OAKTREE (LUX.) II Société d’Investissement à Capital Variable – Fonds d’Investissement Spécialisé Annual Report and Audited Financial Statements September 30, 2020
R.C.S. Luxembourg: B 199.241 Oaktree (Lux.) II
Annual Report and Audited Financial Statements September 30, 2020
Table of Contents
General Partner and Investment Manager Report ...... 3 Statement of Assets and Liabilities...... 6 Statement of Operations...... 7 Statement of Changes in Net Assets ...... 8 Statement of Changes in Shares Outstanding ...... 9 Statistical Information ...... 10 Oaktree (Lux.) II - European Credit Fund Schedule of Investments and Other Net Liabilities...... 11 Open Forward Foreign Exchange Contracts ...... 19 Notes to the Financial Statements...... 20 Independent Auditor's Report ...... 28 General Information...... 31 Board of Directors and Company Information ...... 32
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Annual Report and Audited Financial Statements
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General Partner and Investment Manager Report
We are pleased to present the Annual Report and Audited Financial Statements for Oaktree (Lux.) II (the “Company”) for the year ended September 30, 2020.
Investment Objective
The overall investment objective of the Company is to invest its assets in securities and other assets in which a specialised investment fund governed by the SIF Law is permitted to invest with the aim of spreading investment risks and providing Investors with the results of professionally managed investment portfolios.
The investment objective of Oaktree (Lux.) II European Credit Fund (the “Sub-Fund”) is to deliver an attractive total return by investing in a diversified portfolio of senior loans, floating-rate notes, second-lien loans, mezzanine loans and high yield bonds. The Sub-Fund may, subject to the restrictions set out in section 3, "Risk Diversification", and "Investment Restrictions" section of the Memorandum, also invest in any other debt instruments (including, without limitation, subordinated or unsecured loans, direct loans, private placements, bridge loans for high yield bond commitments and rated debt of collateralised loan obligations ("CLOs")).
The Sub-Fund will focus on investing in (a) debt instruments of borrowers or issuers whose debt is rated below investment grade and that are organised or have a substantial portion of their operations, assets or business located in Europe and (b) debt instruments denominated in a European currency of developed market borrowers or issuers outside Europe whose debt is rated below investment grade, provided that the Sub-Fund may, subject to the cap set out in "Investment Restrictions" section of the Memorandum, invest in debt instruments of borrowers or issuers that are organised or have a substantial portion of their assets or business in jurisdictions outside Europe. The Sub-Fund will invest primarily in Euro-denominated debt instruments, but may hold investments denominated in other currencies as well.
At September 30, 2020 the total net assets of the Company was USD 47,960,799.09.
Oaktree European Credit Fund
Financial markets continued to recover in the third quarter, shaking off much of the fear and uncertainty that characterized the sell-off earlier this year. The rebound reflected a recovery in economic activity and extraordinary fiscal and monetary stimulus. However, the later part of the quarter brought headwinds in the form of softer economic data and concerns about a possible second wave of the coronavirus in Europe.
Presented below is the performance of the Fund and its benchmarks for the periods ending September 30, 2020.
Fourth First Second Third FYTD Quarter Quarter Quarter Quarter Sept 2019 2020 2020 2020 2020 Oaktree European Credit Fund - Before fees and expenses 1.0% (14.3)% 11.3% 2.2% (2.5)% - After fees and expenses 0.9% (14.4)% 11.1% 2.1% (2.9)% EURIBOR 3 Months + 4 0.9% 0.9% 0.9% 0.9% 2.8% European High Yield Bond/Senior Loan Custom Index1 1.4% (14.5)% 11.6% 2.7% (2.0)%
1Custom index: 50% ICE BAML HY Issuers Constrained Index Ex. Russia and Financials (EUR hedged), 50% Credit Suisse Western European Leveraged Loan Index (EUR hedged)
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While we strive to outperform in all conditions, our quality bias left the Fund trailing in a rally that favored the riskiest segment of the market. The lowest-priced tier of loans (those trading below 70 cents) staged an astonishing rally, with returns above 20% in the quarter! Similarly, though not to such an extreme, the lowest-quality segment of the high yield bond market was the highest returning over the third quarter. Despite trailing the index a bit, we were gratified to see that our active rotations into oversold companies and sectors in the second quarter rewarded us with a 2.2% gross return.
The European high yield bond market was up 2.6% for the quarter, while the senior loan market delivered a marginally higher return of 2.8%. As would be expected in a “risk-on” environment, CCC-rated bonds and loans (which account for 8% and 7% of their respective benchmarks) were the top performers, returning 2.9% and 5.4% respectively.
For the year-to-date period there is a wide dispersion between the winning and the losing industries. Some defensive industries and “stay-at-home” sectors have fully recovered, while sectors facing severe disruption from Covid-19 continue to languish. Energy–avictimoflowcommodityprices–remainstheclearlaggard.
The new issue market for European high yield bonds has been remarkably untroubled by the coronavirus pandemic, with new issue supply of €21 billion in 3Q20. This takes the year-to-date tally to €59 billion – a level that has not been reached since 2014. BB-rated bonds accounted for 72% of new issue volumes (slightly above their 60% weighting in the benchmark), with proceeds mainly used to boost liquidity and for refinancing activities.
Conversely, the new issue market for European senior loans continues to be muted. Issuance was €16 billion, an increase from €11 billion in the previous quarter. This brought total issuance for the year to date to €54 billion, 15% lower than the equivalent period for 2019. The dearth of new loan supply has added to the positive technicals during the quarter, as demand for the asset class continues to develop. Most notably, the European CLO market has returned to life, with new warehouses opening. Conditions for primary CLO issuance were supported by increased demand for new issue CLO liabilities, which drove a 50 basis point decline in AAA-rated CLO liability spreads over the quarter. With a light primary issuance calendar and renewed demand from CLOs, the technical support for the European senior loan market seems likely to remain robust.
Despite significant rating agency downgrades so far this year (particularly in March and April), the European high yield bond and senior loans markets have yet to see a significant pick up in their default rates. Unprecedented government and central bank support has helped to suppress defaults. Credit Suisse recorded six defaults in the European high yield market in the third quarter, with two in the European senior loan market, increasing the trailing twelve-month default rates to 2.9% and 1.1%, respectively. We are pleased to report that we had no defaults in our portfolio in the third quarter. However, the overall outlook for the sectors is less promising: there is more debt in the system, and company earnings are unlikely to recover quickly, while stimulus measures cannot be maintained indefinitely.
Overall, we believe European high yield bond and senior loans investors are being fairly compensated for incremental credit risk. That said, in the short term, both markets are likely to remain uncertain as investors grapple with the fallout from the coronavirus pandemic and a seemingly endless list of economic and political uncertainties. In our recent portfolio adjustments, we have chosen to reduce exposure to some of the cyclical industries where our credits have enjoyed a sharp recovery to the point where yield spreads are uncompelling.
We maintain that our portfolio tilt to higher quality loans and bonds remains appropriate in light of these risks. In the medium-to-long term, outcomes will be driven by the contractual nature of credit returns. After all, a company either (a) defaults on its debt obligations or (b) its loans and bonds are “money good” and will be repaid. As long as we are able to “avoid the losers,” we believe that we can earn an attractive total return in relative terms – at September 30, yield spreads were above pre-Covid-19 levels and tracking in line with historical averages.
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Active credit selection will be critical to future performance. We believe we’re very well positioned in this regard, with our excellent track record of minimizing defaults and our large and highly experienced analyst team – the largest it’s ever been following two recent junior hires. Now, more than ever, we remain focused on fundamental, bottom-up credit research where we aim to select the right credits and avoid the losers. This approach has served us well over the two decades we’ve been investing in European performing credit, and it holds the key to outperforming in the years ahead.
At September 30, the Fund was comprised of 165 different issuers with a par-weighted average price of 97.1, compared to 95.7 as at June 30. By value, 40% of the portfolio was invested in fixed-rate securities, with the balance in floating-rate debt. 78% of the Fund was in senior secured securities, and the yield-to-maturity at September 30 was 5.4%.
We are continuing our efforts to prepare for a safe and effective return to our offices (RTO). Our London office had entered the second phase of RTO, but given the worsening local conditions, we’ve more recently encouraged all staff to work from home. Our New York office has moved to phase two, and we hope to open our Los Angeles office over the next couple of months. Our EU and APAC offices have returned on a voluntary basis with fewer capacity limitations. We are pleased with our successful remote operations, and our approach to RTO remains focused on the health and safety of our employees as our upmost priority. We continue to closely monitor the situation globally and will keep you apprised of any changes.
As always, if you have any questions or comments on this letter, please don’t hesitate to call.
