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

FORM N-CSR

CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT INVESTMENT COMPANIES

Investment Company Act file number 811-22874

THL CREDIT SENIOR LOAN FUND

(Exact name of registrant as specified in charter)

100 Wall St., 11th Floor
New York, NY 10005

(Address of principal executive offices) (Zip code)

Stephanie Trell
100 Wall St., 11th Floor
New York, NY 10005

(Name and address of agent for service)

Copies of Communications to:
Stephen H. Bier
Allison M. Fumai
Dechert LLP
1095 Avenue of the Americas
New York, NY 10036

Registrant’s telephone number, including area code:  (212) 701-4500

Date of fiscal year end: December 31

Date of reporting period: June 30, 2015

Form N-CSR is to be used by management investment companies to file reports with the Commission not later than 10 days after the transmission to stockholders of any report that is required to be transmitted to stockholders under Rule 30e-1 under the Investment Company Act of 1940 (17 CFR 270.30e-1). The Commission may use the information provided on Form N-CSR in its regulatory, disclosure review, inspection, and policymaking roles.

A registrant is required to disclose the information specified by Form N-CSR, and the Commission will make this information public. A registrant is not required to respond to the collection of information contained in Form N-CSR unless the Form displays a currently valid Office of Management and Budget (“OMB”) control number. Please direct comments concerning the accuracy of the information collection burden estimate and any suggestions for reducing the burden to Secretary, Securities and Exchange Commission, 100 F Street, NE, Washington, DC 20549. The OMB has reviewed this collection of information under the clearance requirements of 44 U.S.C. § 3507.

Item 1. Reports to Stockholders.

The Report to Shareholders is attached herewith.

 

Manager Commentary (unaudited)June 30, 2015

Fellow Shareholders:

On behalf of the management teams at both Four Wood Capital Advisors LLC and THL Credit Advisors LLC, we are pleased to share with you the performance highlights for THL Credit Senior Loan Fund (the “Fund”) for the first half of 2015, along with a review of the loan market over the same period.

First Half 2015 Loan Market in Review

The U.S. Leveraged Loan Market, as measured by the Credit Suisse Leveraged Loan Index (the “Index”),1 started the year strong, with a 2.07% return in Q1 2015 and a strong start to the second quarter in April.2 However, the U.S. Leveraged Loan Market returns started to slip in May and were negative in June, bringing the returns overall for Q2 2015 to 0.79% and a total return for the first half of 2015 of 2.86%2. For the six month period ended June 30, 2015, interest income generated 2.36% and principal return contributed 0.49%.2 Positive contributors to the Index’s return were assets with smaller facility sizes. The average price of the Index improved slightly from the end of the 2014, beginning the year at 96.28% and ending the first half of 2015 at 96.72%.3

New-issue loan volume was $244 billion for the first half of 2015, up nearly $100 billion from the second half of 2014.4 April marked the return of Bank Loan refinancing activity, and the positive impact continued through the end of June, bringing that quarters new-issue loan value to $158 billion,4 or approximately 65% of new-issue loan volume for the first half of the year. Year to date, acquisition related issuance accounted for 37% of all issuance, tracking down slightly to where this issuance ended 2014 at 41%.4 Repricing volume accounts for 23% of the year’s total volumes, up slightly from 19% at the end of 2014.4

Bank Loan retail flows were mixed during the first half of 2015, posting a net outflow of $4.1 billion for the period.4 However, April was the first month in a year to show a net inflow for the month, followed by another net inflow for the month of May. Institutional investors continued to access the loan market by way of Collateralized Loan Obligations (CLOs) with total CLO issuance for the first half of the year of  $59.4 billion.5 The first quarter posted a record issuance of  $30.8 billion, with just a modest decrease to $29.6 billion in CLO issuance in the second quarter.5

The Bank Loan default rate dropped significantly at the end of the second quarter with the exit of the Energy Future Holdings default from the lagging-12 month rolling calculation. The default rate is now 1.24% at the end of June, down from 3.24% at the end of 2014.6 However, the underlying default rate excluding Energy Future Holdings for the past 12 months has risen over the past six months, from 0.34% at the end of 2014.6 This increase is primarily due to the default of Caesars Entertainment in January 2015. This was the 6th largest default in Bank Loan history. The Fund does not have any exposure to this defaulted entity. THL Credit believes this increase in default rate, while still below historical average, is more representative of the current Bank Loan market.

THL Credit Senior Loan Fund Performance

As we near the two year anniversary of the Fund’s launch, we continue to be pleased with the Fund’s results. In response to changing market conditions, we reduced our monthly distribution to $0.110/share starting in April 2015, down from $0.119/share in March 2015. However, the Fund’s current distribution rate and inception-to-date net asset value (“NAV”) total returns continue to be among the highest relative to those of its comparable peers in the senior bank loan category.7

As of June 30, 2015, the Fund has accumulated total investments recorded at fair value of approximately $202.4 million, or 146.3% of net assets. NAV per share decreased from $18.74 per share at December 31, 2014 to $18.65 at June 30, 2015. As noted above, the Fund deliberately began to increase its use of leverage, ending the six month period with leverage as a percentage of Managed Assets (defined as total assets of the Fund, including any assets attributable to borrowings for investment purposes minus the sum of the Fund’s accrued liabilities, other than liabilities representing borrowings for investment purposes) at 30.6%, up from 26.1% at December 31, 2014. Over the six month period ended June 30, 2015, leverage as a percentage of Managed Assets averaged 27.3%.

