0546,1337.54Healthcare & Pharmaceuticals24,87425,05530.82High Tech Industries17,39817,76221.85Non-durable Consumer Goods7,5247,5749.32Software7,8867,9589.79Total$80,407$81,289100.00%


The geographical composition of investments at fair value as of December 31, 2017 was as follows:


GeographyAmortized CostFair Value% of Fair ValueUnited States$80,407$81,289100.00%Total$80,407$81,289100.00%





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








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TCG BDC II, INC.


NOTES TO FINANCIAL STATEMENTS


As of December 31, 2017


(dollar amounts in thousands, except per share data)








1. ORGANIZATION


TCG BDC II, Inc. (“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. (formerly known as Carlyle GMS Investment Management L.L.C., “CGCIM” or “Investment Adviser”), a wholly owned subsidiary of 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 intends to elect to be treated, and to comply with the requirements to qualify annually, as a regulated investment company (“RIC”) under Subchapter M of the Internal Revenue Code of 1986, as amended (together with the rules and regulations promulgated thereunder, the “Code”).


The Company’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 generally uses the term “middle market” to refer to companies with approximately $10 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 seeks to achieve its investment objective primarily through direct originations of secured debt, including first lien senior secured loans, “unitranche” loans and second lien senior secured loans (“Middle Market Senior Loans”), with the balance invested in investments that are typically higher yielding than Middle Market Senior Loans (which may include unsecured debt, mezzanine debt and investments in equities), although the Company may make investments in issuers with EBITDA outside of such range.


The Company expects to 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. Debt securities that are rated below investment grade are sometimes referred to as “high yield bonds,” “junk bonds” or “leveraged loans”. The Company also expects to invest in debt securities of foreign companies, which may expose the Company to additional risks not typically associated with investing in U.S. companies. The Company may employ hedging techniques to minimize these risks, but the Company can offer no assurance that it will, in fact, hedge currency risk, or that if it does, such strategies will be effective. See Part I, Item 1A of this Form 10-K “ Risk Factors-Risks Related to Our Investments-Our investments will be risky and speculative ,” “ -Our investments in foreign securities may involve significant risks in addition to the risks inherent in U.S. investments ” and “ -We may expose ourselves to risks if we engage in hedging transactions .”


The Company expects its investments in equities to consist primarily of common stock, and potentially preferred stock, of private companies. The Company expects that its investments in equities will typically be higher yielding than Middle Market Senior Loans because, in the case of common stock, the return realized upon the deposition of the investment is expected to be higher than the yield on Middle Market Senior Loans, and in the case of preferred stock, the cash and/or payment-in-kind dividends are expected to be higher than the yield on Middle Market Senior Loans, reflecting the increased risk associated with these investments.


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 of 1940, as amended. Carlyle Global Credit Administration L.L.C. (formerly known as Carlyle GMS Finance 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 L.P. “Carlyle” refers to The Carlyle Group L.P. and its affiliates and its consolidated subsidiaries (other than portfolio companies of its affiliated funds), a global alternative asset manager publicly traded on NASDAQ Global Select Market under the symbol “CG”. Refer to the sec.gov website for further information on Carlyle.





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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 financial statements have been prepared on the accrual basis of accounting in accordance with accounting principles generally accepted in the United States (“US GAAP”). The Company is an investment company for the purposes of accounting and financial reporting in accordance with Accounting Standards Update (“ASU”) 2013-08, Financial Services—Investment Companies (“ASU 2013-08”): Amendments to the Scope, Measurement and Disclosure Requirements. US 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 annual financial statements have been prepared in accordance with US GAAP for annual financial information and pursuant to the requirements for reporting on Form 10-K and Article 6 of Regulation S-X. In the opinion of management, all adjustments considered necessary for the fair presentation of financial statements for the period presented have been included.


Use of Estimates


The preparation of financial statements in conformity with US 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 incentive fees involve a higher degree of judgment and complexity and these assumptions and estimates may be significant to the 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 Statement 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





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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 Statement of Operations. As of December 31, 2017 and for the period then ended, no loans in the portfolio contained PIK provisions.


Other Income


Other income may include income such as consent, waiver, amendment, syndication 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 Statement of Assets and Liabilities. For the period from September 11, 2017 (commencement of operations) to December 31, 2017 , the Company earned $224 in other income, primarily from syndication 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 not place a loan on non-accrual status if the loan has sufficient collateral value and is in the process of collection. As of December 31, 2017 and for the period then ended, no loans in the portfolio were on non-accrual status.