Sincerely,
Madelaine Jones Anthony Shackleton Managing Director and Managing Director and Portfolio Manager Co-Portfolio Manager
Oaktree Capital Management (UK) LLP is a limited liability partnership registered in England under number OC363917. It is authorised and regulated by the Financial Conduct Authority. A list of members of Oaktree Capital Management (UK) LLP is open to inspection at its registered office Verde, 10 Bressenden Place, London, SW1E 5DH.
Annual Report and Audited Financial Statements
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Statement of Assets and Liabilities As of September 30, 2020
Oaktree (Lux.) II - Oaktree (Lux.) II - European Credit European Credit Fund Fund
Notes USD* EUR
ASSETS Investment securities, at market value Debt and Money Market Instruments (Cost respectively USD 50,133,275.38; EUR 42,752,085.13) 2(a) 49,012,381.30 41,796,221.81 Cash and cash equivalents 2(a) 414,415.66 353,400.68 Interest receivable 2(a) 526,173.72 448,704.45 Unrealised gain on forward foreign exchange contracts 2(a) 26,624.18 22,704.27 Deferred organization expenses 2(f) 56,972.05 48,583.98 Securities sold receivable 1,164,570.75 993,109.42 Fees waiver receivable 9 9,582.86 8,171.96 Total ASSETS 51,210,720.52 43,670,896.57
LIABILITIES Securities purchased payable 3,027,150.61 2,581,459.11 Accrued expenses and other payables 222,770.82 189,971.97 Total LIABILITIES 3,249,921.43 2,771,431.08
Net Assets 47,960,799.09 40,899,465.49
Net Asset Value per Share Class F EUR 107.016 Class I EUR 103.993
Number of Shares Outstanding Class F 381,229.02 Class I 977.70
* The USD balances result from the conversion of balances in EUR at the exchange rate effective as of September 30, 2020.
The accompanying notes form an integral part of these financial statements
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Statement of Operations For the year ended September 30, 2020
Oaktree (Lux.) II - Oaktree (Lux.) II - European Credit European Credit Fund Fund
Notes USD* EUR Income Interest 1,960,287.83 1,751,450.76
Total Income 1,960,287.83 1,751,450.76
Expenses Bank Interest 1,419.08 1,267.90 Management fees 3 174,969.26 156,329.11 Central Administration fees 4 73,185.60 65,388.85 Depositary fees 4 78,734.82 70,346.89 Tax 7 68,389.70 61,103.88 Transfer Agency fees 5,233.63 4,676.07 Professional fees and other charges 123,638.42 110,466.74 Total Expenses Before Waiver 525,570.51 469,579.44 Fees waived 9 (247,604.21) (221,225.97) Total Expenses 277,966.30 248,353.47
Net Investment income 1,682,321.53 1,503,097.29
Net realised and unrealised gain/(loss) on investments Net realised (loss) on investments 5 (1,322,549.14) (1,181,652.85) Net realised gain on forward foreign exchange contracts and foreign currency transactions 5 131,440.94 117,438.03 Net change in unrealised (loss) on investments (1,630,095.00) (1,456,434.65) Net change in unrealised gain on forward exchange contracts 173,622.71 155,126.01 Net change in unrealised gain on foreign currencies 1,348.68 1,205.00
Total net realised and unrealised (loss) on investment (2,646,231.81) (2,364,318.46)
Net decrease in net assets resulting from operations (963,910.28) (861,221.17)
* The balances in USD result from the conversion of balances in EUR at the average exchange rate over the year ended September 30, 2020.
The accompanying notes form an integral part of these financial statements
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Statement of Changes in Net Assets For the year ended September 30, 2020
Oaktree (Lux.) II - Oaktree (Lux.) II - European Credit European Credit Fund Fund
Notes USD* EUR
Decrease in net assets from operations (963,910.28) (861,221.17)
Capital transactions: Receipts as a result of issue of shares 28,013.19 25,028.84 Increase in net assets from Capital transactions 28,013.19 25,028.84 Change in total net assets for the year (935,897.09) (836,192.33)
Net Assets at the beginning of the year 45,500,208.57 41,735,657.82
Currency adjustment 3,396,487.61 -
Net Assets at the end of the year 47,960,799.09 40,899,465.49
* The balances in USD result from the conversion of balances in EUR at the average exchange rate over the year ended September 30, 2020.
The accompanying notes form an integral part of these financial statements
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Statement of Changes in Shares Outstanding For the year ended September 30, 2020
Oaktree (Lux.) II - European Credit Fund
Number of Class F shares outstanding at the beginning of the year 381,000.00 Shares issued 229.02 Shares reinvested - Shares repurchased -
Number of Class F shares outstanding at the end of the year 381,229.02 Number of Class I shares outstanding at the beginning of the year 977.70 Shares issued - Shares reinvested - Shares repurchased -
Number of Class I shares outstanding at the end of the year 977.70
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Statistical Information As of September 30, 2020
Oaktree (Lux.) II - European Credit Fund
September 30, 2020 Net Assets EUR 40,899,465.49 Net Asset Value per Class F Share EUR 107.016 Net Asset Value per Class I Share EUR 103.993
September 30, 2019 Net Assets EUR 41,735,657.82 Net Asset Value per Class F Share EUR 109.270 Net Asset Value per Class I Share EUR 106.341
September 30, 2018 Net Assets EUR 104,143,941.98 Net Asset Value per Class F Share EUR 106.453 Net Asset Value per Class I Share EUR 103.720
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Oaktree (Lux.) II - European Credit Fund Schedule of Investments and Other Net Liabilities as of September 30, 2020
Securities listed on a stock exchange or other organised markets Valuation % of net Currency Description Nominal Maturity Date Interest Rate (in EUR) assets
Corporate Bonds
Canada EUR BAUSCH HEALTH COS INC -REGS- 345,000 05/15/2023 4.50 343,058.69 0.84 EUR PRIMO WATER CORP -REGS- 115,000 07/01/2024 5.50 117,463.07 0.29 460,521.76 1.13
Cayman Islands EUR UPCB FINANCE IV LTD -REGS- 117,000 01/15/2027 4.00 118,829.30 0.29
Denmark EUR DKT FINANCE APS -REGS- 260,000 06/17/2023 7.00 263,253.64 0.64
