NB Distressed Debt NB Distressed - NBDX NB Distressed - NBDG - Half-year Report
25/08/2023 07:00
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RNS Number : 3911K NB Distressed Debt Invest. Fd. Ltd 25 August 2023
NB DISTRESSED DEBT INVESTMENT FUND LIMITED
2023 Interim Report
unaudited CONSOLIDATED interim Financial Statements
For the six month period ended 30 june 2023
COMPANY OVERVIEW | Features
Features
NB Distressed Debt Investment Fund Limited (the "Company")
The Company is a closed-ended investment company incorporated and registered
in Guernsey on 20 April 2010 with registration number 51774. The Company is
governed under the provisions of the Companies (Guernsey) Law, 2008 (as
amended) (the "Law"), and the Registered Collective Investment Scheme Rules
and Guidance 2021 issued by the Guernsey Financial Services Commission
("GFSC"). It is a non-cellular company limited by shares and has been declared
by the GFSC to be a registered closed-ended collective investment scheme. The
Company trades on the Specialist Fund Segment ("SFS") of the London Stock
Exchange ("LSE").
The Company is a member of the Association of Investment Companies (the "AIC")
and is classified within the Debt - Loans & Bonds Category.
Investment Objective
The Company's primary objective is to provide investors with attractive
risk-adjusted returns through long-biased, opportunistic exposure to stressed,
distressed and special situation credit-related investments while seeking to
limit downside risk by, amongst other things, focusing on senior and senior
secured debt with both collateral and structural protection.
Investment Policy
More information on the Company's investment policy is provided on page 4 of
the Annual Report and Financial Statements for the year ended 31 December
2022.
Alternative Investment Fund Manager ("AIFM") and Manager
Investment management services are provided to the Company by Neuberger Berman
Investment Advisers LLC (the "AIFM") and Neuberger Berman Europe Limited (the
"Manager"), collectively the "Investment Manager". The AIFM is responsible for
risk management and discretionary management of the Company's Portfolio and
the Manager provides, amongst other things, certain administrative services to
the Company.
Share Capital
As at 30 June 2023 the Company's share capital comprised the following(1):
Ordinary Share Class ("NBDD")
15,382,770 Ordinary Shares, none of which were held in treasury.
Extended Life Share Class ("NBDX")
47,875,446 Extended Life Shares, none of which were held in treasury.
New Global Share Class ("NBDG")
27,821,698 New Global Shares, none of which were held in treasury.
(1) In addition the Company has two Class A Shares in issue. Further
information is provided in the Capital Structure section of this report below
For the purposes of efficient portfolio management, the Company has
established a number of wholly-owned subsidiaries domiciled in Luxembourg. All
references to the Company in this document refer to the Company together with
its wholly-owned subsidiaries.
Non-Mainstream Pooled Investments
The Company currently conducts its affairs so that the shares issued by the
Company can be recommended by Independent Financial Advisers to ordinary
retail investors in accordance with the Financial Conduct Authority's ("FCA")
rules in relation to non-mainstream pooled investment ("NMPI") products and
intends to continue to do so for the foreseeable future.
The Company's shares are excluded from the FCA's restrictions which apply to
NMPI products.
Company Numbers
Ordinary Shares
LSE ISIN code: GG00BDFZ6F78
Bloomberg code: NBDD: LN
Extended Life Shares
LSE ISIN code: GG00BRZRVJ00
Bloomberg code: NBDX:LN
New Global Shares
LSE ISIN code: GG00BNTXRB08
Bloomberg code: NBDG:LN
Legal Entity Identifier
YRFO7WKOU3V511VFX790
Website
www.nbddif.com (http://www.nbddif.com)
COMPANY OVERVIEW | Capital Structure
Capital Structure
The Company's share capital consists of three different share classes, all of
which are in the harvest period: the Ordinary Share Class; the Extended Life
Share Class; and the New Global Share Class. These share classes each have
different capital return profiles and, in one instance a different
geographical remit. In addition, the Company has two Class A Shares in issue.
While the Company's share classes are all now in harvest, returning capital to
shareholders, the Company's corporate umbrella itself has an indefinite life
to allow for flexibility for the Company to add new share classes if demand,
market opportunities and shareholder approval supported such a move, although
the Company has no current plans to create new share classes. Each share class
is considered in turn below.
Ordinary Share Class
NBDD was established at the Company's launch on 10 June 2010 with a remit to
invest in the global distressed debt market with a focus on North America. The
investment period of NBDD expired on 10 June 2013.
Voting rights:
Yes
Denomination:
US Dollars
Hedging:
Portfolio hedged to US Dollars
Authorised share capital:
Unlimited
Par value:
Nil
Extended Life Share Class
A vote was held at a class meeting of NBDD shareholders on 8 April 2013 where
the majority of shareholders voted in favour of a proposed extension.
Following this meeting and with the NBDD shareholders' approval of the
extension, on 9 April 2013 a new Class, NBDX, was created and the NBDX Shares
were issued to 72% of initial NBDD investors who elected to convert their NBDD
Shares to NBDX Shares. NBDX had a remit to invest in the global distressed
debt market with a focus on North America. The investment period of NBDX
expired on 31 March 2015.
Voting rights:
Yes
Denomination:
US Dollars
Hedging:
Portfolio hedged to US Dollars
Authorised share capital: Unlimited
Par value:
Nil
New Global Share Class
NBDG was created on 4 March 2014 and had a remit to invest in the global
distressed market with a focus on Europe and North America. The investment
period of NBDG expired on 31 March 2017.
Voting rights:
Yes
Denomination:
Pound Sterling
Hedging:
Unhedged portfolio
Authorised share capital: Unlimited
Par value:
Nil
Class A Shares
The Class A Shares are held by a trustee pursuant to a purpose trust
established under Guernsey law. Under the terms of the Trust Deed the Trustee
holds the Class A Shares for the purpose of exercising the right to receive
notice of general meetings of the Company but the Trustee shall only have the
right to attend and vote at general meetings of the Company when there are no
other Shares of the Company in issue.
Voting rights:
No
Denomination:
US Dollars
Authorised share capital: 10,000
Class A Shares
Par value:
US Dollar $1
2023 INTERIM PERFORMANCE REVIEW | Financial Highlights
Financial Highlights
Key Figures
AS At 30 jUNE 2023 (uNAUDITED) Ordinary Extended Life Share Class New Global Share Class(1) Aggregated
Share Class
Net Asset Value ("NAV") ($ millions) 12.2 49.2 23.1 84.5
NAV per Share ($) 0.7959 1.0267 0.8290 -
Share Price ($) 0.740 0.5600 0.4513 -
NAV per Share (£) - - 0.6521 -
Share Price (£) - - 0.355 -
Premium /(Discount) to NAV per Share (7.02%) (45.46%) (45.56%) -
Portfolio of Distressed Investments ($ millions) 7.4 31.8 22.1 61.3
Cash and Cash Equivalents ($ millions) 4.3 15.5 0.7 20.5
Total Expense Ratio ("TER")(2) 1.08% 1.18% 1.53% -
Ongoing Charges (3) 1.05% 1.13% 1.48% -
AS At 31 December 2022 (AUDITED) Ordinary Extended Life Share Class New Global Share Class(1) Aggregated
Share Class
Net Asset Value ("NAV") ($ millions) 11.9 58.5 24.8 95.2
NAV per Share ($) 0.7730 0.9728 0.7987 -
Share Price ($) 0.740 0.4800 0.4691 -
NAV per Share (£) - - 0.6640 -
Share Price (£) - - 0.39 -
Premium /(Discount) to NAV per Share (4.27%) (50.66%) (41.26%) -
Portfolio of Distressed Investments ($ millions) 7.3 42.5 24.0 73.8
Cash and Cash Equivalents ($ millions) 4.4 15.2 0.2 19.8
Total Expense Ratio ("TER")(2) 0.97% 0.99% 1.33% -
Ongoing Charges (3) 0.95% 0.96% 1.29% -
(1) Stated in US Dollars, the £ price as at 30 June 2023 and 31 December 2022
converted to US Dollars using respective period/year end exchange rates.
(2) The TERs represent the operating expenses, as required by US Generally
Accepted Accounting Principles ("US GAAP"), expressed as a percentage of
average net assets.
(3) In the period to 30 June 2023, the Company's Ongoing Charges were 1.21%.
This figure is based on an expense figure for the period to 30 June 2023 of
$547,458. This figure, which has been prepared in accordance with AIC guidance
represents the Company's operating expenses, excluding finance costs payable,
expressed as a percentage of average net assets. Effective 18 March 2021, the
Investment Manager had waived its entitlement to all fees from the Company.
The Ongoing Charges by share class are disclosed above.
Summary of Value in Excess of Original Capital Invested
AS At 30 June 2023 Ordinary Extended Life New Global
Share Class ($)
Share Class ($)
Share Class (£)
Original Capital Invested (124,500,202) (359,359,794) (110,785,785)
Total Capital Distributions 129,627,394 290,315,104 51,444,766
Total Income Distributions (1) 3,166,835 20,695,255 5,070,285
Distributions as % of Original Capital 107% 87% 51%
Total Buybacks - 12,112,379 10,924,963
NAV 12,243,896 49,152,033 18,141,858
Total of NAV Plus Capital and Income Returned ("Value") 145,038,125 372,274,771 85,581,872
Value in Excess of Original Capital Invested 20,537,923 12,914,977 (25,203,913)
Value as % of Original Capital Invested 116% 104% 77%
AS At 31 December 2022 Ordinary Extended Life New Global
Share Class ($)
Share Class ($)
Share Class (£)
Original Capital Invested (124,500,202) (359,359,794) (110,785,785)
Total Capital Distributions 129,627,394 278,812,413 49,279,634
Total Income Distributions (1) 3,166,835 20,695,255 5,070,285
Distributions as % of Original Capital 107% 83% 49%
Total Buybacks - 12,112,379 10,924,963
NAV 11,890,321 58,477,990 20,598,910
Total of NAV Plus Capital and Income Returned ("Value") 144,684,550 370,098,037 85,873,792
Value in Excess of Original Capital Invested 20,184,348 10,738,243 (24,911,993)
Value as % of Original Capital Invested 116% 103% 78%
(1) By way of dividend
2023 INTERIM PERFORMANCE REVIEW | Chairman's Statement
Chairman's Statement
Dear Shareholder,
The six-month period ending 30 June 2023 continued to see interest rate
increases, high inflation, the war in Ukraine, rising recession risk and
volatile energy prices. With each share class in its harvest period, we
continue to seek to balance the pace of exits and the value achieved for
shareholders as we return capital to our investors. As a reminder, the
Ordinary class shareholders will no longer receive capital distributions until
such time as all final assets attributable to them have been realised to
ensure compliance with UK regulations.
Company Performance
As at 30 June 2023, the Company had returned a total of $129m or 107% of NBDD
investors' original capital of $124.5m, $290m or 87% of NBDX investors'
original capital of $359.4m and £51.4m or 51% of NBDG investors' original
capital of £110.8m. Currently we are in what we hope to be the final stages
of harvesting a number of investments and we will keep investors informed as
they occur. It is our intention to fully harvest NBDD during the next 12
months, subject to market conditions and with this in mind the Investment
Manager is evaluating all options. The Board continues to monitor all costs to
ensure that they are appropriate as we are conscious that shareholders may be
concerned about the impact of costs on a reducing portfolio during the harvest
period. We would therefore remind shareholders that with effect from 18 March
2021 our investment manager has agreed to waive all future fees.
Annual General Meeting ("AGM") Results
We were pleased to see that shareholders voted overwhelmingly in favour of all
resolutions proposed at our AGM held on 28 June 2023. We appreciate that
circumstances have adversely impacted the results the company has achieved and
would like to take the opportunity to thank you all for your votes and
continued support. We would continue to highlight the importance of voting in
the AGM. We are always happy to receive any questions or concerns from
shareholders ahead of the AGM so they can be addressed beforehand.
Board Composition, Independence and Diversity
Due to the expected wind up of the fund it is not considered appropriate or
practical to refresh the board at this time and we believe the results of the
relevant AGM resolutions endorse this approach.
Distributions
During the period we made good progress on the realisation of assets.
Following the receipt of proceeds from the realisation of a lodging &
casinos investment the Board resolved on April 17, 2023 to make capital
distributions of $0.1356 and £0.0698 per share in respect of the NBDX and
NBDG classes respectively. These distributions were made by a compulsory pro
rata redemption of shares held as at May 2, 2023 with payment being made on
May 17, 2023.
On 16 June, 2023, the Board announced a further capital distribution of
$0.0651 per Extended Life Share, again from the realisation of a lodging &
casinos investment, which was paid 13 July 2023.
We will continue to put our income distribution policy to a shareholder vote
at each annual general meeting. I would like to remind shareholders that such
distributions occur on an ad-hoc basis and are not expected to be either
material or equal for each share class.
Outlook
As I said in the annual report, the final distributions from each share class
have been delayed. The Ordinary class of shares will be the first to commence
the final wind-up process in the next 12 months, followed by the Extended
share class and then the New Global share class. As is normally the case with
investment companies, as opposed to those with commercial undertakings, this
does not currently have any material impact on the Company's ability to
continue as a going concern or to remain viable. However, the whole process
must be managed in a way that ensures compliance with UK regulations. The
Extended and Global classes will continue to distribute until their net assets
are reduced to approximately $36.5m and £8.4m respectively. In certain cases,
the cash associated with these share classes will need to remain in underlying
corporate vehicles while tax and other matters relating to those vehicles are
concluded. We will keep investors appraised of developments in respect of the
remaining assets.
For regulatory reasons, the final 10% of the total return (NAV plus cumulative
distributions) in respect of any class of participating shares in the Company
will be returned to shareholders with a final compulsory redemption of all of
the outstanding shares of that class.
On behalf of the Board, I would like to thank our longstanding shareholders
for your support of our Company. We look forward to updating you further on
investment realisations throughout the remainder of the year.
John Hallam
Chairman
24 August 2023
2023 INTERIM PERFORMANCE REVIEW | Investment Manager's Report
Investment Manager's Report
Ordinary Share Class
Summary
The NAV per share increased by 3.0 % for the period ended June 30, 2023.
Public markets were volatile as investors monitored multiple themes that could
impact global growth, including tightening fiscal and monetary conditions,
persistently higher inflation, supply chain disruptions, a tight labour
market, the ongoing Russian war in Ukraine, and recent bank failures. All
could lead to elevated volatility over the next 12 months and beyond. Given
these circumstances, the timing and quantum of any financial impact on the
portfolio remains very difficult to predict. Despite the uncertainty, the
Investment Manager is committed to realising the investments in a timely
manner and winding down the share class as soon as practicable, but there is
one asset we are working through which will determine the final distribution
date. Currently we are in what we hope to be the final stages of harvesting a
number of investments and we will keep investors informed as they occur. It
is our intention to fully harvest NBDD during the next 12 months.
Portfolio Update
NBDD ended the period with a NAV per share of $0.7959 compared to $0.7730 at
end of 2022. The rise in NAV was principally driven by an increase in the
value of a packaging company investment. At 30 June 2023, 57% of NBDD's NAV
was invested in distressed assets, and $4M in US Government securities which
represented a further 43% of NAV, with a minimal amount cash net of payables
(see table below). Cash balances will continue to increase as assets are
realised, subject to variations in collateral cash, but as noted previously
cannot be distributed until the final liquidation of the share class. The
portfolio consisted of 5 issuers across four sectors. The largest sector
concentrations were in surface transportation, containers & packaging and
financial intermediaries.
There were no notable events during 2023.
