NB Distressed Debt NB Distressed - NBDX NB Distressed - NBDG - Half-year Report
29/08/2024 07:00
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RNS Number : 0631C NB Distressed Debt Invest. Fd. Ltd 29 August 2024
NB DISTRESSED DEBT INVESTMENT FUND LIMITED
2024 INTERIM Report
unaudited CONSOLIDATED interim Financial Statements
For the six month period ended 30 june 2024
COMPANY OVERVIEW | 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
2023.
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 2024 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")
44,234,790 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.
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: GG00BR88RQ95
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)
( )
(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.
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 $1
2024 INTERIM PERFORMANCE REVIEW | Financial Highlights
Financial Highlights
Key Figures
AS At 30 June 2024 (UNAUDITED) Ordinary Extended Life Share Class New Global Aggregated
Share Class Share Class(1)
Net Asset Value ("NAV") ($ millions) 11.9 44.9 21.3 78.0
NAV per Share ($) 0.7743 1.0140 0.7645 -
Share Price ($) 0.620 0.5400 0.3666 -
NAV per Share (£) - - 0.6048 -
Share Price (£) - - 0.29 -
Premium /(Discount) to NAV per Share (19.93%) (46.75%) (52.05%) -
Portfolio of Distressed Investments ($ millions) 6.4 25.4 21.0 52.8
Cash and Cash Equivalents ($ millions) 4.4 14.0 0.2 18.6
Total Expense Ratio ("TER")(2) 1.28% 1.39% 2.90% -
Ongoing Charges (3) 1.24% 1.34% 2.86% -
AS At 31 December 2023 (AUDITED) Ordinary Extended Life Share Class New Global Share Class(1) Aggregated
Share Class
Net Asset Value ("NAV") ($ millions) 12.4 45.6 22.1 80.1
NAV per Share ($) 0.8071 1.0312 0.7954 -
Share Price ($) 0.6900 0.5300 0.3952 -
NAV per Share (£) - - 0.6239 -
Share Price (£) - - 0.31 -
Premium /(Discount) to NAV per Share (14.51%) (48.60%) (50.32%) -
Portfolio of Distressed Investments ($ millions) 7.4 32.0 21.5 60.9
Cash and Cash Equivalents ($ millions) 4.3 11.9 0.3 16.5
Total Expense Ratio ("TER")(2) 1.28% 1.38% 2.21% -
Ongoing Charges (3) 1.22% 1.31% 2.17% -
(1) Stated in US Dollars, the £ price as at 30 June 2024 and 31 December 2023
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 2024, the Company's Ongoing Charges were 1.74%.
This figure is based on an expense figure for the period to 30 June 2024 of
$688,133. This figure, which has been prepared in accordance with AIC guidance
represents the Company's operating expenses, excluding finance costs payable,
expressed as a percentage of average net assets. Effective 18 March 2021, the
Investment Manager had waived its entitlement to all fees from the Company.
The Ongoing Charges by share class are disclosed above.
Summary of Value in Excess of Original Capital Invested
AS At 30 June 2024 Ordinary Extended Life New Global
Share Class ($)
Share Class ($)
Share Class (£)
Original Capital Invested (124,500,202) (359,359,794) (110,785,785)
Total Capital Distributions 129,627,394 294,070,076 51,444,766
Total Income Distributions (1) 3,166,835 20,695,255 5,070,285
Distributions as % of Original Capital 107% 88% 51%
Total Buybacks 0 12,112,379 10,924,963
NAV 11,911,235 44,855,112 16,825,621
Total of NAV Plus Capital and Income Returned ("Value") 144,705,464 371,732,822 84,265,635
Value in Excess of Original Capital Invested 20,205,262 12,373,028 (26,520,150)
Value as % of Original Capital Invested 116% 103% 76%
AS At 31 December 2023 Ordinary Extended Life New Global
Share Class ($)
Share Class ($)
Share Class (£)
Original Capital Invested (124,500,202) (359,359,794) (110,785,785)
Total Capital Distributions 129,627,394 294,070,076 51,444,766
Total Income Distributions (1) 3,166,835 20,695,255 5,070,285
Distributions as % of Original Capital 107% 88% 51%
Total Buybacks - 12,112,379 10,924,963
NAV 12,415,231 45,614,485 17,358,035
Total of NAV Plus Capital and Income Returned ("Value") 145,209,460 372,492,195 84,798,049
Value in Excess of Original Capital Invested 20,709,258 13,132,401 (25,987,736)
Value as % of Original Capital Invested 117% 104% 77%
(1) By way of dividend
2024 INTERIM PERFORMANCE REVIEW | Chairman's Statement
Chairman's Statement
I am disappointed to have to report that the significant realisations we had
expected to occur during the first half of this year have not yet
materialised. While the reasons for this are varied, such as the European
economic environment which has not been favourable for a capital market exit,
changes in regulations and extended negotiations on specific investment sales,
we are engaged and focused on harvesting the investments and returning capital
to our shareholders.
Company Performance
As at 30 June 2024, the Company had returned a total of $132.8m or 107% of
NBDD investors' original capital of $124.5m, $326.9m or 91% of NBDX investors'
original capital of $359.4m and £67.4m or 61% of NBDG investors' original
capital of £110.8m. We remain 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
continues to evaluate 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 our investment manager no
longer charges any fees.
Annual General Meeting ("AGM") Results
While all of the resolutions tabled at our Annual General Meeting held on 26
June 2024 were passed I would note the significant number of votes against
buybacks. As previously mentioned the Board does not expect to carry out any
buybacks preferring to make all returns of capital via share redemptions.
However, your Board thought it prudent to keep this option open lest an
unexpected situation arose where a buyback would be extremely advantageous to
the remaining shareholders.
My own re-election received some opposition which is easily understood given
my unanticipated extended tenure. I am grateful that my Board colleagues
remain supportive of my continuing in office and that this view was supported
by nearly 80% of the votes cast. I look forward to continuing to work with all
my colleagues to secure the earliest possible winding up of our Company.
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 present and we believe the results of the
relevant AGM resolutions endorse this approach.
Distributions
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 previous reports, the final distributions from each share class
have been delayed. The Ordinary class of shares is expected to 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 $37.3m 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 this year.
John Hallam
Chairman
28 August 2024
2024 INTERIM PERFORMANCE REVIEW | Investment Manager's Report
Ordinary Share Class
Summary
The NAV per share decreased by 4.06% for the period ended 30 June 2024. During
the first half of 2024 financial markets focused on moderating, albeit sticky,
inflation trends combined with the resilience of the US economy. Looking
ahead, investors will continue to monitor multiple trends including economic
growth dynamics, the ultimate destination of interest rates and geopolitical
events. 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 remain difficult to predict. Despite the uncertainty,
the investment manager remains committed to realising the investments in an
orderly 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. Although this is not happening as fast as we had hoped 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 $0.7743 compared to $0.8071 at
end of 2023. The NAV decrease was principally driven by a decrease in value of
a surface transport investment. As of 30 June 2024, 55% of NBDD's NAV was
invested in distressed assets, and $4M in US Government securities which
represented a further 45% 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 consists of 4 issuers across 3 sectors being containers &
packaging, surface transportation and financial intermediaries.
Cash Analysis
Balance Sheet - Cash $4.4m
Collateral cash ($3.1m)
Other payables ($0.0m)
Total available cash $1.3m
Significant Price Movement during period ended 30 June 2024 (more than 1% of
NBDD NAV or approximately $120,000)
INDUSTRY INSTRUMENT TOTAL RETURN
(US DOLLARS MILLIONS)
Financial Intermediaries Private Equity 0.1
Surface Transport Total Return Swap (0.2)
Containers & Packaging Private Equity (0.6)
Exits
During the period ended 30 June 2024, we had two exits. The total number of
exits since inception in NBDD is 53, with a total return of $29.3m.