France EUR ALTICE FRANCE SA -REGS- 385,000 02/01/2027 5.87 408,007.99 1.00 USD ALTICE FRANCE SA -REGS- 455,000 05/01/2026 7.37 407,002.98 1.00 EUR BANIJAY ENTERTAINMENT SASU -REGS- 150,000 03/01/2025 3.50 146,824.95 0.36 EUR CASINO GUICHARD PERRACHON SA -REGS- 200,000 03/07/2024 4.50 161,000.00 0.39 EUR CONSTANTIN INVESTISSEMENT 3 SASU -REGS- 245,000 04/15/2025 5.38 246,837.50 0.60 EUR FAURECIA SE -REGS- 100,000 06/15/2026 3.13 99,570.00 0.24 EUR FAURECIA SE -REGS- 100,000 06/15/2028 3.75 99,823.50 0.25 EUR LOXAM SAS -REGS- 110,000 04/15/2025 6.00 103,676.32 0.25 EUR LOXAM SAS -REGS- 100,000 07/15/2026 3.75 95,989.00 0.24 EUR LOXAM SAS -REGS- 100,000 07/15/2027 5.75 90,266.40 0.22 EUR NOVAFIVES SAS -REGS- 115,000 06/15/2025 5.00 84,611.25 0.21 EUR ORANO SA -REGS- 100,000 04/23/2026 3.38 103,465.30 0.25 EUR PICARD GROUPE SAS -REGS- 105,000 11/30/2023 3.00 102,296.15 0.25 EUR VALLOUREC SA -REGS- 110,000 10/15/2023 6.37 62,971.48 0.15 2,212,342.82 5.41
Germany EUR IHO VERWALTUNGS GMBH -REGS- 100,000 05/15/2025 3.62 100,535.10 0.25 EUR IHO VERWALTUNGS GMBH -REGS- 100,000 09/15/2026 3.75 100,186.50 0.24 EUR INEOS STYROLUTION GROUP GMBH -REGS- 120,000 01/16/2027 2.25 112,287.60 0.27 EUR NIDDA BONDCO GMBH -REGS- 315,000 09/30/2025 5.00 307,887.30 0.75 EUR PROGROUP AG -REGS- 165,000 03/31/2026 3.00 164,090.62 0.40 EUR REBECCA BIDCO GMBH -REGS- 100,000 07/15/2025 5.75 100,550.00 0.25 EUR TECHEM VERWALTUNGSGESELLSCHAFT 674 MBH -REGS- 390,000 07/30/2026 6.00 399,213.75 0.98 EUR TELE COLUMBUS AG -REGS- 180,000 05/02/2025 3.87 172,395.54 0.42 EUR VERTICAL MIDCO GMBH -REGS- 410,000 07/15/2027 4.37 418,302.50 1.02 EUR WEPA HYGIENEPRODUKTE GMBH -REGS- 125,000 12/15/2027 2.88 123,252.60 0.30 EUR ZF FINANCE GMBH -REGS- 100,000 09/21/2028 3.75 97,074.30 0.24 2,095,775.81 5.12
Ireland USD C&W SENIOR FINANCING DAC -REGS- 200,000 09/15/2027 6.87 177,601.94 0.44 EUR EIRCOM FINANCE DAC -REGS- 280,000 05/15/2026 3.50 279,710.76 0.68
The accompanying notes form an integral part of these financial statements
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Oaktree (Lux.) II - European Credit Fund Schedule of Investments and Other Net Liabilities as of September 30, 2020
Securities listed on a stock exchange or other organised markets (continued) Valuation % of net Currency Description Nominal Maturity Date Interest Rate (in EUR) assets
Corporate Bonds (Continued)
Ireland (Continued) GBP VIRGIN MEDIA VENDOR FINANCING NOTES III DAC -REGS- 330,000 07/15/2028 4.88 368,113.72 0.90 825,426.42 2.02
Isle of Man EUR PLAYTECH PLC -REGS- 105,000 10/12/2023 3.75 105,031.92 0.26
Italy EUR BORMIOLI PHARMA BIDCO SPA -REGS- 230,000 11/15/2024 3.50 219,374.00 0.54 EUR DIOCLE SPA -REGS- 196,277 06/30/2026 3.87 193,714.00 0.47 EUR GAMMA BIDCO SPA -REGS- 100,000 07/15/2025 6.25 99,375.00 0.24 EUR GUALA CLOSURES SPA -REGS- 120,000 04/15/2024 3.50 119,465.40 0.29 EUR INTER MEDIA AND COMMUNICATION SPA -REGS- 296,773 12/31/2022 4.88 287,684.65 0.70 EUR LIMACORPORATE SPA -REGS- 155,000 08/15/2023 3.75 148,412.50 0.36 EUR SISAL PAY SPA -REGS- 100,000 12/17/2026 3.88 97,687.50 0.24 EUR TEAMSYSTEM SPA -REGS- 205,000 04/15/2023 4.00 203,826.99 0.50 EUR TELECOM ITALIA SPA -REGS- 190,000 04/11/2024 4.00 202,111.36 0.50 1,571,651.40 3.84
Jersey GBP CPUK FINANCE LTD -REGS- 59,896 08/28/2022 4.25 65,447.05 0.16 GBP GALAXY BIDCO LTD -REGS- 110,000 07/31/2026 6.50 124,302.31 0.30 EUR LHC3 PLC -REGS- 160,000 08/15/2024 4.13 162,000.00 0.40 351,749.36 0.86
Luxembourg EUR ADO PROPERTIES SA -REGS- 100,000 08/05/2025 3.25 101,256.60 0.25 USD ALTICE FINANCING SA -144A- 460,000 05/15/2026 7.50 415,723.86 1.02 EUR ALTICE FINCO SA -REGS- 100,000 01/15/2028 4.75 91,000.00 0.22 EUR ARD FINANCE SA -REGS- 210,000 06/30/2027 5.00 205,632.08 0.50 EUR LHMC FINCO 2 SARL -REGS- 358,800 10/02/2025 7.25 278,967.00 0.68 EUR LINCOLN FINANCING SARL -REGS- 220,000 04/01/2024 3.87 212,547.50 0.52 EUR MATTERHORN TELECOM SA -REGS- 200,000 09/15/2026 3.13 191,392.80 0.47 EUR MONITCHEM HOLDCO 2 SA -REGS- 120,000 09/15/2026 9.50 124,338.60 0.30 EUR MONITCHEM HOLDCO 3 SA -REGS- 100,000 03/15/2025 5.25 102,030.00 0.25 EUR MOTION FINCO SARL -REGS- 250,000 05/15/2025 7.00 247,612.00 0.60 EUR SES SA -REGS- 100,000 12/29/2049 5.62 106,126.30 0.26 EUR SUMMER BC HOLDCO A SARL -REGS- 90,105 10/31/2027 9.25 84,037.93 0.21 EUR SUMMER BC HOLDCO B SARL -REGS- 100,000 10/31/2026 5.75 98,619.40 0.24 2,259,284.07 5.52
Netherlands EUR AXALTA COATING SYSTEMS DUTCH HOLDING B BV -REGS- 205,000 01/15/2025 3.75 206,053.29 0.50 EUR DIAMOND BC BV -REGS- 135,000 08/15/2025 5.62 132,605.51 0.32 EUR DUFRY ONE BV -REGS- 200,000 10/15/2024 2.50 173,779.60 0.42 EUR ENERGIZER GAMMA ACQUISITION BV -REGS- 110,000 07/15/2026 4.62 113,561.72 0.28
The accompanying notes form an integral part of these financial statements
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Oaktree (Lux.) II - European Credit Fund Schedule of Investments and Other Net Liabilities as of September 30, 2020
Securities listed on a stock exchange or other organised markets (continued) Valuation % of net Currency Description Nominal Maturity Date Interest Rate (in EUR) assets
Corporate Bonds (Continued)
Netherlands (Continued) EUR FIAT CHRYSLER AUTOMOBILES NV -REGS- 100,000 01/05/2026 3.88 108,367.10 0.27 EUR FIAT CHRYSLER AUTOMOBILES NV -REGS- 220,000 07/07/2028 4.50 251,013.40 0.61 EUR INTERTRUST GROUP BV -REGS- 155,000 11/15/2025 3.38 158,468.90 0.39 USD OCI NV -REGS- 200,000 04/15/2023 6.62 176,565.82 0.43 EUR REPSOL INTERNATIONAL FINANCE BV -REGS- 150,000 12/31/2099 3.75 151,315.20 0.37 EUR SAIPEM FINANCE INTERNATIONAL BV -REGS- 120,000 07/15/2026 3.38 117,108.36 0.29 EUR SIGMA HOLDCO BV -REGS- 145,000 05/15/2026 5.75 143,501.86 0.35 EUR SUNSHINE MID BV -REGS- 200,000 05/15/2026 6.50 205,000.00 0.50 EUR TRIVIUM PACKAGING FINANCE BV -REGS- 120,000 08/15/2026 3.75 118,286.76 0.29 EUR ZF EUROPE FINANCE BV -REGS- 200,000 02/23/2026 2.00 183,206.40 0.45 USD ZIGGO BOND CO BV -REGS- 605,000 01/15/2027 6.00 534,627.54 1.31 2,773,461.46 6.78
Spain EUR EL CORTE INGLES SA -REGS- 100,000 03/15/2024 3.62 101,193.00 0.25 EUR GRIFOLS SA -REGS- 160,000 05/01/2025 3.20 160,993.28 0.39 EUR GRUPO ANTOLIN-IRAUSA SA -REGS- 125,000 04/30/2026 3.38 101,685.88 0.25 EUR TENDAM BRANDS SAU -REGS- 205,000 09/15/2024 5.00 169,632.58 0.42 533,504.74 1.31
Supranational USD ARDAGH PACKAGING FINANCE PLC / ARDAGH HOLDINGS USA INC -REGS- 225,000 08/15/2027 5.25 195,710.49 0.48 EUR CLARIOS GLOBAL LP / CLARIOS US FINANCE CO -REGS- 230,000 05/15/2026 4.37 231,437.50 0.56 USD CONNECT FINCO SARL / CONNECT US FINCO LLC -REGS- 200,000 10/01/2026 6.75 171,355.40 0.42 598,503.39 1.46
Sweden EUR UNILABS SUBHOLDING AB -REGS- 120,000 05/15/2025 5.75 121,114.32 0.30 EUR VERISURE MIDHOLDING AB -REGS- 290,000 12/01/2023 5.75 290,847.38 0.71 411,961.70 1.01