Subscription Facility Related Costs, Expenses and Deferred Financing Costs (See Note 5, Borrowings)


Interest expense and unused commitment fees on the Subscription Facility are recorded on an accrual basis. Unused commitment fees are included in credit facility fees in the accompanying Statement of Operations.


The Subscription Facility is recorded at carrying value, which approximates fair value.


Deferred financing costs include capitalized expenses related to the closing or amendments of the Subscription Facility. Amortization of deferred financing costs for the credit facility is computed on the straight-line basis over the term of the credit facility. The unamortized balance of such costs is included in deferred financing costs in the accompanying Statement of Assets and Liabilities. The amortization of such costs is included in credit facility fees in the accompanying Statement 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 December 31, 2017 , $1,415 of initial organization and offering costs had been incurred by the Company. 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 intends to elect to be treated as a RIC under the Code, and 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





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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 intends to make sufficient distributions each taxable year to satisfy the excise distribution requirements.


The Company evaluates tax positions taken or expected to be taken in the course of preparing its 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.


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 Currency


The functional currency of the Company is the U.S. Dollar and all transactions were in U.S. Dollars.


Recent Accounting Standards Updates





The Financial Accounting Standards Board ("FASB") issued ASU 2014-9, Revenue from Contracts with Customers (Topic 606) (“ASU 2014-9”) in May 2014 and subsequently issued several amendments to the standard. ASU 2014-9, and related amendments, provide comprehensive guidance for recognizing revenue from contracts with customers. Entities will be able to recognize revenue when the entity transfers promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled to in exchange for those goods or services. The guidance includes a five-step framework that requires an entity to: (i) identify the contract(s) with a customer, (ii) identify the performance obligations in the contract, (iii) determine the transaction price, (iv) allocate the transaction price to the performance obligations in the contract, and (v) recognize revenue when the entity satisfies a performance obligation. The guidance in ASU 2014-9, and the related amendments, is effective for the Company on January 1, 2018. The Company has elected to adopt the ASU on January 1, 2018, which did not have a material impact on the Company’s financial statements.





In November 2016, the FASB issued ASU 2016-18, Statement of Cash Flows (Topic 230) - Restricted Cash . ASU 2016-18 clarifies the presentation of restricted cash in the statement of cash flows by requiring the amounts described as restricted cash be included with cash and cash equivalents when reconciling the beginning of period and end of period total amounts shown on the statement of cash flows. If cash and cash equivalents and restricted cash are presented separately on the statement of financial position, a reconciliation of these separate line items to the total cash amount included in the statement of cash flows will be required either in the footnotes or on the face of the statement of cash flows. This guidance is effective for annual reporting periods, and the interim periods within those periods, beginning after December 15, 2017 and early adoption is permitted. The Company has elected to adopt the ASU on January 1, 2018, which did not have a material impact on the Company’s financial statements.





3. FAIR VALUE MEASUREMENTS


The Company applies fair value accounting in accordance with the terms of Financial Accounting Standards Board Accounting Standards Codification (“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





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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 US 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:





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|• | the nature and realizable value of any collateral;

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

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

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

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

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

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

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|• | 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 financial statements as of December 31, 2017 .


US 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





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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 determination of fair values, as follows:





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|- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|• | Level 1—inputs to the valuation methodology are quoted prices available in active markets for identical investments as of the reporting date. The types of financial instruments in Level 1 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.

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|- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|• | 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. The type of financial instruments in this category generally includes 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.

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|• | 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 that are in this category generally include investments in privately-held entities, CLOs, 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 year in which the transfers occur. For the period from September 11, 2017 (commencement of operations) to December 31, 2017 , 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 December 31, 2017 :


December 31, 2017Level 1Level 2Level 3TotalAssetsFirst Lien Debt$—$—$50,045$50,045Second Lien Debt——30,80630,806Equity Investments——438438Total$—$—$81,289$81,289








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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 AssetsFor the period from September 11, 2017 (commencement of operations) to December 31, 2017First LienDebtSecondLien DebtEquityInvestmentsTotalBalance, beginning of year$—$—$—$—Purchases53,88230,54543884,865Sales(3,808)——(3,808)Paydowns(666)——(666)Accretion of discount133—16Net change in unrealized appreciation (depreciation)624258—882Balance, end of year$50,045$30,806$438$81,289Net change in unrealized appreciation (depreciation) included in earnings related to investments still held as of December 31, 2017 included in net change in unrealized appreciation (depreciation) on investments on the Statement of Operations$624$258$—$882





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.