Cash Analysis
Balance Sheet - Cash $4.3m
Collateral cash ($3.1m)
Other payables ($0.0m)
Total available cash $1.2m
Significant Price Movement during 2023 (more than 1% of NBDD NAV or
approximately $120,000)
INDUSTRY INSTRUMENT TOTAL RETURN COMMENT
(US DOLLARS MILLIONS)
Containers & packaging Private Equity 0.4
Sponsor Equity Injection
Surface transport Total Return Swap 0.3 Interest accruals
Exits
During the period, we had no exits. The total number of exits since inception
in NBDD is 51, with a total return of $35.4m.
Partial Realisations
The partial realisations have generated net realised gains of $7.8m over the
life of the fund. Detailed descriptions of the partial realisations are at the
end of this report.
Distributions
To date, $132.8m or 107% of original capital has been distributed to investors
in the form of capital distributions via redemptions and income dividends.
Total value to investors including NAV and all distributions paid is $145.0m
(116% of original capital). For regulatory reasons, the final 10% of the total
return (NAV plus cumulative distributions) in respect of any class of
participating shares in NBDDIF will be returned to shareholders with a final
compulsory redemption of all of the outstanding shares of that class. The next
distribution for NBDD will be the final distribution to shareholders and will
wind down the share class which is expected to be in 2024, assuming supportive
market conditions. We will continue to update investors as we gain clarity on
the realisations.
Extended Life Share Class
Summary
The NAV per share increased by 5.5 % for the period ended June 30, 2023.
Public markets were volatile as investors monitored multiple themes that could
impact global growth, including tightening fiscal and monetary conditions,
persistently higher inflation, supply chain disruptions, a tight labour
market, the ongoing Russian war in Ukraine, and recent bank failures. All
could lead to elevated volatility over the next 12 months and beyond. Given
these circumstances, the timing and quantum of any financial impact on the
portfolio remains very difficult to predict. Despite the uncertainty, the
Investment Manager is committed to realising the investments in a timely
manner and winding down the share class as soon as practicable. Currently we
are in what we hope to be the final stages of harvesting a number of
investments and we will keep investors informed as they occur. It is our
intention to fully harvest NBDX during the next 12 months.
Portfolio Update
NBDX ended the period with a NAV per share of $1.0267 compared to $0.9728 at
end of 2022. At 30 June 2023, 82% of NBDX's NAV was invested in distressed
assets, and $1.9M in US Government securities which represented a further 18%
of NAV with a minimal amount of cash net of payables (see table below). Cash
balances will continue to increase as assets are realised, subject to
variations in collateral cash, but as noted previously not all can be
distributed until the final liquidation of the share class. The NAV per share
increase during the period was principally driven by a distribution received
from a financial intermediary investment, an increase in value of a packaging
investment, and the exit of two lodging & casinos investments. The NBDX
portfolio consists of 8 issuers across 6 sectors. The largest sector
concentrations were in surface transportation, financial intermediaries, oil
& gas, containers & packaging.
Cash Analysis
Balance Sheet - Cash $15.5m
Collateral cash ($8.7m)
Other payables ($0.1m)
Total available cash $6.6m
Notable events below describe activity in the investments during 2023:
· In March of 2023, a restructuring agreement for a lodging &
casinos investment was executed which resulted in a paydown of the Secured
Notes. Proceeds were received in April. NBDX received approximately $6.4mm.
· In May of 2023, we exited another lodging & casinos
investment in the secondary market. NBDX received approximately $2.0mm.
· In June 2023, a financial intermediary investment made a
distribution to its surplus note holders of approximately $33.4 million, of
which NBDX received $4.3mm.
Significant Price Movements during 2023 (approximately 1% of NBDX NAV or
$490,000)
INDUSTRY INSTRUMENT TOTAL RETURN COMMENT
(USD MILLIONS)
Containers & Packaging Private Equity 1.1 Sponsor Equity Injection
Surface Transport Total Return Swap 0.7
Exits
In 2023 we had two exits. The total number of exits since inception in NBDX to
71 with total return of $70.9m.
Partial Realisations
The partial realisations generated net realised gains of $20.0m over the life
of the Company. Detailed descriptions of the partial realisations are at the
end of this report.
Distributions
During 2023 NBDX made $11.5m distributions. The total distributions to date
(dividends, redemptions and buy-backs) amount to $323.1m or 90% of original
capital. Total value to investors including NAV and all distributions paid is
$372.3m or 104% of original capital. For regulatory reasons, the final 10% of
total return in respect of any class of participating shares in NBDDIF will be
returned to shareholders with the final compulsory redemption of all of the
outstanding shares of that class. The investment manager has undertaken a
review of all the investments in the light of a changed market and we have
updated the distribution schedule for the investments based on current
expectations. Our current expectation is to wind down the share class in 2024,
assuming supportive market conditions. We will continue to update investors as
we gain clarity on the realisations.
New Global Share Class
Summary
The NAV per share decreased by 1.79% for the period ended June 30, 2023.
Public markets were volatile as investors monitored multiple themes that could
impact global growth, including tightening fiscal and monetary conditions,
persistently higher inflation, supply chain disruptions, a tight labour
market, the ongoing Russian war in Ukraine, and recent bank failures. All
could lead to elevated volatility over the next 12 months and beyond. Given
these circumstances, the timing and quantum of any financial impact on the
portfolio remains very difficult to predict. Despite the uncertainty, the
Investment Manager is committed to realising the investments in a timely
manner and winding down the share class as soon as practicable. Currently we
are in what we hope to be the final stages of harvesting a number of
investments and we will keep investors informed as they occur. It is our
intention to fully harvest NBDG during the next 12 months.
Portfolio Update
NBDG ended the period with a NAV per share of £0.6521 compared to £0.6640 at
the end of 2022. At 30 June 2023, 97% of NBDG's NAV was invested in distressed
assets and 3% of NAV with a minimal amount of cash net of payables (see table
below). NAV per share decreased during the period principally due to a
reduction in value of a lodging & casinos investment and the strengthening
of the Pound Sterling. The portfolio consisted of 5 issuers across 5 sectors.
The largest sector concentrations were in lodging & casinos, commercial
mortgage, surface transportation and oil & gas.
Cash Analysis
Balance Sheet - Cash $0.7m
Other payables ($0.1m)
Total available cash $0.6m
Notable events involving NBDG's investments during 2023 are below:
· In March of 2023, a restructuring agreement for a lodging &
casinos investment was executed which resulted in a paydown of the Secured
Notes. Proceeds were received in April. NBDG received approximately £2.6mm.
Significant Price Movements during 2023 (approximately 1% of NBDG NAV or
£180,000)
INDUSTRY INSTRUMENT TOTAL RETURN COMMENT
(USD MILLIONS)
Surface Transport Bank Debt Investments 0.2 Lower Expected Value
Exits
During 2023 there was one exit. The total number of exits since inception is
32 with a total return of £2.7m. Detailed descriptions of the exits are at
the end of this report.
Partial Realisations
There were no partial realisations in NBDG during 2023.
Distributions
During 2023, there were £2.2m of distributions. Total distributions to date
(dividends, redemptions, and buy-backs) are £67.4m or 61% of original
capital. Total value to investors including NAV and all distributions paid is
£85.6m or 77% of original capital. For regulatory reasons, the final 10% of
total return in respect of any class of participating shares in NBDDIF will be
returned to shareholders with the final compulsory redemption of all the
outstanding shares of that class. The investment manager has undertaken a
review of all the investments in the light of a changed market and we have
updated the distribution schedule for the investments based on current
expectations. Our current expectation is to wind down the share class in 2024,
assuming supportive market conditions. We will continue to update investors as
we gain clarity on the realisations.
Summary of Exits across all Share Classes
Exits experienced from inception to date were as follows:
NBDD 51 exits with a total return of $35.4m, IRR(1) of 10% and ROR of 19%
NBDX 71 exits with a total return of $70.9m, IRR(1) of 5% and ROR of 12%
NBDG 32 exits with a total return of £(2.2m), IRR(1) of (4)% and ROR of (2)%
The annualised internal rate of return ("IRR") is computed based on the actual
dates of the cash flows of the security (purchases, sales, interest and
principal pay downs), calculated in the base currency of each portfolio. The
Rate of Return ("ROR") represents the change in value of the security (capital
appreciation, depreciation, and income) as a percentage of the purchase
amount. The purchase amount can include multiple purchases. Total Return
represents the inception to date gain/loss on an investment.
Exit A1 (Exit 32 for NBDG and Exit 70 for NBDX)
Exit
Cash Invested Cash Received Total Return Months Held
Exit A1 (millions) (millions) (millions) IRR ROR
NBDX 70 $7.8 $13.0 $5.3 8.9 % 67.8 % 101
NBDG 32 £2.5 £5.2 £2.7 12.9 % 109.9 % 101
Exit A2 (Exit 71 for NBDX)
Exit
Cash Invested Cash Received Total Return Months Held
Exit A2 (millions) (millions) (millions) IRR ROR
NBDX 71 $14.0 $20.2 $6.1 8.0% 43.7% 116
Summary of Partial Realisations across all Share Classes
All partial realisations currently in the portfolio are reported as at 30 June
2023 and it should be noted that their IRR and ROR are likely to be different
at the time of the final exit. These were the following partial realisations:
Partial Realisation B: NBDD and NBDX
NBDD and NBDX invested $7.1m to purchase first lien secured bank debt with
attached private equity of an international packaging company. The debt was
repaid in full shortly after the purchase with the receipt of $5.8m and the
Company retained the equity, receiving dividends of $1.7m during the holding
period. During the second quarter of 2017 the company's sale to a
complementary packaging company was announced. NBDX and NBDD elected to
receive sale proceeds in cash and newly created shares in the acquirer for a
combined value of $4.0m. In the third quarter of 2017, the Company received
$1.5m cash as part of the sale proceeds from the disposal completed at the end
of the second quarter of 2017 and $1.0m for partial redemption of new shares
received in the acquirer. The company's operating performance declined due to
raw material price increases. The current value of the private equity position
is $1.3m generating a total return of $4.2m as of 30 June 2023. IRR was 25%
and ROR was 59% with a holding period of 128 months at 30 June 2023.
Cash Received to Date
B Cash Invested (millions) Value of Residual Investment Total Return
Effective Period (millions) (millions) (millions) IRR ROR MonthS Held
NBDD H1 2017 $2.0 $2.8 $0.4 $1.2 25% 59% 128
NBDX H1 2017 $5.1 $7.2 $1.0 $3.0 25% 59% 128
Partial Realisation C: NBDD and NBDX
NBDD and NBDX invested $9.2m in preferred equity certificates ("PECs") and
private equity of a European packaging company. The PECs were retired in full
in 2015 and the company paid dividends on the equity during the holding
period. Cash received to date is $23.2m. In the second quarter, the company
announced it was purchasing another complementary packaging company (Partial
Realisation B, above) and completing a recapitalisation to refinance existing
debt, provide cash for the acquisition and pay a dividend to shareholders. The
company's operating performance declined due to raw material price increases.
The current value of the private equity position is $9.6m, generating a total
return of $23.6m as at 30 June 2023. IRR was 52% and ROR was 256% with a
holding period of 131 months at 30 June 2023.
Cash Received to Date
Cash Invested (millions) Value of Residual Investment Total Return
Effective Period (millions) (millions) (millions) IRR ROR Months Held
C
NBDD H1 2017 $2.6 $6.5 $2.7 $6.6 52% 256% 131
NBDX H1 2017 $6.6 $16.7 $6.9 $17.0 52% 256% 131
Neuberger Berman Investment Advisers LLC Neuberger Berman
Europe Limited
24 August
2023
24 August 2023
2023 INTERIM PERFORMANCE REVIEW | Portfolio Information
Portfolio Information
Ordinary Share Class
Top 4(1) Holdings as at 30 June 2023
Purchased Instrument % of NAV
Sector Status Country Primary Asset
Holding
1 Surface Transport(2) Trade Claim Defaulted Brazil 31% Municipal Claim
2 Specialty Packaging Post-Reorg Equity Post-Reorg Luxembourg 22% Manufacturing Plant and Equipment
3 Financial Intermediaries Secured Notes Post-Reorg US 3% Cash & Securities
4 Specialty Packaging Post-Reorg Equity Post-Reorg Luxembourg 3% Manufacturing Plant and Equipment
Total 59%
Sector Breakdown(3)
[For Investment Structure of the Company, click on, or paste the following
link into your web browser, to view page 1 in the associated PDF document]
http://www.rns-pdf.londonstockexchange.com/rns/3911K_1-2023-8-24.pdf
(http://www.rns-pdf.londonstockexchange.com/rns/3911K_1-2023-8-24.pdf)
( )
( 1) Ordinary Share Class holds four investments by issuer.
(2) As at 30 June 2023 collateral pledged is included in the Surface Transport
Market Value.
( )
(3) Categorisations determined by Neuberger Berman; percentages determined by
Neuberger Berman and U.S Bank Global Fund Services (Guernsey) Limited / U.S.
Bank Global Fund Services (Ireland) Limited as Administrator /
Sub-Administrator to the Company.
[For Investment Structure of the Company, click on, or paste the following
link into your web browser, to view page 2 in the associated PDF document]
(http://www.rns-pdf.londonstockexchange.com/rns/3911K_1-2023-8-24.pdf
(http://www.rns-pdf.londonstockexchange.com/rns/3911K_1-2023-8-24.pdf) )
( )
(4) Categorisations determined by Neuberger Berman and percentages determined
by the Administrator, as a percentage of the net asset values as at 30 June
2023 and 31 December 2022.
( )
(5) As at 30 June 2023 collateral pledged is included in the Brazil Market
Value.
Extended Life Share Class
Top 8(1) Holdings as at 30 June 2023
Purchased Instrument % of NAV
Holding Sector Status Country Primary Asset
1 Surface Transport(2) Trade Claim Defaulted Brazil 20% Municipal Claim
2 Oil & Gas Post-Reorg Equity Post-Reorg US 16% Ethanol Plant
3 Specialty Packaging Post-Reorg Equity Post-Reorg Luxembourg 14% Manufacturing Plant and Equipment
4 Commercial Mortgage Secured Loan Defaulted Netherlands 10% Commercial Real Estate
5 Surface Transport Secured Loan Defaulted Spain 9% Concession
6 Financial Intermediaries Secured Notes Defaulted US 8% Cash and Securities
7 Auto Components Secured Loan Post-Reorg US 4% Manufacturing Plant and Equipment
8 Specialty Packaging Post-Reorg Equity Post-Reorg Luxembourg 2% Manufacturing Plant and Equipment
Total 83%
Sector Breakdown(3)
[For Investment Structure of the Company, click on, or paste the following
link into your web browser, to view page 3 in the associated PDF document]
http://www.rns-pdf.londonstockexchange.com/rns/3911K_1-2023-8-24.pdf
(http://www.rns-pdf.londonstockexchange.com/rns/3911K_1-2023-8-24.pdf)
(1) Extended Share Class holds eight investments by issuer.
( )
(2) As at 30 June 2023 collateral pledged is included in the Surface Transport
Market Value.
( )
(3) Categorisations determined by Neuberger Berman; percentages determined by
Neuberger Berman and U.S Bank Global Fund Services (Guernsey) Limited / U.S.
Bank Global Fund Services (Ireland) as Administrator / Sub-Administrator to
the Company.
[For Investment Structure of the Company, click on, or paste the following
link into your web browser, to view page 4 in the associated PDF document]
http://www.rns-pdf.londonstockexchange.com/rns/3911K_1-2023-8-24.pdf
(http://www.rns-pdf.londonstockexchange.com/rns/3911K_1-2023-8-24.pdf)
( )
(4) Categorisations determined by Neuberger Berman and percentages determined
by the Administrator, as a percentage of the net asset values as at 30 June
2023 and 31 December 2022.
