REG - NB Distressed Debt NB Distressed - NBDX NB Distressed - NBDG - Annual Financial Report
26/04/2024 07:00
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RNS Number : 1179M NB Distressed Debt Invest. Fd. Ltd 26 April 2024
NB DISTRESSED DEBT INVESTMENT FUND LIMITED
2023 ANNUAL Report
AUDITED CONSOLIDATED Financial Statements
For the YEAR ENDED 31 DECEMBER 2023
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.
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 31 December 2023 the Company's share capital comprised the following(1):
Ordinary Share Class ("NBDD")
15,382,770 Ordinary Shares, none of which were held in treasury.
Extended Life Share Class ("NBDX")
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.
COMPANY OVERVIEW | Capital Structure
Capital Structure
The Company's share capital consists of three different share classes, all of
which are in the harvest period: the Ordinary Share Class; the Extended Life
Share Class; and the New Global Share Class. These share classes each have
different capital return profiles and, in one instance a different
geographical remit. In addition, the Company has two Class A Shares in issue.
While the Company's share classes are all now in harvest, returning capital to
shareholders, the Company's corporate umbrella itself has an indefinite life
to allow for flexibility for the Company to add new share classes if demand,
market opportunities and shareholder approval supported such a move, although
the Company has no current plans to create new share classes. Each share class
is considered in turn below.
Ordinary Share Class
NBDD was established at the Company's launch on 10 June 2010 with a remit to
invest in the global distressed debt market with a focus on North America. The
investment period of NBDD expired on 10 June 2013.
Voting rights:
Yes
Denomination: US
Dollars
Hedging:
Portfolio hedged to US Dollars
Authorised share capital: Unlimited
Par value:
Nil
Extended Life Share Class
A vote was held at a class meeting of NBDD shareholders on 8 April 2013 where
the majority of shareholders voted in favour of a proposed extension.
Following this meeting and with the NBDD shareholders' approval of the
extension, on 9 April 2013 a new Class, NBDX, was created and the NBDX Shares
were issued to 72% of initial NBDD investors who elected to convert their NBDD
Shares to NBDX Shares. NBDX had a remit to invest in the global distressed
debt market with a focus on North America. The investment period of NBDX
expired on 31 March 2015.
Voting rights:
Yes
Denomination: US
Dollars
Hedging:
Portfolio hedged to US Dollars
Authorised share capital: Unlimited
Par value:
Nil
New Global Share Class
NBDG was created on 4 March 2014 and had a remit to invest in the global
distressed market with a focus on Europe and North America. The investment
period of NBDG expired on 31 March 2017.
Voting rights:
Yes
Denomination: Pound
Sterling
Hedging:
Unhedged portfolio
Authorised share capital: Unlimited
Par value:
Nil
Class A Shares
The Class A Shares are held by a trustee pursuant to a purpose trust
established under Guernsey law. Under the terms of the Trust Deed the Trustee
holds the Class A Shares for the purpose of exercising the right to receive
notice of general meetings of the Company but the Trustee shall only have the
right to attend and vote at general meetings of the Company when there are no
other Shares of the Company in issue.
Voting rights:
No
Denomination: US
Dollars
Authorised share capital: 10,000 Class A
Shares
Par value:
US Dollar $1
COMPANY OVERVIEW | Business Model
Business Model
Principal Activities and Structure
The principal activity of the Company is to carry out business as an
investment company. The Directors do not envisage any changes in this activity
for the foreseeable future.
The chart below sets out the ownership, organisational and investment
structure of the Company.
INVESTMENT STRUCTURE OF THE COMPANY
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/1179M_1-2024-4-25.pdf
(http://www.rns-pdf.londonstockexchange.com/rns/1179M_1-2024-4-25.pdf)
(1) Further information on the Company's capital structure can be found above.
(2) Further information on the Company's investment management arrangements
can be found below.
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
The investment period of each share class has expired. During the investment
period, the Investment Manager sought, in accordance with the Investment
Policy, to identify mis-priced or otherwise overlooked securities or assets
that had the potential to produce attractive absolute returns while seeking to
limit downside risk through collateral and structured protection where
possible.
The Ordinary Shares, Extended Life Shares and New Global Shares (collectively
the "Portfolios") are biased toward stressed and distressed debt securities
secured by hard asset collateral in accordance with the Investment Policy.
When investing on behalf of the Company, the Investment Manager focused on
companies with significant tangible assets which were judged likely to
maintain long-term value through a restructuring. The Investment Manager
avoided "asset-light" companies, as their values tend to depreciate in
distressed scenarios, and also aimed to concentrate on companies with stressed
balance sheets whose low implied enterprise value multiples, often calculated
using currently depressed cash flows, offered a discount to comparable market
valuations.
What is Distressed Debt?