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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 December 31, 2017 :


Fair Value asValuation TechniquesSignificantUnobservableInputsRangeWeightedAverageof December 31, 2017LowHighInvestments in First Lien Debt$50,045Discounted Cash FlowDiscount Rate6.76%8.98%7.75%Total First Lien Debt50,045Investments in Second Lien Debt30,806Discounted Cash FlowDiscount Rate9.10%9.69%9.39%Total Second Lien Debt30,806Investments in Equity438Income ApproachDiscount Rate8.52%8.52%8.52%Market ApproachComparable Multiple7.85x7.85x7.85xTotal Equity Investments438Total Level 3 Investments$81,289


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. Significant increases in discount rates 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 would result in a significantly lower fair value measurement. Significant decreases in comparable EBITDA multiples 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 December 31, 2017 :


December 31, 2017Carrying ValueFair ValueSecured borrowings$60,750$60,750Total$60,750$60,750


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. 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 will be 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 (as defined in Part I, Item 1 of this Form 10-K “ Business — The Private Offering — Right to Redraw Capital .”). For the avoidance of doubt, Capital Under Management does not include capital acquired through the use of leverage, and Returned Capital does not





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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 will consist of two parts. The first part will be 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 will be 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.


For the period from September 11, 2017 (commencement of operations) to December 31, 2017 , management fees were $252 and there were no incentive fees related to pre-incentive fee net investment income or realized capital gains. For the period from September 11, 2017 (commencement of operations) to December 31, 2017 , 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 US 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 December 31, 2017 , $252 was included in management fees payable in the accompanying Statement 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 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 Chief Financial Officer) 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.


For the period from September 11, 2017 (commencement of operations) to December 31, 2017 , the Company incurred $52 in fees under the Administrative Agreement, which were included in administrative service fees in the accompanying Statement of Operations. As of December 31, 2017 , $22 and $30 was unpaid and included in administrative service fees payable and due to Investment Adviser, respectively, in the accompanying Statement of Assets and Liabilities.


Sub-Administration Agreements


On June 26, 2017, the Administrator entered into sub-administration agreements with Carlyle Employee Co. and CELF Advisors LLP (“CELF”) (the “Carlyle Sub-Administration Agreements”). Pursuant to the Carlyle Sub-Administration Agreements, Carlyle Employee Co. and CELF provide 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”).





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For the period from September 11, 2017 (commencement of operations) to December 31, 2017 , fees incurred in connection with the State Street Sub-Administration Agreement, which amounted to $73 , were included in other general and administrative in the accompanying Statement of Operations. As of December 31, 2017 , $73 was unpaid and included in other accrued expenses and liabilities in the accompanying Statement 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 period from September 11, 2017 (commencement of operations) to December 31, 2017 , TCG earned no placement fees from the Company’s stockholders in connection with the issuance or sale of the Company’s common stock.


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 period from September 11, 2017 (commencement of operations) to December 31, 2017 , the Company incurred $49 in fees and expenses associated with its Independent Directors and Audit Committee. As of December 31, 2017 , $49 was unpaid and included in due to Investment Adviser in the accompanying Statement of Assets and Liabilities (see below).


Organization and Offering Expenses and Other Expenses


The Company has incurred $1,382 of initial organization and offering costs as of December 31, 2017 , but paid for by the Investment Adviser. Additionally, $1,365 of deferred financing costs and other expenses, including directors' fees and expenses, were incurred by the Company as of December 31, 2017 , but paid for by the Investment Adviser. As of December 31, 2017 , there was $2,747 due to the Investment Adviser and included in the accompanying Statement of Assets and Liabilities. The Company has reimbursed $2,747 to the Investment Adviser in February 2018.





5. BORROWINGS


In accordance with the Investment Company Act, the Company is 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 December 31, 2017 , asset coverage was 236.17% . During the period from September 11, 2017 (commencement of operations) to December 31, 2017 , there were secured borrowings and repayments of $81,225 and $20,475 , respectively, under the Subscription Facility. As of December 31, 2017 , there were $60,750 in secured borrowings outstanding.


Credit Facility


The Company closed on October 3, 2017 on the Subscription Facility. The maximum principal amount of the Subscription Facility is $150,000, 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. Proceeds of the Subscription Facility may be used for general corporate purposes, including the funding of portfolio investments. Maximum capacity under the Subscription Facility may be increased to $750,000 through the exercise by the Company of an uncommitted accordion feature through which existing and new lenders may, at their option, agree to provide additional financing. The Company may borrow amounts in U.S. dollars or certain other permitted currencies. Amounts drawn 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. The availability period under the Subscription Facility will terminate on the maturity date, October 3, 2020 (with two one-year extension options, subject to the Company’s and the lender’s consent).