(5) As at 31 December 2022 collateral pledged is included in the Brazil Market
Value.
New Global Share Class
Top 5(1) Holdings as at 30 June 2023
Purchased Instrument % of NAV
Holding Sector Status Country Primary Asset
1 Lodging & Casinos Secured Loan / Private Equity Current Spain 37% Hotel/Casino
2 Commercial Mortgage Secured Loan Defaulted Netherlands 26% Commercial Real Estate
3 Surface Transportation Secured Loan Defaulted Spain 18% Legal Claim
4 Oil & Gas Private Equity Post-Reorg US 14% Ethanol Plant
5 Auto Components Secured Loan Post-Reorg US 3% Manufacturing Plant
Total 98%
Sector Breakdown(2)
[For Investment Structure of the Company, click on, or paste the following
link into your web browser, to view page 5 in the associated PDF document]
http://www.rns-pdf.londonstockexchange.com/rns/3911K_1-2023-8-24.pdf
(http://www.rns-pdf.londonstockexchange.com/rns/3911K_1-2023-8-24.pdf)
(1) Global Share Class holds five investments by issuer
(2) Categorisations determined by Neuberger Berman; percentages determined by
Neuberger Berman and U.S Bank Global Fund Services (Guernsey) Limited / U.S.
Bank Global Fund Services (Ireland) Limited as Administrator /
Sub-Administrator to the Company.
[For Investment Structure of the Company, click on, or paste the following
link into your web browser, to view page 6 in the associated PDF document]
http://www.rns-pdf.londonstockexchange.com/rns/3911K_1-2023-8-24.pdf
(http://www.rns-pdf.londonstockexchange.com/rns/3911K_1-2023-8-24.pdf)
(3) Categorisations determined by Neuberger Berman and percentages
determined by the Administrator, as a percentage of the net asset values as at
30 June 2023 and 31 December 2022.
2023 INTERIM PERFORMANCE REVIEW | GOVERNANCE
Interim Management Report and Directors' Responsibility Statement
Principal and Emerging Risks and Uncertainties
The principal and emerging risks of the Company are in the following areas:
· investment activity and performance;
· principal risks associated with harvest periods;
· level of premium or discount;
· market price risk;
· fair valuation of illiquid assets;
· accounting, legal and regulatory risk;
· operational risk;
· climate related risks; and
· issuance of new regulations;
These risks, and the way in which they are managed, are described in more
detail in the Strategic Report on pages 24 to 25 of the Company's latest
annual report and audited financial statements for the year ended 31 December
2022, which can be found on the Company's website at
www.nbddif.com/pdf/nbddif_annual_report_2022_042923.pdf.
(www.nbddif.com/pdf/nbddif_annual_report_2022_042923.pdf.) The Board's view is
that these risks remain appropriately identified for the remainder of 2023.
In addition to the Principal Risks, the invasion of Ukraine is of concern and
the Company has considered its potential impact on asset values, and while no
direct impact has been identified, values are affected by its impact on the
global economy. To manage these risks further, the Investment Manager reviews
time to realisation quarterly to ensure balance between timing and value.
Moreover, while the risks associated with the COVID 19 pandemic have largely
receded the Investment Manager continues to monitor the situation.
Going Concern
The financial position of the Company is set out below. In addition, note 4 to
the Unaudited Consolidated Interim Financial Statements includes the Company's
objectives, policies and processes for managing its capital, its financial
risk management and its exposures to credit risk and liquidity risk.
The Directors have undertaken a rigorous review of the Company's ability to
continue as a going concern including reviewing the on-going cash flows and
the level of cash balances, the likely liquidity of investments and any income
deriving from those investments as of the reporting date as well as taking
into consideration the impact of emerging risks and have determined that the
Company has adequate financial resources to meet its liabilities as they fall
due.
Having reassessed the principal and emerging risks, the Directors consider it
appropriate to prepare the Unaudited Consolidated Interim Financial Statements
(the "Financial Statements") on a going concern basis.
Related Party Transactions
The contracts with the Investment Manager and Directors are the only related
party transactions currently in place. Other than fees payable in the ordinary
course of business, there have been no material transactions with related
parties, which have affected the financial position or performance of the
Company in the six month period ended 30 June 2023. Additional related party
disclosures are given in Note 6 below.
Directors' Responsibilities Statement
The Board of Directors confirms that, to the best of its knowledge:
· The Financial Statements have been prepared in conformity with US
generally accepted accounting principles ("US GAAP"), give a true and fair
view of the assets, liabilities, financial position and the return of the
undertakings included in the consolidation as a whole as required by DTR
4.2.4R of the Disclosure Guidance and Transparency Rules ("DTR") of the UK's
Financial Conduct Authority (the "UK FCA"); and
· The combination of the Chairman's Statement, the Investment Manager's
Report, this Interim Management Report and the notes to the Financial
Statements meet the requirements of an interim management report, and include
a fair view of the information required by:
1. DTR 4.2.7R, being an indication of important events that have
occurred during the first six months of the current financial year and their
impact on the set of financial statements together with a description of the
principal risks and uncertainties for the remaining six months of the year;
and
2. DTR 4.2.8R, being related party transactions that have taken place
in the first six months of the current financial year and that have materially
affected the financial position or performance of the Company during that
period; and any changes in the related party transactions described in the
last annual report that could do so.
The Directors are responsible for the maintenance and integrity of the
corporate and financial information included on the Company's website and for
the preparation and dissemination of Financial Statements. Legislation in
Guernsey governing the preparation and dissemination of the Financial
Statements may differ from legislation in other jurisdictions.
These Interim Report and Financial Statements have been reviewed by the
Company's auditor and their report is set out below.
By order of the Board
John
Hallam Christopher
Legge
Chairman
Director
24 August 2023
24 August 2023
2023 INTERIM PERFORMANCE REVIEW | GOVERNANCE
Independent Review Report to NB Distressed Debt Investment Fund Limited
Conclusion
We have been engaged by NB Distressed Debt Investment Fund Limited (the
"Company") to review the consolidated financial statements (the "financial
statements") in the half-yearly financial report for the six months ended 30
June 2023 of the Company and its subsidiaries (together, the "Group"), which
comprises the unaudited consolidated statement of assets and liabilities, the
unaudited consolidated statement of operations, the unaudited consolidated
statement of changes in net assets, the unaudited consolidated statement of
cash flows, the unaudited consolidated condensed schedule of investments and
the related explanatory notes.
Based on our review, nothing has come to our attention that causes us to
believe that the financial statements in the half-yearly financial report for
the six months ended 30 June 2023 do not give a true and fair view of the
financial position of the Group as at 30 June 2023 and of its financial
performance and its cash flows for the six month period then ended, in
accordance with U.S. generally accepted accounting principles and the
Disclosure Guidance and Transparency Rules ("the DTR") of the UK's Financial
Conduct Authority ("the UK FCA").
Scope of review
We conducted our review in accordance with International Standard on Review
Engagements (UK) 2410 Review of Interim Financial Information Performed by the
Independent Auditor of the Entity ("ISRE (UK) 2410") issued by the Financial
Reporting Council for use in the UK. A review of interim financial
information consists of making enquiries, primarily of persons responsible for
financial and accounting matters, and applying analytical and other review
procedures. We read the other information contained in the half-yearly
financial report and consider whether it contains any apparent misstatements
or material inconsistencies with the information in the financial statements.
A review is substantially less in scope than an audit conducted in accordance
with International Standards on Auditing (UK) and consequently does not enable
us to obtain assurance that we would become aware of all significant matters
that might be identified in an audit. Accordingly, we do not express an audit
opinion.
Conclusions relating to going concern
Based on our review procedures, which are less extensive than those performed
in an audit as described in the Scope of review section of this report,
nothing has come to our attention to suggest that the directors have
inappropriately adopted the going concern basis of accounting or that the
directors have identified material uncertainties relating to going concern
that are not appropriately disclosed.
This conclusion is based on the review procedures performed in accordance with
ISRE (UK) 2410. However future events or conditions may cause the Group to
cease to continue as a going concern, and the above conclusions are not a
guarantee that the Group will continue in operation.
Directors' responsibilities
The half-yearly financial report is the responsibility of, and has been
approved by, the directors. The directors are responsible for preparing the
interim financial report in accordance with the DTR of the UK FCA.
The financial statements included in this interim report have been prepared
in accordance with U.S. generally accepted accounting principles.
In preparing the half-yearly financial report, the directors are responsible
for assessing the Group'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 liquidation is imminent.
Our responsibility
Our responsibility is to express to the Company a conclusion on the financial
statements in the half-yearly financial report based on our review. Our
conclusion, including our conclusions relating to going concern, are based on
procedures that are less extensive than audit procedures, as described in the
scope of review paragraph of this report.
The purpose of our review work and to whom we owe our responsibilities
This report is made solely to the Company in accordance with the terms of our
engagement letter to assist the Company in meeting the requirements of the DTR
of the UK FCA. Our review has been undertaken so that we might state to the
Company those matters we are required to state to it in this report and for no
other purpose. To the fullest extent permitted by law, we do not accept or
assume responsibility to anyone other than the Company for our review work,
for this report, or for the conclusions we have reached.
Barry Ryan
For and on behalf of KPMG Channel Islands Limited
Chartered Accountants
Guernsey
24 August 2023
FINANCIAL STATEMENTS | Unaudited Consolidated Statement of Assets and
Liabilities
Unaudited - see accompanying accountants report
Unaudited Consolidated Statement of Assets and Liabilities
AS AT 30 JUNE 2023 AND 31 DECEMBER 2022
(EXPRESSED IN US DOLLARS EXCEPT WHERE STATED OTHERWISE) 30 June 2023 31 December 2022
(Unaudited) (Audited)
Assets
Investments at fair value (2023: cost of $89,077,176; 2022: cost of 61,368,128 73,743,616
$103,009,846)
Forward currency contracts 137,116 12,018
Total Return Swaps (2023: cost of $Nil, 2022: cost of $Nil) 2,802,366 1,558,420
Cash and cash equivalents 8,617,196 8,733,589
Restricted Cash:
Forward currency contracts Collateral 820,000 90,000
Total return swap Collateral 10,970,000 10,970,000
84,714,806 95,107,643
Other assets
Interest receivables 436,736 596,024
Receivables for investments sold 39,907 498,514
Other receivables and prepayments 29,863 72,304
Withholding tax receivable 445,762 445,762
Total assets 85,667,074 96,720,247
Liabilities
Credit default swap (2023: cost of $16,821; 2022: cost of $16,821) 42,900 21,494
Forward currency contracts 911,324 1,269,365
Accrued expenses and other liabilities 252,270 282,649
Total liabilities 1,206,494 1,573,508
Net assets 84,460,580 95,146,739
Net assets attributable to Ordinary Shares (shares 2023: 15,382,770; 12,243,896 11,890,321
2022: 15,382,770)
Net asset value per Ordinary Share 0.7959 0.7730
Net assets attributable to Extended Life Shares (shares 2023: 47,875,446; 49,152,033 58,477,990
2022: 60,116,016)
Net asset value per Extended Life Share 1.0267 0.9728
Net assets attributable to New Global Shares (shares 2023: 27,821,698; £18,141,858 £20,598,909
2022: 31,023,609)
Net asset value per New Global Share £0.6521 £0.6640
Net assets attributable to New Global Shares (USD equivalent) 23,064,651 24,778,428
Net asset value per New Global Share (USD equivalent) 0.8290 0.7987
The Unaudited Consolidated Interim Financial Statements were approved and
authorised for issue by the Board of Directors on 24 August 2023, and signed
on its behalf by:
John
Hallam
Christopher Legge
Chairman
Director
The accompanying notes below are an integral part of the Unaudited
Consolidated Interim Financial Statements.
FINANCIAL STATEMENTS | Unaudited Consolidated Statement of Operations
Unaudited - see accompanying accountants report
Unaudited Consolidated Statement of Operations
FOR THE SIX MONTH PERIOD ENDED 30 JUNE 2023 AND 30 JUNE 2022
(UNAUDITED)
(EXPRESSED IN US DOLLARS) 30 jUNE 2023 30 jUNE 2022
(UNAUDITED) (UNAUDITED)
Income
Interest income 1,196,890 2,788,620
1,196,890 2,788,620
Expenses
Professional and other expenses 418,980 494,094
Administration fee 43,636 49,412
Loan administration and custody fees 9,959 15,187
Directors' fees and expenses 96,725 97,900
569,300 656,593
Net investment income 627,590 2,132,027
Realised and unrealised (loss)/gain from investments and foreign exchange
Net realised gain on investments, credit default swap, total return swap and 1,836,516 546,562
forward currency transactions
Net change in unrealised gain on investments, credit default swap, total 1,050,289 1,491,006
return swap and forward currency transactions
Realised and unrealised gain from investments and foreign exchange 2,886,805 2,037,568
Net increase in net assets resulting from operations 3,514,395 4,169,595
The accompanying notes below are an integral part of the Unaudited
Consolidated Interim Financial Statements.
FINANCIAL STATEMENTS | Unaudited Consolidated Statement of Changes in Net
Assets
Unaudited - see accompanying accountants report
Unaudited Consolidated Statement of Changes in Net Assets
FOR THE SIX MONTH PERIOD ENDED 30 JUNE 2023 (UNAUDITED)
(EXPRESSED IN US DOLLARS) 30 JUNE 2023 30 JUNE 2023 30 JUNE 2023 30 JUNE 2023
Ordinary Shares Extended Life Shares New Global Shares Aggregated
Net assets at the beginning of the period 11,890,321 58,477,990 24,778,428 95,146,739
Net investment gain 11,102 188,164 428,324 627,590
Net realised gain/(loss) on investments, credit default swap and forward 365,374 2,059,942 (588,800) 1,836,516
currency transactions
Net change in unrealised gain/(loss) on investments, credit default swap and (22,901) (71,372) 1,144,562 1,050,289
forward currency transactions
Shares redeemed during the period - (11,502,691) (2,697,863) (14,200,554)
Net assets at the end of the period 12,243,896 49,152,033 23,064,651 84,460,580
FOR THE SIX MONTH PERIOD ENDED 30 JUNE 2022 (UNAUDITED)
(EXPRESSED IN US DOLLARS) 30 JUNE 2022 30 JUNE 2022 30 JUNE 2022 30 JUNE 2022
Ordinary Shares Extended Life Shares New Global Shares Aggregated
Net assets at the beginning of the period 13,887,833 74,450,993 32,215,319 120,554,145
Net investment (loss)/gain (44,404) 1,460,412 716,019 2,132,027
Net realised (loss)/gain on investments, credit default swap and forward (242,763) 736,512 52,813 546,562
currency transactions
Net change in unrealised (loss)/gain on investments, credit default swap and (1,046,046) 1,459,930 1,077,122 1,491,006
forward currency transactions
Dividends - (3,302,348) (1,647,824) (4,950,172)
Net assets at the end of the period 12,554,620 74,805,499 32,413,449 119,773,568
The accompanying notes below are an integral part of the Unaudited
Consolidated Interim Financial Statements.