Distressed debt generally refers to the financial obligations of a company
that is either already in default, under bankruptcy protection, or in distress
and heading toward default. Distressed debt often trades at a significant
discount to its par value and may present investors with compelling
opportunities to profit if there is a recovery in the business. Typically,
when a company experiences financial distress or files for bankruptcy
protection, the original debt holders often sell their debt securities or
claims to a new set of investors at a discount. These investors often try to
influence the process by which the issuer restructures its obligations or
implements a plan to turn around its operations. These investors may also
inject new capital into a distressed company in the form of debt or equity in
order to prevent the company from going into liquidation or to aid the company
in carrying out a restructuring plan. Investors in distressed debt typically
must not only assess the issuer's ability to improve its operations but also
whether the restructuring process is likely to result in a meaningful recovery
to the investors' class of claims.
Distressed debt can be performing or non-performing. Performing debt is
defined as debt that maintains its contractual obligations relating to
interest and/or principal payments and can be debt that has yet to default or
even debt that is under bankruptcy protection. Non-performing debt is defined
as debt that does not continue to meet its financial obligations.
There are several different strategies related to investing in distressed
debt. These strategies differ mainly in the types of securities that investors
purchase, the life of a fund and its investment period, and a fund's expected
returns. Four strategic categories include: (i) senior/senior secured debt
strategies; (ii) control/private equity strategies; (iii) junior debt
strategies; and (iv) capital structure arbitrage strategies. During the
investment periods of the Portfolios, the Investment Manager focused on
implementing a senior/senior secured debt strategy in which it invested
primarily in secured debt with strong collateral value and structural
protection. The Investment Manager has also invested in control positions and
non-control positions with the objective of acquiring a blocking position on
behalf of the Portfolios.
Investing in secured debt at the top of the capital structure is, in the
opinion of the Investment Manager, towards the more conservative end of the
distressed debt strategy risk spectrum due to the support from the value of
the underlying collateral. Additionally, secured debt holders often have the
ability to foreclose on the assets securing their claim and to drive the
restructuring process. The typical holding period for investments in this type
of strategy is at least six months and can be more than three years.
Typical Life Cycle of a Distressed Debt Investment
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/1179M_1-2024-4-25.pdf
(http://www.rns-pdf.londonstockexchange.com/rns/1179M_1-2024-4-25.pdf)
Further information on the Company's investment process can be found in the
Company's most recent prospectuses which are available on the Company's
website at www.nbddif.com (http://www.nbddif.com) under the "Investor
Information" tab.
(1) Negotiations can take place within bankruptcy or creditors can negotiate
with the company to agree on a pre-packaged bankruptcy whereby the plan of
reorganisation is negotiated before the company files for bankruptcy
protection (this has become more common).
Distributions to Shareholders
Income
In order to benefit from an exemption to the United Kingdom ("UK") offshore
fund rules, all income from the Company's Portfolio (after deduction of
reasonable expenses) must be paid to investors. To meet this requirement the
Company will pay out by way of dividend, in respect of each share class, all
net income received on investments of the Company attributable to such share
class, as appropriate.
It is not anticipated that income from the Portfolios will be material and
therefore any income distributions by way of dividend will be on an ad-hoc
basis. However, the Company monitors the need to distribute such income
annually (less allowable expenses under the NMPI rules) in order to continue
to be excluded from the FCA's restrictions which apply to non-mainstream
investment products. The exact amount of such income distribution by way of
dividend in respect of any class of shares will be variable depending on the
amounts of income received by the Company attributable to such share class and
will only be paid in accordance with applicable law at the relevant time,
including the Companies (Guernsey) Law, 2008 (as amended) (the "Law") and, in
particular, will be subject to the Company passing the solvency test contained
in the Law at the relevant time. The amount of income distributions by way of
dividend paid in respect of one class of shares may be different from that of
another class.
Capital
Following the expiry of the Portfolios' investment periods, the capital
proceeds attributable to the corresponding share class as determined by the
Directors and in accordance with the articles of incorporation (the
"Articles"), will, at such times and in such amounts as the Directors shall in
their absolute discretion determine, be distributed to shareholders of that
class pro rata to their respective holdings of the relevant shares.
Any capital return will only be made by the Company in accordance with the
Articles of the Company and applicable law at the relevant time, including the
Law (and, in particular, will be subject to the Company passing the solvency
test contained in the Law at the relevant time).
Towards the end of the Portfolios' respective harvest periods, a residual
amount will be retained in accordance with regulatory requirements until such
time as the relevant share class may be liquidated or its assets otherwise
disposed of at the discretion of the Board.
Gearing
The Company will not employ leverage or gearing for investment purposes. The
Company may, from time to time, use borrowings for share buybacks and
short-term liquidity purposes, including bridging purposes, prior to the sale
of investments. Save for such bridging borrowings the Directors will restrict
borrowing, with respect to each share class, to an amount not exceeding 10
percent of the NAV of the share class at the time of drawdown.