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 $144.7m
(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 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. Our current expectation is to wind down the share
class in 2025, 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 decreased by 1.66% for the period ended 30 June 2024. During
the first half of 2024 financial markets focused on moderating, albeit sticky,
inflation trends combined with the resilience of the US economy. Looking
ahead, investors will continue to monitor multiple trends including economic
growth dynamics, the ultimate destination of interest rates and geopolitical
events. 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 remain difficult to predict. Despite the uncertainty,
the investment manager remains committed to realising the investments in an
orderly 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. Although this is not happening as fast as we had hoped it is our
intention to fully harvest NBDX during the next 12 months or so.
Portfolio Update
NBDX ended the period with a NAV per share of $1.0140 compared to $1.0312 at
end of 2023. As of 30 June 2024, 86% of NBDX's NAV was invested in distressed
assets, and $1.9M in US Government securities which represented a further 14%
of NAV with 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 decrease during the
year was principally driven by a decrease in value of an automobile components
investment, offset by an increase in value of a packaging investment and two
surface transport investments. The NBDX portfolio consists of 7 issuers across
5 sectors being surface transportation, financial intermediaries, containers
& packaging, oil & gas and lodging & casinos.
Cash Analysis
Balance Sheet - Cash $13.3m
Collateral cash ($7.9m)
Other payables ($1.1m)
Total available cash $4.3m
Significant Price Movements during period ended 30 June 2024 (approximately 1%
of NBDX NAV or $450,000)
INDUSTRY INSTRUMENT TOTAL RETURN
(USD MILLIONS)
Financial Intermediaries Private Equity 1.6
Automobile components Private Equity (1.2)
Containers & Packaging Private Equity (1.6)
Exits
During period ended 30 June 2024, we had two exits. The total number of exits
since inception in NBDX to 73 with total return of $37.8m.
Distributions
NBDX made no distributions during the period. The total distributions to date
(dividends, redemptions and buy-backs) amount to $326.9m or 91% of original
capital. Total value to investors including NAV and all distributions paid is
$371.7m or 103% 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 2025,
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 3.07% for the period ended 30 June 2024. During
the first half of 2024 financial markets focused on moderating, albeit sticky,
inflation trends combined with the resilience of the US economy. Looking
ahead, investors will continue to monitor multiple trends including economic
growth dynamics, the ultimate destination of interest rates and geopolitical
events. 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 remain difficult to predict. Despite the uncertainty,
the investment manager remains committed to realising the investments in an
orderly 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. Although
this is not happening as fast as we had hoped it is our intention to fully
harvest NBDG during the next 12 months or so.
Portfolio Update
NBDG ended the period with a NAV per share of £0.6048 compared to £0.6239 at
the end of 2023. As of 30 June 2024, 99.7% of NBDG's NAV was invested in
distressed assets and 0.3% of NAV with a minimal amount of cash net of
payables (see table below). NAV per share decreased during the year
principally due to a reduction in value of a lodging & casino investment
and an automobile components investment, offset by an increase in value of a
surface transport investment. The portfolio consisted of 4 issuers across 4
sectors being lodging & casinos, commercial mortgage, surface transport
and oil & gas.
Cash Analysis
Balance Sheet - Cash $0.2m
Other payables ($0.2m)
Total available cash $ 0.0m
There were no notable events during period ended 30 June 2024.
Significant Price Movements during period ended 30 June, 2024 (approximately
1% of NBDG NAV or £170,000)
INDUSTRY INSTRUMENT TOTAL RETURN
(USD MILLIONS)
Surface Transport Bank Debt Investments 0.3
Automobile Components Private Equity (0.5)
Surface Transport Bank Debt Investments (0.2)
Exits
During the period ended 30 June 2024, there was one exit. The total number of
exits since inception is 33 with a total return of £ (10.4)m. Detailed
descriptions of the exits are at the end of this report.
Distributions
NBDG made no distributions during the period. The total distributions to date
(dividends, redemptions, and buy-backs) have been £67.4m or 61% of original
capital. Total value to investors including NAV and all distributions paid is
£84.3m or 76% 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 2025,
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 53 exits with a total return of $29.3m, IRR(1) of 8% and ROR of 16%
NBDX 73 exits with a total return of $37.8m, IRR(1) of 2% and ROR of 7%
NBDG 33 exits with a total return of £ (10.4) m, IRR(1) of (8) % and ROR of
(8) %
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 A2 (Exit 33 for NBDG)
Exit
Cash Invested Cash Received Total Return Months Held
Exit A2 (millions) (millions) (millions) IRR ROR
NBDG 33 £12.2 £3.9 £ (8.2) (46.2) % (67.6) % 120
Exit A3 & A4 (Exit 72 & 73 for NBDX)
Exit Cash Received Total Return
Cash Invested (millions) (millions) Months Held
Exit A3 (millions) IRR ROR
NBDX 72 $36.8 $15.1 $(21.7) (44.4) % (59.0)% 131
Exit
Cash Invested Cash Received Total Return Months Held
Exit A4 (millions) (millions) (millions) IRR ROR
NBDX 73 $20.0 $2.5 $(17.5) (20.3) % (87.4)% 131
Exit Z & A1 (Exit 52 & 53 for NBDD)
Exit
Cash Invested Cash Received Total Return Months Held
Exit Z (millions) (millions) (millions) IRR ROR
NBDD 52 $7.1 $2.4 $(4.7) (55.2) % (66.3) % 131
Exit
Cash Invested Cash Received Total Return Months Held
Exit A1 (millions) (millions) (millions) IRR ROR
NBDD 53 $1.6 $0.2 $(1.4) (19.8) % (86.5) % 131
Neuberger Berman Investment Advisers LLC Neuberger Berman
Europe Limited
28 August
2024
28 August 2024
2024 INTERIM PERFORMANCE REVIEW | Portfolio Information
Portfolio Information
Ordinary Share Class
Holdings(1) as at 30 June 2024
Purchased Instrument % of NAV
Sector Status Country Primary Asset
Holding
1 Surface Transport(2) Trade Claim Defaulted Brazil 30% Municipal Claim
2 Specialty Packaging Post-Reorg Equity Post-Reorg Luxembourg 17% Manufacturing Plant and Equipment
3 Financial Intermediaries Secured Notes Post-Reorg US 2% Cash & Securities
Total 49%
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/0631C_1-2024-8-28.pdf
(http://www.rns-pdf.londonstockexchange.com/rns/0631C_1-2024-8-28.pdf)
( )
( 1) Ordinary Share Class holds three investments by issuer.
(2) As at 30 June 2024 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. Surface Transport - Trade Claims have not
been included in the Sector breakdown chart.
[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/0631C_1-2024-8-28.pdf
(http://www.rns-pdf.londonstockexchange.com/rns/0631C_1-2024-8-28.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
2024 and 31 December 2023.
( )
(5) As at 30 June 2024 collateral pledged is included in the Brazil Market
Value.
Extended Life Share Class
Holdings(1) as at 30 June 2024
Purchased Instrument % of NAV
Holding Sector Status Country Primary Asset
1 Surface Transport(2) Trade Claim Defaulted Brazil 21% Municipal Claim
2 Oil & Gas Post-Reorg Equity Post-Reorg US 18% Ethanol Plant
3 Specialty Packaging Post-Reorg Equity Post-Reorg Luxembourg 12% Manufacturing Plant and Equipment
4 Surface Transport Secured Loan Defaulted Spain 11% Concession
5 Commercial Mortgage Secured Loan Defaulted Netherlands 10% Commercial Real Estate
6 Specialty Packaging Post-Reorg Equity Post-Reorg Luxembourg 2% Manufacturing Plant and Equipment
Total 74%
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/0631C_1-2024-8-28.pdf
(http://www.rns-pdf.londonstockexchange.com/rns/0631C_1-2024-8-28.pdf)
(1) Extended Share Class holds 6 investments by issuer.