FINANCIAL STATEMENTS | Unaudited Consolidated Statement of Cash Flows
Unaudited - see accompanying accountants report
Unaudited Consolidated Statement of Cash Flows
FOR THE SIX MONTH PERIOD ENDED 30 JUNE 2023 AND 30 JUNE 2022
30 JUNE 2023 30 JUNE 2022
(UNAUDITED) (UNAUDITED)
Cash flows from operating activities:
Net increase in net assets resulting from operations 3,514,395 4,169,595
Adjustment to reconcile net increase/(decrease) in net assets resulting from
operations to net cash flow provided by operations:
Net realised gain on investments, credit default swap, total return swap and (1,836,516) (546,562)
forward currency transactions
Net change in unrealised (gain) on investments, credit default swap, total (1,050,289) (1,491,006)
return swap and forward currency transactions
Accretion of discount on loans and bonds 63,648 (91,835)
Changes in interest receivable 159,288 280,557
Changes in receivables for investments sold 458,607 37,783
Changes in other receivables and prepayments 42,441 51,447
Changes in withholding tax receivable - -
Changes in payables, accrued expenses and other liabilities (30,379) 3,162
Cash received on settled forward currency contracts and spot currency (2,334,367) (724,615)
contracts
Capitalised payment in kind (1,101,998) (2,054,670)
Sale of investments 16,897,272 10,548,892
Net cash provided by operating activities 14,782,102 10,182,748
Cash flows from financing activities:
Shares redeemed during the period (14,200,554) -
Changes in movement in forward currency collateral payable - 880,000
Net cash (used in)/ from financing activities (14,200,554) 880,000
Net increase in cash, cash equivalents and restricted cash 581,548 11,062,748
Cash and cash equivalents at the beginning of the period 8,733,589 4,370,854
Restricted cash at the beginning of the period 11,060,000 10,970,000
Effect of exchange rate changes on cash and cash equivalents 32,059 (17,816)
Cash and cash equivalents at the end of the period 8,617,196 15,415,786
Restricted cash at the end of the period 11,790,000 10,970,000
Supplemental cash flow information
There were no reorganisations requiring disclosure in the period to 30 June
2023 (30 June 2022: None).
The accompanying notes below are an integral part of the Unaudited
Consolidated Interim Financial Statements.
FINANCIAL STATEMENTS | Unaudited Consolidated Condensed Schedule of
Investments
Unaudited - see accompanying accountants report
Unaudited Consolidated Condensed Schedule of Investments (by financial
instrument)
AS AT 30 JUNE 2023 (UNAUDITED) Cost Fair Value Extended Life New Global Shares Total Company
(EXPRESSED IN US DOLLARS) Ordinary Shares (%)(1) (%)(1)
Shares (%)(1)
(%)(1)
Portfolio of Distressed Investments
Bank Debt Investments 50,776,643 33,851,612 0.00 33.97 74.38 40.08
Private Equity 11,238,099 17,826,931 25.12 19.89 21.58 21.11
Private Note 19,707,684 3,717,786 2.25 7 - 4.40
Short term Investments
US Treasury Bills 7,354,750 5,971,799 33.04 3.92 - 7.07
Total Investments 89,077,176 61,368,128 60.41 64.78 95.96 72.66
Ordinary Shares 7,010,194 7,396,782 60.41 - - 8.76
Extended Life Shares 48,353,557 31,840,117 - 64.78 - 37.70
New Global Shares 33,713,425 22,131,229 - - 95.96 26.20
89,077,176 61,368,128 60.41 64.78 95.96 72.66
Credit Default Swap
Ordinary Shares (4,715) (12,025) (0.10) - - (0.01)
Extended Life Shares (12,106) (30,875) - (0.06) - (0.04)
(16,821) (42,900) (0.10) (0.06) - (0.05)
Forward Currency Contracts
Assets
Ordinary Shares - 22,697 0.19 - - 0.03
Extended Life Shares - 114,419 - 0.23 - 0.13
- 137,116 0.19 0.23 - 0.16
Liabilities
Ordinary Shares - (255,889) (2.09) - - (0.30)
Extended Life Shares - (655,435) - (1.33) - (0.78)
- (911,324) (2.09) (1.33) - (1.08)
Total Return Swap(2)
Ordinary Shares - 782,530 6.39 - - 0.93
Extended Life Shares - 2,019,836 - 4.10 - 2.39
- 2,802,366 6.39 4.10 - 3.32
(1) This is the Fair Value expressed as a percentage of total Company NAV,
Ordinary Share NAV, Extended Life Share NAV and New Global Share NAV.
(2) The trade claim was structured through a fully funded total return swap
with a major US financial institution. See Note 3.
The accompanying notes below are an integral part of the Unaudited
Consolidated Interim Financial Statements.
AS AT 31 DECEMBER 2022 (AUDITED) Cost Fair Value Extended Life New Global Shares Total Company
(EXPRESSED IN US DOLLARS) Ordinary Shares (%)(1) (%)(1)
Shares (%)(1)
(%)(1)
Portfolio of Distressed Investments
Bank Debt Investments 45,738,879 27,358,457 - 18.82 65.99 28.75
Private Equity 17,788,092 24,502,057 21.86 28.64 20.81 25.76
Private Note 32,100,083 15,923,291 5.21 21.86 10.17 16.74
Short term Investments
US Treasury Bills 7,382,792 5,959,811 33.95 3.29 - 6.26
Total Investments 103,009,846 73,743,616 61.02 72.61 96.97 77.51
Ordinary Shares 7,085,668 7,255,206 61.02 - - 7.63
Extended Life Shares 59,089,019 42,461,578 - 72.61 - 44.63
New Global Shares 36,835,159 24,026,832 - - 96.97 25.25
103,009,846 73,743,616 61.02 72.61 96.97 77.51
Credit Default Swap
Ordinary Shares (4,715) (6,025) (0.05) - - (0.01)
Extended Life Shares (12,106) (15,469) - (0.03) - (0.02)
(16,821) (21,494) (0.05) (0.03) - (0.03)
Forward Currency Contracts
Assets
Ordinary Shares - 3,953 0.03 - - -
Extended Life Shares - 8,065 - 0.01 - 0.01
- 12,018 0.03 0.01 - 0.01
Liabilities
Ordinary Shares - (231,261) (1.94) - - (0.24)
Extended Life Shares - (1,038,104) - (1.78) - (1.09)
- (1,269,365) (1.94) (1.78) - (1.33)
Total Return Swap(2)
Ordinary Shares - 435,022 3.66 - - 0.46
Extended Life Shares - 1,123,398 - 1.91 - 1.18
- 1,558,420 3.66 1.91 - 1.64
(1) This is the Fair Value expressed as a percentage of total Company NAV,
Ordinary Share NAV, Extended Life Share NAV and New Global Share NAV.
(2) The trade claim was structured through a fully funded total return swap
with a major US financial institution. See Note 3.
The accompanying notes below are an integral part of the Unaudited
Consolidated Interim Financial Statements.
FINANCIAL STATEMENTS | Unaudited Consolidated Condensed Schedule of
Investments
Unaudited - see accompanying accountants report
Unaudited Consolidated Condensed Schedule of Investments
Investments with the following issuers comprised greater than 5% of Total
Company NAV
AS AT 30 JUNE 2023 Country Industry Nominal Cost Fair Value Ordinary Extended New Global Shares Total Company
(UNAUDITED) Shares Life (%)(1) (%)(1)
(EXPRESSED IN US DOLLARS) (%)(1) Shares
(%)(1)
Investments at fair value
Package Holdings 1 (Private Note) Luxembourg Containers and Packaging 11,108,610 - 9,613,182 21.94 14.09 - 11.38
Package Holdings 6 (Private Note) Luxembourg Containers and Packaging 2,948,481 1,893,980 1,333,039 3.05 1.95 - 1.58
US Treasury N/B 1.500% 02/15/30 (US Treasury Bills) United States1 United States 6,975,000 7,354,750 5,971,799 33.04 3.92 - 7.07
AB Zwolle T/L EUR 01/06/2020 (Bank Debt Investments) Netherlands Commercial Mortgage 19,650,713 14,291,794 10,633,708 - 9.59 25.67 12.59
TP Ferro Concesionaria T/L 1L 31/03/2016 Spain Surface Transport 18,787,735 18,531,522 4,099,484 - 4.18 8.86 4.85
(Bank Debt Investments)
TP Ferro Concesionaria TP Ferro 1L TL-B EUR (First-Lien) EUR (Bank Debt Spain Surface Transport 524,835 593,161 572,595 - 0.58 1.24 0.68
Investments)
TP Ferro Concesionaria TP Ferro T/L-A (First-Lien) (Bank Debt Investments) Spain Surface Transport 2,606,681 2,606,681 2,606,681 - 2.65 5.65 3.09
TP Ferro Concesionaria TP Ferro 1L T/L-C (First-Lien) Spain Surface Transport 227,038 227,038 227,038 - 0.23 0.49 0.27
(Bank Debt Investments)
TP Ferro PIK 5A 4/20 Spain Surface Transport 462,230 462,230 462,230 - 0.47 1.00 0.55
(Bank Debt Investments)
TP Ferro PIK 5B 7/22 Spain Surface Transport 263,758 263,758 263,758 - 0.27 0.57 0.31
(Bank Debt Investments)
White Energy Holding Company LLC (Private Equity) United States Oil & Gas 367 9,174,989 11,010,000 - 15.99 13.66 13.03
Hotel Puerta America PIK T/L EUR Spain Lodging & Casinos 3,901,657 4,293,218 4,256,708 - - 18.46 5.04
(Bank Debt Investments)
Hotel Puerta America PIK Addon EUR Spain Lodging & Casinos 1,540,070 1,675,349 1,680,216 - - 7.28 1.99
(Bank Debt Investments)
Hotel Puerta America PIK PPL EUR Spain Lodging & Casinos 1,090,003 1,281,898 1,189,193 - - 5.16 1.41
(Bank Debt Investments)
Hotel Puerta America Spain Lodging & Casinos 934 3,013,332 1,072,685 - - 4.65 1.27
(Private Equity)
65,663,700 54,992,316 58.03 53.93 92.69 65.11
(1) This is the Fair Value expressed as a percentage of total Company NAV,
Ordinary Share NAV, Extended Life Share NAV and New Global Share NAV.
(2) Floating Rate Note (FRN) - variable coupon rate during the period as per
contract notice.
The accompanying notes below are an integral part of the Unaudited
Consolidated Interim Financial Statements.
Investments with the following issuers comprised greater than 5% of Total
Company NAV
31 DECEMBER 2022 Country Industry Nominal Cost Fair Value Ordinary Extended New Global Shares Total Company
(AUDITED) Shares Life (%)(1) (%)(1)
(EXPRESSED IN US DOLLARS) (%)(1) Shares
(%)(1)
Investments at fair value
Package Holdings 1 (Private Note) Luxembourg Containers and Packaging 11,108,610 - 19.04 9.99 - 8.52
8,103,345
Package Holdings 6 (Private Note) Luxembourg Containers and Packaging 2,948,481 1,893,980 2.64 1.38 - 1.18
1,123,710
AB Zwolle T/L EUR 05/31/2023 (Bank Debt Investments) Netherlands Commercial Mortgage 19,200,256 14,043,835 - 8.09 23.98 11.22
10,671,960
US Treasury N/B 1.500% 02/15/30 United States United States 6,975,000 7,382,792 33.95 3.29 - 6.26
5,959,811
(US Treasury Bills)
Buffalo Thunder Dev Auth 11.00% 12/09/29 SR: Regs United States Lodging & Casinos 14,001,965 11,641,233 - 8.62 10.17 7.95
7,561,061
(Private Note)
TP Ferro Concesionaria T/L 1L 31/03/2016 Spain Surface Transport 18,787,735 18,531,522 - 3.44 8.06 4.21
4,010,242
(Bank Debt Investments)
TP Ferro Concesionaria TP Ferro T/L-A (First-Lien) Spain Surface Transport 2,309,778 2,309,778 - 1.97 4.66 2.43
2,309,778
(Bank Debt Investments)
TP Ferro PIK 5B 7/22 Spain Surface Transport 234,516 234,516 - 0.20 0.47 0.25
234,516
(Bank Debt Investments)
TP Ferro Concesionaria TP Ferro 1L T/L-B EUR (First-Lien) EUR (Bank Debt Spain Surface Transport 465,056 527,661 - 0.42 1.00 0.52
Investments) 496,331
TP Ferro PIK 5A 4/20 Spain Surface Transport 409,581 409,581 - 0.35 0.83 0.43
409,581
(Bank Debt Investments)
TP Ferro Concesionaria TP Ferro 1L T/L-C (First-Lien) Spain Surface Transport 201,179 201,179 - 0.17 0.41 0.21
201,179
(Bank Debt Investments)
White Energy Holding Company LLC United States Oil & Gas 367 9,174,989 - 13.44 12.71 11.57
11,010,000
(Private Equity)
ACA Fin Guaranty Corp 12-12/31/2025 Frn United States Financial Intermediaries 66,659,722 10,617,941 5.21 6.35 - 4.55
4,332,882
(Private Note)
ACA Fin Gur Sur Non Vt 12-12/31/2025 Frn United States Financial Intermediaries 61,989,978 9,840,909 - 6.89 - 4.23
4,029,349
(Private Note)
Hotel Puerta America PIK T/L EUR Spain Lodging & Casinos 3,643,760 4,017,977 - - 15.69 4.09
3,888,803
(Bank Debt Investments)
Hotel Puerta America Spain Lodging & Casinos 934 3,013,332 - - 4.48 1.18
1,110,956
(Private Equity)
Hotel Puerta America PIK PPL EUR Spain Lodging & Casinos 1,090,003 1,281,898 - - 4.69 1.22
1,163,306
(Bank Debt Investments)
Hotel Puerta America PIK Addon EUR Spain Lodging & Casinos 1,438,272 1,566,706 - - 6.19 1.61
1,534,996
(Bank Debt Investments)
96,689,829 68,151,806 60.84 64.60 93.34 71.63
(1) This is the Fair Value expressed as a percentage of total Company NAV,
Ordinary Share NAV, Extended Life Share NAV and New Global Share NAV.
(2) Floating Rate Note (FRN) - variable coupon rate during the period as per
contract notice.
The accompanying notes below are an integral part of the Unaudited
Consolidated Interim Financial Statements.
FINANCIAL STATEMENTS | Unaudited Consolidated Condensed Schedule of
Investments
Unaudited - see accompanying accountants report
Unaudited Consolidated Condensed Schedule of Investments (by geography)
( )
AS AT 30 JUNE 2023 Fair Value Ordinary Extended Life New Global Shares Total Company
(UNAUDITED) Cost Shares Shares (%)(1) (%)(1)
(EXPRESSED IN US DOLLARS) (%)(1) (%)(1)
Geographic diversity of Portfolios
Portfolio of Distressed Investments
Luxembourg 1,893,980 10,946,221 24.98 16.05 - 12.96
Netherlands 14,291,794 10,633,708 - 9.59 25.67 12.59
Spain 32,948,190 16,430,589 - 8.39 53.36 19.45
United States 32,588,462 17,385,811 2.39 26.83 16.93 20.59
Short term Investments (US Treasury Bills)
United States 7,354,750 5,971,799 33.04 3.92 - 7.07
89,077,176 61,368,128 60.41 64.78 95.96 72.66
( )
(1) This is the Fair Value expressed as a percentage of total Company NAV,
Ordinary Share NAV, Extended Life Share NAV and New Global Share NAV.
The accompanying notes below are an integral part of the Unaudited
Consolidated Interim Financial Statements.
AS AT 31 DECEMBER 2022 Fair Value Ordinary Extended Life New Global Shares Total Company
(AUDITED) Cost Shares Shares (%)(1) (%)(1)
(EXPRESSED IN US DOLLARS) (%)(1) (%)(1)
Geographic diversity of Portfolios
Portfolio of Distressed Investments
Luxembourg 1,893,980 9,227,056 21.69 11.37 - 9.70
Netherlands 14,043,835 10,671,960 - 8.09 23.98 11.22
Spain 32,094,148 15,359,687 - 6.56 46.50 16.14
United States 47,595,091 32,525,102 5.38 43.30 26.49 34.19
Short term Investments (US Treasury Bills)
United States 7,382,792 5,959,811 33.95 3.29 - 6.26
103,009,846 73,743,616 61.02 72.61 96.97 77.51
( )
(1) This is the Fair Value expressed as a percentage of total Company NAV,
Ordinary Share NAV, Extended Life Share NAV and New Global Share NAV.