   THL Credit Senior Loan Fund Semi-Annual Report | June 30, 2015   1​

THL Credit Senior Loan Fund

Manager Commentary (unaudited) (continued)June 30, 2015

 

Over the course of the six month period ended June 30, 2015, the Fund made minor adjustments to its allocation between fixed income categories. As of June 30, 2015, the Fund held 84.3% of its Managed Assets in fully collateralized first-lien loans, down from 88.5% at December 31, 2014, and an additional 10.1% in second-lien loans, up slightly from 8.2% at prior year end. The Fund’s allocation to fixed rate bonds also increased slightly from 0.7% at the end of 2014 to 3.4% at June 30, 2015. The Fund held 131 securities across 34 industries as of June 30, 2015. The top 5 industry positions represented approximately 37.5% of the Fund’s total holdings, while the top 10 individual positions represented approximately 16.7% of the Fund’s total holdings.

The Fund outperformed the Index on a NAV per share basis for the six month period ended June 30, 2015. Over the period, the Fund had returns of 2.26% on a market price basis and 3.22% on a NAV basis, while the Index returned 2.87%. Since inception through June 30, 2015, the Fund had annualized returns of -2.47% on a market price basis and 5.83% on a NAV basis, with the Index returning 3.70% over the same period. During the six months ended June 30, 2015, the Fund has traded at an average discount to NAV of -4.6%.

On behalf of the management team and Board of Trustees, I thank you for your continued commitment to your investment with the Fund. If you have any questions, please contact us at 855-400-FWCP (3927) or via email at info@fourwoodcapital.com. Additional information on the Fund is available at www.fwcapitaladvisors.com/funds/tslf.

Sincerely,

Steven A. Baffico
President – THL Credit Senior Loan Fund
Managing Partner & CEO – Four Wood Capital Advisors LLC

The views expressed reflect the opinion of Four Wood Capital Advisors LLC (“FWCA”) and THL Credit Advisors LLC (“THL Credit”) as of the date of this report and are subject to change at any time based on changes in the market, economic or other conditions. These views are not intended to be a forecast of future events and are no guarantee of future results. FWCA and THL Credit are not obligated to publicly update or revise any of the views expressed herein.

1

The Credit Suisse Leveraged Loan Index is an unmanaged market value-weighted index designed to mirror the investable universe of the U.S. dollar-denominated leveraged loan market. New issues are added to the index on their effective date if they qualify according to the following criteria: loan facilities must be rated “BB” or lower; only fully-funded term loan facilities are included; and issuers must be domiciled in developed countries. It is not possible to invest directly in an index.

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2

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3

Credit Suisse Leveraged Loan Index average prices as of December 31, 2014 and June 30, 2015.

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4

​

5

​

6

S&P Capital IQ LCD according to the S&P/LSTA Leveraged Loan Index Default Rate as of December 31, 2014 and June 30, 2015.

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7

Comparable peers defined as all closed end funds included in the Morningstar Category of Bank Loan, excluding funds that invest in fixed rate securities instead of floating rate securities and funds whose primary objective invests less than 70% of their Managed Assets in senior loans.

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2   THL Credit Senior Loan Fund Semi-Annual Report | June 30, 2015   

THL Credit Senior Loan Fund
Performance & Statistics (unaudited)June 30, 2015

​	Weighted Average Loan Spread	​	​	​	​	5.36%	​	​
​	Weighted Average Days to Reset	​	​	​	​	48	​	​
​	Weighted Average Bond Coupon Rate	​	​	​	​	8.33%	​	​
​	Weighted Average Bond Duration (years)	​	​	​	​	4.87	​	​
​	Average Position Size	​	​	​	$	1,488,449	​	​
​	Number of Positions	​	​	​	​	131	​	​

​

​

​

6 Month

​

​

1 Year

​

​

Since Inception(5)

​

THL Credit Senior Loan Fund

​

​

​

​

NAV(6)

​

​

​

​

3.22%

​

​

​

​

​

2.53%

​

​

​

​

​

5.83%

​

​

Market Price

​

​

​

​

2.26%

​

​

​

​

​

(0.63)%

​

​

​

​

​

(2.47)%

​

​

CS Leveraged Loan Index(7)

​

​

​

​

2.87%

​

​

​

​

​

2.15%

​

​

​

​

​

3.70%

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​

​	Mood Media Corporation, Term Loan - First Lien	​	​	​	​	2.38%	​	​
​	Scientific Games International, Inc., Term Loan B-2 - First Lien	​	​	​	​	1.97%	​	​
​	Cengage Learning Acquisitions, Inc., Term Loan - First Lien	​	​	​	​	1.91%	​	​
​	Harland Clarke Hldgs., Tranche B-3 Term Loans - First Lien	​	​	​	​	1.89%	​	​
​	Pre-Paid Legal Services, Inc. (Legalshield), Term Loan (2013) - First Lien	​	​	​	​	1.49%	​	​
​	Alvogen Pharma US Inc., Term Loan - First Lien	​	​	​	​	1.47%	​	​
​	Ocwen Loan Servicing LLC, Initial Term Loan - First Lien	​	​	​	​	1.47%	​	​
​	American Commercial Lines (Commercial Barge), Initial Term Loan - First Lien	​	​	​	​	1.46%	​	​
​	Roundy’s Supermarkets, Inc., Tranche B Term Loan - First Lien	​	​	​	​	1.39%	​	​
​	Checkout Holding Corp., Term Loan B - First Lien	​	​	​	​	1.30%	​	​
​	​	​	​	​	​	16.73%	​	​

​	Services: Business	​	​	​	​	11.82%	​	​
​	Technology: Services	​	​	​	​	7.11%	​	​
​	Technology: Software	​	​	​	​	6.77%	​	​
​	Retail	​	​	​	​	6.45%	​	​
​	Telecommunications	​	​	​	​	5.36%	​	​
​	​	​	​	​	​	37.51%	​	​