United Kingdom GBP ARQIVA BROADCAST FINANCE PLC -REGS- 175,000 09/30/2023 6.75 199,441.82 0.49 GBP HEATHROW FINANCE PLC -REGS- 105,000 09/01/2029 4.13 106,381.83 0.26 EUR JAGUAR LAND ROVER AUTOMOTIVE PLC -REGS- 130,000 11/15/2024 5.87 117,976.82 0.29 GBP MOTO FINANCE PLC -REGS- 100,000 10/01/2022 4.50 105,905.57 0.26 GBP PINEWOOD FINANCE CO LTD -REGS- 165,000 09/30/2025 3.25 181,879.63 0.44 GBP PREMIER FOODS FINANCE PLC -REGS- 148,000 07/15/2022 5.08 163,991.91 0.40 EUR SYNLAB BONDCO PLC -REGS- 115,000 07/01/2025 4.75 116,664.05 0.29 The accompanying notes form an integral part of these financial statements
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Oaktree (Lux.) II - European Credit Fund Schedule of Investments and Other Net Liabilities as of September 30, 2020
Securities listed on a stock exchange or other organised markets (continued) Valuation % of net Currency Description Nominal Maturity Date Interest Rate (in EUR) assets
Corporate Bonds (Continued)
United Kingdom (Continued) EUR SYNLAB UNSECURED BONDCO -REGS- 105,000 07/01/2023 8.25 108,031.88 0.26 EUR SYNTHOMER PLC -REGS- 115,000 07/01/2025 3.88 117,524.25 0.29 USD TULLOW OIL PLC -144A- 230,000 04/15/2022 6.25 101,991.17 0.25 GBP VIRGIN MEDIA SECURED FINANCE PLC -REGS- 165,000 05/15/2029 5.25 192,888.40 0.47 1,512,677.33 3.70
United States EUR AVANTOR INC -REGS- 195,000 10/01/2024 4.75 202,360.28 0.49 EUR COTY INC -REGS- 120,000 04/15/2023 4.00 101,315.52 0.25 EUR KRATON POLYMERS LLC / KRATON POLYMERS CAPITAL CORP -REGS- 100,000 05/15/2026 5.25 101,250.00 0.25 EUR KRONOS INTERNATIONAL INC -REGS- 120,000 09/15/2025 3.75 118,887.60 0.29 EUR MAUSER PACKAGING SOLUTIONS HOLDING CO -REGS- 100,000 04/15/2024 4.75 97,740.29 0.24 EUR SILGAN HOLDINGS INC 210,000 06/01/2028 2.25 205,400.79 0.50 EUR SPECTRUM BRANDS INC -REGS- 155,000 10/01/2026 4.00 159,433.00 0.39 EUR STANDARD INDUSTRIES INC/NJ -REGS- 220,000 11/21/2026 2.25 211,119.24 0.52 EUR UGI INTERNATIONAL LLC -REGS- 115,000 11/01/2025 3.25 116,871.63 0.28 1,314,378.35 3.21
Total Corporate Bonds 17,408,353.47 42.56
Valuation % of net Currency Description Quantity (in EUR) assets
Investment Funds
Luxembourg EUR MORGAN STANLEY LIQUIDITY EURO FUND 204 2,025,250.26 4.95
Total Investment Funds 2,025,250.26 4.95
Total Securities listed on a stock exchange or other organised markets 19,433,603.73 47.51
Securities not listed on a stock exchange or other organised markets Valuation % of net Currency Description Nominal Maturity Date Interest Rate (in EUR) assets
Corporate Bonds
France EUR KAPLA HOLDING SAS -REGS- 130,000 12/15/2026 3.38 121,179.50 0.30
The accompanying notes form an integral part of these financial statements
Annual Report and Audited Financial Statements
14 Oaktree (Lux.) II
Oaktree (Lux.) II - European Credit Fund Schedule of Investments and Other Net Liabilities as of September 30, 2020
Securities not listed on a stock exchange or other organised markets (continued) Valuation % of net Currency Description Nominal Maturity Date Interest Rate (in EUR) assets
Corporate Bonds (Continued)
Ireland EUR AVOCA CLO XVIII DAC -REGS- 100,000 04/15/2031 4.60 93,193.48 0.23 EUR MILLTOWN PARK CLO DAC -REGS- 100,000 01/15/2031 4.82 92,948.43 0.23 186,141.91 0.46
Luxembourg EUR ALTICE FRANCE HOLDING SA -REGS- 205,000 05/15/2027 8.00 218,017.50 0.53
United Kingdom USD VODAFONE GROUP PLC -REGS- 200,000 10/03/2078 6.25 184,731.08 0.45
Total Corporate Bonds 710,069.99 1.74
Term Loans
Canada EUR KNOWLTON DEVELOPMENT CORP INC - TL-B 300,000 12/22/2025 5.00 298,593.00 0.73
Denmark EUR NETS HOLDING A/S -TL-B1E 402,152 02/06/2025 3.25 392,287.30 0.96 EUR TDC AS - TL 421,916 06/04/2025 3.00 413,593.92 1.01 805,881.22 1.97
Finland EUR AMER SPORTS OYJ -TL-B 230,000 03/30/2026 4.50 206,936.75 0.51
France USD ALTICE FRANCE SA -TL-B13 243,403 08/14/2026 4.15 202,395.23 0.49 EUR BIOGROUP LCD - TL-B 205,000 04/25/2026 4.25 200,729.85 0.49 EUR BISCUIT INTERNATIONAL - TL 255,000 02/15/2027 4.00 242,037.08 0.59 EUR DELACHAUX GROUP SA -TL-B 265,000 04/16/2026 3.75 255,988.68 0.63 EUR FINANCIERE MENDEL SAS -TL-B 490,000 04/13/2026 4.75 489,693.75 1.20 EUR HOMEVI SAS - TL 205,000 10/31/2026 2.75 198,952.50 0.49 EUR OBOL FRANCE 3 SAS -TL-B2 300,000 04/11/2023 3.50 275,571.00 0.67 GBP ORPHEA LTD -TL 345,000 07/21/2023 4.59 371,552.99 0.91 USD SAM BIDCO SAS -TL-B 500,000 12/13/2024 3.85 408,263.16 1.00 EUR THOM EUROPE SAS -TL-B 270,000 08/07/2024 4.25 255,037.95 0.62 2,900,222.19 7.09
Germany EUR AI PLEX ACQUICO GMBH - TL-B * 250,000 07/31/2026 0.00 232,750.00 0.57 EUR AI SIRONA LUX ACQUISITION SARL - TL-B 200,000 09/29/2025 4.00 197,500.00 0.48 EUR ALPHA GROUP SARL - TL-B 200,000 01/31/2025 3.75 174,876.00 0.43 USD CERAM TEC -TL-B2 497,141 03/07/2025 3.26 403,632.81 0.99 EUR IFCO MANAGEMENT GMBH - TL-B1A 350,000 05/29/2026 3.50 347,740.75 0.85 EUR SPEEDSTER BIDCO GMBH - TL * 170,000 03/31/2027 0.00 163,200.00 0.40 EUR SPRINGER NATURE DEUTSCHLAND GM - TL-B15 223,039 08/14/2024 3.75 222,063.10 0.54
The accompanying notes form an integral part of these financial statements
Annual Report and Audited Financial Statements
15 Oaktree (Lux.) II
Oaktree (Lux.) II - European Credit Fund Schedule of Investments and Other Net Liabilities as of September 30, 2020
Securities not listed on a stock exchange or other organised markets (continued) Valuation % of net Currency Description Nominal Maturity Date Interest Rate (in EUR) assets
Term Loans (Continued)
Germany (Continued) EUR TECHEM VERWALSELLCHAFT 675 MBH - TL-B4 176,985 07/15/2025 2.62 174,023.65 0.43 EUR XELLA INTERNATIONAL GMBH -TL-B 513,048 04/11/2024 4.00 491,885.35 1.20 2,407,671.66 5.89
Guernsey GBP IRIS BIDCO LTD-TL-B 190,000 09/06/2025 4.30 204,623.38 0.50
Ireland EUR CRH PLC - TL 125,000 10/30/2026 4.50 123,554.38 0.30