The Company does not currently have any borrowings. Derivatives may be used
for the purposes of efficient portfolio management and to hedge risk within
the Portfolios. In addition, from time to time the Company may also invest in
such derivatives for investment purposes.
2023 PERFORMANCE REVIEW | Financial Highlights
Financial Highlights
Key Figures
AS At 31 December 2023 Ordinary Extended Life Share Class New Global Aggregated
Share Class(1)
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% -
AS At 31 December 2022 Ordinary Extended Life Share Class New Global Share Class(1) Aggregated
Share Class
Net Asset Value ("NAV") ($ millions) 11.9 58.5 24.8 95.2
NAV per Share ($) 0.7730 0.9728 0.7987 -
Share Price ($) 0.740 0.4800 0.4691 -
NAV per Share (£) - - 0.6640 -
Share Price (£) - - 0.39 -
Premium /(Discount) to NAV per Share (4.27%) (50.66%) (41.26%) -
Portfolio of Distressed Investments ($ millions) 7.3 42.5 24.0 73.8
Cash and Cash Equivalents ($ millions) 4.4 15.2 0.2 19.8
Total Expense Ratio ("TER")(2) 0.97% 0.99% 1.33% -
Ongoing Charges (3) 0.95% 0.96% 1.29% -
(1) Stated in US Dollars, the £ price as at 31 December 2023 and 31 December
2022 converted to US Dollars using respective 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 year to 31 December 2023, the Company's Ongoing Charges were 1.53%.
This figure is based on an expense figure for the year to 31 December 2023 of
$1,324,249. This figure, which has been prepared in accordance with AIC
guidance represents the Company's operating expenses, excluding finance costs
payable, expressed as a percentage of average net assets. Effective 18 March
2021, the Investment Manager had waived its entitlement to all fees from the
Company. The Ongoing Charges by share class are disclosed above.
Summary of Value in Excess of Original Capital Invested
AS At 31 December 2023 Ordinary Extended Life New Global
Share Class ($)
Share Class ($)
Share Class (£)
Original Capital Invested (124,500,202) (359,359,794) (110,785,785)
Total Capital Distributions 129,627,394 294,070,076 51,444,766
Total Income Distributions (1) 3,166,835 20,695,255 5,070,285
Distributions as % of Original Capital 107% 88% 51%
Total Buybacks - 12,112,379 10,924,963
NAV 12,415,231 45,614,485 17,358,035
Total of NAV Plus Capital and Income Returned ("Value") 145,209,460 372,492,195 84,798,049
Value in Excess of Original Capital Invested 20,709,258 13,132,401 (25,987,736)
Value as % of Original Capital Invested 117% 104% 77%
AS At 31 December 2022 Ordinary Extended Life New Global
Share Class ($)
Share Class ($)
Share Class (£)
Original Capital Invested (124,500,202) (359,359,794) (110,785,785)
Total Capital Distributions 129,627,394 278,812,413 49,279,634
Total Income Distributions (1) 3,166,835 20,695,255 5,070,285
Distributions as % of Original Capital 107% 83% 49%
Total Buybacks - 12,112,379 10,924,963
NAV 11,890,321 58,477,990 20,598,909
Total of NAV Plus Capital and Income Returned ("Value") 144,684,550 370,098,037 85,873,792
Value in Excess of Original Capital Invested 20,184,348 10,738,243 (24,911,993)
Value as % of Original Capital Invested 116% 103% 78%
(1) By way of dividend
2023 PERFORMANCE REVIEW | Chairman's Statement
Chairman's Statement
The year ended 31 December 2023 continued to see interest rate and inflation
uncertainty, the wars in Ukraine and the Middle East, rising recession risk
and volatile energy prices. As has been noted before, with each share class in
its harvest period, we continue to seek to balance the pace of exits and the
value achieved for shareholders as we return capital to our investors. As a
reminder, the Ordinary class shareholders will no longer receive capital
distributions until such time as all final assets attributable to them have
been realised to ensure compliance with UK regulations.
Company Performance
As at 31 December 2023, 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 coming year,
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
We were pleased to see that shareholders voted overwhelmingly in favour of all
resolutions proposed at our AGM held on 28 June 2023. We appreciate that
circumstances have adversely impacted the results the company has achieved and
would like to take the opportunity to thank you all for your votes and
continued support. We would continue to highlight the importance of voting in
the AGM and are always happy to receive any questions or concerns from
shareholders ahead of the AGM so they can be addressed beforehand.
Board Composition, Independence and Diversity
Due to the expected wind up of the fund it is not considered appropriate or
practical to refresh the board at present and we believe the results of the
relevant AGM resolutions endorse this approach.