   THL Credit Senior Loan Fund Semi-Annual Report | June 30, 2015   3​

See accompanying Notes to Financial Statements

4   THL Credit Senior Loan Fund Semi-Annual Report | June 30, 2015   

See accompanying Notes to Financial Statements

   THL Credit Senior Loan Fund Semi-Annual Report | June 30, 2015   5​

See accompanying Notes to Financial Statements

6   THL Credit Senior Loan Fund Semi-Annual Report | June 30, 2015   

See accompanying Notes to Financial Statements

   THL Credit Senior Loan Fund Semi-Annual Report | June 30, 2015   7​

See accompanying Notes to Financial Statements

8   THL Credit Senior Loan Fund Semi-Annual Report | June 30, 2015   

See accompanying Notes to Financial Statements

   THL Credit Senior Loan Fund Semi-Annual Report | June 30, 2015   9​

‡

Security was purchased pursuant to Rule 144A under the Securities Act of 1933 and may not be resold subject to that rule except to qualified institutional buyers. Total fair value of Rule 144A securities amounts to $6,764,447 which represents approximately 4.9% of net assets as of June 30, 2015. Unless otherwise noted, 144A securities are deemed to be liquid.

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(a)

Senior loans pay interest at rates that are periodically determined on the basis of a floating benchmark lending rate plus a spread. The most popular benchmark lending rate is the London Interbank Offered Rate (“LIBOR”). LIBOR is based on rates that contributor banks in London charge each other for interbank deposits and is typically used to set coupon rates on floating rate debt securities. The rate shown represents the contractual rate (benchmark rate or floor plus spread) in effect at period end. Senior Loans often require prepayments from excess cash flow or permit the borrower to repay at its election. The degree to which borrowers repay, whether as a contractual requirement or at their election, cannot be predicted with accuracy. As a result, the actual maturity may be substantially less than the stated maturity shown.

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(b)

Fair Value Level 3 security. All remaining securities are categorized as Level 2.

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(c)

All or a portion of this position has not settled. The full contract rates reflected do not take effect until settlement date.

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(d)

Variable rate instrument. The interest rate shown reflects the rate in effect at June 30, 2015.

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(e)

Rate shown reflects the 7-day yield as of June 30, 2015.

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See accompanying Notes to Financial Statements

10   THL Credit Senior Loan Fund Semi-Annual Report | June 30, 2015   

See accompanying Notes to Financial Statements

   THL Credit Senior Loan Fund Semi-Annual Report | June 30, 2015   11​

See accompanying Notes to Financial Statements

12   THL Credit Senior Loan Fund Semi-Annual Report | June 30, 2015   

See accompanying Notes to Financial Statements

   THL Credit Senior Loan Fund Semi-Annual Report | June 30, 2015   13​

See accompanying Notes to Financial Statements

14   THL Credit Senior Loan Fund Semi-Annual Report | June 30, 2015   

THL Credit Senior Loan Fund
Statement of Cash Flows For the Period January 1, 2015 to June 30, 2015

See accompanying Notes to Financial Statements

   THL Credit Senior Loan Fund Semi-Annual Report | June 30, 2015   15​

1.

Based on average daily shares outstanding.

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2.

Realized and unrealized gain on investments and delayed draw loan commitments per share in this caption are balancing amounts necessary to reconcile the change in net asset value per share for the period, and may not reconcile with the aggregate gains and losses in the Statement of Operations due to the share transactions for the period.

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3.

Total investment return does not reflect brokerage commissions. Total return based on net asset value reflects changes in the Fund’s net asset value during each period. Total return based on market value reflects changes in market value. Each figure assumes that dividend and capital gain distributions, if any, were reinvested. For NAV total returns, distributions are assumed to be reinvested at NAV on the distribution date. For market value total returns, distributions are assumed to be reinvested at the prices obtained under the Fund’s Dividend Reinvestment Plan. These figures will differ depending upon the level of any discount from or premium to net asset value at which the Fund’s shares traded during the period.

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4.

Annualized.

​

5.

Average for the period since the first borrowing day of October 15, 2013.

​

6.

Asset coverage equals the total net assets plus borrowings divided by the borrowings of the Fund outstanding at period end (Note 4). As debt outstanding changes, level of invested assets may change accordingly. Asset coverage ratio provides a measure of leverage.

​

See accompanying Notes to Financial Statements

16   THL Credit Senior Loan Fund Semi-Annual Report | June 30, 2015   

THL Credit Senior Loan Fund
Notes to Financial Statements (unaudited)June 30, 2015

1. ORGANIZATION

THL Credit Senior Loan Fund (the “Fund”) is a non-diversified, closed-end management investment company registered under the Investment Company Act of 1940, as amended. The Fund is an unincorporated business trust established under the laws of Delaware by an Agreement and Declaration of Trust dated July 30, 2013. The Fund commenced operations on September 20, 2013. The Fund’s investment objective is to provide current income and preservation of capital primarily through investments in U.S. dollar-denominated senior secured corporate loans and notes (“Senior Loans”). Under normal market conditions, the Fund will invest 100% of its Managed Assets in the securities of issuers located in North America and does not currently intend to invest a material amount of its Managed Assets outside the United States. For the purposes of complying with these requirements, an issuer will be located in North America if its legal domicile is in North America or if the legal domicile of any co-issuer that is controlling, controlled by or under common control with the issuer is in North America where the co-issuer is (i) 100% responsible for the payment of principal and interest on the loan or security and (ii) the Fund has direct recourse against the co-issuer in the United States courts in the event that 100% of the payment of principal and interest on the securities is not made. Investments in issuers deemed to be located in the United States for these purposes will be deemed to be investments in the United States. Four Wood Capital Advisors LLC (the “Adviser” or “FWCA”) serves as the Fund’s investment adviser (the “Adviser”). FWCA has engaged THL Credit Advisors LLC (the “Sub-adviser” or “THL Credit”) to serve as the sub-adviser to the Fund.