Luxembourg EUR AURIS LUXEMBOURG III SARL -TL-B1A 420,000 02/27/2026 4.00 395,175.90 0.97 EUR CCP LUX HOLDING SARL -TL 330,097 01/10/2025 4.25 302,038.95 0.74 EUR CEP IV INVESTMENT 16 SARL -TL-B 274,677 10/03/2024 3.50 228,668.95 0.56 USD CURIUM BIDCO SARL - TL-B 99,250 07/09/2026 3.97 84,002.55 0.20 USD DELTA 2 ( LUX ) SARL -TL 324,464 02/01/2024 3.50 269,545.84 0.66 EUR DIAVERUM HOLDING SARL - TL 205,000 07/04/2024 3.25 198,821.30 0.49 EUR GALILEO GLOBAL EDUCATION SARL - TL 200,000 11/06/2026 3.25 195,071.00 0.48 EUR ION TRADING TECHNOLOGIES SARL -TL-B 326,185 11/21/2024 4.25 320,768.90 0.78 GBP KIWI HOLDING IV SARL -TL 295,000 07/29/2024 4.71 278,337.80 0.68 EUR LSF10 EDILIANS INVESTMNTS SARL - TL-B2 170,000 10/10/2025 4.25 167,025.00 0.41 EUR LSF11 SKYSCRAPER HOLDCO SARL - TL-B * 205,000 07/10/2027 0.00 203,718.75 0.50 EUR MARCEL LUX IV SARL - TL-B2 220,000 03/16/2026 3.50 216,150.00 0.53 EUR NEPTUNE BIDCO SARL - TL 215,000 02/26/2027 3.50 205,424.98 0.50 EUR NEURAXPHARM HOLDCO SARL - TL-B4 215,000 08/30/2024 3.75 211,775.00 0.52 USD SAMSONITE INTERNATIONAL SA - TL-B2 234,878 04/25/2025 4.82 196,040.04 0.48 EUR SUMMER BC HOLDCO B SARL - TL-B 100,000 12/04/2026 4.75 96,018.00 0.23 EUR SUNSHINE LUXEMBOURG VII SARL -TL-B2 300,000 10/01/2026 3.75 295,534.50 0.72 EUR TACKLE SARL - TL-B * 115,000 08/14/2024 0.00 113,878.75 0.28 3,977,996.21 9.73
Netherlands EUR DIAMOND (BC) BV -TL 230,752 09/06/2024 3.25 220,296.28 0.54 EUR FUGUE FINANCE BV -TL 255,000 09/01/2024 3.25 246,211.43 0.60 EUR INTERNATIONAL PARK HOLDINGS - TL-B * 190,000 06/13/2024 0.00 159,204.80 0.39 EUR PRECISE BIDCO BV -TL-B 400,000 05/13/2026 3.25 392,400.00 0.96 GBP SIGMA BIDCO BV -TL-B4 90,000 07/02/2025 4.06 96,415.38 0.24 EUR STARS GROUP HOLDINGS BV -TL 453,480 07/10/2025 3.75 454,724.75 1.11 EUR SUNSHINE INVESTMENTS BV - TL-B1 * 100,000 03/28/2025 0.00 99,359.50 0.24 EUR SUNSHINE INVESTMENTS BV -TL-B1 110,000 03/28/2025 3.25 108,432.50 0.27 The accompanying notes form an integral part of these financial statements
Annual Report and Audited Financial Statements
16 Oaktree (Lux.) II
Oaktree (Lux.) II - European Credit Fund Schedule of Investments and Other Net Liabilities as of September 30, 2020
Securities not listed on a stock exchange or other organised markets (continued) Valuation % of net Currency Description Nominal Maturity Date Interest Rate (in EUR) assets
Term Loans (Continued)
Netherlands (Continued) EUR UPC BROADBAND HOLDING BV - TL-B1 * 200,000 01/31/2029 0.00 198,273.00 0.48 1,975,317.64 4.83
Panama EUR CARNIVAL CORP - TL-B 99,750 06/30/2025 7.50 99,076.69 0.24
Spain EUR MEMORA SERVICIOS FUNERARIOS -TL-B1 630,000 09/29/2024 3.50 592,357.50 1.45 EUR PARQUES REUNIDOS SAU - TL-B1 160,000 09/16/2026 3.75 131,760.00 0.32 724,117.50 1.77
Sweden EUR IGT HOLDING IV AB -TL-B1 300,000 07/26/2024 3.75 290,907.00 0.71 EUR UNILABS HOLDING AB -TL-B2 310,000 04/19/2024 3.00 302,206.60 0.74 EUR VERISURE HOLDING AB -TL-B1E 257,025 10/20/2022 3.00 254,592.47 0.62 847,706.07 2.07
Switzerland EUR ORBITER GROUP SARL - TL-B * 169,513 07/11/2024 0.00 160,118.59 0.39
United Kingdom EUR ANTIGUA BIDCO LTD - TL-B 170,000 08/07/2026 5.00 167,982.10 0.41 GBP CD AND R FIREFLY BIDCO LTD - TL-B1 200,000 06/23/2025 5.18 214,152.77 0.52 EUR COBHAM PLC -TL-B 200,000 01/17/2027 3.75 197,056.00 0.48 GBP EAGLE BIDCO LTD -TL-B 310,000 05/12/2022 4.80 325,345.90 0.80 GBP EG GROUP LTD - TL-B 358,775 02/06/2025 4.84 375,841.56 0.92 EUR FINTRAX -TL-B1 290,000 12/15/2024 4.00 242,657.50 0.59 EUR FRONERI INTERNATIONAL PLC - TL 200,000 01/31/2027 2.63 195,056.00 0.48 EUR FRONERI INTERNATIONAL PLC - TL 100,000 01/31/2028 5.75 100,325.00 0.25 EUR GENESIS SPECIALIST CARE FINANCE UK LTD -TL-B 300,000 10/30/2025 3.00 291,750.00 0.71 EUR INSPIRED FINCO HOLDINGS LTD -TL-B 200,000 05/28/2026 3.25 196,300.00 0.48 EUR IVC ACQUISITION LTD - TL-B * 200,000 02/05/2026 0.00 197,625.00 0.48 EUR LERNEN BIDCO LTD -TL-B1 376,858 10/25/2025 4.25 367,594.56 0.90 EUR LORCA FINCO PLC - TL- B * 465,000 09/18/2027 0.00 464,031.41 1.14 EUR SYNLAB BONDCO PLC - TL-B3 333,333 07/31/2024 4.00 333,084.67 0.81 3,668,802.47 8.97
United States EUR BEAVER VISITEC INT INC -TL-B 230,000 03/02/2026 3.50 223,316.20 0.55 EUR CASTLE US HOLDING CORP - TL 179,100 01/29/2027 3.75 172,832.40 0.42 EUR FINANCIAL RISK US HOLDINGS INC -TL 510,900 10/01/2025 3.25 505,558.54 1.24 USD FINASTRA USA INC -TL 395,704 06/13/2024 4.50 316,438.05 0.77 EUR HELIOS SOFTWARE HOLDINGS INC - TL 297,991 10/24/2025 4.25 293,074.33 0.72 EUR NEP GROUP INC -TL 535,463 10/20/2025 3.50 472,210.99 1.15 The accompanying notes form an integral part of these financial statements
Annual Report and Audited Financial Statements
17 Oaktree (Lux.) II
Oaktree (Lux.) II - European Credit Fund Schedule of Investments and Other Net Liabilities as of September 30, 2020
Securities not listed on a stock exchange or other organised markets (continued) Valuation % of net Currency Description Nominal Maturity Date Interest Rate (in EUR) assets
Term Loans (Continued)
United States (Continued) EUR NIELSEN FINANCE LLC - TL-B3 * 194,512 06/04/2025 0.00 194,694.84 0.48 EUR PENN ENGINEERING AND MFG CORP -TL-C 243,547 06/27/2024 3.50 236,240.68 0.58 EUR PUG LLC - TL-B 240,000 02/12/2027 3.50 206,799.60 0.50 EUR SOLERA HOLDINGS INC -TL-B 287,868 03/03/2023 3.25 283,858.26 0.69 EUR VERITAS US INC - TL-B 353,487 09/01/2025 6.50 346,906.45 0.85 3,251,930.34 7.95
Total Term Loans 21,652,548.09 52.94
Total Securities not listed on a stock exchange or other organised markets 22,362,618.08 54.68
Total Portfolio 41,796,221.81 102.19 Cash at banks and at brokers 353,400.68 0.86 Other Net Liabilities (1,250,157.00) (3.05)
Total Net Assets 40,899,465.49 100.00 *The interest rate until settlement is 0%.
The accompanying notes form an integral part of these financial statements
Annual Report and Audited Financial Statements
18 Oaktree (Lux.) II
Oaktree (Lux.) II - European Credit Fund Open Forward Foreign Exchange Contracts as of September 30, 2020
Forward foreign exchange contracts
Purchases Counterparty Sales Maturity Valuation (in EUR) EUR STATE STREET BANK LONDON 3,684,579 GBP 3,276,475 06.10.2020 72,633.16 EUR STATE STREET BANK LONDON 4,317,711 USD 5,122,139 06.10.2020 (49,928.89) Net unrealised gain on forward foreign exchange contracts 22,704.27
The accompanying notes form an integral part of these financial statements
Annual Report and Audited Financial Statements
19 Oaktree (Lux.) II
Notes to the Financial Statements as of September 30, 2020
1. Organisation Oaktree (Lux.) II (the ”Company”) is structured as a Luxembourg partnership limited by shares (société en commandite par actions) organised as an investment company with variable capital - specialised investment fund in Luxembourg (a société d'investissement a capital variable - fonds d'investissement specialisé or SICAV-SIF) under and subject to the Luxembourg law of February 13, 2007 on specialised investment funds, as amended from time to time ("SIF Law"). Capital terms used and not defined herein shall have the same meaning as included in the Prospectus of the Company.