The accompanying notes below are an integral part of the Unaudited
Consolidated Interim Financial Statements.
FINANCIAL STATEMENTS | Unaudited Consolidated Condensed Schedule of
Investments
Unaudited - see accompanying accountants report
Unaudited Consolidated Condensed Schedule of Investments (by sector)
AS AT 30 JUNE 2023 (UNAUDITED) Cost Fair Value Ordinary Extended Life New Global Total Company
(EXPRESSED IN US DOLLARS) Shares Shares Shares (%)(1)
(%)(1) (%)(1) (%)(1)
Industry diversity of Portfolios
Portfolio of Distressed Investments
Auto Components 3,705,793 2,658,025 0.14 3.84 3.27 3.15
Commercial Mortgage 14,291,794 10,633,709 - 9.59 25.67 12.59
Containers and Packaging 1,893,980 10,946,222 24.98 16.05 - 12.96
Financial Intermediaries 19,707,682 3,717,786 2.25 7.00 - 4.40
Lodging & Casinos 10,263,797 8,198,801 - - 35.55 9.71
Oil & Gas 9,174,989 11,010,000 - 15.99 13.66 13.03
Surface Transport 22,684,391 8,231,786 - 8.39 17.81 9.75
Short term Investments
US Treasury Bills 7,354,750 5,971,799 33.04 3.92 - 7.07
89,077,176 61,368,128 60.41 64.78 95.96 72.66
(1) This is the Fair Value expressed as a percentage of total Company NAV,
Ordinary Share NAV, Extended Life Share NAV and New Global Share NAV.
The accompanying notes below are an integral part of the Unaudited
Consolidated Interim Financial Statements.
AS AT 31 DECEMBER 2022 (AUDITED) Cost Fair Value Ordinary Extended Life New Global Total Company
(EXPRESSED IN US DOLLARS) Shares Shares Shares (%)(1)
(%)(1) (%)(1) (%)(1)
Industry diversity of Portfolios
Portfolio of Distressed Investments
Auto Components 3,705,793 3,154,044 0.17 3.83 3.61 3.31
Commercial Mortgage 14,043,835 10,671,960 - 8.09 23.98 11.22
Containers and Packaging 1,893,980 9,227,056 21.69 11.37 - 9.70
Financial Intermediaries 20,458,849 8,362,230 5.21 13.24 - 8.79
Lodging & Casinos 24,135,372 17,696,890 - 12.79 41.24 18.60
Oil & Gas 9,174,989 11,010,000 - 13.44 12.71 11.58
Surface Transport 22,214,236 7,661,625 - 6.56 15.43 8.05
Short term Investments
US Treasury Bills 7,382,792 5,959,811 33.95 3.29 - 6.26
103,009,846 73,743,616 61.02 72.61 96.97 77.51
(1) This is the Fair Value expressed as a percentage of total Company NAV,
Ordinary Share NAV, Extended Life Share NAV and New Global Share NAV.
The accompanying notes below are an integral part of the Unaudited
Consolidated Interim Financial Statements.
FINANCIAL STATEMENTS | Notes to the Unaudited Consolidated Interim Financial
Statements
Unaudited - see accompanying accountants report
NOTE 1 - ORGANISATION AND DESCRIPTION OF BUSINESS
NB Distressed Debt Investment Fund Limited (the "Company") is a closed-ended
investment company registered and incorporated in Guernsey under the
provisions of the Companies (Guernsey) Law, 2008 (as amended) (the "Companies
Law") with registration number 51774. The Company's shares are traded on the
Specialist Fund Segment ("SFS") of the London Stock Exchange ("LSE"). All
share classes are in the harvest period.
The Company's objective is to provide investors with attractive risk-adjusted
returns through long-biased, opportunistic stressed, distressed and special
situation credit-related investments while seeking to limit downside risk by,
amongst other things, focusing on senior and senior secured debt with both
collateral and structural protection.
The Company's share capital is denominated in US Dollars for Ordinary Shares
and Extended Life Shares and Pounds Sterling for New Global Shares.
NOTE 2 - SUMMARY OF ACCOUNTING POLICIES
(a) Basis of Preparation
The accompanying Unaudited Consolidated Interim Financial Statements
("Financial Statements") give a true and fair view of the assets, liabilities,
financial position and return and have been prepared in conformity with
accounting principles generally accepted in the United States of America ("US
GAAP") and Companies Law and are expressed in US Dollars. All adjustments
considered necessary for the fair presentation of the financial statements,
for the period presented, have been included.
The Company is regarded as an Investment Company and follows the accounting
and reporting guidance in FASB Accounting Standards Codification ("ASC") Topic
946. Accordingly, the Company reflects its investments on the Unaudited
Consolidated Statement of Assets and Liabilities at their estimated fair
values, with unrealised gains and losses resulting from changes in fair value
reflected in net change in unrealised gain/(loss) on investments, credit
default swap, total return swap and forward currency transactions in the
Unaudited Consolidated Statement of Operations.
The Board recognises that the Portfolios (the Ordinary Share Class; the
Extended Life Share Class; and the New Global Share Class) are now in their
harvest periods. The Directors have a reasonable expectation that the Company
has adequate resources to continue in operational existence for the twelve
months from the date these accounts are signed and the foreseeable future.
Thus, they continue to prepare the Financial Statements in accordance with
U.S. generally accepted accounting principles, as liquidation is not imminent.
The Financial Statements include the results of the Company and its
wholly-owned subsidiaries, whose accounting policies are consistent with those
of the Company. The Financial Statements include full consolidation of any
owned subsidiaries, except where the effect on the Company's financial
position and results of operations are immaterial. Transactions between the
Company and the subsidiaries have been eliminated on consolidation.
Wholly-owned subsidiaries, London Lux Masterco 1 S.a.r.l., London Lux Debtco 1
S.a.r.l. and London Lux Propco 1 S.a.r.l. are incorporated in Luxembourg.
(b) Use of Estimates
The preparation of these Financial Statements in conformity with US GAAP
requires that the Directors make estimates and assumptions (as mentioned in
detail on note 2 (f) below) that affect the reported amounts of assets and
liabilities at the date of the financial statements and reported amounts of
income and expenses during the reporting period.
Actual results could differ significantly from these estimates.
(c) Cash and Cash Equivalents and Restricted Cash
The Company holds cash and cash equivalents in US Dollar and non-US Dollar
denominated currencies with original maturities of less than 90 days that are
both readily convertible to known amounts of cash and so near maturity that
they represent an insignificant risk of change in value to be cash
equivalents. As at 30 June 2023, the Company has cash balances in various
currencies equating to $20,407,196 (Cost: $20,395,283) (31 December 2022:
$19,793,589 (Cost: $19,641,661) including cash and cash equivalents of
$8,617,196 (31 December 2022: $8,733,589) as well as restricted cash of
$11,790,000 (31 December 2022: $11,060,000). Restricted cash of $10,970,000
(31 December 2022: $10,970,000) is collateral for the total return swap
positions and restricted cash of $820,000 (31 December 2022: $90,000) is
collateral for forward currency contracts.
(d) Payables/Receivables on Investments Purchased/Sold
At 30 June 2023, the amount payable/receivable on investments purchased/sold
represents amounts due for investments purchased/sold that have been
contracted for but not settled on the Unaudited Consolidated Statement of
Assets and Liabilities date.
(e) Foreign Currency Translation
Assets and liabilities denominated in foreign currency are translated into US
Dollars at the currency exchange rates on the date of valuation. On initial
recognition, foreign currency sales and purchases transactions are recorded
and translated at the spot exchange rate at the transaction date and for all
other transactions, the average rate is applied. Non-monetary assets and
liabilities are translated at the historic exchange rate.
The Company does not separate the changes relating to currency exchange rates
from those relating to changes in fair value of the investments. These
fluctuations are included in the net realised gain and net change in
unrealised gain/(loss) on investments, credit default swap, total return swap
and forward currency transactions in the Unaudited Consolidated Statements of
Operations.
(f) Fair Value of Financial Instruments
The fair value of the Company's assets and liabilities that qualify as
financial instruments under FASB ASC 825, Financial Instruments, approximate
the carrying amounts presented in the Unaudited Consolidated Statement of
Assets and Liabilities.
Fair value prices are estimates made at a discrete point in time, based on
relevant market data, information about the financial instruments, and other
factors.
Fair value is determined using available market information and appropriate
valuation methodologies. Estimates of fair value of financial instruments
without quoted market prices are subjective in nature and involve various
assumptions and estimates that are matters of judgement. Accordingly, fair
values are not necessarily indicative of the amounts that will be realised on
disposal of financial instruments. The use of different market assumptions
and/or estimation methodologies may have a material effect on estimated fair
value amounts.
The following estimates and assumptions were used as at 30 June 2023 and 31
December 2022 to estimate the fair value of each class of financial
instruments:
· Cash and cash equivalents - The carrying value reasonably
approximates fair value due to the short-term nature of these instruments.
· Receivables for investments sold - The carrying value reasonably
approximates fair value as it reflects the value at which investments are sold
to a willing buyer and the settlement period on their balances is short term.
· Interest receivables and other receivables and prepayments - The
carrying value reasonably approximates fair value.
· Quoted investments are valued according to their bid price at the
close of the relevant reporting date. Investments in private securities are
priced at the bid price using a pricing service for private loans. If a price
cannot be ascertained from the above sources, the Company will seek bid prices
from third party broker/dealer quotes for the investments.
· In cases where no third-party price is available, or where the
Investment Manager determines that the provided price is not an accurate
representation of the fair value of the investment (e.g. level 3 investments
included overleaf), the Investment Manager determines the valuation based on
its fair valuation policy. Further information on valuations is provided in
Note 2 (g), "Investment transactions, investment income/expenses and
valuation", below.
· Forward currency contracts are revalued using the forward
exchange rate prevailing at the Unaudited Consolidated Statement of Assets and
Liabilities date.
· Total Return Swaps are priced using Mark to market prices
provided by a third party broker.
· Credit Return Swaps are priced using a pricing service provided
by Markit Partners.
The Company follows guidance in ASC 820, Fair Value Measurement ("ASC 820"),
where fair value is defined as the price that would be received to sell an
asset or paid to transfer a liability in an orderly transaction between market
participants at the measurement date. Fair value measurements are determined
within a framework that establishes a three-tier hierarchy which maximises the
use of observable market data and minimises the use of unobservable inputs to
establish a classification of fair value measurements for disclosure purposes.
Inputs refer broadly to the assumptions that market participants would use in
pricing the asset or liability, including assumptions about risk, such as the
risk inherent in a particular valuation technique used to measure fair value
using a pricing model and/or the risk inherent in the inputs for the valuation
technique. Inputs may be observable or unobservable.
Observable inputs reflect the assumptions market participants would use in
pricing the asset or liability based on market data obtained from sources
independent of the Company. Unobservable inputs reflect the Company's own
assumptions about the assumptions market participants would use in pricing the
asset or liability based on the information available. The inputs or
methodology used for valuing assets or liabilities may not be an indication of
the risks associated with investing in those assets or liabilities.
ASC 820 classifies the inputs used to measure these fair values into the
following hierarchy:
Level 1: Quoted prices are available in active markets for identical
investments as of the reporting date.
Level 2: Pricing inputs are other than quoted prices in active markets, which
are either directly or indirectly observable as of the reporting date, and
fair value is determined through the use of models or other valuation
methodologies.
Level 3: Pricing inputs are unobservable for the investment and include
situations where there is little, if any, market activity for the investment.
The inputs used in the determination of the fair value require significant
management judgement or estimation.
In all cases, the level in the fair value hierarchy within which the fair
value measurement in its entirety falls has been determined based on the
lowest level of input that is significant to the fair value measurement. The
Company's assessment of the significance of a particular input to the fair
value measurement in its entirety requires judgement and considers factors
specific to each investment.
The following is a summary of the levels within the fair value hierarchy in
which the Company invests:
FAIR VALUE OF FINANCIAL INSTRUMENTS AS AT 30 JUNE 2023 (UNAUDITED)
(EXPRESSED IN US DOLLARS) LEVEL 1 LEVEL 2 LEVEL 3 TOTAL
Bank Debt Investments - 7,860,000 25,991,612 33,851,612
Private Equity - 3,150,000 14,676,931 17,826,931
Private Note - - 3,717,786 3,717,786
US Treasury Bills 5,971,799 - - 5,971,799
Investments at fair value 5,971,799 11,010,000 44,386,329 61,368,128
Credit Default Swap - (42,900) - (42,900)
Total Return Swap - - 2,802,366 2,802,366
Forward Currency Contracts - Assets - 137,116 - 137,116
Forward Currency Contracts - Liabilities - (911,324) - (911,324)
Total investments that are accounted for at fair value 5,971,799 10,192,892 47,188,695 63,353,386
FAIR VALUE OF FINANCIAL INSTRUMENTS AT 31 DECEMBER 2022 (AUDITED)
(EXPRESSED IN US DOLLARS) LEVEL 1 LEVEL 2 LEVEL 3 TOTAL
Bank Debt Investments - - 27,358,457 27,358,457
Private Equity - 11,010,000 13,492,057 24,502,057
Private Note - 7,561,061 8,362,230 15,923,291
US Treasury Bills 5,959,811 - - 5,959,811
Investments at fair value 5,959,811 18,571,061 49,212,744 73,743,616
Credit Default Swap - (21,494) - (21,494)
Total Return Swap - - 1,558,420 1,558,420
Forward Currency Contracts - Assets 12,018 12,018
Forward Currency Contracts - Liabilities - (1,269,365) - (1,269,365)
Total investments that are accounted for at fair value 5,959,811 17,292,220 50,771,164 74,023,195
The following table summarises the significant unobservable inputs the Company
used to value its investments categorised within Level 3 as at 30 June 2023.
The table is not intended to be all-inclusive but instead captures the
significant unobservable inputs relevant to our determination of fair values.
Type Sector Fair Value ($) Primary Valuation Technique Significant unobservable Inputs Range Input
Bank Debt Investments Commercial Mortgage 10,633,708 Market Comparatives Discount Rate 10%
Bank Debt Investments Lodging & Casinos 7,126,117 Market Comparatives Discount Rate 15%
Bank Debt Investments Surface Transport 8,231,787 Market Information Unadjusted Broker Quote N/A
Private Equity Auto Components 2,658,025 Market Information EBITDA Multiple 4-5X
Private Equity Containers and Packaging 10,946,221 Market Comparatives EBITDA Multiple 10.25X
Private Equity Lodging & Casinos 1,072,685 Market Comparatives Discount Rate 15%
Private Note Financial Intermediaries 3,717,786 Market Information Unadjusted Broker Quote N/A
Total Return Swap Surface Transport 2,802,366 Market Information Unadjusted Broker Quote N/A
Total 47,188,695
The following table summarises the significant unobservable inputs the Company
used to value its investments categorised within Level 3 as at 31 December
2022. The table is not intended to be all-inclusive but instead captures the
significant unobservable inputs relevant to our determination of fair values.