( )
(2) As at 30 June 2024 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. Surface Transport - Trade Claims have not been included in the
Sector breakdown chart.
[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/0631C_1-2024-8-28.pdf
(http://www.rns-pdf.londonstockexchange.com/rns/0631C_1-2024-8-28.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
2024 and 31 December 2023.
(5) As at 30 June 2024 collateral pledged is included in the Brazil Market
Value.
New Global Share Class
Holdings(1) as at 30 June 2024
Purchased Instrument % of NAV
Holding Sector Status Country Primary Asset
1 Lodging & Casino Secured Loan / Private Equity Current Spain 35% Hotel/Casino
2 Commercial Mortgage Secured Loan Defaulted Netherlands 27% Commercial Real Estate
3 Surface Transportation Secured Loan Defaulted Spain 23% Legal Claim
4 Oil & Gas Private Equity Post-Reorg US 15% Ethanol Plant
Total 100%
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/0631C_1-2024-8-28.pdf
(http://www.rns-pdf.londonstockexchange.com/rns/0631C_1-2024-8-28.pdf)
(1) Global Share Class holds 4 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/0631C_1-2024-8-28.pdf
(http://www.rns-pdf.londonstockexchange.com/rns/0631C_1-2024-8-28.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 2024 and 31 December 2023.
2024 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;
These risks, and the way in which they are managed, are described in more
detail in the Strategic Report on pages 23 to 24 of the Company's latest
annual report and audited financial statements for the year ended 31 December
2023, which can be found on the Company's website at
https://www.nbddif.com/pdf/NB_Distressed_Debt_31_12_2023_US_GAAP.pdf
(https://www.nbddif.com/pdf/NB_Distressed_Debt_31_12_2023_US_GAAP.pdf) . The
Board's view is that these risks remain appropriately identified for the
remainder of 2024.
In addition to the Principal Risks, the Company has considered the ongoing
global geopolitical events and the risks associated with their potential
impact on asset values, and while no direct impact has been identified, values
are affected by their 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.
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.
As there is no plan to liquidate the Company imminently and 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 2024. Additional related party
disclosures are given in Note 6 to the Unaudited Consolidated Interim
Financial Statements 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 on below.
By order of the Board
John Hallam
Christopher Legge
Chairman
Director
28 August 2024
28 August 2024
2024 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 2024 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 2024 do not give a true and fair view of the
financial position of the Group as at 30 June 2024 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 the Group
and the Company to cease to continue as a going concern, and the above
conclusions are not a guarantee that the the Group and the Company 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.
Andrew J. Salisbury
For and on behalf of KPMG Channel Islands Limited
Chartered Accountants
Guernsey
28 August 2024
FINANCIAL STATEMENTS | Unaudited Consolidated Statement of Assets and
Liabilities
Unaudited Consolidated Statement of Assets and Liabilities
AS AT 30 JUNE 2024 AND 31 DECEMBER 2023
(EXPRESSED IN US DOLLARS EXCEPT WHERE STATED OTHERWISE) 30 JUNE 2024 31 December 2023
(UNAUDITED) (AUDITED)
Assets
Investments, at fair value (2024: cost of $68,194,515; 2023: cost of 52,740,364 60,883,590
$90,284,529)
Forward currency contracts, at fair value 1,005,944 18,235
Total Return Swaps, at fair value (2024: cost of $Nil, 2023: cost of $Nil) 1,948,978 3,648,201
Cash and cash equivalents 7,780,956 4,809,578
Restricted cash:
Forward currency - 790,000
contracts collateral
Total return swap collateral 10,970,000 10,970,000
74,446,242 81,119,604
Other assets
Interest receivables 503,121 691,898
Receivables for investments sold 4,122,515 -
Other receivables and prepayments 28,029 57,691
Withholding tax receivable 251,051 251,051
Total assets 79,350,958 82,120,244
Liabilities
Forward currency contracts, at fair value 15,780 1,545,570
Accrued expenses and other liabilities 463,178 395,627
Credit default swap, at fair value (2024: cost of $11,279; 2023: cost of 16,386 21,309
$19,860)
Due to Broker 820,000 -
Total liabilities 1,315,344 1,962,506
Net assets 78,035,614 80,157,738
Net assets attributable to Ordinary Shares (shares 2024: 15,382,770; 11,911,235 12,415,231
2023: 15,382,770)
Net asset value per Ordinary Share 0.7743 0.8071
Net assets attributable to Extended Life Shares (shares 2024: 44,234,790; 44,855,112 45,614,485
2023: 44,234,790)
Net asset value per Extended Life Share 1.0140 1.0312
Net assets attributable to New Global Shares (shares 2024: 27,821,698; 16,825,621 £17,358,035
2023: 27,821,698)
Net asset value per New Global Share £0.6048 £0.6239
Net assets attributable to New Global Shares (USD equivalent) 21,269,267 22,128,022
Net asset value per New Global Share (USD equivalent) 0.7645 0.7954
The Unaudited Consolidated Interim Financial Statements were approved and
authorised for issue by the Board of Directors on 28 August 2024 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 Consolidated Statement of Operations
FOR THE SIX MONTH PERIOD ENDED 30 JUNE 2024 AND 30 JUNE 2023 (UNAUDITED)
(EXPRESSED IN US DOLLARS) 30 june 2024 30 june 2023
(unaudited) (unaudited)
Income
Interest income 1,539,010 1,196,890
1,539,010 1,196,890
Expenses
Professional and other expenses 298,802 175,548
Audit fee 135,634 133,039
D&O Insurance fee 57,301 57,301
Company Secretary fee 58,671 53,092
Administration fee 42,918 43,636
Loan administration and custody fees 14,910 9,959
Directors' fees and expenses 97,550 96,725
705,786 569,300
Net investment income 833,224 627,590
Realised and unrealised (loss)/gain from investments and foreign exchange
Net realised (loss)/gain on investments, credit default swap, total return (16,391,216) 1,836,516
swap and forward currency transactions
Net change in unrealised gain on investments, credit default swap, total 13,435,868 1,050,289
return swap and forward currency transactions
Realised and unrealised (loss)/gain from investments and foreign exchange (2,955,348) 2,886,805
Net (decrease)/increase in net assets resulting from operations (2,122,124) 3,514,395
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 Consolidated Statement of Changes in Net Assets
FOR THE SIX MONTH PERIOD ENDED 30 JUNE 2024 (UNAUDITED)
(EXPRESSED IN US DOLLARS) 30 jUNE 2024 30 jUNE 2024 30 jUNE 2024 30 jUNE 2024
Ordinary Shares Extended Life Shares New Global Shares Aggregated
Net assets at the beginning of the period 12,415,231 45,614,485 22,128,022 80,157,738
Net investment income 6,556 399,596 427,072 833,224
Net realised loss on investments, credit default swap and forward currency (998,209) (14,455,094) (937,913) (16,391,216)
transactions
Net change in unrealised gain/(loss) on investments, credit default swap and 487,657 13,296,125 (347,914) 13,435,868
forward currency transactions
Net assets at the end of the period 11,911,235 44,855,112 21,269,267 78,035,614
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 income 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
The accompanying notes below are an integral part of the Unaudited
Consolidated Interim Financial Statements.