The Company qualifies as an alternative investment fund in accordance with Part II of the SIF Law and the Luxembourg law of July 12, 2013 on alternative investment fund managers ("AIFM Law"), as may be amended from time to time implementing AIFM Directive 20 11/61/EU of the European Parliament and of the Council of June 8, 2011 on Alternative Investment Fund Managers and EU Regulation No 231/2013 of December 19, 2012 supplementing the AIFM Directive.
As a Luxembourg partnership limited by shares (société en commandite par actions), the Company has two types of Shares: a) Management Shares, which have been and shall be subscribed for by the General Partner. The General Partner as the sole holder of the Management Shares will be liable for all debts of the Company which cannot be paid out of the assets of the Company. The Company may issue additional Management Shares the subscription for which will be reserved to the General Partner as the unlimited shareholder (actionnaire gérant commandité) of the Company; and b) Ordinary Shares, which shall be subscribed for by Investors that comply with all relevant eligibility criteria set out in the Memorandum to subscribe for such Ordinary Shares. The Investors will qualify as limited shareholders (actionnaire commanditaire) and their liability for the debts of the Company will be limited to the amount invested in the Company.
On July 17, 2015 the Company was incorporated with an initial share capital of USD 40,000 divided into one Management Share and three hundred ninety-nine Ordinary Shares, all fully paid-up. The total share capital of the Company, after a period of 12 months following the date of its authorisation by the CSSF, shall be at least EUR 1,250,000 or the equivalent in US dollars.
The Company has designated LFE European Asset Management S.à.r.l. (previously Oaktree Capital Management (Lux.) S.à.r.l.) to act as its alternative investment fund manager (the "AIFM").
The Company is registered with the Luxembourg Trade and Companies Register (Registre de Commerce et des Sociétés) under number B 199.241. The Articles have been filed with the Luxembourg Trade and Companies Register and have been published in the Mémorial, Recueil des Sociétés et Associations on September 30, 2015.
The Company has an umbrella structure and may consist of one or more Sub-Funds, each of which may invest through wholly-owned subsidiary investment holding vehicles in accordance with such Sub-Fund's investment strategy and investment objective as set out in the Company's memorandum.
As of September 30, 2020, the Company has one Sub-Fund:
Oaktree (Lux.) II European Credit Fund is denominated in Euro. The Sub-Fund has issued two class of shares, Class F Shares and Class I Shares, which are growth shares for institutional investors only.
Annual Report and Audited Financial Statements
20 Oaktree (Lux.) II
Notes to the Financial Statements as of September 30, 2020
2. Significant Accounting Policies
The accompanying financial statements have been prepared in accordance with the generally accepted principles in Luxembourg with the relevant AIFMD disclosures, applicable to specialised investment funds.
The Company's investments and other assets are valued as follows:
(a) Valuation of Investments
The value of assets shall be determined as follows:
• The value of any cash on hand or on deposit, bills and demand notes and accounts receivable, prepaid expenses, cash dividends and interest declared or accrued as aforesaid and not yet received is deemed to be the full amount thereof, unless in any case the same is unlikely to be paid or received in full, in which case the value thereof is determined after making such discount as may be considered appropriate in such case to reflect the true value thereof.
• Securities listed and traded primarily on one or more recognised securities exchanges shall be valued at their last known prices as reported on the consolidated tape on the date of determination (or if the date of determination is not a business day, on the last business day immediately prior to such date of determination).
• Unlisted securities for which over-the-counter market quotations are readily available (including listed securities for which the primary market is believed to be the over-the-counter market) shall be valued at a price equal to the last reported price as supplied by recognised quotation services or broker-dealers.
• Restricted equity securities will be valued at an appropriate discount (as determined by the AIFM or the external valuer, if any, in its reasonable discretion) from their public market price.
• The liquidating value of future, forward or option contracts not traded on exchanges or on other organised markets means their net liquidating value determined, pursuant to the policies established by the AIFM or the external valuer, if any, on a basis consistently applied for each different variety of contracts. The liquidating value of future, forward or option contracts traded on exchanges or on other regulated markets are based upon the last available settlement prices of these contracts on exchanges and regulated markets on which the particular future, forward or option contracts are traded by the Company; provided that if a future, forward or option contract cannot be liquidated on the day with respect to which net assets.
• Loans are valued at a price equal to the last reported price as supplied by recognised quotation services or broker-dealers.
• (All other non-publicly traded securities, other securities or instruments or investments for which reliable market quotations are not available, and securities, instruments or investments for which the AIFM or the external valuer, if any, determines in its absolute discretion that the foregoing valuation methods do not fairly represent the fair value of such securities, instruments or investments, are valued by the AIFM or the external valuer, if any, either at their cost basis or in good faith using methods the AIFM or the external valuer, if any, considers appropriate.
Any assets or liabilities not denominated in the relevant Reference Currency shall be converted into the relevant Reference Currency at the exchange rate available as on the date on which the calculation of the Net Asset Value is made. In addition, the Net Asset Value of any Alternate Currency Class and Alternative Currency Shares shall be converted into their relevant currencies from the relevant Reference Currency (and adjusted, where relevant, for any hedging gains or losses) (whether realised or calculated on a mark-to-market basis) at the exchange rate available on the date on which the calculation of such Net Asset Value is made.
Annual Report and Audited Financial Statements
21 Oaktree (Lux.) II
Notes to the Financial Statements as of September 30, 2020
2. Significant Accounting Policies (Continued)
(b) Securities Transactions and Income Recognition
Securities transactions are accounted for at the trade date. Bank interest and bond interest for the year are recognised as Investment Income in the Statement of Operations on an accruals basis, net of withholding tax. Dividends are recorded on ex-dividend date net of withholding tax. Realised gains and losses on securities transactions are determined on the base of the average cost of securities sold.
(c) Financial Instruments
The unrealised gain or loss on open forward foreign exchange contracts is calculated as the difference between the contracted rate and the rate to close out the contract. Realised gains or losses include net gains or losses on these contracts, which have settled or offset by other contracts. Gains/(losses) arising from these and closed unsettled contracts are taken to unrealized gain/(loss) and are included in “Assets/(Liabilities)” (as appropriate) in the Statement of Assets and Liabilities on page 6.
(d) Foreign Currency
The financial statements of the Company are expressed in USD as this is the presentation currency of the Company along with comparative values presented in EUR, the functional currency of the single Sub-Fund. The amounts presented in EUR have been translated into the presentation currency using the exchange rate as at the close of business on September 30, 2020 for the statement of assets and liabilities. For the statement of operations and the statement of changes in net assets, the average exchange rate over the period from October 1, 2019 to September 30, 2020 has been used, except for net change in unrealised gain/(loss) balances which result from the variation of statement of assets and liabilities accounts.
Transactions relating to costs of investments in the Sub-Fund during the period denominated in foreign currencies have been translated at the rates of exchange ruling at the dates of the transactions. The market values of investments and other assets and liabilities in currencies other than the functional currency of the Sub-Fund have been translated at the exchange rate as at the close of business on September 30, 2020.
Close of business: Average for the period: USD 1 = EUR 0.85277 USD 1 = EUR 0.89347 USD 1 = GBP 0.77352 USD 1 = GBP 0.78488
(e) Subsidiary
The Company incorporated a Luxembourg subsidiary, Oaktree European Credit Loan S.à r.l., on July 29, 2016. The Luxembourg subsidiary is wholly-owned by the Company and makes investments according to the Company’s investment policy. The Company invests through the Luxembourg subsidiary in order to minimise the tax costs of investing in Europe. The statements of Oaktree (Lux.) II include the accounts of the subsidiary.
(f) Expenses
The establishment expenses of the Company and of each Sub-Fund will be amortised over a five year period in equal instalments and the Company may accrue administrative and other expenses of a regular or recurring nature based on an estimated amount rateably for yearly or other periods.
Deferred organization expenses are amortised on a straight-line basis over a period of five years.
Annual Report and Audited Financial Statements
22 Oaktree (Lux.) II
Notes to the Financial Statements as of September 30, 2020
3. Management Fees
The General Partner is responsible for investing the Sub-Fund’s assets. The General Partner has appointed the AIFM to implement the investment policy on a day-to-day basis.
In order to implement the investment policy of the Sub-Fund, the AIFM may delegate, under its permanent supervision and responsibility, the management of the assets of such Sub-Fund to Oaktree Capital Management, L.P., Oaktree Capital Management (UK) LLP and/or other members of the Oaktree Group.
Oaktree Capital Management (UK) LLP was appointed to act as the Portfolio Manager.
The Portfolio Management Fee is calculated by the Administrator accruing on each valuation day and payable quarterly at a rate of 1/12th of a maximum management fee, of 0.35% for Class F and 0.50% for Class I, of the Sub-Fund’s net asset value as of the beginning of each month.