2. SIGNIFICANT ACCOUNTING POLICIES

These financial statements are prepared in accordance with accounting principles generally accepted in the United States (“GAAP”), which require management to make estimates and assumptions that affect the reported amounts and disclosures in these financial statements. Actual results could differ from these estimates.

The following summarizes the significant accounting policies followed by the Fund in the preparation of its financial statements.

Securities Valuation: The Fund holds portfolio securities that are fair valued at the close of each day on the New York Stock Exchange (“NYSE”), normally at 4:00 P.M., Eastern Time. Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants on the measurement date. The Board of Trustees (the “Board”) has delegated fair valuation responsibilities to a valuation committee (the “Committee”), subject to the Board’s supervision and direction, through the adoption of procedures for valuation of the Fund’s securities (the “Valuation Procedures”). The Committee consists of certain designated individuals of the Fund’s Adviser and Sub-adviser. Under the current Valuation Procedures, the Committee is responsible for, among other things, determining and monitoring the value of the Fund’s assets. The Valuation Procedures allow the Fund to utilize independent pricing vendor services, quotations from market makers and other valuation methods in events when market quotations are not readily available or not representative of the fair value of the securities.

The Fund’s securities are valued by various methods, as described below:

Senior Loans shall be valued at prices supplied by the Fund’s pricing agent based on broker-dealer supplied valuations (including mid or average prices) and other criteria or directly by independent brokers when the pricing agent does not provide a price or the Valuation Committee does not believe that the pricing agent price reflects the current market value. If a price of a position is sought using independent brokers, the Sub-adviser shall seek to obtain an evaluation bid price from at least two independent brokers who are knowledgeable about the position. The price of the position would be deemed to be an average of such bid prices.

Fixed income securities shall be valued at prices supplied by the Fund’s pricing agent based on broker-dealer supplied valuations, or in the absence of broker-dealer supplied valuations, matrix pricing, a method of valuing securities by reference to the value of other securities with similar characteristics, such as rating, interest rate and maturity.

   THL Credit Senior Loan Fund Semi-Annual Report | June 30, 2015   17​

THL Credit Senior Loan Fund
Notes to Financial Statements (unaudited) (continued)June 30, 2015

 

2. SIGNIFICANT ACCOUNTING POLICIES (continued)
 

Certain short-term debt instruments will be valued on an amortized cost basis. Under this method of valuation, the instrument is initially valued at cost. For securities purchased at a discount or premium, the Fund assumes a constant proportionate amortization in value until maturity, regardless of the impact of fluctuating interest rates on the market value of the instrument. While the amortized cost method provides certainty in valuation, it may result in periods during which value, as determined by amortized cost, is higher or lower than the price that would be received upon sale of the instrument.

Fair Value Measurement

Various inputs are used in determining the value of the Fund’s investments. These inputs are summarized in the three broad levels listed below:

Level 1 — Unadjusted quoted prices in active markets for identical assets or liabilities at the measurement date.

Level 2 — Observable inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly or indirectly. These inputs may include quoted prices for the identical instrument on an inactive market, quoted prices for similar instruments, interest rates, prepayment speeds, credit risk, yield curves, default rates, and similar data.

Level 3 — Unobservable inputs for the asset or liability to the extent that relevant observable inputs are not available, representing the Fund’s own assumptions that a market participant would use in valuing the asset or liability based on the best information available.

Investments that use Level 2 or Level 3 inputs may include, but are not limited to: (i) an unlisted security related to corporate actions; (ii) a restricted security (e.g., one that may not be publicly sold without registration under the Securities Act of 1933 as amended); (iii) a security whose trading has been suspended or which has been de-listed from its primary trading exchange; (iv) a security that is thinly traded; (v) a security in default or bankruptcy proceedings for which there is no current market quotation; (vi) a security affected by currency controls or restrictions; and (vii) a security affected by a significant event (e.g., an event that occurs after the close of the markets on which the security is traded but before the time as of which a Fund’s net asset value is computed and that may materially affect the value of the Fund’s investment). Examples of events that may be “significant events” are government actions, natural disasters, armed conflicts and acts of terrorism.

The categorization of a value determined for investments is based on the pricing transparency of the investment and does not necessarily correspond to the Fund’s perceived risk of investing in those securities.

The valuation techniques used by the Fund to measure fair value during the period ended June 30, 2015 were intended to maximize the use of observable inputs and to minimize the use of unobservable inputs.

18   THL Credit Senior Loan Fund Semi-Annual Report | June 30, 2015   

THL Credit Senior Loan Fund
Notes to Financial Statements (unaudited) (continued)June 30, 2015

 

2. SIGNIFICANT ACCOUNTING POLICIES (continued)
 

The following table summarizes the valuation of the Fund’s investments under the fair value hierarchy levels as of June 30, 2015:

*Please refer to Schedule of Investments for breakdown of valuations by industry.

   THL Credit Senior Loan Fund Semi-Annual Report | June 30, 2015   19​

THL Credit Senior Loan Fund
Notes to Financial Statements (unaudited) (continued)June 30, 2015

 

2. SIGNIFICANT ACCOUNTING POLICIES (continued)
 

The following is a reconciliation of assets in which significant unobservable inputs (Level 3) were used in determining fair value:

Net change in unrealized depreciation included in the Statement of Operations attributable to Level 3 investments held at June 30, 2015 was $506,501.

There were no transfers between Level 1 and 2 during the period. It is the Fund’s policy to recognize transfers into and out of all levels at the beginning of the reporting period.