FINANCIAL STATEMENTS | Unaudited Consolidated Statement of Cash Flows
Unaudited Consolidated Statement of Cash Flows
FOR THE SIX MONTH PERIOD ENDED 30 JUNE 2024 AND 30 JUNE 2023
(EXPRESSED IN US DOLLARS) 30 JUNE 2024 30 JUNE 2023
(UNAUDITED) (UNAUDITED)
Cash flows from operating activities:
Net (decrease)/increase in net assets resulting from operations (2,122,124) 3,514,395
Adjustment to reconcile net increase/(decrease) in net assets resulting from
operations to net cash flow provided by operations:
Net realised loss/(gain) on investments, credit default swap, total return 16,391,216 (1,836,516)
swap and forward currency transactions
Net change in unrealised gain on investments, credit default swap, total (13,435,868 (1,050,289)
return swap and forward currency transactions
Accretion of discount on loans and bonds 28,106 63,648
Changes in due to broker 820,000 -
Changes in interest receivable 188,777 159,288
Changes in receivables for investments sold (4,122,515) 458,607
Changes in other receivables and prepayments 29,662 42,441
Changes in accrued expenses and other liabilities 67,551 (30,379)
Cash received on settled forward currency contracts and spot currency (152,212) (2,334,367)
contracts
Capitalised payment in kind (1,385,257) (1,101,998)
Purchase of investments 59,443 -
Sale of investments 5,827,588 16,897,272
Net cash provided by operating activities 2,194,367 14,782,102
Cash flows from financing activities:
Shares redeemed during the period - (14,200,554)
Net cash used in from financing activities - (14,200,554)
Net increase in cash, cash equivalents and restricted cash 2,194,367 581,548
Cash and cash equivalents at the beginning of the period 4,809,578 8,733,589
Restricted cash at the beginning of the period 11,760,000 11,060,000
Effect of exchange rate changes on cash and cash equivalents (12,989) 32,059
Cash and cash equivalents at the end of the period 7,780,956 8,617,196
Restricted cash at the end of the period 10,970,000 11,790,000
The accompanying notes below are an integral part of the Unaudited
Consolidated Interim Financial Statements.
FINANCIAL STATEMENTS | Unaudited Consolidated Condensed Schedule of
Investments
Unaudited Consolidated Condensed Schedule of Investments (by financial
instrument)
AS AT 30 JUNE 2024 (UNAUDITED) Cost Fair Value Ordinary Extended Life New Global Shares Total Company
(EXPRESSED IN US DOLLARS) Shares Shares (%)(1) (%)(1)
(%)(1) (%)(1)
Portfolio of Distressed Investments
Bank Debt Investments 46,813,473 27,205,578 - 21.04 83.53 34.86
Private Equity 14,082,302 19,543,097 19.45 31.23 15.14 25.04
Short term Investments
US Treasury Bills 7,298,740 5,991,689 34.07 4.31 - 7.68
Total Investments 68,194,515 52,740,364 53.52 56.58 98.67 67.58
Portfolio per share class
Ordinary Shares 5,479,597 6,375,180 53.52 - - 8.17
Extended Life Shares 28,511,139 25,378,285 - 56.58 - 32.52
New Global Shares 34,203,779 20,986,899 - - 98.67 26.89
68,194,515 52,740,364 53.52 56.58 98.67 67.58
Credit Default Swap
Ordinary Shares (11,279) (4,593) (0.04) - - (0.01)
Extended Life Shares (28,957) (11,793) - (0.03) - (0.02)
(40,236) (16,386) (0.04) (0.03) - (0.03)
Forward Currency Contracts
Assets
Ordinary Shares - 269,135 2.26 - - 0.34
Extended Life Shares - 736,809 - 1.64 - 0.94
- 1,005,944 2.26 1.64 - 1.28
Liabilities
Ordinary Shares - (4,131) (0.03) - - (0.01)
Extended Life Shares - (11,649) - (0.03) - (0.01)
- (15,780) (0.03) (0.03) - (0.02)
Total Return Swap(2)
Ordinary Shares - 544,221 4.57 - - 0.70
Extended Life Shares - 1,404,757 - 3.12 - 1.80
- 1,948,978 4.57 3.12 - 2.50
(1) This is the Fair Value expressed as a percentage of total Ordinary Share
NAV, Extended Life Share NAV, New Global Share NAV and Company 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 2023 (AUDITED) Cost Fair Value Ordinary Extended Life New Global Shares Total Company
(EXPRESSED IN US DOLLARS) Shares Shares (%)(1) (%)(1)
(%)(1) (%)(1)
Portfolio of Distressed Investments
Bank Debt Investments 45,428,216 27,125,693 - 20.66 79.99 33.83
Private Equity 17,788,091 23,948,613 24.40 37.62 17.00 29.88
Private Note 19,741,373 3,724,142 2.22 7.56 - 4.65
Short term Investments
US Treasury Bills 7,326,847 6,085,142 33.20 4.30 - 7.59
Total Investments 90,284,527 60,883,590 59.82 70.14 96.99 75.95
Portfolio per share class
Ordinary Shares 6,993,271 7,426,240 59.82 - - 9.26
Extended Life Shares 48,959,822 31,996,330 - 70.14 - 39.92
New Global Shares 34,331,434 21,461,020 - - 96.99 26.77
90,284,527 60,883,590 59.82 70.14 96.99 75.95
Credit Default Swap
Ordinary Shares (5,567) (5,973) (0.05) - - (0.01)
Extended Life Shares (14,293) (15,336) - (0.03) - (0.01)
(19,860) (21,309) (0.05) (0.03) - (0.02)
Forward Currency Contracts
Assets
Ordinary Shares - 3,808 0.03 - - -
Extended Life Shares - 14,427 - 0.03 - 0.02
- 18,235 0.03 0.03 - 0.02
Liabilities
Ordinary Shares - (348,550) (2.81) - - (0.44)
Extended Life Shares - (1,197,020) - (2.63) - (1.49)
- (1,545,570) (2.81) (2.63) - (1.93)
Total Return Swap(2)
Ordinary Shares - 1,018,720 8.21 - - 1.27
Extended Life Shares - 2,629,481 - 5.76 - 3.28
- 3,648,201 8.21 5.76 - 4.55
(1) This is the Fair Value expressed as a percentage of total Ordinary Share
NAV, Extended Life Share NAV, New Global Share NAV and Company 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.