Type Sector Fair Value ($) Primary Valuation Technique Significant unobservable Inputs Range Input
Bank Debt Investments Commercial Mortgage 10,671,960 Market Comparatives Discount Rate 10%
Bank Debt Investments Lodging & Casinos 6,587,107 Market Comparatives Discount Rate 15%
Bank Debt Investments Lodging & Casinos 2,437,766 Market Information Unadjusted Broker Quote N/A
Bank Debt Investments Surface Transport 7,661,625 Market Information Unadjusted Broker Quote N/A
Private Equity Auto Components 3,154,044 Market Information EBITDA Multiple 4-5X
Private Equity Containers and Packaging 9,227,056 Market Comparatives EBITDA Multiple 11X
Private Equity Lodging & Casinos 1,110,956 Market Comparatives Discount Rate 15%
Private Note Financial Intermediaries 8,362,230 Market Comparatives Discount Rate 25%
Total Return Swap Surface Transport 1,558,420 Market Information Unadjusted Broker Quote N/A
Total 50,771,164
Changes in any of the above inputs may positively or adversely impact the fair
value of the relevant investments.
Level 3 assets are valued using single bid-side broker quotes or by good faith
methods of the Investment Manager. For single broker quotes the Investment
Manager uses unobservable inputs to assess the reasonableness of the broker
quote. For good faith valuations, the Investment Manager directly uses
unobservable inputs to produce valuations. The significant unobservable inputs
used in Level 3 assets as at 30 June 2023 and 31 December 2022 are outlined in
the tables above.
These inputs vary by asset class. For example, real estate asset valuations
may utilise discounted cash flow models using an average value per square foot
and appropriate discount rate. Other assets may be valued based on analysis of
the liquidation of the underlying assets. In general, increases/(decreases) to
per unit valuation inputs such as value per square foot, will result in
increases/(decreases) to investment value.
Similarly, increases/(decreases) of asset realisation inputs (liquidation
estimate, letter of intent, etc.) will also result in increases/(decreases) in
value. In situations where discounted cash flow models are used,
increasing/(decreasing) discount rates or increasing/(decreasing) weighted
average life, in isolation, will generally result in (decreased)/increased
valuations.
The following is a reconciliation of opening and closing balances of assets
and liabilities measured at fair value on a recurring basis using Level 3
inputs:
FOR THE PERIOD ENDED 30 JUNE 2023 (UNAUDITED)
(EXPRESSED IN US DOLLARS)
Bank Debt Investments Private Equity Trade Claim Private Note Total
Balance, 31 December 2022 27,358,457 13,492,057 1,558,420 8,362,230 50,771,164
Purchases (includes purchases-in-kind) 1,101,996 - - - 1,101,996
Sales and distributions (2,723,833) - - (4,723,503) (7,447,336)
Realised gain on sale of investments 145,216 - - 3,972,336 4,117,552
Unrealised (loss)/gain on investments 109,776 1,184,874 1,243,946 (3,893,277) (1,354,681)
Transfers from Level 2 into Level 3 - - - - -
Balance, 30 June 2023 25,991,612 14,676,931 2,802,366 3,717,786 47,188,695
Change in unrealised (loss)/gain on investments included in Unaudited 109,776 1,184,874 1,243,946 (3,893,277) (1,354,681)
Consolidated Statement of Operation for Level 3 investments held as at 30 June
2023
The Company's policy is to recognise transfers into and out of Level 3 as of
the actual date of the event or change in circumstances that caused the
transfer. During the period the Company had no transfers out of Level 3 into
Level 2 of fair value amounting to $Nil. The Company had no transfer out of
Level 2 into Level 3 of fair value amounting to $Nil.
The following is a reconciliation of opening and closing balances of assets
and liabilities measured at fair value on a recurring basis using Level 3
inputs:
FOR THE YEAR ENDED 31 DECEMBER 2022
(EXPRESSED IN US DOLLARS)
Bank Debt Investments Private Equity Trade Claim Private Note Total
Balance, 31 December 2021 47,181,981 21,836,374 (875,121) 6,641,858 74,785,092
Purchases (includes purchases-in-kind) 4,240,602 - - - 4,240,602
Sales and distributions (28,047,566) - - (4,187,464) (32,235,030)
Realised (loss)/gain on sale of investments (2,239,259) (1,003,803) - 3,521,541 278,479
Unrealised gain/(loss) on investments 3,766,473 (7,340,514) 2,433,541 2,386,295 1,245,795
Transfers from Level 2 into Level 3 2,456,226 - - - 2,456,226
Balance, 31 December 2022 27,358,457 13,492,057 1,558,420 8,362,230 50,771,164
Change in unrealised (loss)/gain on investments cluded in Audited (867,184) (8,344,317) 2,433,541 2,386,295 (4,391,665)
Consolidated Statement of Operation for Level 3
investments held as at 31 December 2022
The Company's policy is to recognise transfers into and out of Level 3 as of
the actual date of the event or change in circumstances that
caused the transfer. During the year the Company had no transfers out of Level
3 into Level 2 of fair value amounting to $Nil. The Company
had one transfer out of Level 2 into Level 3 of fair value amounting to
$2,456,226 on 28 December 2022, due to a lack of observable
inputs into the valuation.
(g) Investment transactions, investment income/expenses and valuation
Investment transactions are accounted for on a trade-date basis. Upon sale or
maturity, the difference between the consideration received and the cost of
the investment is recognised as a realised gain or loss. The cost is
determined based on the average cost method. All transactions relating to the
restructuring of current investments are recorded at the date of such
restructuring. The difference between the fair value of the new consideration
received and the cost of the original investment is recognised as a realised
gain or loss. Unrealised gains and losses on an investment are the difference
between the cost if purchased during the period or fair value at the previous
year end and the fair value at the current period end. Unrealised gains and
losses are included in the Unaudited Consolidated Statement of Operations.
Operating expenses are recognised on an accruals basis. Operating expenses
include amounts directly or indirectly incurred by the Company as part of its
operations. Each share class will bear its respective pro-rata share based on
its respective NAVs of the ongoing costs and expenses of the Company. Each
share class will also bear all costs and expenses of the Company determined by
the Directors to be attributable solely to it. Any costs incurred by a share
buyback are charged to that share class.
For the period ended 30 June 2023, $63,648 (30 June 2022: $91,835) was
recorded to reflect accretion of discount on loans and bonds during the
period.
Interest earned on debt instruments is accounted for, net of applicable
withholding taxes and it is recognised as income over the terms of the loans
and bonds. Discounts received or premiums paid in connection with the
acquisition of loans and bonds are amortised into interest income using the
effective interest method over the contractual life of the related loan and
bond. If a loan is repaid prior to maturity, the recognition of the fees and
costs is accelerated as appropriate. The Company raises a provision when the
collection of interest is deemed doubtful. Dividend income is recognised on
the ex-dividend date net of withholding tax.
Capitalised payment-in-kind ("PIK") interest is computed at the contractual
rate specified in the loan agreement for any portion of the interest which may
be added to the principal balance of a loan rather than paid in cash by the
obligator on the scheduled interest payment date. PIK interest is periodically
added to the principal balance of the loan and recorded as interest income.
The Investment Manager places a receivable on non-accrual status when the
collection of principal or interest is deemed doubtful. The amount of interest
income recorded, plus initial costs of underlying PIK interest is reviewed
periodically to ensure that these do not exceed fair value of those assets.
The Company carries investments on its Unaudited Consolidated Statement of
Assets and Liabilities at fair value in accordance with US GAAP, with changes
in fair value recognised in the Unaudited Consolidated Statement of Operations
in each reporting period. Fair value is defined as the price that would be
received on the sale of an asset or paid to transfer a liability (i.e. the
"exit price") in an orderly transaction between market participants at the
measurement date.
Quoted investments are valued according to their bid price at the close of the
relevant reporting date. Investments in private securities are priced at the
bid price using a pricing service for private loans.
If a price cannot be ascertained from the above sources the Company will seek
bid prices from third party broker/dealer quotes for the investments. The
Investment Manager believes that bid price is the best estimate of fair value
and is in line with the valuation policy adopted by the Company.
In cases where no third party price is available, or where the Investment
Manager determines that the provided price is not an accurate representation
of the fair value of the investment, the Administrator will value such
investments with the input of the Investment Manager who will determine the
valuation based on its fair valuation policy. As part of the investment fair
valuation policy, the Investment Manager prepares a fair valuation memorandum
for each such investment presenting the methodology and assumptions used to
derive the price. This analysis is presented to the Investment Manager's
Valuation Committee for approval.
The following criteria are considered when applicable:
· The valuation of other securities by the same issuer for which
market quotations are available;
· The reasons for absence of market quotations;
· The soundness of the security, its interest yield, the date of
maturity, the credit standing of the issue and the current general interest
rates;
· Any recent sales prices and/or bid and ask quotations for the
security;
· The value of similar securities of issuers in the same or similar
industries for which market quotations are available;
· The economic outlook of the industry;
· The issuer's position in the industry;
· The financial statements of the issuer; and
· The nature and duration of any restriction on disposition of the
security.
(h) Derivative Contracts
The Company may, from time to time, hold derivative financial instruments for
the purposes of managing foreign currency exposure and to provide a measure of
protection against defaults of corporate or sovereign issuers. These
derivatives are measured at fair value in conformity with US GAAP with changes
in fair value recognised in the Unaudited Consolidated Statement of Operations
in each reporting period.
As part of the Company's investment strategy, the Company enters into
over-the-counter ("OTC") derivative contracts which may include forward
currency contracts, credit default swaps and total return swaps.
Forward currency contracts are valued at the prevailing forward exchange rate
of the underlying currencies on the reporting date and the value recorded in
the financial statements represents net unrealised gain and loss on forwards
as at 31 December. Forward contracts are generally categorised in Level 2 of
the fair value hierarchy.
The credit default swap has been entered into on the OTC market. The fair
value of the credit default swap contract is derived using a pricing service
provided by Markit Partners. Markit Partners use a pricing model that is
widely accepted by marketplace participants. Their pricing model takes into
account multiple inputs including specific contract terms, interest rate yield
curves, interest rates, credit curves, recovery rates, and current credit
spreads obtained from swap counterparties and other market participants. Many
inputs into the model do not require material subjectivity as they are
observable in the marketplace or set per the contract. Other than the contract
terms, valuation is mainly determined by the difference between the contract
spread and the current market spread. The contract spread (or rate) is
generally fixed and the market spread is determined by the credit risk of the
underlying debt or reference entity. If the underlying debt is liquid and the
OTC market for the current spread is active, credit default swaps are
categorised in Level 2 of the fair value hierarchy. If the underlying debt is
illiquid and the OTC market for the current spread is not active, credit
default swaps are categorised in Level 3 of the fair value hierarchy.
The total return swap is valued using a mark to market prices provided by a
third-party broker.
(i) Taxation
The Company is not subject to income taxes in Guernsey; however, it may be
subject to taxes imposed by other countries on income it derives from
investments.
Such taxes are reflected in the Unaudited Consolidated Statement of
Operations. In accordance with US GAAP, management is required to determine
whether a tax position of the Company is more likely than not to be sustained
upon examination by the applicable taxing authority, including resolution of
any related appeals or litigation processes, based on the technical merits of
the position. The tax benefit to be recognised is measured as the largest
amount of benefit that is greater than fifty percent likely of being realised
upon ultimate settlement. De-recognition of a tax benefit previously
recognised could result in the Company recording a tax liability that would
reduce net assets. US GAAP also provides guidance on thresholds, measurement,
de-recognition, classification, interest and penalties, accounting in interim
periods, disclosure, and transition that is intended to provide better
financial statement comparability among different entities.
There were no uncertain tax positions as at 30 June 2023 or 31 December 2022.
The Company files its tax returns as prescribed by the tax laws of the
jurisdictions in which it operates. In the normal course of business, the
Company is subject to examination by federal and certain state, local, and
foreign tax regulators. State, local and foreign tax returns, if applicable,
are generally subject to audit according to varying limitations dependent upon
the jurisdiction. As of 30 June 2023, the Company's U.S. federal income tax
returns are subject to examination under the three-year statute of
limitations.
During the period ended 30 June 2023, the Company recorded current income tax
expense $Nil (30 June 2022 income tax expense: $Nil). Deferred taxes are
recorded to reflect the tax consequences of future years' differences between
the tax basis of assets and their financial reporting basis. The deferred tax
benefit recorded for the period ended 30 June 2023 was $Nil (30 June 2022
deferred tax benefit: $Nil). The net total income tax benefit/expense from
realised/unrealised gains/(losses) on investments for the period ended 30 June
2023 was $Nil (30 June 2022 income tax expense: $Nil).
NOTE 3 - DERIVATIVES
In the normal course of business, the Company uses derivative contracts in
connection with its proprietary trading activities. Investments in derivative
contracts are subject to additional risks that can result in a loss of all or
part of the derivative investment. The Company's derivative activities and
exposure to derivative contracts are classified by the following primary
underlying risks: foreign currency exchange rate, credit, and equity price. In
addition to its primary underlying risks, the Company is also subject to
additional counterparty risk due to inability of its counterparties to meet
the terms of their contracts.
Forward Currency Contracts
The Company enters into forwards for the purposes of managing foreign currency
exposure.
Credit Default Swap
The Company uses credit default swap agreements on corporate or sovereign
issues to provide a measure of protection against defaults of the issuers
(i.e., to reduce risk where a Company owns or has exposure to the referenced
obligation) from time to time.
There was one credit default swap position (Brazilian Government) held as at
30 June 2023 (31 December 2022: one).
Total Return Swap
The Company entered into two fully funded total return swaps on 2 May 2011 and
18 April 2012. These swaps matured on 25 February 2020 and rolled over into a
new swap agreement. New ISDA regulations enacted in 2019 require booking the
total return swaps with cash collateral maintained vs fully funded swaps.
The new swap rolls on an annual basis. The swap was booked on 02 March 2022
and matured on 01 February 2023. A realised event occurred on the value of the
swap as at 01 February 2023 $2,075,537. The next maturity will occur on 01
February 2024. The value of the swap, exclusive of related cash collateral, as
at 30 June 2023 is $2,802,366 (31 December 2022: $1,558,420) representing a
change in market value of $726,829 in the period since the 01 February 2023
maturity.
As at 30 June 2023 the net value of the swap and related cash collateral was
$13,772,366 (31 December 2022: $12,528,420) (comprised of restricted cash
collateral of $10,970,000 (31 December 2022: $10,970,000) and total return
swap asset of $2,802,366 (31 December 2022: swap asset of $1,558,420), as
reflected in the Unaudited Consolidated Statement of Assets and Liabilities.
The underlying asset of the swaps is denominated in Brazilian Real and the
foreign exchange exposure is hedged to offset any change in value in
underlying asset due to the FX movements.
Derivative activity
For the period ended 30 June 2023 and for the year ended 31 December 2022 the
volume of the Company's derivative activities based on their notional amounts
and number of contracts, categorised by primary underlying risk, are as
follows:
30 JUNE 2023 (UNAUDITED) LONG EXPOSURE SHORT EXPOSURE
Primary underlying risk NOTIONAL AMOUNTS NUMBER OF CONTRACTS NOTIONAL AMOUNTS NUMBER OF CONTRACTS
Foreign exchange risk
Forward currency contracts $61,790,242 27 $62,804,635 28
Credit risk
Credit default swap $9,971,000 1 - -
Total return swap - - $10,960,348 2
31 DECEMBER 2022 (AUDITED) LONG EXPOSURE SHORT EXPOSURE
Primary underlying risk NOTIONAL AMOUNTS NUMBER OF CONTRACTS NOTIONAL AMOUNTS NUMBER OF CONTRACTS
Foreign exchange risk
Forward currency contracts $131,688,489 61 $107,370,134 64
Credit risk
Credit default swap $9,971,000 1 - -
Total return swap - - $10,960,348 2
The following tables show, as at 30 June 2023 and 31 December 2022, the fair
value amounts of derivative contracts included in the Unaudited Consolidated
Statement of Assets and Liabilities, categorised by primary underlying risk.