Information about Level 3 fair value measurements as of June 30, 2015:

Investment Transactions and Investment Income

Investment transactions are accounted for on the trade date. Interest income, adjusted for the accretion of discount and amortization of premiums, is recorded on an accrual basis. Realized gains and losses on investments, if any, are determined on an identified cost basis. Dividend income is recorded on the ex-dividend date. Paydown gains and losses are netted and recorded as interest income on the Statement of Operations.

Interest Expense

Interest expense primarily relates to the Fund’s borrowings and is recorded on an accrual basis.

Federal Income Tax Information

The Fund intends to continue to qualify as a regulated investment company by complying with the requirements of Subchapter M of the U.S. Internal Revenue Code of 1986, as amended, applicable to regulated investment companies, and to distribute substantially all of its earnings to its shareholders. While no federal income tax provision is required. In early 2015, the Fund paid an excise tax liability of approximately $22,265 relating to the tax year 2014.

Income distributions and capital gain distributions are determined in accordance with income tax regulations, which may differ from GAAP. These differences are primarily due to differing treatments of income and gains on various investment securities held by the Fund, timing differences and differing characterization of distributions made by the Fund as a whole.

Fund management has determined that the Fund has not taken any uncertain tax positions that require adjustment to the financial statements. The Fund will file income tax returns in the U.S. federal jurisdiction and tax returns in certain other jurisdictions. As of June 30, 2015, the tax years ended December 31, 2013 and June 30, 2014 remains subject to examination by the Fund’s major tax jurisdictions.

20   THL Credit Senior Loan Fund Semi-Annual Report | June 30, 2015   

THL Credit Senior Loan Fund
Notes to Financial Statements (unaudited) (continued)June 30, 2015

 

2. SIGNIFICANT ACCOUNTING POLICIES (continued)
 

Distributions

The Fund intends to make regular monthly cash distributions of all or a portion of its investment company taxable income (which includes ordinary income and short-term capital gains) to common shareholders. The Fund also intends to pay any “net capital gains” (which is the excess of net long-term capital gains over net short-term capital losses) annually. Distributions to shareholders are recorded on the ex-dividend date. To the extent distributions exceed current and accumulated earnings and profits for federal income tax purposes, they are reported as distributions to shareholders from return of capital.

Indemnifications

Under the Fund’s organizational documents, its officers and trustees are indemnified against certain liabilities arising out of the performance of their duties to the Fund. In addition, in the normal course of business, the Fund enters into contracts that provide general indemnifications to other parties. The Fund’s maximum exposure under these arrangements is unknown as this would involve future claims that may be made against the Fund that have not yet occurred.

3. SENIOR LOANS

Under normal market conditions, the Fund will invest at least 80.0% of its Managed Assets, defined as the total assets of the Fund (including any assets attributable to borrowings for investment purposes), minus the sum of the Fund’s accrued liabilities (other than liabilities representing borrowings for investment purposes), in fully collateralized, first lien corporate loans and notes. At June 30, 2015, 84.3% of the Fund’s Managed Assets were held in first lien Senior Loans.

Senior Loans are generally non-investment grade floating rate instruments that are secured by assets of the borrower. They generally hold a senior position in the capital structure of a borrower. Thus, they are generally repaid before unsecured Bank Loans, corporate bonds, subordinated debt, trade creditors, and preferred or common stockholders.

Senior Loans often require prepayments from excess cash flow or permit the borrower to repay at its election. The degree to which borrowers repay, whether as a contractual requirement or at their election, cannot be predicted with accuracy. As a result, the actual maturity may be substantially less than the stated maturity shown. Senior loans typically pay interest at rates that are periodically determined on the basis of a floating benchmark lending rate plus a spread.

Risks associated with first lien Senior Loans include (i) the borrower’s inability to meet principal and interest payments on its obligations; (ii) the fact that prepayments may occur at any time without premium or penalty and that the exercise of prepayment rights during periods of declining spreads could cause the Fund to reinvest prepayment proceeds in lower-yielding investments, and (iii) price volatility due to such factors as interest rate sensitivity, market perception of the credit worthiness of the borrower and general market liquidity.

Second lien loans are generally second in line in terms of repayment priority. Second lien loans generally are subject to similar risks as those associated with investments in first lien Senior Loans. In addition, because second lien loans are subordinated in payment and/or lower in lien priority to first lien Senior Loans, they are subject to additional risk that the cash flow of the borrower and property securing the loan or debt may be insufficient to meet scheduled payments after giving effect to the senior secured obligations of the borrower. At June 30, 2015, the Fund had invested $20,092,530 in second lien loans.

The Fund may purchase assignments of, and participations in, Senior Loans originated, negotiated and structured by a U.S. or foreign commercial bank, insurance company, finance company or other financial institution (the “Agent”) for a lending syndicate of financial institutions (the “Lender”). When purchasing an assignment, the Fund succeeds to all the rights and obligations under the loan agreement

   THL Credit Senior Loan Fund Semi-Annual Report | June 30, 2015   21​

THL Credit Senior Loan Fund
Notes to Financial Statements (unaudited) (continued)June 30, 2015

 

3. SENIOR LOANS (continued)
 

with the same rights and obligations as the assigning Lender. Assignments may, however, be arranged through private negotiations between potential assignees and potential assignors, and the rights and obligations acquired by the purchaser of an assignment may differ from, and be more limited than, those held by the assigning Lender.