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.





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As of December 31, 2017 , the Company was in compliance with all covenants and other requirements of the Subscription Facility.


Summary of Facility


The Subscription Facility consisted of the following as of December 31, 2017 :


December 31, 2017TotalFacilityBorrowingsOutstandingUnused Portion (1)AmountAvailable (2)Subscription Facility$150,000$60,750$89,250$89,250Total$150,000$60,750$89,250$89,250





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

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

As of December 31, 2017 , $59 of interest expense and $87 of unused commitment fees were included in interest and credit facility fees payable. For the period from October 4, 2017 (initial date the Company borrowed under the Subscription Facility) through December 31, 2017 , the weighted average interest rate was 3.24% and average principal debt outstanding was $10,567 . As of December 31, 2017 , the weighted average interest rate was 3.31% based on floating LIBOR rates.


For the period from September 11, 2017 (commencement of operations) to December 31, 2017 , the components of interest expense and credit facility fees were as follows:


Interest expense$83Facility unused commitment fee87Amortization of deferred financing costs98Total interest expense and credit facility fees$268Cash paid for interest expense$25





6. COMMITMENTS AND CONTINGENCIES


A summary of significant contractual payment obligations was as follows as of December 31, 2017 :


Subscription FacilityPayment Due by PeriodDecember 31, 2017Less than 1 Year$—1-3 Years60,7503-5 Years—More than 5 Years—Total$60,750





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 financial statements as of December 31, 2017 for any such exposure.


As of December 31, 2017 , the Company had $508,928 in total capital commitments from stockholders, of which $426,380 was unfunded. As of December 31, 2017 , current directors had $350 in capital commitments to the Company.





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


Par Value as ofDecember 31, 2017Unfunded delayed draw commitments$9,874Unfunded revolving term loan commitments2,498Total unfunded commitments$12,372





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 period from September 11, 2017 (commencement of operations) to December 31, 2017 , the Company issued 4,130,683 shares for $82,548 . The following table summarizes capital activity during the period from September 11, 2017 (commencement of operations) to December 31, 2017 :


Common StockCapital in Excess of Par ValueAccumulated Net Investment Income (Loss)Accumulated Net Unrealized Appreciation (Depreciation) on InvestmentsTotal Net AssetsSharesAmountBalance, beginning of period—$—$—$—$—$—Common stock issued4,130,6834182,507——82,548Net investment income (loss)———(708)—(708)Net change in unrealized appreciation (depreciation) on investments————882882Balance, end of period4,130,683$41$82,507$(708)$882$82,722





The following table summarizes total shares issued and proceeds received related to capital activity during the period from September 11, 2017 (commencement of operations) to December 31, 2017 :


Shares IssuedProceeds ReceivedSeptember 19, 20171002October 4, 2017875,00417,500November 22, 20171,503,78430,045December 20, 20171,751,79535,001Total4,130,683$82,548


Subscription transactions during the period from September 11, 2017 (commencement of operations) to December 31, 2017 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. Such subscription transactions increased net asset value by $0.26 per share for the period from September 11, 2017 (commencement of operations) to December 31, 2017 .


As of December 31, 2017 , one stockholder represented 29.4% of total net assets.


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 from September 11, 2017 (commencement of operations) to December 31, 2017 .





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Basic and diluted earnings per common share were as follows:


For the period from September 11, 2017 (commencement of operations) to December 31, 2017Net increase (decrease) in net assets resulting from operations$174Weighted-average common shares outstanding1,421,700Basic and diluted earnings per common share$0.12


During the period from September 11, 2017 (commencement of operations) to  December 31, 2017, no dividends or distributions had been declared or paid by the Company.





8. FINANCIAL HIGHLIGHTS


The following is a schedule of financial highlights for the period from September 11, 2017 (commencement of operations) to December 31, 2017 :


Per Share Data:Net asset value per share, beginning of year$20.00Net investment income (loss)(1)(0.50)Net realized gain (loss) and net change in unrealized appreciation (depreciation) on investments0.27Net increase (decrease) in net assets resulting from operations(0.23)Effect of offering price of subscriptions(2)0.26Net asset value per share, end of year$20.03Number of shares outstanding, end of year4,130,683Total return based on net asset value(3)0.15%Net assets, end of year$82,722Ratio to average net assets(4):Expenses, before and after incentive fees4.19%Net investment income (loss)(1.75)%Interest expense and credit facility fees0.66%Ratios/Supplemental Data:Asset coverage, end of period236.17%Portfolio turnover8.76%Total committed capital, end of period508,928Ratio of total contributed capital to total committed capital, end of period16.21%Weighted-average shares outstanding1,421,700


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|(1) | For the period from September 11, 2017 (commencement of operations) toDecember 31, 2017, 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.