Distributions
During 2023, we made further progress on the realisation of assets. Following
the receipt of proceeds from the realisation of a lodging & casinos
investment the Board resolved on 17 April 2023 to make capital distributions
of $0.1356 and £0.0698 per share in respect of the NBDX and NBDG classes
respectively. These distributions were made by a compulsory pro rata
redemption of shares held as at May 2, 2023 with payment being made on 17 May
2023.
On 16 June 2023, the Board announced a further capital distribution of $0.0651
per Extended Life Share, again from the realisation of a lodging & casinos
investment, which was paid on 13 July 2023.
On 21 August 2023, the Board announced a further capital distribution of
$0.0786 per Extended Life Share, from a Return of Capital Distribution of a
Financial Intermediaries investment, which was paid on 25 September 2023.
We will continue to put our income distribution policy to a shareholder vote
at each annual general meeting. I would like to remind shareholders that such
distributions occur on an ad-hoc basis and are not expected to be either
material or equal for each share class.
Outlook
As I said in 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 coming year, 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
25 April 2024
2023 PERFORMANCE REVIEW | Investment Manager's Report
Investment Manager's Report
Ordinary Share Class
Summary
The NAV per share increased by 3.64 % for the year ended 31 December, 2023.
Financial markets focussed on stubborn inflation trends combined with a
gradual deterioration in the cyclical economy for much of 2023. However, as
fears of sticky inflation faded, expectations of rate cuts have soothed
hard-landing concerns. Looking ahead, investors will continue to monitor
multiple trends including economic growth dynamics, the ultimate destination
of 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 remains very difficult to
predict. Despite the uncertainty, the Investment Manager is committed to
realising the investments in a timely manner and winding down the share class
as soon as practicable, but there is one asset we are working through which
will determine the final distribution date. Currently we are in what we hope
to be the final stages of harvesting a number of investments and we will keep
investors informed as they occur. It is our intention to fully harvest NBDD
during the coming year.
Portfolio Update
NBDD ended the year with a NAV per share of $0.8071 compared to $0.7730 at end
of 2022. The NAV increase was principally driven by an increase in value of a
packaging company investment and a surface transport investment. At 31
December 2023, 58% of NBDD's NAV was invested in distressed assets, and $4m in
US Government securities which represented a further 42% of NAV, with a
minimal amount cash net of payables (see table below). Cash balances will
continue to increase as assets are realised, subject to variations in
collateral cash, but as noted previously cannot be distributed until the final
liquidation of the share class. The portfolio consisted of 5 issuers across
four sectors. The largest sector concentrations were in surface
transportation, containers & packaging and financial intermediaries.
Cash Analysis
Balance Sheet - Cash $4.3m
Collateral cash ($3.1m)
Other payables ($0.0m)
Total available cash $1.2m
Significant Price Movement during 2023 (more than 1% of NBDD NAV or
approximately $120,000)
INDUSTRY INSTRUMENT TOTAL RETURN COMMENT
(USD MILLIONS)
Containers & packaging Private Equity 0.4
Sponsor Equity Injection
Surface Transport Total Return Swap 0.6 Interest accruals
Temporary Investments US Treasury Bills 0.2 Price rise and Interest accruals
Exits
During the year, we had no exits. The total number of exits since inception in
NBDD is 51, with a total return of $35.4m.
Distributions
To date, $132.8m or 107% of original capital has been distributed to investors
in the form of capital distributions via redemptions and income dividends.
Total value to investors including NAV and all distributions paid is $145.2m
(117% of original capital). For regulatory reasons, the final 10% of the total
return (NAV plus cumulative distributions) in respect of any class of
participating shares in NBDDIF will be returned to shareholders with a final
compulsory redemption of all of the outstanding shares of that class. The next
distribution for NBDD will be the final distribution to shareholders and will
wind down the share class. Our current expectation is to wind down the share
class during the coming year, assuming supportive market conditions. We will
continue to update investors as we gain clarity on the realisations.
Extended Life Share Class
Summary
The NAV per share increased by 5.5 % for the year ended 31 December, 2023.
Financial markets focussed on stubborn inflation trends combined with a
gradual deterioration in the cyclical economy for much of 2023. However, as
fears of sticky inflation faded, expectations of rate cuts have soothed
hard-landing concerns. Looking ahead, investors will continue to monitor
multiple trends including economic growth dynamics, the ultimate destination
of 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 remains very difficult to
predict. Despite the uncertainty, the Investment Manager is committed to
realising the investments in a timely manner and winding down the share class
as soon as practicable. Currently we are in what we hope to be the final
stages of harvesting a number of investments and we will keep investors
informed as they occur. It is our intention to fully harvest NBDX during the
next 18 months or so.