4. BORROWINGS

On October 1, 2014, the Fund amended its existing $70.0 million credit agreement with The Bank of New York Mellon, extending the facility’s expiration date to September 30, 2015 (the “Credit Facility”). In accordance with the 1940 Act, the Fund’s borrowings under the Credit Facility will not exceed 33% of the Fund’s Managed Assets at the time of borrowing. Borrowings under the Credit Facility are secured by the Fund’s assets as collateral. The Credit Facility bears an unused commitment fee on the unused portion of the credit facility (the “Unused Facility Amount”) equal to 0.08% on the total Unused Facility Amount. The per annum rate of interest for borrowing under the Credit Facility is equal to (a) the London Interbank Offered Rate (“LIBOR”) for one, two, three, six or twelve months, as selected by the Fund, plus 1.000% per annum or (b) the greater of (i) the Prime Rate and (ii) 0.50% plus the Federal Funds Effective Rate per annum and is payable monthly. At June 30, 2015, the Fund had borrowings outstanding of  $61,000,000 at an average interest rate of 1.19%. Due to the short term nature of the Credit Facility, face value approximates fair value at June 30, 2015. For the six month period ended June 30, 2015, the average borrowings under the Credit Facility and the average interest rate were $52,263,736 and 1.18%, respectively. As of June 30, 2015, the Fund’s effective leverage represented 30.60% of the Fund’s Managed Assets.

Under the Credit Facility, the Fund has agreed to certain covenants and additional investment limitations while the leverage is outstanding. The Fund agrees to maintain asset coverage of three times over outstanding borrowings.

The Fund utilizes the Credit Facility to increase its assets available for investment. When the Fund leverages its assets, common shareholders bear the fees associated with the Credit Facility and have the potential to benefit from or be disadvantaged by the use of leverage. The investment advisory fee is also increased in dollar terms from the use of leverage. Consequently, the Fund and the Adviser may have differing interest in determining whether to leverage the Fund’s assets. Leverage creates risks that may adversely affect the return for the holders of common shares, including:

•

the likelihood of greater volatility of net asset value and market price of common shares;

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•

fluctuations in the interest rate paid for the use of the credit facility;

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•

increased operating costs, which may reduce the Fund’s total return;

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•

the potential for a decline in the value of an investment acquired through leverage, while the Fund’s obligations under such leverage remains fixed; and

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•

the Fund is more likely to have to sell securities in a volatile market in order to meet asset coverage or other debt compliance requirements.

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To the extent the income or capital appreciation derived from securities purchased with funds received from leverage exceeds the cost of leverage, the Fund’s return will be greater than if leverage had not been used; conversely, returns would be lower if the cost of the leverage exceeds the income or capital appreciation derived.

In addition to the risks created by the Fund’s use of leverage, the Fund is subject to the risk that it would be unable to timely, or at all, obtain replacement financing if the Credit Facility is terminated. Were this to happen, the Fund would be required to de-leverage, selling securities at a potentially inopportune time and incurring tax consequences. Further, the Fund’s ability to generate income from the use of leverage would be adversely affected.

22   THL Credit Senior Loan Fund Semi-Annual Report | June 30, 2015   

THL Credit Senior Loan Fund
Notes to Financial Statements (unaudited) (continued)June 30, 2015

 

5. MANAGEMENT FEES, ADMINISTRATIVE FEES AND OTHER AGREEMENTS

The Adviser administers the business and affairs of the Fund. The Adviser also selects (subject to Board approval), contracts with and compensates the Sub-adviser to manage the investment and reinvestment of the assets of the Fund. The Adviser does not itself manage the Fund’s portfolio of assets but has ultimate responsibility to oversee the Sub-adviser. In this connection, the Adviser oversees the Sub-adviser’s management of the Fund’s investment operations in accordance with the investment objectives and related policies of the Fund, reviews the Sub-adviser’s performance and reports periodically on such performance to the Board.

The Fund pays the Adviser as compensation under an advisory agreement an annual fee in the amount of 1.05% of the average daily Managed Assets.

The Fund has retained Four Wood Capital Partners LLC (“FWCP”), an affiliate of the Adviser, to provide investor support services in connection with the on-going operation of the Fund. Such services include providing ongoing contact with respect to the Fund and its performance with financial advisors that are representatives of broker-dealers and other financial intermediaries and communicating with the NYSE specialist for the Fund’s common shares, and with the closed-end analyst community regarding the Fund on a regular basis. The Fund pays FWCP as compensation under an investor support services agreement an annual fee in the amount of 0.05% of the average daily Managed Assets of the Fund. FWCP may separately contract with and coordinate the activities of a third party to provide certain of the above described services.

The Bank of New York Mellon, the Fund’s administrator, accounting agent and custodian, holds the Fund’s assets, will settle all portfolio trades and will be responsible for calculating the Fund’s net asset value and maintaining the accounting records of the Fund.

American Stock Transfer and Trust Company, LLC is the Fund’s transfer agent, registrar, dividend disbursing agent and shareholder servicing agent, as well as the agent for the Fund’s dividend reinvestment plan.

Foreside Compliance Services, LLC provides a Chief Compliance Officer to the Fund.

The Fund pays every independent trustee a fee of $15,000 per annum, plus $3,000 per in person meeting fee for serving as a trustee of the Fund.

6. PORTFOLIO TRANSACTIONS

For the six month period ended June 30, 2015, purchases and sales of investments, other than short-term securities, were $48,103,388 and $36,121,046, respectively.

7. CAPITAL

The following is a summary of share transactions for the year ended June 30, 2015:

8. INCOME TAX INFORMATION

The Fund is required to evaluate tax positions taken or expected to be taken in the course of preparing the Fund’s tax returns to determine whether the tax positions are “more-likely-than-not” of being sustained by the applicable tax authority. Income tax and related interest and penalties would be recognized by the Fund as tax expense in the Statement of Operations if the tax positions were deemed to not meet the more-likely-than-not threshold. For the six month period ended June 30, 2015, the Fund did not incur any income tax, interest, or penalties. As of June 30, 2015, the Advisor has reviewed all open tax years and

   THL Credit Senior Loan Fund Semi-Annual Report | June 30, 2015   23​

THL Credit Senior Loan Fund
Notes to Financial Statements (unaudited) (continued)June 30, 2015

 

8. INCOME TAX INFORMATION (continued)
 

concluded that there was no impact to the Fund’s net assets or results of operations. Tax years ended December 31, 2013 and 2014 will remain subject to examination by the Internal Revenue Service and state taxing authorities. On an ongoing basis, the Advisor will monitor its tax positions to determine if adjustments to this conclusion are necessary.