Investments with the following issuers comprised greater than 5% of Total
Company NAV
AS AT 30 JUNE 2024 (UNAUDITED) Country Industry Nominal Cost Fair Value Ordinary Extended New Total Company
(EXPRESSED IN US DOLLARS) Shares Life Global (%)(1)
(%)(1) Shares Shares
(%)(1) (%)(1)
Investments at fair value
White Energy Holding Company LLC United States Oil & Gas 367 9,174,989 11,254,667 - 17.91 15.14 14.42
(Private Equity, Ordinary Shares)
AB Zwolle T/L(2) EUR Netherlands Commercial Mortgage 20,826,237 14,907,776 10,343,329 - 10.22 27.07 13.25
31/12/2024
(Bank Debt Investments)
Package Holdings 1 Luxembourg Containers and Packaging 11,108,610 - 7,279,116 17.08 11.69 - 9.33
(Private Equity, Ordinary Shares)
Package Holdings 6 Luxembourg Containers and Packaging 2,948,481 1,893,980 1,009,315 2.37 1.62 - 1.29
(Private Equity, Ordinary Shares)
TP Ferro Concesionaria T/L 1L 0.0% 31/03/2016 Spain Surface Transport 18,787,735 18,531,522 4,027,151 - 4.50 9.43 5.16
(Bank Debt Investments)
TP Ferro Concesionaria TP Ferro T/L-A (First-Lien) Spain Surface Transport 669,296 748,932 717,318 - 0.80 1.69 0.92
25% 31/12/2024
(Bank Debt Investments)
TP Ferro Concesionaria TP Ferro 1L T/L-B EUR (First-Lien) EUR Spain Surface Transport 408,630 408,630 408,630 - 0.46 0.96 0.52
25% 31/12/2024
(Bank Debt Investments)
TP Ferro PIK 5A 4/20 Spain Surface Transport 3,324,171 3,324,171 3,324,171 - 3.71 7.81 4.26
25% 01/06/2025
(Bank Debt Investments)
TP Ferro PIK 5C 7/23 Spain Surface Transport 289,531 289,531 289,531 - 0.32 0.68 0.37
25% 01/06/2025
(Bank Debt Investments)
TP Ferro PIK 5B 7/22 Spain Surface Transport 589,459 589,459 589,459 - 0.66 1.39 0.76
25% 01/06/2025
(Bank Debt Investments)
TP Ferro Concesionaria TP Ferro 1L T/L-C (First-Lien) Spain Surface Transport 336,358 336,358 336,358 - 0.37 0.79 0.43
25% 31/12/2024
(Bank Debt Investments)
Hotel Puerta America PIK T/L EUR Spain Lodging & Casinos 4,178,566 4,599,106 4,330,592 - - 20.36 5.55
7.25% 09/01/2025
(Bank Debt Investments)
Hotel Puerta America PIK Addon Spain Lodging & Casinos 1,649,372 1,796,090 1,709,380 - - 8.04 2.19
7.25% 09/01/2025
EUR (Bank Debt Investments)
Hotel Puerta America PIK PPL EUR Spain Lodging & Casinos 1,090,003 1,281,898 1,129,660 - - 5.31 1.45
0.00% 31/12/2024
(Bank Debt Investments)
Hotel Puerta America EUR Spain Lodging & Casinos 934 3,013,332 - - - - -
(Private Equity, Ordinary Shares)
US Treasury N/B United States United States 6,975,000 7,298,740 5,991,688 34.07 4.31 - 7.68
1.50% 02/15/30
(US Treasury Bills)
68,194,515 52,740,365 53.52 56.58 98.67 67.58
(1) This is the Fair Value expressed as a percentage of total Ordinary Share
NAV, Extended Life Share NAV, New Global Share NAV and Company 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
AS AT 31 DECEMBER 2023 (AUDITED) Country Industry Nominal Cost Fair Value Ordinary Extended New Total
(EXPRESSED IN US DOLLARS) Shares Life Global Company
(%)(1) Shares Shares (%)(1)
(%)(1) (%)(1)
Investments at fair value
White Energy Holding Company LLC United States Oil & Gas 367 9,174,989 11,010,000 - 17.23 14.24 13.74
(Private Equity, Ordinary Shares)
AB Zwolle T/L(2) EUR Netherlands Commercial Mortgage 20,223,504 14,595,720 10,879,528 - 10.57 27.37 13.57
31/12/2024
(Bank Debt Investments)
Package Holdings 1 Luxembourg Containers and Packaging 11,108,610 - 9,473,309 21.32 14.96 - 11.82
(Private Equity, Ordinary Shares)
Package Holdings 6 Luxembourg Containers and Packaging 2,948,481 1,893,980 1,313,564 2.97 6.38 - 1.64
(Private Equity, Ordinary Shares)
TP Ferro Concesionaria T/L 1L 0.00% 31/03/2016 Spain Surface Transport 18,787,735 18,531,522 4,150,774 - 4.57 9.35 5.18
(Bank Debt Investments)
TP Ferro Concesionaria TP Ferro T/L-A (First-Lien) Spain Surface Transport 2,945,545 2,945,545 2,945,545 - 3.23 6.66 3.67
25% 31/12/2024
(Bank Debt Investments)
TP Ferro Concesionaria TP Ferro 1L T/L-B EUR (First-Lien) EUR Spain Surface Transport 593,063 666,784 655,127 - 0.72 1.48 0.82
25% 31/12/2024
(Bank Debt Investments)
TP Ferro PIK 5A 4/20 Spain Surface Transport 522,319 522,319 522,319 - 0.57 1.18 0.65
25% 01/06/2025
(Bank Debt Investments)
TP Ferro PIK 5C 7/23 Spain Surface Transport 361,262 361,262 361,262 1.00 0.40 0.82 0.45
25% 01/06/2025
(Bank Debt Investments)
TP Ferro PIK 5B 7/22 Spain Surface Transport 298,046 298,046 298,046 - 0.33 0.67 0.37
25% 01/06/2025
(Bank Debt Investments)
TP Ferro Concesionaria TP Ferro 1L T/L-C (First-Lien) Spain Surface Transport 256,553 256,553 256,553 - 0.28 0.58 0.32
25% 31/12/2024
(Bank Debt Investments)
Hotel Puerta America PIK T/L EUR Spain Lodging & Casinos 3,901,657 4,293,218 4,215,146 - - 19.05 5.26
7.25% 09/01/2025
(Bank Debt Investments)
Hotel Puerta America PIK Addon Spain Lodging & Casinos 1,540,070 1,675,349 1,663,811 - - 7.52 2.08
7.25% 09/01/2025
EUR (Bank Debt Investments)
Hotel Puerta America PIK PPL EUR Spain Lodging & Casinos 1,090,003 1,281,898 1,177,582 - - 5.32 1.47
0.00% 31/12/2024
(Bank Debt Investments)
Hotel Puerta America EUR Spain Lodging & Casinos 934 3,013,332 - - - - -
(Private Equity, Ordinary Shares)
US Treasury N/B United States United States 6,975,000 7,326,847 6,085,143 33.20 4.30 - 7.59
1.50% 02/15/30
(US Treasury Bills)
63,824,032 55,007,709 58.49 63.54 94.24 68.63
( 1) This is the Fair Value expressed as a percentage of total Ordinary
Share NAV, Extended Life Share NAV, New Global Share NAV and Company NAV.
( 2) Floating Rate Note (FRN) - variable coupon rate during the year as
per contract notice.
The accompanying notes below are an integral part of the Unaudited
Consolidated Interim Financial Statements
. Unaudited Consolidated Condensed Schedule of Investments (by
geography)
( )
AS AT 30 JUNE 2024 Fair Value Ordinary Extended Life New Global Shares Total
(UNAUDITED) Cost Shares Shares (%)(1) Company
(EXPRESSED IN US DOLLARS) (%)(1) (%)(1) (%)(1)
Geographic diversity of Portfolios
Portfolio of Distressed Investments
Luxembourg 1,893,980 8,288,431 19.45 13.31 - 10.62
Netherlands 14,907,776 10,343,329 - 10.22 27.07 13.25
Spain 34,919,030 16,862,248 - 10.83 56.46 21.61
United States 9,174,989 11,254,667 - 17.91 15.14 14.42
Short term Investments (US Treasury Bills)
United States 7,298,740 5,991,689 34.07 4.31 - 7.68
68,194,515 52,740,364 53.52 56.58 98.67 67.58
( )
( 1) This is the Fair Value expressed as a percentage of total
Ordinary Share NAV, Extended Life Share NAV, New Global Share NAV and Company
NAV.
The accompanying notes below are an integral part of the Unaudited
Consolidated Interim Financial Statements.