Portfolio Update
NBDX ended the year with a NAV per share of $1.0312 compared to $0.9728 at end
of 2022. At 31 December 2023, 89% of NBDX's NAV was invested in distressed
assets, and $1.9m in US Government securities which represented a further 11%
of NAV with a minimal amount of cash net of payables (see table below). Cash
balances will continue to increase as assets are realised, subject to
variations in collateral cash, but as noted previously not all cash can be
distributed until the final liquidation of the share class. The NAV per share
increase during the year was principally driven by an increase in value of a
packaging investment and two surface transport investments, offset by a
decrease in value of an automobile components investment The NBDX portfolio
consists of 8 issuers across 6 sectors. The largest sector concentrations were
in surface transportation, financial intermediaries, oil & gas, containers
& packaging.
Cash Analysis
Balance Sheet - Cash $11.9m
Collateral cash ($8.7m)
Other payables ($0.1m)
Total available cash $3.1m
Notable events below describe activity in the investments during 2023:
In March 2023, a restructuring agreement for a gaming & lodging investment
was executed which resulted in a paydown of the Secured Notes. Proceeds of
approximately $6.4m were received in April 2023.
In May 2023, we exited another gaming & lodging investment in the
secondary market. NBDX received approximately $2.0m.
In June 2023, a financial intermediary investment made a distribution to its
surplus note holders of approximately $33.4m, of which NBDX received $4.3m.
Significant Price Movements during 2023 (more than 1% of NBDX NAV or $460,000)
INDUSTRY INSTRUMENT TOTAL RETURN COMMENT
(USD MILLIONS)
Automobile Components Private Equity (0.7)
Containers & Packaging Private Equity 1.0 Sponsor Equity Injection
Surface Transport Total Return Swap 1.5 Interest Accrual
Surface Transport Bank Debt Investments 0.6 Interest Accrual
Exits
In 2023 we had two exits. This brought the total number of exits since
inception in NBDX to 71 with total return of $70.9m.
Distributions
During 2023 NBDX made $15.3m distributions. 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
$372.5m or 104% of original capital. For regulatory reasons, the final 10% of
total return in respect of any class of participating shares in NBDDIF will be
returned to shareholders with the final compulsory redemption of all of the
outstanding shares of that class. The investment manager has undertaken a
review of all the investments in the light of a changed market and we have
updated the distribution schedule for the investments based on current
expectations. During the next 18 months or so assuming supportive market
conditions, our current expectation is to wind down the share class. We will
continue to update investors as we gain clarity on the realisations.
New Global Share Class
Summary
The NAV per share decreased by 6.04% for the year ended 31 December 2023
primarily due to currency fluctuation. Financial markets focussed on stubborn
inflation trends combined with a gradual deterioration in the cyclical economy
for much of 2023. However, as fears of sticky inflation faded, expectations of
rate cuts have soothed hard-landing concerns. Looking ahead, investors will
continue to monitor multiple trends including economic growth dynamics, the
ultimate destination of 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
remains very difficult to predict. Despite the uncertainty, the Investment
Manager is committed to realising the investments in a timely manner and to
winding down the share class as soon as practicable. Currently we are in what
we hope to be the final stages of harvesting a number of investments and we
will keep investors informed as they occur. It is our intention to fully
harvest NBDG during the next 12 months.
Portfolio Update
NBDG ended the year with a NAV per share of £0.6239 compared to £0.6640 at
the end of 2022. At 31 December 2023, 100% of NBDG's NAV was invested in
distressed assets with a minimal amount of cash net of payables (see table
below). NAV per share decreased during the year primarily due to currency
fluctuation and 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 5 issuers across 5
sectors. The largest sector concentrations were in lodging & casinos,
commercial mortgage, surface transportation and oil & gas.
Cash Analysis
Balance Sheet - Cash $0.3m
Other payables ($0.2m)
Total available cash $0.1m
Notable events involving NBDG's investments during 2023 are below:
In March 2023, a restructuring agreement for a gaming & lodging investment
was executed which resulted in a paydown of the Secured Notes. Proceeds of
approximately £2.6m were received in April.
Significant Price Movements during 2023 (more than 1% of NBDG NAV or
£170,000)
INDUSTRY INSTRUMENT TOTAL RETURN COMMENT
(USD MILLIONS)
Surface Transport Bank Debt Investments 0.6 Interest Accrual
Lodging & Casinos Bank Debt Investments (0.6) Lower Expected Value
Automobile Components Private Equity (0.3)
Exits
During 2023 there was one exit. The total number of exits since inception is
32 with a total return of £ 2.7m. Detailed descriptions of the exits are at
the end of this report.
Distributions
During 2023, there were distributions of £2.2m. 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 £84.8m or 77% of original capital. For regulatory reasons, the final
10% of total return in respect of any class of participating shares in NBDDIF
will be returned to shareholders with the final compulsory redemption of all
the outstanding shares of that class. The investment manager has undertaken a
review of all the investments in the light of a changed market and we have
updated the distribution schedule for the investments based on current
expectations. During the next 18 months or so assuming supportive market
conditions, our current expectation is to wind down the share class. We will
continue to update investors as we gain clarity on the realisations.