The Fund distinguishes between dividends on a tax basis and on a financial reporting basis and only distributions in excess of tax basis earnings and profits are reported in the financial statements as a tax return of capital. Differences in the recognition or classification of income between the financial statements and tax earnings and profits which result in temporary over-distributions for financial statement purposes are classified as distributions in excess of net investment income or accumulated net realized losses in the components of net assets on the Statement of Assets and Liabilities.

The amounts and characteristic of tax basis distribution and composition of distributable earnings/ (accumulated losses) are finalized at the fiscal year end; accordingly, tax basis balances have not been determined as of June 30, 2015.

As determined at December 31, 2013, certain permanent differences between financial and tax accounting were reclassified. These differences were primarily due to the differing tax treatment of certain investments. The amounts reclassified did not affect net assets. The reclassifications decreased accumulated net realized gain on investments by $2,425 and increased accumulated net investment income by $2,425.

As determined at December 31, 2014, certain permanent differences between financial and tax accounting were reclassified. These differences were primarily due to the differing tax treatment of certain investments and the payment of excise taxes. The amounts reclassified did not affect net assets. The reclassifications increased accumulated net realized gain on investments by $31,958 decreased accumulated net investment income by $4,475 and decreased paid-in-capital by $27,483.

The tax character of distributions paid by the Fund during the fiscal years ended December 31, are as follows:

At December 31, 2014, the Fund had no capital loss carryforwards which will reduce the Fund’s taxable income arising from future net realized gains on investments, if any, to the extent permitted by the code and thus will reduce the amount of distributions to shareholders which would otherwise be necessary to relieve the Fund of any liability for federal income tax.

The Regulated Investment Company Modernization Act of 2010 (the “Act”) eliminated the eight-year carryover period for capital losses that arise in taxable years beginning after its enactment date of December 22, 2010. Consequently, these capital losses can be carried forward for an unlimited period. However, capital losses with an expiration period may not be used to offset capital gains until all net capital losses without an expiration date have been utilized. Additionally, post-enactment capital loss carryovers will retain their character as either short-term or long-term capital losses instead of as short-term capital losses as under prior law. The Fund does not have capital losses with no expiration.

Certain capital and qualified late year losses incurred after October 31, and within the current taxable year, are deemed to arise on the first business day of the Fund’s following taxable year. The Fund did not incur any qualified late year or capital losses during 2014.

At December 31, 2014, the tax components of net assets was as follows:

24   THL Credit Senior Loan Fund Semi-Annual Report | June 30, 2015   

THL Credit Senior Loan Fund
Notes to Financial Statements (unaudited) (concluded)June 30, 2015

 

8. INCOME TAX INFORMATION (continued)
 

At June 30, 2015 the cost basis of portfolio securities for federal income tax purposes is $205,890,007. Gross unrealized appreciation is $1,485,129, gross unrealized depreciation is $4,998,432 and net unrealized depreciation is $3,513,303. There is no difference between book and tax cost basis.

9. DELAYED DRAW LOAN COMMITMENTS

As of June 30, 2015, the Fund had no delayed draw loan commitments outstanding.

Delayed draw loan commitments are marked to market on the relevant day of the valuation in accordance with the Fund’s valuation policy. Any related unrealized appreciation (depreciation) on unfunded delayed draw loan commitments is recorded on the Statement of Assets and Liabilities and the Statements of Operations.

10. SUBSEQUENT EVENTS

In preparing these financial statements, the Fund’s management has evaluated events and transactions for potential recognition or disclosure through the date the financial statements were issued.

On July 31, the Fund paid a regularly scheduled dividend in the amount of  $0.11 per share to shareholders of record as of July 17, 2015.

The Fund declared a regularly scheduled distribution in the amount of  $0.11 per share payable on August 31, 2015 to shareholders of record as of August 19, 2015.

On August 20, 2015, the Fund borrowed an additional $3 million on its Credit Facility, bringing the total borrowings outstanding to $64,000,000.

   THL Credit Senior Loan Fund Semi-Annual Report | June 30, 2015   25​

THL Credit Senior Loan Fund
Supplemental Information (unaudited)June 30, 2015

Privacy Policy

Respecting Your Privacy

This privacy policy applies to individuals, and we reserve the right to change any or all of the principles, along with related provisions, at any time. You trust us with your financial and other personal information; we in turn are committed to respect your privacy and safeguard that information. By adhering to the practices described in this Policy, we affirm our continuing commitment to protecting your privacy.

Collection and use of shareholder information

The THL Credit Senior Loan Fund (the “Fund”) and the Fund’s transfer agent collect only relevant information about the Fund’s shareholders that the law allows or requires us to have in order to conduct our business and properly service you. We collect non-public financial and other personal information about you from the following sources (“Personal Information”):

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Information you provide on applications or other forms (for example, your name, address, social security number and birth date)

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•

Information derived from your transactions with us (for example, transaction amount, account balance and account number)

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Information you provide to us if you access account information or conduct account transactions online (for example, password, account number, e-mail address, alternate telephone number)

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Keeping information secure

We maintain physical, electronic and procedural safeguards to protect your Personal Information, and we continually assess new technology with the aim of adding new safeguards to those we have in place.