Balances are presented on a gross basis prior to application of the impact of
counterparty and collateral netting. Total derivative assets and liabilities
are adjusted on an aggregate basis to take into account the effects of master
netting arrangements and, where applicable, have been adjusted by the
application of cash collateral receivables and payables with its
counterparties. The tables also identify, as at 30 June 2023 and 31 December
2022, the realised and unrealised gain and loss amounts included in the
Unaudited Consolidated Statement of Operations, categorised by primary
underlying risk:
Derivative Assets Derivative Liabilities Realised gain NET CHANGE IN Unrealised gain (loss)
30 JUNE 2023 (UNAUDITED) ($) ($) (loss) ($)
Primary underlying risk ($)
Foreign currency exchange rate
Forward currency contracts 137,116 (911,324) (2,334,366) 483,140
Credit
Purchased protection
Credit default swap - (42,900) - (21,405)
Total return swap 2,802,366 - 2,075,537 1,243,946
Derivative Assets Derivative Liabilities Realised gain NET CHANGE IN Unrealised gain (loss)
31 DECEMBER 2022 (AUDITED) ($) ($) (loss) ($)
Primary underlying risk ($)
Foreign currency exchange rate
Forward currency contracts 12,018 (1,269,365) 1,963,445 (1,667,174)
Credit
Purchased protection
Credit default swap - (21,494) 37,783 (8,853)
Total return swap 1,558,420 - (123,624) 2,433,541
Offsetting assets and liabilities
Amounts due from and to brokers are presented on a net basis, by counterparty,
to the extent the Company has the legal right to offset the recognised amounts
and intends to settle on a net basis.
The Company presents on a net basis the fair value amounts recognised for OTC
derivatives executed with the same counterparty under the same master netting
agreement.
The Company is required to disclose the impact of offsetting assets and
liabilities presented in the Unaudited Consolidated Statement of Assets and
Liabilities to enable users of the Financial Statements to evaluate the effect
or potential effect of netting arrangements on its financial position for
recognised assets and liabilities.
These recognised assets and liabilities include financial instruments and
derivative contracts that are either subject to an enforceable master netting
arrangement or similar agreement or meet the following right of set off
criteria:
· each of the two parties owes the other determinable amounts;
· the Company has the right to set off the amounts owed with the amounts
owed by the other party;
· the Company intends to set off; and
· the Company's right of set off is enforceable at law.
The Company is subject to enforceable master netting agreements with its
counterparties of credit default swap, the total return swaps and foreign
currency exchange contracts. These agreements govern the terms of certain
transactions and reduce the counterparty risk associated with relevant
transactions by specifying offsetting mechanisms and collateral posting
arrangements at pre‑arranged exposure levels.
Derivative activity
The following tables, as at 30 June 2023 and 31 December 2022, show the gross
and net derivatives assets and liabilities by contract type and amount for
those derivatives contracts for which netting is permissible.
30 JUNE 2023 (UNAUDITED)
(EXPRESSED IN US DOLLARS)
AMOUNTS NOT OFFSET IN THE CONSOLIDATED STATEMENT OF ASSETS AND LIABILITIES
DESCRIPTION GROSS GROSS AMOUNTS OFFSET IN THE CONSOLIDATED STATEMENTS OF ASSETS AND LIABILITIES NET AMOUNTS OF RECOGNISED ASSETS PRESENTED IN THE CONSOLIDATED STATEMENT OF FINANCIAL INSTRUMENTS (POLICY ELECTION) FINANCIAL COLLATERAL RECEIVED(1) NET
ASSETS AND LIABILITIES
AMOUNTS OF RECOGNISED ASSETS AMOUNT
Forward currency contracts 137,116 - 137,116 (10,897) - 126,219
Total return swaps 2,802,366 - 2,802,366 - (2,802,366) -
Total 2,939,482 - 2,939,482 (10,897) (2,802,366) 126,219
AMOUNTS NOT OFFSET IN THE CONSOLIDATED STATEMENT OF ASSETS AND LIABILITIES
DESCRIPTION GROSS AMOUNTS OF RECOGNISED LIABILITIES GROSS AMOUNTS OFFSET IN THE CONSOLIDATED STATEMENTS OF ASSETS AND LIABILITIES NET AMOUNTS OF RECOGNISED ASSETS PRESENTED IN THE CONSOLIDATED STATEMENT OF FINANCIAL INSTRUMENTS (POLICY ELECTION) FINANCIAL COLLATERAL RECEIVED(1) NET AMOUNT
ASSETS AND LIABILITIES
Forward currency contracts (911,324) - (911,324) 10,897 900,427 -
Credit default swap (42,900) - (42,900) - 42,900 -
Total (954,224) - (954,224) 10,897 943,327 -
(1) The amount netted off is a portion of the total collateral as per the
Unaudited Consolidated Statement of Assets and Liabilities.
The following table, as at 31 December 2022, show the gross and net
derivatives assets and liabilities by contract type and amount for those
derivatives contracts for which netting is permissible.
31 DECEMBER 2022 (AUDITED)
(EXPRESSED IN US DOLLARS)
AMOUNTS NOT OFFSET IN THE CONSOLIDATED STATEMENT OF ASSETS AND LIABILITIES
DESCRIPTION GROSS AMOUNTS OF RECOGNISED ASSETS GROSS AMOUNTS OFFSET IN THE CONSOLIDATED STATEMENTS OF ASSETS AND LIABILITIES NET AMOUNTS OF RECOGNISED ASSETS PRESENTED IN THE CONSOLIDATED STATEMENT OF FINANCIAL INSTRUMENTS (POLICY ELECTION) FINANCIAL COLLATERAL RECEIVED(1) NET AMOUNT
ASSETS AND LIABILITIES
Forward currency contracts 12,018 - 12,018 (12,018) - -
Total return swaps 1,558,420 - 1,558,420 - - 1,558,420
Total 1,570,438 - 1,570,438 (12,018) - 1,558,420
AMOUNTS NOT OFFSET IN THE CONSOLIDATED STATEMENT OF ASSETS AND LIABILITIES
DESCRIPTION GROSS AMOUNTS OF RECOGNISED LIABILITIES GROSS AMOUNTS OFFSET IN THE CONSOLIDATED STATEMENTS OF ASSETS AND LIABILITIES NET AMOUNTS OF RECOGNISED ASSETS PRESENTED IN THE CONSOLIDATED STATEMENT OF FINANCIAL INSTRUMENTS (POLICY ELECTION) FINANCIAL COLLATERAL RECEIVED(1) NET AMOUNT
ASSETS AND LIABILITIES
Forward currency contracts (1,269,365) - (1,269,365) 12,018 - (1,257,347)
Credit default swap (21,494) - (21,494) - - (21,494)
Total (1,290,859) - (1,290,859) 12,018 - (1,278,841)
(1) The amount netted off is a portion of the total collateral as per the
Unaudited Consolidated Statement of Assets and Liabilities.
NOTE 4 - RISK FACTORS
The Company's investments are subject to various risk factors including market
and credit risk, interest rate and foreign exchange risk, and the risks
associated with investing in private securities. Investments in private
securities and partnerships are illiquid, and there can be no assurances that
the Company will be able to realise the value of such investments in a timely
manner. Additionally, the Company's investments may be highly concentrated in
certain industries. Non-U.S. dollar denominated investments may result in
foreign exchange losses caused by devaluations and exchange rate fluctuations.
In addition, consequences of political, social, economic, diplomatic changes
or public health condition may have disruptive effects on market prices or
fair valuations of foreign investments.
Market Risk
Market risk is the potential for changes in the value of investments.
Categories of market risk include, but are not limited to, interest rates.
Interest rate risks primarily result from exposures to changes in the level,
slope and curvature of the yield curve, the volatility of interest rates and
credit spreads. Details of the Company's investment Portfolio as at 30 June
2023 and 31 December 2022 are disclosed in the Unaudited Consolidated
Condensed Schedule of Investments. Each separate investment exceeding 5% of
net assets is disclosed separately.
Credit Risk
The Company may invest in a range of corporate and other bonds and other
credit sensitive securities. Until such investments are sold or are paid in
full at maturity, the Company is exposed to credit risk relating to whether
the issuer will meet its obligations when the securities fall due. Distressed
debt securities by nature are securities in companies which are in default or
are heading into default and will expose the Company to a higher than normal
amount of credit risk.
The Company may invest a relatively large percentage of its assets in issuers
located in a single country, a small number of countries, or a particular
geographic region. As a result, the Company's performance may be closely
aligned with the market, currency or economic, political or regulatory
conditions and developments in those countries or that region, and could be
more volatile than the performance of more geographically diversified
investments. Refer to the Unaudited Consolidated Condensed Schedules of
Investments above for concentration of credit risk.
The Company maintains positions in a variety of securities, derivative
financial instruments and cash and cash equivalents in accordance with its
investment strategy and guidelines. The Company's trading activities expose
the Company to counterparty credit risk from brokers, dealers and other
financial institutions (collectively, "counterparties") with which it
transacts business. "Counterparty credit risk" is the risk that a counterparty
to a trade will fail to meet an obligation that it has entered into with the
Company, resulting in a financial loss to the Company. The Company's policy
with respect to counterparty credit risk is to minimise its exposure to
counterparties with perceived higher risk of default by dealing only with
counterparties that meet the credit standards set out by the Investment
Manager.
All the Company's cash and investment assets other than derivative financial
instruments are held by the Custodian. The Custodian segregates the assets of
the Company from the Custodian's assets and other Custodian clients.
Management believes the risk is low with respect to any losses as a result of
this concentration. The Company conducts its trading activities with respect
to non-derivative positions with a number of counterparties. Counterparty
credit risk borne by these transactions is mitigated by trading with multiple
counterparties.
In addition, the Company may trade in OTC derivative instruments and in
derivative instruments which trade on exchanges with generally a limited
number of counterparties and as a consequence the Company is subject to
counterparty credit risk related to the potential inability of counterparties
to these derivative transactions to perform their obligations to the Company.
The Company's exposure to counterparty credit risk associated with
counterparty non-performance is generally limited to the fair value
(derivative assets and liabilities) of OTC derivatives reported as net assets,
net of collateral received or paid, pursuant to agreements with each
counterparty. The Investment Manager attempts to reduce the counterparty
credit risk of the Company by establishing certain credit terms in its
International Swaps and Derivatives Association (ISDA) Master Agreements (with
netting terms) with counterparties, and through credit policies and monitoring
procedures. Under ISDA Master Agreements in certain circumstances (e.g. when a
credit event such as a default occurs) all outstanding transactions under the
agreement are terminated, the termination value is assessed and only a single
net amount is due or payable in settlement of all transactions. The Company
receives and gives collateral in the form of cash and marketable securities
and it is subject to the ISDA Master Agreement Credit Support Annex. This
means that securities received/given as collateral can be pledged or sold
during the term of the transaction. The terms also give each party the right
to terminate the related transactions on the other party's failure to post
collateral. Exchange-traded derivatives generally involve less counterparty
exposure because of the margin requirements of the individual exchanges.
Generally, these contracts can be closed out at the discretion of the
Investment Manager and are governed by the futures and options clearing
agreements signed with the future commission merchants ("FCMs"). FCMs have
capital requirements intended to assure that they have sufficient capital to
protect their customers in the event of any inadequacy in customer funds
arising from the default of one or more customers, adverse market conditions,
or for any other reason. The credit risk relating to derivatives is detailed
further in Note 3.
Liquidity Risk
Liquidity risk is the risk that the Company will not be able to meet its
obligations as and when these fall due.
Liquidity risk is managed by the Investment Manager so as to ensure that the
Company maintains sufficient working capital in cash or near cash form so as
to be able to meet the Company's ongoing requirements as these are budgeted
for.
Other Risks
The invasion of Ukraine is of concern and the Company has considered its
potential impact on asset values, and while no direct impact has been
identified, values are affected by its impact on the global economy.
While the risks associated with the COVID 19 pandemic have largely receded the
Investment Manager continues to monitor the situation.
Legal, tax and regulatory changes could occur during the term of the Company
that may adversely affect the Company. The regulatory environment for
alternative investment vehicles is evolving, and changes in the regulation of
alternative investment vehicles may adversely affect the value of investments
held by the Company or the ability of the Company to pursue its trading
strategies.
The impact of these risks can have a substantial impact on the valuation and
ultimately the realisation of assets.
Market disruptions associated with current geopolitical events have had a
global impact, and uncertainty exists as to their implications. Such
disruptions can potentially adversely affect the assets, and thus the
performance, of the Company. The Board continues to monitor this situation.
NOTE 5 - SHARE CAPITAL
The Company's authorised share capital consists of:
10,000 Class A Shares authorised, of par value $1 each (which carry no voting
rights); and, an unlimited number of shares of no par value which may, upon
issue, be designated as Ordinary Shares, Extended Life Shares or New Global
Shares and Subscription Shares (each of which carry voting rights) or Capital
Distribution Shares.
The issued share capital of the Company consists of Ordinary Shares, Class A
Shares and Extended Life Shares, all denominated in US dollars, and New Global
Shares denominated in Pounds Sterling. Shareholders of Ordinary Shares,
Extended Life Shares and New Global Shares have the right to attend and vote
at any general meeting of the Company. Class A shareholders do not have the
right to attend and vote at a general meeting of the Company save where there
are no other shares of the Company in issue.
The Class A Shares are held by Carey Trustees Limited (the "Trustee"),
pursuant to a purpose trust established under Guernsey law. Under the terms of
the NBDDIF Purpose Trust Deed, the Trustee holds the Class A Shares for the
purpose of exercising the right to receive notice of general meetings of the
Company but the Trustee shall only have the right to attend and vote at
general meetings of the Company when there are no other shares of the Company
in issue.
The original investment period expired on 10 June 2013 and a proposal was made
to Ordinary Shareholders to extend the investment period by 21 months to 31
March 2015. A vote was held at a class meeting of shareholders on 8 April 2013
where the majority of shareholders voted in favour of the proposed extension.
Following this meeting and with the Ordinary Shareholders approval of the
extension, a new class, the Extended Life Shares, was created and the Extended
Life Shares were issued to 72% of initial Investors who elected to convert
their Ordinary Shares to Extended Life Shares. The rest of investors remain
invested on the basis of the existing investment period.
The New Global Share Class was created in March 2014 and its investment period
ended on 31 March 2017.