Summary of Exits across all Share Classes
Exits experienced from inception to date were as follows:
NBDD 51 exits with a total return of $35.4m, IRR(1) of 10% and ROR of 19%
NBDX 71 exits with a total return of $77.0m, IRR(1) of 5% and ROR of 12%
NBDG 32 exits with a total return of £ (2.2) m, IRR(1) of (4)% and ROR of
(2)%
The annualised internal rate of return ("IRR") is computed based on the actual
dates of the cash flows of the security (purchases, sales, interest and
principal pay downs), calculated in the base currency of each portfolio. The
Rate of Return ("ROR") represents the change in value of the security (capital
appreciation, depreciation, and income) as a percentage of the purchase
amount. The purchase amount can include multiple purchases. Total Return
represents the inception to date gain/loss on an investment.
Exit A1 (Exit 32 for NBDG and Exit 70 for NBDX)
Exit Cash Invested Cash Received Total Return Months Held
Exit A1 (millions) (millions) (millions) IRR ROR
NBDX 70 $7.8 $13.0 $5.3 8.9 % 67.8 % 101
NBDG 32 £2.5 £5.2 £2.7 12.9 % 109.9 % 101
Exit A2 (Exit 71 for NBDX)
Exit Cash Invested Cash Received Total Return Months Held
Exit A2 (millions) (millions) (millions) IRR ROR
NBDX 71 $14.0 $20.2 $6.1 8.0% 43.7 % 116
Neuberger Berman Investment Advisers LLC Neuberger Berman
Europe Limited
25 April 2024
25 April 2024
2023 PERFORMANCE REVIEW | Portfolio Information
Portfolio Information
Ordinary Share Class
Top 4(1) Holdings as at 31 December 2023
Purchased Instrument % of NAV
Holding Sector Status Country Primary Asset
1 Surface Transport(2) Trade Claim Defaulted Brazil 33% Municipal Claim
2 Specialty Packaging Post-Reorg Equity Post-Reorg Luxembourg 21% Manufacturing Plant and Equipment
3 Specialty Packaging Post-Reorg Equity Post-Reorg Luxembourg 3% Manufacturing Plant and Equipment
4 Financial Intermediaries Secured Notes Post-Reorg US 2% Cash & Securities
Total 59%
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/1179M_1-2024-4-25.pdf
(http://www.rns-pdf.londonstockexchange.com/rns/1179M_1-2024-4-25.pdf)
( )
( 1) Ordinary Share Class holds four investments by issuer.
(2) As at 31 December 2023 collateral pledged is included in the Surface
Transport Market Value.
( )
(3) Categorisations determined by Neuberger Berman; percentages determined by
Neuberger Berman and U.S Bank Global Fund Services (Guernsey) Limited / U.S.
Bank Global Fund Services (Ireland) Limited as Administrator /
Sub-Administrator to the Company. 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/1179M_1-2024-4-25.pdf
(http://www.rns-pdf.londonstockexchange.com/rns/1179M_1-2024-4-25.pdf)
( )
(4) Categorisations determined by Neuberger Berman and percentages determined
by the Administrator, as a percentage of the net asset values as at 31
December 2023 and 31 December 2022.
( )
(5) As at 31 December 2023 collateral pledged is included in the Brazil Market
Value.
Extended Life Share Class
Top 8(1) Holdings as at 31 December 2023
Purchased Instrument % of NAV
Holding Sector Status Country Primary Asset
1 Surface Transport(2) Trade Claim Defaulted Brazil 23% Municipal Claim
2 Oil & Gas Post-Reorg Equity Post-Reorg US 17% Ethanol Plant
3 Specialty Packaging Post-Reorg Equity Post-Reorg Luxembourg 15% Manufacturing Plant and Equipment
4 Commercial Mortgage Secured Loan Defaulted Netherlands 11% Commercial Real Estate
5 Surface Transport Secured Loan Defaulted Spain 10% Concession
6 Financial Intermediaries Secured Notes Defaulted US 8% Cash and Securities
7 Auto Components Secured Loan Post-Reorg US 3% Manufacturing Plant and Equipment
8 Specialty Packaging Post-Reorg Equity Post-Reorg Luxembourg 2% Manufacturing Plant and Equipment
Total 89%
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/1179M_1-2024-4-25.pdf
(http://www.rns-pdf.londonstockexchange.com/rns/1179M_1-2024-4-25.pdf)
(1) Extended Share Class holds seven investments by issuer.
( )
(2) As at 31 December 2023 collateral pledged is included in the Surface
Transport Market Value.
( )
(3) Categorisations determined by Neuberger Berman; percentages determined by
Neuberger Berman and U.S Bank Global Fund Services (Guernsey) Limited / U.S.