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|(2) | Increase (decrease) is due to the offering price of subscriptions, net of offering costs during the period (refer to Note 7).

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|(3) | Total return based on net asset value (not annualized) is based on the change in net asset value per share during the period from September 11, 2017 (commencement of operations) toDecember 31, 2017divided by the beginning net asset value for the period. Total return for the period was inclusive of$0.26per share increase (decrease) in net asset value related to the offering price of subscriptions, net of offering costs during the period. Excluding the effects of these common stock issuances, total return would have been(1.15)%(refer to Note 7).

|    |                                                                                                                                                                                                                                                                                                                                               
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(4) | These ratios to average net assets have not been annualized. The Company commenced operations on September 11, 2017; therefore, ratios to average net assets and portfolio turnover for the period from September 11, 2017 (commencement of operations) to December 31, 2017 may have been different had there been a full year of operations.




9. LITIGATION





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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 financial statements. As of December 31, 2017 , 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 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 December 31, 2017 .


In the normal course of business, the Company is subject to examination by federal and certain state, local and foreign tax regulators. As of December 31, 2017 , the Company has yet to file any tax returns and therefore is not yet subject to examination. The Company expects to elect a tax year-end of June 30.


No distributions were paid for the period ended December 31, 2017.





11. SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)


2017Q4Q3Total investment income$991$—Net expenses1,305394Net investment income (loss)(314)(394)Net change in unrealized appreciation (depreciation) on investments882—Net increase (decrease) in net assets resulting from operations568(394)NAV per share20.0310.85Basic and diluted earnings per common share$0.33$(178.42)





12. SUBSEQUENT EVENTS


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


On February 23, 2018, the Company issued a capital call and delivered capital drawdown notices totaling $5,000. Proceeds from the capital call and the related issuance of 243,562 shares is expected on or about March 7, 2018.


Subsequent to December 31, 2017 , the Company borrowed $32,900 under the Subscription Facility to fund investment acquisitions. The Company also voluntarily repaid $49,000 under the Subscription Facility.





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Item 9A. 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 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.


Management’s Report on Internal Control Over Financial Reporting


This annual report on Form 10-K does not include a report of management’s assessment regarding internal control over financial reporting or an attestation report of our registered public accounting firm due to a transition period established by rules of the SEC for newly public companies.


Changes in Internal Controls Over Financial Reporting


There have been no changes in our internal control over financial reporting during the fiscal quarter ended December 31, 2017 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.





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PART IV





Item 15. Exhibits and Financial Statement Schedules


(a) Documents filed as part of this annual report


The following reports and financial statements are set forth in Part II, Item 8 of this Form 10-K:


Report of Independent Registered Public Accounting Firm4Statement of Assets and Liabilities as of December 31, 20175Statement of Operations for the period from September 11, 2017 (commencement of operations) to December 31, 20176Statement of Changes in Net Assets for the period from September 11, 2017 (commencement of operations) to December 31, 20177Statement of Cash Flows for the period from September 11, 2017 (commencement of operations) to December 31, 20178Schedule of Investments as of December  31, 20179Notes to Financial Statements12


(b) Exhibits


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


3.1Articles of Amendment and Restatement(1)3.2Bylaws(1)4.1Form of Subscription Agreement(1)10.1Investment Advisory Agreement(1)10.2Administration Agreement(1)10.3Form of Indemnification Agreement(1)10.4Revolving Credit Agreement(1)10.5Master Custodian Agreement(2)11.1Computation of Per Share Earnings (included in the notes to the audited financial statements in this Form 10-K)31.1Certification of Chief Executive Officer (Principal Executive Officer) Pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934, as amended.*31.2Certification of Chief Financial Officer (Principal Financial Officer) Pursuant to Rule 13a-14 of the Securities Exchange Act of 1934, as amended.*32.1Certification 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.*32.2Certification 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.

|    |                                                                                                                        
|--- | -----------------------------------------------------------------------------------------------------------------------
|(1) | Incorporated by reference to the Company’s Form 10-12G/A filed by the Company on November 20, 2017 (File No. 000-55848)

|    |                                                                                                                
|--- | ---------------------------------------------------------------------------------------------------------------
|(2) | Incorporated by reference to the Company’s Form 10-K filed by the Company on March 1, 2018 (File No. 000-55848)




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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: March 16, 2018By/s/ Thomas M. HenniganThomas M. HenniganChief Financial Officer(principal financial officer)





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