AS AT 31 DECEMBER 2023 Fair Value Ordinary Extended Life New Global Shares Total
(AUDITED) Cost Shares Shares (%)(1) Company
(EXPRESSED IN US DOLLARS) (%)(1) (%)(1) (%)(1)
Geographic diversity of Portfolios
Portfolio of Distressed Investments
Luxembourg 1,893,980 10,786,873 24.28 17.04 - 13.46
Netherlands 14,595,720 10,879,528 - 10.57 27.37 13.57
Spain 33,845,829 16,246,165 - 10.09 52.62 20.27
United States 32,622,153 16,885,882 2.34 28.14 17.00 21.06
Short term Investments (US Treasury Bills)
United States 7,326,847 6,085,142 33.20 4.30 - 7.59
90,284,529 60,883,590 59.82 70.14 96.99 75.95
( )
(1) This is the Fair Value expressed as a percentage of total Ordinary Share
NAV, Extended Life Share NAV, New Global Share NAV and Company NAV.
The accompanying notes below are an integral part of the Unaudited
Consolidated Interim Financial Statements.
Unaudited Consolidated Condensed Schedule of Investments (by sector)
AS AT 30 JUNE 2024 (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
Commercial Mortgage 14,907,776 10,343,329 - 10.22 27.07 13.24
Containers and Packaging 1,893,980 8,288,432 19.45 13.31 - 10.62
Lodging & Casinos 10,690,426 7,169,630 - - 33.71 9.19
Oil & Gas 9,174,989 11,254,667 - 17.91 15.14 14.42
Surface Transport 24,228,604 9,692,617 - 10.83 22.75 12.43
Short term Investments
US Treasury Bills 7,298,740 5,991,689 34.07 4.31 - 7.68
68,194,515 52,740,364 53.52 56.58 98.67 67.58
(1) This is the Fair Value expressed as a percentage of total Ordinary Share
NAV, Extended Life Share NAV, New Global Share NAV and Company NAV.
The accompanying notes below are an integral part of the Unaudited
Consolidated Interim Financial Statements.
AS AT 31 DECEMBER 2023 (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 2,151,740 0.11 3.35 2.76 2.68
Commercial Mortgage 14,595,720 10,879,528 - 10.57 27.37 13.57
Containers and Packaging 1,893,980 10,786,873 24.28 17.04 - 13.46
Financial Intermediaries 19,741,371 3,724,142 2.23 7.56 - 4.65
Lodging & Casinos 10,263,797 7,056,540 - - 31.89 8.80
Oil & Gas 9,174,989 11,010,000 - 17.23 14.24 13.74
Surface Transport 23,582,032 9,189,625 - 10.09 20.73 11.46
Short term Investments
US Treasury Bills 7,326,847 6,085,142 33.20 4.30 - 7.59
90,284,529 60,883,590 59.82 70.14 96.99 75.95
(1) This is the Fair Value expressed as a percentage of total Ordinary Share
NAV, Extended Life Share NAV, New Global Share NAV and Company 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
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 U.S.
generally accepted principles ("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 Financial Accounting Standards Board ("FASB")
Accounting Standards Codification ("ASC") and Financial Services - Investment
Companies Topic 946: Amendments to the Scope, Measurement, and Disclosure
Requirements. (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 on a going concern
basis, as liquidation is not imminent.
(b) Principles of Consolidation
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.
(c) 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 in 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.
(d) 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. As at 30 June 2024, the
Company has cash balances in various currencies equating to $17,930,956 (Cost:
$17,939,623) (31 December 2023: $16,569,578 (Cost: $16,566,075) including cash
and cash equivalents of $7,780,956 (31 December 2023: $4,809,578) as well as
restricted cash of $10,150,000 (31 December 2023: $11,760,000). Restricted
cash of $10,970,000 (31 December 2023: $10,970,000) is collateral for the
total return swap positions and restricted cash of $Nil (31 December 2023:
$790,000) is collateral for forward currency contracts.
(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.
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 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 ultimately
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 2024 and 31
December 2023 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.
· 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.
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 2024 (UNAUDITED)
(EXPRESSED IN US DOLLARS) LEVEL 1 LEVEL 2 LEVEL 3 TOTAL
Bank Debt Investments - - 27,205,578 27,205,578
Private Equity - - 19,543,097 19,543,097
US Treasury Bills 5,991,689 - - 5,991,689
Investments at fair value 5,991,689 - 46,748,675 52,740,364
Credit Default Swap - (16,386) - (16,386)
Total Return Swap - - 1,948,978 1,948,978
Forward Currency Contracts - Assets - 1,005,944 - 1,005,944
Forward Currency Contracts - Liabilities (15,780) (15,780)
Total investments that are accounted for at fair value 5,991,689 973,778 48,697,653 55,663,120
FAIR VALUE OF FINANCIAL INSTRUMENTS AS AT 31 DECEMBER 2023 (AUDITED)
(EXPRESSED IN US DOLLARS) LEVEL 1 LEVEL 2 LEVEL 3 TOTAL
Bank Debt Investments - - 27,125,693 27,125,693
Private Equity - - 23,948,613 23,948,613
Private Note - - 3,724,142 3,724,142
US Treasury Bills 6,085,142 - - 6,085,142
Investments at fair value 6,085,142 - 54,798,448 60,883,590
Credit Default Swap - (21,309) - (21,309)
Total Return Swap - - 3,648,201 3,648,201
Forward Currency Contracts - Assets - 18,235 - 18,235
Forward Currency Contracts - Liabilities (1,545,570) (1,545,570)
Total investments that are accounted for at fair value 6,085,142 (1,548,644) 58,446,649 62,983,147
The following table summarises the significant unobservable inputs the Company
used to value its investments categorised within Level 3 as at 30 June 2024.
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 10,343,328 Market Comparatives Discount Rate 10%
Bank Debt Investments Lodging & Casinos 7,169,632 Market Comparatives Discount Rate 15%
Bank Debt Investments Surface Transport 9,692,618 Market Information Unadjusted Broker Quote N/A
Private Equity Containers and Packaging 8,288,431 Market Comparatives EBITDA Multiple 10.75X
Private Equity Oil & Gas 11,254,666 Market Information Unadjusted Broker Quote N/A
Total Return Swap Surface Transport 1,948,978 Market Information Unadjusted Broker Quote N/A
Total 48,697,653
The following table summarises the significant unobservable inputs the Company
used to value its investments categorised within Level 3 as at 31 December
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 10,879,528 Market Comparatives Discount Rate 10%
Bank Debt Investments Lodging & Casinos 7,056,540 Market Comparatives Discount Rate 15%
Bank Debt Investments Surface Transport 9,189,625 Market Information Unadjusted Broker Quote N/A
Private Equity Auto Components 2,151,740 Market Information EBITDA Multiple 4.5X
Private Equity Containers and Packaging 10,786,873 Market Comparatives EBITDA Multiple 10.75X
Private Equity Oil and Gas 11,010,000 Market Information Unadjusted Broker Quote N/A
Private Note Financial Intermediaries 3,724,142 Market Information Unadjusted Broker Quote N/A
Total Return Swap Surface Transport 3,648,201 Market Information Unadjusted Broker Quote N/A
Total 58,446,649
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 2024 and 31 December 2023 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 2024 (UNAUDITED)
(EXPRESSED IN US DOLLARS)
Bank Debt Investments Private Equity Trade Claim Private Note Total
Balance, 31 December 2023 27,125,693 23,948,613 3,648,201 3,724,142 58,446,649
Purchases (includes purchases-in-kind) 1,385,256 - - - 1,385,256
Sales and distributions - (398,370) - (5,480,179) (5,878,549)
Realised loss on sale of investments - (3,307,422) 1,343,355 (14,261,194) (16,225,261)
Unrealised loss/(gain) on investments (1,305,371) (699,724) (3,042,578) 16,017,231 10,969,558
Transfers from Level 2 into Level 3 - - - -
Balance, 30 June 2024 27,205,578 19,543,097 1,948,978 - 48,697,653
Change in unrealised loss/(gain) on investments included in Audited (1,305,372) (699,718) (1,699,223) 16,017,231 12,312,918
Consolidated Statement of Operation for Level 3 investments held as at 30 June
2024
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 transfers 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 2023 (AUDITED)
(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) 2,303,563 - - - 2,303,563
Sales and distributions (2,508,112) - - (4,511,654) (7,019,766)
Realised (loss)/gain on sale of investments (70,506) - - 3,794,178 3,723,672
Unrealised gain/(loss) on investments 42,291 (553,444) 2,089,781 (3,920,612) (2,341,984)
Transfers from Level 2 into Level 3 - 11,010,000 - - 11,010,000
Balance, 31 December 2023 27,125,693 23,948,613 3,648,201 3,724,142 58,446,649
Change in unrealised (loss)/gain on investments included in Audited (98,561) (553,444) 2,089,781 (3,920,612) (2,482,836)
Consolidated Statement of Operation for Level 3 investments held as at 31
December 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 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 $11,010,000 as only a single
broker quote was observable.