Bank Global Fund Services (Ireland) as Administrator / Sub-Administrator to
the Company. 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 6 in the associated PDF document:
http://www.rns-pdf.londonstockexchange.com/rns/1179M_1-2024-4-25.pdf
(http://www.rns-pdf.londonstockexchange.com/rns/1179M_1-2024-4-25.pdf)
(4) Categorisations determined by Neuberger Berman and percentages determined
by the Administrator, as a percentage of the net asset values as at 31
December 2023 and 31 December 2022.
(5) As at 31 December 2023 collateral pledged is included in the Brazil Market
Value.
New Global Share Class
Top 5(1) Holdings as at 31 December 2023
Purchased Instrument % of NAV
Holding Sector Status Country Primary Asset
1 Lodging & Casino Secured Loan / Private Equity Current Spain 32% Hotel/Casino
2 Commercial Mortgage Secured Loan Defaulted Netherlands 27% Commercial Real Estate
3 Surface Transportation Secured Loan Defaulted Spain 21% Legal Claim
4 Oil & Gas Private Equity Post-Reorg US 14% Ethanol Plant
5 Auto Components Secured Loan Post-Reorg US 3% Manufacturing Plant
Total 97%
For Investment Structure of the Company, click on, or paste the following link
into your web browser, to view page 7 in the associated PDF document:
http://www.rns-pdf.londonstockexchange.com/rns/1179M_1-2024-4-25.pdf
(http://www.rns-pdf.londonstockexchange.com/rns/1179M_1-2024-4-25.pdf)
(1) Global Share Class holds four 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 8 in the associated PDF document:
http://www.rns-pdf.londonstockexchange.com/rns/1179M_1-2024-4-25.pdf
(http://www.rns-pdf.londonstockexchange.com/rns/1179M_1-2024-4-25.pdf)
(3) Categorisations determined by Neuberger Berman and percentages
determined by the Administrator, as a percentage of the net asset values as at
31 December 2023 and 31 December 2022.
2023 PERFORMANCE REVIEW | Strategic Report
Strategic Report
Since 31 March 2017, the Portfolios have all been in their respective harvest
period. As such this strategic report is presented in the context of the
current positioning of the Portfolios in their lifecycle. 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.
Principal and Emerging Risks and Risk Management
The Board is responsible for the Company's system of internal financial and
operating controls and for reviewing its effectiveness. The Board uses the
Company's risk matrix as its core element in establishing the Company's system
of internal financial and reporting controls. The Board has carried out a
robust assessment of the Company's emerging and principal risks and
uncertainties including those that would threaten its business model, future
performance, solvency or liquidity. The principal risks, which have been
identified, and the steps taken by the Board to mitigate these areas are as
follows:
RISK MITIGATION
Investment Activity and Performance
An unsuccessful investment strategy may result in underperformance against the The Board has managed these risks by ensuring a diversification of
Company's objectives. This might be due to the skills of the Investment investments, although the level of diversification will diminish as the
Manager falling short in its selection of sectors or issues in which to invest respective Portfolios liquidate their positions during their harvest periods.
and its management of the restructurings/reorganisations which can ensure Please see "Principal Risks Specific to Harvest Periods" below. The Investment
their success. Manager operates in accordance with the investment limits and restrictions
policy set out in the Company's Investment Policy and Objectives and as
further determined by the Board. The Directors review the limits and
restrictions on a regular basis and the Administrator monitors adherence to
the limits and restrictions every month and will notify any breaches to the
Board. The Investment Manager provides the Board with management information
including performance data and reports, and the Corporate Broker provides
shareholder analyses. The Directors monitor the implementation and results of
the investment process with the Investment Manager at each Board meeting and
monitor risk factors in respect of the Portfolios. Investment strategy is
reviewed at each meeting.
Principal Risks Associated with Harvest Periods
There can be a significant period between the date the Company makes an The Board has ensured that the Investment Manager has operated in accordance
investment and the date that any gain or loss on such investment is realised. with the investment limits and restrictions policy set out in the Company's
Further, towards the end of the Portfolios' respective harvest periods, a Investment Policy and Objectives, although it acknowledges that the
residual amount is required to be retained for each share class in accordance diversification of Portfolio investments will diminish as the Portfolios
with regulatory requirements until such time that all assets can be liquidated liquidate their positions and return capital to shareholders. The Board also
and returned to shareholders. receives regular updates on the status of the Portfolios' investments and
anticipated realisation dates.
The Board monitors the Company's expenses on a regular basis and ensures that
As capital is returned through compulsory partial redemptions and buybacks, contracts with the Investment Manager and other service providers are at
the number of assets and shares in a Portfolio will diminish which in turn may competitive rates. The Board also notes that the Company's key expenses, the
lead to an increased TER and reduced liquidity in a Portfolio's shares. management fee, was waived with effect from 18 March 2021.