The Alternative Investment Fund Manager fees are based on the Sub-Fund’s net asset value, subject to an annual rate of 0.035% on the first EUR 500 million of the relevant Sub-Fund’s net asset value and 0.025% on the relevant Sub-Fund’s net asset value in excess of EUR 500 million, and are payable monthly. Fees are subject to change.
4. Central Administration, Depositary Fees and Transfer Agent Fees
The Company has appointed State Street Bank International GmbH, Luxembourg Branch as administrative, registrar and transfer agent, as corporate and paying agent and as domiciliation agent of the Company pursuant to the Administration Agreement.
Annual Fees for Administration Services Assets per Sub-Fund Basis Point Fees $0 - $250mm 3.00 bps $250mm - $500mm 2.75 bps $500mm - $750mm 2.50 bps $750mm - $1 bn 2.25 bps $1bn - 2.00 bps
The Depositary received fees based upon the net asset value of the Sub-Fund and the number and location of transactions. The actual level of fees can vary from time to time according to the asset allocation and the level of transactions. The Depositary is subject to an annual minimum fee of USD 45,000.
The Transfer Agent receives transaction fees for processing of subscriptions, redemptions, transfers and other shareholder related transactions.
Annual Report and Audited Financial Statements
23 Oaktree (Lux.) II
Notes to the Financial Statements as of September 30, 2020
5. Net unrealised/realised gains/(losses) on financial assets
The realised gains/(losses) on investments, forward foreign exchange contracts and foreign currencies are detailed as follows:
Oaktree (Lux.) II - Oaktree (Lux.) II - European Credit European Credit Fund Fund USD EUR
For the year ended September 30, 2020 Realised gains on corporate bonds 254,220.90 227,137.76 Realised gains on investment funds 155.55 132.65 Realised gains on loans 1,056,513.05 943,958.61 Realised gains on forward currency contracts 116,983.48 104,520.78 Realised gains on foreign currency 243,504.90 217,563.38 Total realised gains on financial assets 1,671,377.88 1,493,313.18 For the year ended September 30, 2020 Realised losses on corporate bonds (633,199.56) (565,742.35) Realised losses on investment funds (5,395.27) (4,820.49) Realised losses on loans (1,994,836.73) (1,782,319.03) Realised losses on forward currency contracts (208,179.22) (186,001.08) Realised losses on foreign currency (20,868.22) (18,645.05) Total realised losses on financial assets (2,862,479.00) (2,557,528.00) Net realised loss on financial assets (1,191,101.12) (1,064,214.82)
The unrealised gains/(losses) on investments, forward foreign exchange contracts and foreign currencies are detailed as follows:
Oaktree (Lux.) II - Oaktree (Lux.) II - European Credit European Credit Fund Fund USD* EUR
As of September 30, 2020 Unrealised gains on investments 484,998.20 413,591.26 Unrealised losses on investments (1,605,892.28) (1,369,454.58) Total unrealised gains/losses on investments (1,120,894.08) (955,863.32) Unrealised gains on forward currency contracts 85,173.35 72,633.16 Unrealised losses on forward currency contracts (58,549.16) (49,928.89) Total unrealised gains/losses on forward currency contracts 26,624.19 22,704.27 Unrealised gains on foreign currencies 1,749.36 1,491.80 Unrealised losses on foreign currencies (1,224.04) (1,043.82) Total unrealised gains/losses on foreign currencies 525.32 447.98
* The balances in USD result from the conversion of balances in EUR at the average exchange rate over the year ended September 30, 2020 for realised accounts and at the exchange rate effective as of September 30, 2020 for unrealized accounts.
Annual Report and Audited Financial Statements
24 Oaktree (Lux.) II
Notes to the Financial Statements as of September 30, 2020
6. Unfunded Loans commitments
Oaktree (Lux.) II - European Credit Fund may enter into certain credit agreements, all or a portion of which may be unfunded. They are obliged to fund these loan commitments at the borrowers’ discretion. For such transactions the total loan commitment is reflected in the asset side at cost and eventually both funded and unfunded parts are value at market value. The unfunded part is presented in the liabilities under the caption ‘Unfunded loan commitment’.
As at September 30, 2020, there were no unfunded loan commitment (As of September 2019 € 64,137.93) on Oaktree (Lux.) II - European Credit Fund.
7. Tax Status
The Company is registered under Luxembourg law as an investment company. Accordingly, no Luxembourg income or capital gains tax is at present payable by the Company. However the subsidiary of the Company is subject to the Luxembourg corporate tax and is included in the accounts of the Company. The Company is also subject to a Luxembourg taxe d'abonnement (Subscription tax) at an annual rate of 0.01% (institutional investors only), and calculated on the net asset value of the Sub-Fund at each quarter end.
8. Credit Line
On October 25, 2018 the company entered into a Uncommitted Revolving Credit Facility Agreement with State Street Bank and Trust Company. As of September 30, 2020 the Company did not hold any Uncommitted Revolving Credit Facility Agreement (As of September 30, 2019 € 2,000,000).
9. Professional Fees and Other Charges
The Company bears expenses incurred in the operations of the Company (either directly or as defined in the current Memorandum).
Expense Waiver
The Portfolio Manager has voluntarily agreed to limit certain operating expenses with respect to Oaktree European Credit Fund. Therefore, to the extent that operating expenses would exceed the expense cap, the Portfolio Manager has voluntarily agreed to reduce its Portfolio Management Fees accordingly for the period ended September 30, 2020. The Portfolio Manager may, in its sole discretion, designate which expenses of the Fund will be subject to any such expense cap imposed by the Portfolio Manager. There is no guarantee that the existence or level of these expense caps will continue in the future and no obligation on the part of Portfolio Manager to agree to limit expenses in this way.
10. Events During the Year
As part of an internal restructuring with the aim to streamline State Street’s banking entity structure across Europe, State Street Bank Luxembourg S.C.A. merged into State Street Bank International GmbH as from November 4, 2019 (the “Merger Date”). Since the Merger Date, State Street Bank International GmbH continues to carry out the depositary and central administration agent functions through State Street Bank International GmbH, Luxembourg Branch.
As legal successor of State Street Bank Luxembourg S.C.A., State Street Bank International GmbH, Luxembourg Branch has assumed the same duties and responsibilities, and has the same rights under the existing agreements with the Fund. Any agreements in place with State Street Bank Luxembourg S.C.A. have been transferred to State Street Bank International GmbH, Luxembourg Branch by operation of law.
Annual Report and Audited Financial Statements
25 Oaktree (Lux.) II
Notes to the Financial Statements as of September 30, 2020
10. Events During the Year (Continued)
State Street Bank International GmbH, Luxembourg Branch, is supervised by the European Central Bank (ECB), the German Federal Financial Services Supervisory Authority (BaFin) and the German Central Bank and has been authorised to act as depositary and central administration agent by the Commission de Surveillance du Secteur Financier (“CSSF”) in Luxembourg. State Street Bank International GmbH, Luxembourg Branch is registered in the Luxembourg Commercial and Companies’ Register (RCS) under number B 148 186.
On January 30, 2020, the World Health Organization declared the outbreak of coronavirus (“COVID-19”) to be a public health emergency of international concern. This coronavirus outbreak has severely restricted the level of economic activity around the world. In response to this coronavirus outbreak, the governments of many countries, states, cities and other geographic regions have taken preventative or protective actions, such as imposing restrictions on travel and business operations and advising or requiring individuals to limit or forego their time outside of their homes.
The full extent to which the COVID-19 pandemic may impact the Company’s results, operations or liquidity is uncertain. The Directors continue to monitor the impact that the COVID-19 pandemic has on the Company. The Directors have reviewed a COVID -19 impact analysis as part of their going concern assessment using information available to the date of issue of these financial statements.
11. Subsequent Events
There were no events occurred after the year ended September 30, 2020.
12. Risk Management (unaudited)
The AIFM has established and maintains a dedicated risk management function to identify, measure, manage and monitor on an ongoing basis risks (quantitative and qualitative) relevant to each Sub-Fund’s Investment Objective including, in particular market, credit, liquidity, counterparty, operational and other relevant risks. In addition, the risk management function reviewed and if needed, provided appropriate support concerning the policies and procedures adopted for the valuation of a Sub-Fund’s assets.
The risk profile of each Sub-Fund's shall correspond to the size, portfolio structure and Investment Objective as specified for each Sub-fund in Part II of the SIF Law and the Luxembourg law of July 12, 2013 on alternative investment fund managers ("AIFM Law").