As at 30 June 2023, the Company had the following number of shares in issue:
30 June 2023 (UNAudited) 31 December 2022 (audited)
Issued and fully paid up
Class A Shares 2 2
Ordinary Share Class of no par value (Nil in treasury; 2022: Nil) 15,382,770 15,382,770
Extended Life Share Class of no par value (Nil in treasury; 2022: Nil) 47,875,446 60,116,016
New Global Share Class of no par value (Nil in treasury; 2022: Nil) 27,821,698 31,023,609
Reconciliation of the number of shares in issue in each class (excluding Class
A) as at 30 June 2023:
Ordinary Extended Life Shares New Global Total
Shares Shares
Balance as at 31 December 2022 15,382,770 60,116,016 31,023,609 106,522,395
Shares redeemed during the period - (12,240,570) (3,201,911) (15,442,481)
Buybacks (Shares repurchased) - - - -
Balance as at 30 June 2023(1) 15,382,770 47,875,446 27,821,698 91,079,914
( )
(1) Balance of issued shares used to calculate NAV
Reconciliation of the number of shares in issue in each class (excluding Class
A) as at 31 December 2022:
Ordinary Extended Life Shares New Global Total
Shares Shares
Balance as at 31 December 2021 15,382,770 80,545,074 41,116,617 137,044,461
Shares redeemed during the year - (20,429,058) (10,093,008) (30,522,066)
Buybacks (Shares repurchased) - - - -
Balance as at 31 December 2022(1) 15,382,770 60,116,016 31,023,609 106,522,395
(1) Balance of issued shares used to calculate NAV
Distributions
Set out below are details of the capital returns by way of compulsory partial
redemptions approved during the period ended 30 June 2023 and the year ended
31 December 2022.
30 June 2023
(UNAUDITED) Ordinary Share Class Extended Life Share Class New Global Share Class
Distribution Amount Per Share Amount Distribution Amount Per Share Amount Distribution Amount Per Share
Number of Shares Number of Shares Number of Shares Amount
2 May 2023 - - - $8,149,711 8,487,514 $0.9602 £2,165,132 3,201,911 £0.6762
29 June 2023 - - - $3,352,980 3,753,056 $0.8934 - - -
- - - $11,502,691 12,240,570 - £2,165,132 3,201,911 -
31 December 2022
(AUDITED) Ordinary Share Class Extended Life Share Class New Global Share Class
Distribution Amount Per Share Amount Distribution Amount Per Share Amount Distribution Amount Per Share
Number of Shares Number of Shares Number of Shares Amount
21 November 2022 - - - $18,968,380 20,429,058 $0.9285 £8,036,339 10,093,008 £0.7962
- - - $18,968,380 20,429,058 - £8,036,339 10,093,008 -
Buybacks
No shares were repurchased by the Company during either the period ended 30
June 2023 or the year ended 31 December 2022.
NOTE 6 - MATERIAL AGREEMENTS AND RELATED PARTY TRANSACTIONS
Investment Management Agreement ("IMA")
The Board is responsible for managing the business affairs of the Company but
delegates certain functions to the Investment Manager under an IMA dated 9
June 2010 (as amended).
On 17 July 2014, the Company, the Manager and the AIFM made certain
classificatory amendments to their contractual arrangements for the purposes
of the AIFM Directive. The Sub-Investment Management Agreement was terminated
on 17 July 2014 and Neuberger Berman Investment Advisers LLC (formerly
Neuberger Berman Fixed Income LLC), which was the Sub-Investment Manager, was
appointed as the AIFM per the amended and restated IMA dated 17 July 2014.
Under this agreement, the AIFM is responsible for risk management and
day-to-day discretionary management of the Company's Portfolios (including
uninvested cash). The risk management and discretionary portfolio management
functions are performed independently of each other within the AIFM structure.
The AIFM is not required to, and generally will not, submit individual
investment decisions for approval by the Board. The Manager, Neuberger Berman
Europe Limited, was appointed under the same IMA to provide, amongst other
things, certain administrative services to the Company. On 31 December 2017
the Company entered into an Amendment Agreement amending the IMA. On the 30
January 2023 the Company entered into an Amendment Agreement amending the IMA
for data protection purposes to note the obligation on the recipient UK
investment manager to comply with the new SCCs in transferring personal data
to the US AIFM.
Per the IMA and in relation to the Ordinary Shares and Extended Life Shares,
the Manager was entitled to a management fee, which shall accrued daily, and
was payable monthly in arrears, at a rate of 0.125% per month of the
respective NAVs of the Ordinary Share and Extended Life Share classes. Soft
commissions were not used.
Per the IMA and in relation to the New Global Shares, the Manager was entitled
to a management fee, which accrued daily, and was payable monthly in arrears,
at a rate of 0.125% per month of the NAV of the New Global Share Class
(excluding, until such time as the New Global Share Class had become 85%
invested, any cash balances (or cash equivalents)). The 85% threshold was
crossed on 16 June 2015 and from such date the Company was charged 0.125% per
month on the NAV of the New Global Share Class.
Effective 18 March 2021, the Investment Manager had waived its entitlement to
all fees from the Company. Accordingly, there was no management fees expensed
in the period or the preceding financial year nor were any fees outstanding at
either 30 June 2023 or 31 December 2022.
Performance Fee
Effective 18 March 2021, the Investment Manager had waived its entitlement to
a performance fee. The performance fee for Ordinary Shares, Extended Life
Shares and New Global Shares (collectively the "Shares") only became payable
once the Company had made aggregate distributions in cash to the shareholders
of the Shares (which included the aggregate price of all Shares repurchased or
redeemed by the Company) equal to the aggregate gross proceeds from issuing
Shares (the "Contributed Capital") plus such amounts as resulted in the
shareholders having received a realised (cash-paid) IRR in respect of the
Contributed Capital equal to Preferred Return, following which there would be
a 100% catch up payable to the Manager until the Manager had received 20% of
all amounts in excess of Contributed Capital distributed to the shareholders
and paid to the Manager as a performance fee with, thereafter, all amounts
distributed by the Company 20:80 between the Manager's performance fee and the
cash distributed to shareholders.
The preferred rate of return for Ordinary Shares was an annualised 6%, for
Extended Life Shares was an annualised 6% from 2010 to April 2013 and was 8%
from April 2013 to date and for New Global Shares was an annualised 8%. For
the purposes of financial reporting, the performance fee was recognised on an
accrual basis.
Accordingly no performance fees were paid or payable in respect of any of the
classes for the period ended 30 June 2023 or the year ended 31 December 2022,
nor would any be paid if the Company were to realise all of its assets at
their carrying values at the period end.
Soft commissions are not used to pay for services used by the Investment
Manager.
Administration, Company Secretarial and Custody Agreements
Effective 1 March 2015, the Company entered into an Administration and
Sub-Administration Agreement with U.S. Bank Global Fund Services (Guernsey)
Limited and U.S. Bank Global Fund Services (Ireland) Limited, a wholly-owned
subsidiary of U.S. Bancorp (the "Administration Agreement"). Under the terms
of the Administration Agreement, Sub-Administration services are delegated to
U.S. Bank Global Fund Services (Ireland) Limited (the "Sub-Administrator").
The Sub-Administration Service Level Agreement was amended and approved on 21
February 2018.
The Sub-Administrator is responsible for the day-to-day administration of the
Company (including but not limited to the calculation and publication of the
estimated daily NAV).
Under the terms of the Administration Agreement, the Sub-Administrator is
entitled to a fee of 0.09% for the first $500m of net asset value, 0.08% for
the next $500m and 0.07% for any remaining balance, accrued daily and paid
monthly in arrears and subject to an annual minimum of $100,000.
Effective 28 February 2015, the Company entered into a Custody Agreement with
U.S. Bank National Association (the "Custodian") to provide loan
administration and custody services to the Company. Under the terms of the
Custody Agreement the Custodian is entitled to an annual fee of 0.025% of net
asset value with a minimum annual fee of $25,000.
Effective 20 June 2017, Carey Commercial Limited was appointed the Company
Secretary. The Company Secretary is entitled to an annual fee of £73,000 plus
fees for ad-hoc board meetings and additional services.
For the period ended 30 June 2023, the administration fee expense was $43,636
(30 June 2022: $49,412), the secretarial fee was $53,092(1) of which $Nil(1)
was in relation to the administration of the ongoing buyback programme, (30
June 2022: $55,241(1)) and the loan administration and custody fee expense was
$9,959 (30 June 2022: $15,187). At 30 June 2023, the administration fee
payable is $6,046(2) (31 December 2022: $5,955(2)), the secretarial fee
payable is $19,263(2) (31 December 2022: $24,559(2)) and the loan
administration and custody fee payable is $665(2) (31 December 2022:
$3,344(2)).
(1) Amount is included under Professional and other expenses in the Unaudited
Consolidated Statement of Operations
(2) Amounts are included under Accrued expenses and other liabilities in the
Unaudited Consolidated Statement of Assets and Liabilities and Unaudited
Consolidated Statement of Operations
Directors' Remuneration and Other Interests
The Directors are related parties and are remunerated for their services at a
fee of $45,000 plus £10,000 each per annum ($60,000 plus £10,000 for the
Chairman, $50,000 plus £10,000 for the Chairman of the Audit Committee). For
the period ended 30 June 2023, the Directors' fees and travel expenses
amounted to $96,725 (30 June 2022: $97,900). Michael J. Holmberg, the
non-independent Director, has waived the fees for his services as a Director.
There were no other related interests for the period ended 30 June 2023.
The Company has not set any requirements or guidelines for Directors to own
shares in the Company. The beneficial interests of the Directors and their
connected persons in the Company's shares as at 30 June 2023 are shown in the
table below:
No. of Ordinary Shares No. of Extended Life Shares No. of New Global Shares Total No. of
Director Shares
John Hallam - 43,840 33,462 77,302
Michael Holmberg - 19,356 34,982 54,338
Christopher Legge - - - -
Stephen Vakil - - 18,253 18,253
NOTE 7 - FINANCIAL HIGHLIGHTS
Ordinary Extended Life Shares New Global Ordinary Shares Extended Life New Global
Shares Shares Shares Shares
($) ($) (£) ($) ($) (£)
Per share operating performance Period ended 30 june 2023 (Unaudited) Period ended 30 june 2023 (Unaudited) Period ended 30 june 2023 (Unaudited YEAR ended 31 December 2022 (AUDITED) YEAR ended 31 December 2022 (AUDITED) YEAR ended 31 December 2022 (AUDITED)
Net asset value per share at 0.7730 0.9728 0.6640 0.9028 0.9243 0.5785
beginning of the period/year
Impact of share redemptions - 0.0065 0.0001 - - -
Impact of dividend distribution - - - - 0.0025 (0.0052)
Income/(loss) from investment operations (1)
Net investment income 0.0007 0.0033 0.0112 0.0015 0.0605 0.0531
Net realised and unrealised gain/(loss) from investments and foreign exchange 0.0222 0.0441 (0.0232) (0.1313) (0.0145) 0.0376
Gain/(loss) from investment operations 0.0229 0.0474 (0.0120) (0.1298) 0.0459 0.0897
Net asset value per share at 0.7959 1.0267 0.6521 0.7730 0.9728 0.6640
end of the period/year(2)
(1)Weighted average number of shares outstanding was used for calculation.
(2)Each share classes net assets includes the underlying assets and
liabilities directly attributable to the respective share class.
Ordinary Extended Life Shares New Global Ordinary Shares Extended Life New Global
Shares Shares Shares Shares
($) ($) (£) ($) ($) (£)
NAV Total return (2, 3) Period ended 30 june 2023 (Unaudited) Period ended 30 june 2023 (Unaudited) Period ended 30 june 2023 (Unaudited YEAR ended YEAR ended YEAR ended
31 December 2022 (AUDITED) 31 December 2022 (AUDITED) 31 December 2022 (AUDITED)
NAV Total Return before 2.96% 5.54% (1.79%) (14.38%) 5.25% 14.78%
performance fee
NAV Total Return after performance fee including an income distribution by way 2.96% 5.54% (1.79%) (14.38%) 5.25% 14.78%
of dividend
(2) NAV Total Return is calculated for the Ordinary Shares, Extended Life
Shares and New Global Shares only and is calculated based on movement in the
NAV and does not reflect any movement in the market value of the shares. A
shareholder's return may vary from these returns based on participation in new
issues, the timing of capital transactions etc. It assumes that all income
distributions of the Company, paid by way of dividend, were reinvested,
without transaction costs. Class A shares are not presented as they are not
profit participating shares.
(3) An individual shareholder's return may vary from these returns based on
the timing of the shareholder's subscriptions.
Ordinary Extended Life Shares New Global Ordinary Shares Extended Life New Global
Shares Shares Shares Shares
($) ($) (£) ($) ($) (£)
Ratio to average net assets Period ended Period ended 30 june 2023 (Unaudited) Period ended YEAR ended YEAR ended YEAR ended
30 june 2023 (Unaudited) 30 june 2023 (Unaudited 31 December 2022 (AUDITED) 31 December 2022 (AUDITED) 31 December 2022 (AUDITED)
Net investment income before and after performance fees 0.19% 0.69% 3.51% 0.17% 6.46% 8.36%
Total expenses and performance fee (1.08%) (1.18%) (1.53%) (0.97%) (0.99%) (1.33%)
NOTE 8 - RECONCILIATION OF NET ASSET VALUE TO PUBLISHED NAV
In preparing the Financial Statements, there were adjustments relating to
investment valuations. The impact of these adjustments on the NAV per Ordinary
Share, Extended Life Share and New Global Share is detailed below:
Ordinary Ordinary Extended Life Extended Life New Global New Global
Share Class Net Assets Share Class Share Class Share Class NAV per Share Share Class Share Class NAV per Share
($) NAV per Share Net Assets ($) Net Assets (£)
($) ($) (£)
Published net assets as at 30 June 2023 11,997,036 0.7799 48,514,859 1.0134 18,141,858 0.6521
Valuation adjustments 246,860 0.0160 637,174 0.0133 - -
Net assets per Unaudited Consolidated Interim Financial Statements 12,243,896 0.7959 49,152,033 1.0267 18,141,858 0.6521
Ordinary Ordinary Extended Life Extended Life New Global New Global
Share Class Net Assets Share Class Share Class Share Class NAV per Share Share Class Share Class NAV per Share
($) NAV per Share Net Assets ($) Net Assets (£)
($) ($) (£)
Published net assets as at 31 December 2022 11,930,152 0.7756 58,517,599 0.9734 20,524,544 0.6616
Valuation adjustments (39,831) (0.0026) (39,609) (0.0006) 74,365 0.0024
Net assets per Audited Consolidated Financial Statements 11,890,321 0.7730 58,477,990 0.9728 20,598,909 0.6640
NOTE 9 - SUBSEQUENT EVENTS
The Directors have evaluated subsequent events up to 24 August 2023, which is
the date that the Financial Statements were available to be issued. On 24
August 2023, the Board approved a capital distribution by way of partial
redemption for the holders of NBDX shares of $3.76m payable 25 September 2023.
There are no further items that require disclosure or adjustment to Financial
Statements.
ADDITIONAL INFORMATION | Contact Details
Details
Directors
John Hallam (Chairman)
Michael Holmberg
Christopher Legge
Stephen Vakil
All c/o the Company's registered office.
Registered Office
1(st) & 2(nd) Floors, Elizabeth House
Les Ruettes Brayes
St Peter Port
Guernsey
GY1 1EW
Company Secretary
Carey Commercial Limited
Alternative Investment Fund Manager
Neuberger Berman Investment Advisers LLC
Manager
Neuberger Berman Europe Limited
Custodian and Principal Bankers
US Bank National Association
Designated Administrator
U.S. Bank Global Fund Services (Guernsey) Limited
Independent Auditor
KPMG Channel Islands Limited
Sub-Administrator
U.S. Bank Global Fund Services (Ireland) Limited
Financial Adviser and Corporate Broker
Jefferies International Limited
Solicitors to the Company (as to English law and U.S. securities law)
Herbert Smith Freehills LLP
Advocates to the Company (as to Guernsey law)
Carey Olsen
Registrar
Link Market Services (Guernsey) Limited
UK Transfer Agent
Link Group
Central Square
29 Wellington Street
Leeds
LS1 4DL
United Kingdom
Shareholders holding shares directly and not through a broker, saving scheme
or ISA and have queries in relation to their shareholdings should contact the
Registrar on +44 (0)371 664 0445. (Calls are charged at the standard
geographic rate and will vary by provider. Calls outside the United Kingdom
will be charged at the applicable international rate. Lines are open between 9
a.m. to 5:30 p.m. (excluding bank holidays)). Shareholders can also access
their details via the Registrar's website:
www.signalshares.com.
Full contact details of the Company's advisers and Manager can be found on the
Company's website.
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. END IR FLFIRTFISFIV
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