(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 under Net realised
(loss)/gain on investments, credit default swap, total return swap and forward
currency transactions in the Unaudited Consolidated Statement of Operations.
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 period end and the fair value at the current period end.
Unrealised gains and losses are included under Net change in unrealised
(loss)/gain on investments, credit default swap, warrants and forward currency
transactions in the Unaudited Consolidated Statement of Operations.
For the period ended 30 June 2024, $28,106 (30 June 2023: $63,648) was
recorded to reflect accretion of discount on loans and bonds during the period
and is included as Interest Income in the Unaudited Consolidated Statement of
Operations.
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 daily 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.
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 under Realised and unrealised (loss)/gain from
investments and foreign exchange 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 30 June. 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 2024 or 31 December 2023.
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
other 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 2024, 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 2024, the Company recorded current income tax
expense $Nil (30 June 2023 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 2024 was $Nil (30 June 2023
deferred tax benefit: $Nil). The net total income tax benefit/expense from
realised/unrealised gains/(losses) on investments for the period ended 30 June
2024 was $Nil (30 June 2023 income tax expense: $Nil).
(j) Operating Expenses
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 Net Asset Value ('NAV') 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.
(k) Payables/Receivables on Investments Purchased/Sold
At 30 June 2024, $4,122,515 (30 June 2023: $Nil) was receivable on investments
purchased/sold represents amounts due for investments purchased/sold that have
been contracted for but not settled on the Consolidated Statement of Assets
and Liabilities.
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 2024 (31 December 2023: 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 against fully funded swaps.
The new swap rolls on an annual basis. The swap was booked on 02 March 2023
and matured on 01 February 2024. A realised event occurred on the value of the
swap as at 01 February 2024 of $1,343,355. The next maturity will occur on 01
February 2025. The value of the swap, exclusive of related cash collateral, as
at 30 June 2024 is $1,948,978 (31 December 2023: $3,648,201) representing a
change in market value of $605,623 in the period since the 01 February 2023
maturity.
As at 30 June 2024 the net value of the swap and related cash collateral was
$12,918,978 (31 December 2023: $14,618,201) (comprised of restricted cash
collateral of $10,970,000 (31 December 2023: $10,970,000) and total return
swap asset of $1,948,978 (31 December 2023: swap asset of $3,648,201), 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 2024 and for the year ended 31 December 2023 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 2024 (UNAUDITED) LONG EXPOSURE SHORT EXPOSURE
Primary underlying risk NOTIONAL AMOUNTS NUMBER OF CONTRACTS NOTIONAL AMOUNTS NUMBER OF CONTRACTS
Foreign exchange risk
Forward currency contracts $67,892,660 39 $52,851,722 40
Credit risk
Credit default swap $9,971,000 1 - -
Total return swap - - $10,960,348 2
31 DECEMBER 2023 (AUDITED) LONG EXPOSURE SHORT EXPOSURE
Primary underlying risk NOTIONAL AMOUNTS NUMBER OF CONTRACTS NOTIONAL AMOUNTS NUMBER OF CONTRACTS
Foreign exchange risk
Forward currency contracts $127,841,170 61 $125,731,102 77
Credit risk
Credit default swap $9,971,000 1 - -
Total return swap - - $10,960,348 2
The following tables show, as at 30 June 2024 and 31 December 2023, the fair
value amounts of derivative contracts included in the Unaudited Consolidated
Statement of Assets and Liabilities, categorised by primary underlying risk.
Balances are presented on a gross basis prior to application of the impact of
counterparty and collateral netting. Total derivative assets and liabilities
are adjusted on an aggregate basis to take into account the effects of master
netting arrangements and, where applicable, have been adjusted by the
application of cash collateral receivables and payables with its
counterparties. The tables also identify, as at 30 June 2024 and 31 December
2023, the realised and unrealised gain and loss amounts included in the
Unaudited Consolidated Statement of Operations, categorised by primary
underlying risk:
Derivative Assets Derivative Liabilities Realised gain NET CHANGE IN Unrealised gain (loss)
30 JUNE 2024 (UNAUDITED) ($) ($) (loss) ($)
Primary underlying risk ($)
Foreign currency exchange rate
Forward currency contracts 1,005,944 (15,780) (152,210) 2,517,498
Credit
Purchased protection
Credit default swap - (16,386) (11,896) 25,300
Total return swap 1,948,978 - 1,343,355 (3,042,578)
Derivative Assets Derivative Liabilities Realised gain NET CHANGE IN Unrealised gain (loss)
31 DECEMBER 2023 (AUDITED) ($) ($) (loss) ($)
Primary underlying risk ($)
Foreign currency exchange rate
Forward currency contracts 18,235 (1,545,570) (1,975,088) (269,987)
Credit
Purchased protection
Credit default swap - (21,309) (84,550) 3,223
Total return swap 3,648,201 - - 2,078,684
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 2024 and 31 December 2023, 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 2024 (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 1,005,944 - 1,005,944 (15,780) - 990,164
Total Return Swaps 1,948,978 - 1,948,978 - - 1,948,978
Total 2,954,922 - 2,954,922 (15,780) - 2,939,142
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 (15,780) - (15,780) 15,780 - -
Credit Default Swaps (16,386) - (16,386) - (16,386)
Total (32,166) - (32,166) 15,780 - (16,386)
(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 2023, 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 2023 (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 18,235 - 18,235 (18,235) - -
Total return swaps 3,648,201 - 3,648,201 - - 3,648,201
Total 3,666,436 - 3,666,436 (18,235) - 3,648,201
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 (1,545,570) - (1,545,570) 18,235 790,000 (737,335)
Credit default swap (21,309) - (21,309) - - (21,309)
Total (1,566,879) - (1,566,879) 18,235 790,000 (758,644)
(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-US 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
2024 and 31 December 2023 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
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 Suntera Trustees (Guernsey) Limited (formerly
named 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 2024, the Company had the following number of shares in issue:
Issued and fully paid up 30 June 2024 (UNAUDITED) 31 December 2023 (AUDITED)
Class A Shares 2 2
Ordinary Share Class of no par value (Nil in treasury; 2023: Nil) 15,382,770 15,382,770
Extended Life Share Class of no par value (Nil in treasury; 2023: Nil) 44,234,790 44,234,790
New Global Share Class of no par value (Nil in treasury; 2023: Nil) 27,821,698 27,821,698
Reconciliation of the number of shares in issue in each class (excluding Class
A) as at 30 June 2024:
Ordinary Extended Life Shares New Global Total
Shares Shares
Balance as at 31 December 2023 15,382,770 44,234,790 27,821,698 87,439,258
Shares redeemed during the period - - - -
Buybacks (Shares repurchased) - - - -
Balance as at 30 June 2024(1) 15,382,770 44,234,790 27,821,698 87,439,258
( )
(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 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 year - (15,881,226) (3,201,911) (19,083,137)
Buybacks (Shares repurchased) - - - -
Balance as at 31 December 2023(1) 15,382,770 44,234,790 27,821,698 87,439,258
(1) Balance of issued shares used to calculate NAV
Distributions
For the period ended 30 June 2024 there were no capital returns by way of
compulsory partial redemptions.