In accordance with the Prospectus, the AIFM currently employs a liquidity management system and has adopted procedures for this Sub-Fund which enables the AIFM to monitor the liquidity risk of the Sub-Fund. By reviewing regularly conducted stress tests which are performed under normal and exceptional liquidity conditions, the AIFM is able to monitor the liquidity risk of the Sub-Fund accordingly and ensures the investment strategy, liquidity profile and redemption policy of the Sub-Fund are consistently applied.
13. Securities Financing Transactions Regulation (unaudited)
The Securities Financing Transactions Regulation (SFTR) came into force on January 12, 2016 and introduces new disclosure requirements for securities financing transactions and total return swaps.
A securities financing transaction is defined as per Article 3(11) of the SFTR as:
• a repurchase/reverse repurchase agreement,
• securities or commodities lending and securities or commodities borrowing,
Annual Report and Audited Financial Statements
26 Oaktree (Lux.) II
Notes to the Financial Statements as of September 30, 2020
13. Securities Financing Transactions Regulation (unaudited) (Continued)
• a buy-sell back transaction or sell-buy back transaction, or
• a margin lending transaction.
As at September 30, 2020, the Fund is not impacted by the Securities Financing Transactions Regulation.
Annual Report and Audited Financial Statements
27 Independent auditor’s report
To the Shareholders of Oaktree (Lux.) II 49, Avenue J.F. Kennedy L-1855 Luxembourg
Opinion
We have audited the financial statements of Oaktree (Lux.) II (the “Fund), which comprise the statement of assets and liabilities and the schedule of investments and other net liabilities as at 30 September 2020, and the statement of operations and the statement of changes in net assets for the year then ended, and the notes to the financial statements, including a summary of significant accounting policies.
In our opinion, the accompanying financial statements give a true and fair view of the financial position of the Fund as at 30 September 2020, and of the results of its operations and changes in its net assets for the year then ended in accordance with Luxembourg legal and regulatory requirements relating to the preparation and presentation of the financial statements.
Basis for Opinion
We conducted our audit in accordance with the Law of 23 July 2016 on the audit profession (the “Law of 23 July 2016”) and with International Standards on Auditing (“ISAs”) as adopted for Luxembourg by the “Commission de Surveillance du Secteur Financier” (“CSSF”). Our responsibilities under the Law of 23 July 2016 and ISAs are further described in the “responsibilities of the “réviseur d’entreprises agréé” for the audit of the financial statements” section of our report. We are also independent of the Fund in accordance with the International Ethics Standards Board for Accountants’ Code of Ethics for Professional Accountants (“IESBA Code”) as adopted for Luxembourg by the CSSF together with the ethical requirements that are relevant to our audit of the financial statements, and have fulfilled our other ethical responsibilities under those ethical requirements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.
Other information
The Board of Managers of the General Partner of the Fund is responsible for the other information. The other information comprises the information included in the annual report but does not include the financial statements and our report of the “réviseur d’entreprises agréé” thereon.
Our opinion on the financial statements does not cover the other information and we do not express any form of assurance conclusion thereon.
28 In connection with our audit of the financial statements, our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the financial statements or our knowledge obtained in the audit or otherwise appears to be materially misstated. If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required to report this fact. We have nothing to report in this regard.
Responsibilities of the Board of Managers of the General Partner of the Fund and those charged with governance for the financial statements
The Board of Managers of the General Partner of the Fund is responsible for the preparation and fair presentation of these financial statements in accordance with Luxembourg legal and regulatory requirements relating to the preparation and presentation of the financial statements, and for such internal control as the Board of Managers of the General Partner of the Fund determines is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error.
In preparing the financial statements, the Board of Managers of the General Partner of the Fund is responsible for assessing the Fund’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the Board of Managers of the General Partner of the Fund either intends to liquidate the Fund or to cease operations, or has no realistic alternative but to do so.
Responsibilities of the “réviseur d’entreprises agréé” for the audit of the financial statements
Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue a report of the “réviseur d’entreprises agréé” that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with the Law of 23 July 2016 and with ISAs as adopted for Luxembourg by the CSSF will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial statements.
As part of an audit in accordance with the Law of 23 July 2016 and with ISAs as adopted for Luxembourg by the CSSF, we exercise professional judgment and maintain professional skepticism throughout the audit. We also:
• Identify and assess the risks of material misstatement of the financial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control.
29 • Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Fund's internal control.
Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by the Board of Managers of the General Partner of the Fund.
• Conclude on the appropriateness of Board of Managers of the General Partner of the Fund use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Fund's ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our report of the "reviseur d'entreprises agree" to the related disclosures in the financial statements or, if such disclosures are inadequate, to mOdify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our report of the "reviseur d'entreprises agree". However, future events or conditions may cause the Fund to cease to continue as a going concern.
Evaluate the overall presentation, structure and content of the financial statements, including the disclosures, and whether the financial statements represent the underlying transactions and events in a manner that achieves fair presentation.
We communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit.
Ernst & Young Societe anonyme Cabinet de revision agree
Luxembourg, 19 January 2021
30 Oaktree (Lux.) II
General Information
Current Memorandum
The Company’s Memorandum, dated October 2017, may be obtained from the Portfolio Manager and the Administrator.
Publication of Prices and Notices to Shareholders
Notice of General Meetings and notices to Shareholders are given by publication in the “Recueil Spécial des Sociétés” in Luxembourg. The issue and redemption prices are available from the Registered Office on each dealing day.
Purchases and Sales
A detailed list of investments purchased and sold for the Sub-Fund during the year is available upon request, free of charge, from the Registered Office of the Company in Luxembourg.
Report and Accounts and Deeds of the Company
Copies of the Articles of Association may also be obtained free of charge from the Registered Office of the Company in Luxembourg.
Disclosures under the Alternative Investment Fund Managers Directive (unaudited)
The annual report supplement ("the Report Supplement") of the Fund for the year ended September 30, 2020 for the purposes of Article 22 of the Alternative Investment Fund Managers Directive (Directive 2011/61/EU), is being made available, free of charge, at the Registered Office of the Company in Luxembourg to existing investors and, where relevant in accordance with article 21 para. 1 of the AIFMD law, to prospective investors as well as to regulators.
Annual Report and Audited Financial Statements
31 Oaktree (Lux.) II
Board of Directors and Company Information
Company Conducting Officers of the AIFM Oaktree (Lux.) II Manuel Martin de Rosales 49 Avenue J.F. Kennedy Sebastien Pauly (effective from December 3, 2018 to L-1855 Luxembourg November 28, 2019) Grand Duchy of Luxembourg Nicolas Puissant (effective from November 28, 2019) Andreas Brückmann (effective from May 28, 2020) General Partner Oaktree (Lux.) GP S.à r.l. Registrar, Transfer Agent, Depositary, Paying Agent, 26A, boulevard Royal Domiciliation Agent and Administrator L-2449, Luxembourg State Street Bank Luxembourg S.C.A. Grand Duchy of Luxembourg (Until November 4, 2019) 49, Avenue J.F. Kennedy Board of Managers of the General Partner L-1855 Luxembourg Peter Preisler (effective from June 25, 2020) Grand Duchy of Luxembourg Brad Howard (effective until June 25, 2020) State Street Bank International GmbH, Luxembourg Branch Nicolas Puissant (Since November 4, 2019) Andrew Murray 49, Avenue J.F. Kennedy Christopher Edge (effective from June 25, 2020) L-1855 Luxembourg Grand Duchy of Luxembourg Global Distributor Oaktree Capital Management (UK) LLP Legal Advisers Verde Clifford Chance (effective until December 31, 2019) 10 Bressenden Place 10, boulevard G.0. Charlotte London L-1330 Luxembourg SW1E 5DH, UK Grand Duchy of Luxembourg Authorised and regulated by the FCA Allen & Overy, societe en commandite simple (effective from Portfolio Managers January 1, 2020) Oaktree Capital Management, L.P. 5, avenue J.F. Kennedy 333 South Grand Avenue L-1855 Luxembourg 28th Floor Grand Duchy of Luxembourg Los Angeles CA 90071 Ashurst LLP USA Broadwalk House 5 Appold Street Oaktree Capital Management (UK) LLP London Verde EC2A 2HA, UK 10 Bressenden Place London Auditor SW1E 5DH, UK Ernst & Young S.A. 35E, Avenue John F. Kennedy AIFM L-1855 Luxembourg LFE European Asset Management S.à r.1. Grand Duchy of Luxembourg 26A, boulevard Royal L-2449, Luxembourg Grand Duchy of Luxembourg
Board of Managers of the AIFM Nicolas Puissant Jean-Paul Gennari Keenan Dominic (effective until April 30, 2020) Andrew Murray (effective from April 30, 2020) Philippa Elder (effective from April 30, 2020) Andreas Brückmann (effective from April 30, 2020)
Annual Report and Audited Financial Statements
32