Use of personal and financial information by us and third parties

We do not sell Personal Information about current or former customers or their accounts to any third parties, and we have policies and procedures intended to prevent the disclosure of such information to third parties unless necessary to support the operations and administration of the Fund, the Fund’s compliance with applicable laws and regulations, or as otherwise permitted by law. Those who may receive Personal Information include companies that provide services to the Fund, such as transfer agency, technology and administrative services, as well as the investment advisor who is an affiliate of the Fund (collectively, “Service Providers”).

Limiting employee access to information

We limit access to Personal Information to only those employees of the Service Providers with a business reason to know such information.

Accuracy of information

We strive to keep our records of your Personal Information accurate, and we take immediate steps to correct errors. If there are any inaccuracies in your statements or in any other communications from us, please contact us or contact your investment professional.

Dividend Reinvestment Plan

The Dividend Reinvestment Plan (“Plan”) for THL Credit Senior Loan Fund (“Fund”), provides that a holder of the Fund’s common shares of beneficial interest (each, a “Common Share” and, collectively “Common Shares”) will be automatically enrolled in the Plan (each, a “Participant” and collectively, “Participants”). All dividends and distributions on such Shareholder’s Common Shares will be reinvested by American Stock Transfer and Trust Company, LLC (“Plan Administrator”), as agent for Shareholders

26   THL Credit Senior Loan Fund Semi-Annual Report | June 30, 2015   

THL Credit Senior Loan Fund

Supplemental Information (unaudited) (continued)June 30, 2015

 

Dividend Reinvestment Plan (continued)
 

in administering the Plan, in additional Common Shares. Participation in the Plan may be terminated or resumed at any time without penalty by notice if received and processed by the Plan Administrator prior to the dividend record rate; otherwise such termination or resumption will be effective with respect to any subsequently declared dividend or other distribution. Some brokers may automatically elect to receive cash on your behalf and may re-invest that cash in additional Common Shares for you. If you wish for all dividends declared on your Common Shares to be paid in cash, please contact your broker.

Plan Details

1.

The Plan Administrator will open an account for each holder of Common Shares under the Plan in the same name in which such holder of Common Shares is registered. Whenever the Fund declares a dividend or other distribution (together, a “Dividend”) payable in cash, non-participants in the Plan will receive cash and participants in the Plan will receive the equivalent in Common Shares. The Common Shares will be acquired by the Plan Administrator for the participants’ accounts, depending upon the circumstances described below, either (i) through receipt of additional unissued but authorized Common Shares from the Fund (“Newly Issued Common Shares”) or (ii) by purchase of outstanding Common Shares on the open market (“Open-Market Purchases”) on the New York Stock Exchange or elsewhere.

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2.

If, on the payment date for any Dividend, the closing market price plus estimated per share fees (which include any brokerage commissions the Plan Administrator is required to pay) is equal to or greater than the net asset value (“NAV”) per Common Share, the Plan Administrator will invest the Dividend amount in Newly Issued Common Shares on behalf of the participants. The number of Newly Issued Common Shares to be credited to each participant’s account will be determined by dividing the dollar amount of the Dividend by the NAV per Common Share on the payment date; provided that, if the NAV is less than or equal to 95% of the closing market value on the payment date, the dollar amount of the Dividend will be divided by 95% of the closing market price per Common Share on the payment date. If, on the payment date for any Dividend, the NAV per Common Share is greater than the closing market value plus per share fees, the Plan Administrator will invest the Dividend amount in Common Shares acquired on behalf of the participants in Open-Market Purchases. In the event of a market discount on the payment date for any Dividend, the Plan Administrator will have until the last business day before the next date on which the Common Shares trade on an “ex-dividend” basis or 30 days after the payment date for such Dividend, whichever is sooner (the “Last Purchase Date”), to invest the Dividend amount in Common Shares acquired in Open-Market Purchases. It is contemplated that the Fund will pay monthly income Dividends. Therefore, the period during which Open-Market Purchases can be made will exist only from the payment date of each Dividend through the date before the next “ex-dividend” date which typically will be approximately ten days. If, before the Plan Administrator has completed its Open-Market Purchases, the market price per Common Share exceeds the NAV per Common Share, the average per Common Share purchase price paid by the Plan Administrator may exceed the NAV of the Common Shares, resulting in the acquisition of fewer Common Shares than if the Dividend had been paid in Newly Issued Common Shares on the Dividend payment date. Because of the foregoing difficulty with respect to Open-Market Purchases, the Plan provides that if the Plan Administrator is unable to invest the full Dividend amount in Open-Market Purchases during the purchase period or if the market discount shifts to a market premium during the purchase period, the Plan Administrator may cease making Open-Market Purchases and may invest the uninvested portion of the Dividend amount in Newly Issued Common Shares at the NAV per Common Share at the close of business on the Last Purchase Date provided that, if the NAV is less than or equal to 95% of the then current market price per Common Share; the dollar amount of the Dividend will be divided by 95% of the market price on the payment date.

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   THL Credit Senior Loan Fund Semi-Annual Report | June 30, 2015   27​

THL Credit Senior Loan Fund

Supplemental Information (unaudited) (continued)June 30, 2015

 

Dividend Reinvestment Plan (continued)
 

3.

The Plan Administrator maintains all shareholders’ accounts in the Plan and furnishes written confirmation of all transactions in the accounts, including information needed by shareholders for tax records. Common Shares in the account of each Plan participant will be held by the Plan Administrator on behalf of the Plan participant, and each shareholder proxy will include those shares purchased or received pursuant to the Plan. The Plan Administrator will forward all proxy solicitation materials to participants and vote proxies for shares held under the Plan in accordance with the instructions of the participants.

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4.