Set out below are details of the capital returns by way of compulsory partial
redemptions approved during the year ended 31 December 2023
31 DECEMBER 2023 (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
02 May 2023 - - - $8,149,711 8,487,514 $0.9602 $2,697,863 3,201,911 $0.8426
29 June 2023 - - - $3,352,980 3,753,056 $0.8934 - - -
11 September 2023 - - - $3,754,972 3,640,656 $1.0314 - - -
- - $15,257,663 15,881,226 3,201,911
Buybacks
No shares were repurchased by the Company during either the period ended 30
June 2024 or the year ended 31 December 2023.
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 be 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 2024 or 31 December 2023.
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, Suntera (Guernsey) Limited (formerly named 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 30 June 2024, the administration fee expense was $42,918 (30
June 2023: $43,636), the secretarial fee was $58,671 of which $Nil was in
relation to the administration of the ongoing buyback programme, (30 June
2023: $53,092) and the loan administration and custody fee expense was $14,910
(30 June 2023: $9,959). At 30 June 2024, the administration fee payable is
$5,755(1) (31 December 2023: $5,852(1)), the secretarial fee payable is
$53,952(1) (31 December 2023: $25,450(1)) and the loan administration and
custody fee payable is $17,609(1) (31 December 2023: $9,088(1)).
(1) 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 2024, the Directors' fees and travel expenses
amounted to $97,550 (30 June 2023: $96,725). Michael J. Holmberg, the
non-independent Director, has waived the fees for his services as a Director.
There were no other related interests for the period ended 30 June 2024.
The Company has not set any requirements or guidelines for Directors to own
shares in the Company. The beneficial interests of the Directors and their
connected persons in the Company's shares as at 30 June 2024 are shown in the
table below:
No. of Ordinary Shares No. of Extended Life Shares No. of New Global Shares Total No. of
Director Shares
John Hallam - 40,507 33,462 73,969
Michael Holmberg - 17,885 34,982 52,867
Christopher Legge - - - -
Stephen Vakil - - 18,253 18,253
NOTE 7 - FINANCIAL HIGHLIGHTS
Ordinary Extended Life Shares New Global Ordinary Extended Life Shares New Global
Shares Shares Shares Shares
($) ($) (£) ($) ($) (£)
Per share operating performance Period ended 30 june 2024 (UNAUDITED) Period ended Period ended Period ended Period ended Period ended
30 june 2024 (UNAUDITED) 30 june 2024 (UNAUDITED) 30 june 2023 (Unaudited) 30 june 2023 (Unaudited) 30 june 2023
(Unaudited)
Net asset value per share at 0.8071 1.0312 0.6239 0.7730 0.9728 0.6640
beginning of the period
Impact of capital distribution - - - - 0.0065 0.0001
Impact of dividend distribution - - - - - -
Income from investment operations (1)
Net investment income 0.0004 0.0090 0.0122 0.0007 0.0033 0.0112
Net realised and unrealised (loss)/gain from investments and foreign exchange (0.0332) (0.0262) (0.0313) 0.0222 0.0441 (0.0232)
(Loss)/gain from investment operations (0.0328) (0.0172) (0.0191) 0.0229 0.0474 (0.0120)
Net asset value per share at 0.7743 1.0140 0.6048 0.7959 1.0267 0.6521
end of the period(2)
(1)Weighted average number of shares outstanding was used for calculation.
(2)Each share classes net assets includes the underlying assets and
liabilities directly attributable to the respective share class.
Ordinary Extended Life Shares New Global Ordinary Extended Life Shares New Global
Shares Shares Shares Shares
($) ($) (£) ($) ($) (£)
NAV Total return (2, 3) Period ended Period ended Period ended Period ended Period ended 30 june 2023 (Unaudited) Period ended
30 june 2024 (UNAUDITED) 30 june 2024 (UNAUDITED) 30 june 2024 (UNAUDITED) 30 june 2023 (Unaudited) 30 june 2023
(Unaudited)
NAV Total Return before (4.06%) (1.67%) (3.06%) 2.96% 5.54% (1.79%)
performance fee
NAV Total Return after performance fee including an income distribution by way (4.06%) (1.67%) (3.06%) 2.96% 5.54% (1.79%)
of dividend
(2) NAV Total Return is calculated for the Ordinary Shares, Extended Life
Shares and New Global Shares only and is calculated based on movement in the
NAV and does not reflect any movement in the market value of the shares. A
shareholder's return may vary from these returns based on participation in new
issues, the timing of capital transactions etc. It assumes that all income
distributions of the Company, paid by way of dividend, were reinvested,
without transaction costs. Class A shares are not presented as they are not
profit participating shares.
(3) An individual shareholder's return may vary from these returns based on
the timing of the shareholder's subscriptions.
Ordinary Extended Life Shares New Global Ordinary Extended Life Shares New Global
Shares Shares Shares Shares
($) ($) (£) ($) ($) (£)
Ratio to average net assets PERIOD ENDED PERIOD ENDED PERIOD ENDED Period ended Period ended 30 june 2023 (Unaudited) Period ended
30 June 2024 30 June 2024 30 June 2024 30 june 2023 (Unaudited) 30 june 2023
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
Net investment income before and after performance fees 0.11% 1.76% 4.00% 0.19% 0.69% 3.51%
Total expenses and performance fee (1.28%) (1.39%) (2.90%) (1.08%) (1.18%) (1.53%)
NOTE 8 - RECONCILIATION OF NET ASSET VALUE TO PUBLISHED NAV
In preparing the Financial Statements, there were adjustments relating to
investment valuations. The impact of these adjustments on the NAV per Ordinary
Share, Extended Life Share and New Global Share is detailed below:
Ordinary Ordinary Extended Life Extended Life New Global New Global
Share Class Net Assets Share Class Share Class Share Class NAV per Share Share Class Share Class NAV per Share
($) NAV per Share Net Assets ($) Net Assets (£)
($) ($) (£)
Published net assets as at 30 June 2024 12,127,488 0.7884 45,413,289 1.0266 16,825,621 0.6048
Valuation adjustments (216,253) (0.0141) (558,177) (0.0126) - -
Net assets per Unaudited Consolidated Financial Statements 11,911,235 0.7743 44,855,112 1.0140 16,825,621 0.6048
Ordinary Ordinary Extended Life Extended Life New Global New Global
Share Class Net Assets Share Class Share Class Share Class NAV per Share Share Class Share Class NAV per Share
($) NAV per Share Net Assets ($) Net Assets (£)
($) ($) (£)
Published net assets as at 31 December 2023 12,323,608 0.8011 45,378,194 1.0258 17,358,035 0.6239
Valuation adjustments 91,623 0.0060 236,291 0.0054 - -
Net assets per Consolidated Financial Statements 12,415,231 0.8071 45,614,485 1.0312 17,358,035 0.6239
NOTE 9 - SUBSEQUENT EVENTS
The Directors have evaluated subsequent events up to 28 August 2024, which is
the date that the financial statements were available to be issued.
There are no further items that require disclosure or adjustment to Financial
Statements.
ADDITIONAL INFORMATION | Contact Details
Contact 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
Suntera (Guernsey) Limited (formerly named 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 (http://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 FLFFDTIITFIS
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