The Company retains the services of its broker, Jefferies International
Limited to, amongst other things, enhance liquidity in the underlying shares.
Level of Premium or Discount
A discount or premium to NAV can occur for a variety of reasons, including While the Directors may seek to mitigate any discount or premium to NAV per
market conditions and the extent to which investors undervalue the management share through discount management mechanisms, such as buybacks or share
activities of the Investment Manager or discount its valuation methodology and issuance, there can be no guarantee that they will do so or that such
judgement. mechanisms will be successful and the Directors accept no responsibility for
any failure of any such strategy to effect a reduction in any discount or
premium. Buy backs have been ceased with the focus moving to returning capital
to shareholders via compulsory redemptions.
Market Price Risk
Market price risk is the potential for changes in the value of an investment The Board has, over the Investment Periods of the various share classes,
or Portfolio. The market value of investments may vary because of a number of ensured that the Investment Manager has operated in accordance with the
factors including, but not limited to, the financial condition of the Company's investment guidelines. The Directors monitor the status of the
underlying borrowers, the industry in which a borrower operates, general Portfolio investments with the Investment Manager at each quarterly Board
economic or political conditions, interest rates, the condition of the debt meeting and monitor risk factors in respect of the Portfolios.
trading markets and certain other financial markets, developments or trends in
any particular industry and changes in prevailing interest rates.
Further details on market price risk are provided in Note 4 below.
Fair Valuation of Illiquid Assets
With respect to investments that do not have a readily ascertainable market With respect to investments held in the Company's Portfolios that do not have
quotation in an active market, the Investment Manager will value such a readily available market quotation, such as unquoted investments or
investments at fair value and such valuations will be inherently uncertain. investments which are listed but deemed to be illiquid, the Investment Manager
Because of the inherent uncertainty and subjectivity in determining the fair values such investments at fair value on each NAV calculation date in
value of investments that do not have a readily ascertainable market quotation accordance with its customary valuation methods, policies and procedures.
in an active market, the fair value of the Company's investments as determined Further information on the Company's valuation process can be found in Note
in good faith by the Investment Manager may differ significantly from the 2(g) under "Investment transactions, investment income/expenses and
values that would have been used had a ready market existed for such valuation", and Note 2(f), "Fair Value of Financial Instruments", of the
investments. The reliability of the NAV calculations published by the Company Audited Consolidated Financial Statements (the "Financial Statements").
will be impacted accordingly.
The Board monitors, reviews and challenges the Company's fair valued assets on
a regular basis to ensure compliance with the agreed methodology. The Board
reviews the Investment Manager's internal review process.
Accounting, Legal and Regulatory
The Company must comply with the provisions of the Law, and since its shares The Board relies on the Company Secretary and the Company's advisers to ensure
trade on the SFS, the Company is required to comply with the FCA's Disclosure adherence to the Guernsey legislation and the DTRs. The Investment Manager,
Guidance and Transparency Rules ("DTRs"). A breach of the legislation could Company Secretary and the Administrator, are contracted to provide investment,
result in the Company and/or the Directors being fined or subject to criminal company secretarial, administration and accounting services through qualified
proceedings and the suspension of the Company's shares to trading on the SFS. professionals.
Operational
Disruption to, or the failure of, either the Investment Manager's or the Details of how the Board monitors the services provided by the Investment
Administrator's accounting, dealings or payment systems, or the records of the Manager and the Administrator, and the key elements designed to provide
custodian could lead to a loss of assets and prevent the accurate reporting or effective internal controls are explained further in the internal controls
monitoring of the Company's financial position. section of the Corporate Governance Report which is set out below.
Emerging Risks
The Board undertakes a quarterly assessment of all risks on a forward-looking
basis, and in discussion with the Investment Manager identifies emerging risks
in addition to assessing expected changes to existing risks as discussed
above. The Board assesses the likelihood and impact of emerging risks. The
Board will discuss and agree appropriate mitigation or management of emerging
risks as relevant to those emerging risks. Examples of emerging risks that
have been identified over the course of the past three years included the
continuing effects of COVID-19, climate related risks and the issuance of new
regulations, new risks associated with the Brexit trade deal. Emerging risks
are managed through discussion of the likelihood and impact at each quarterly
Board meeting. Should an emerging risk be determined to have any potential
impact on the Company, appropriate mitigating measures and controls are
agreed. Whilst COVID-19 was identified as an emerging risk in 2020, it has
been discussed on a quarterly basis as a continued risk but it is no longer
considered one by the board.
In 2019, the Board identified activism relating to climate change as an
emerging risk and since then has closely monitored regulatory and other
developments in this area. The UN's latest Intergovernmental Panel on Climate
Change (IPCC) report will be considered by the Board when undertaking Company
related business.
Going Concern
The Company's principal activities are set out above. The financial position
of the Company is set out below. In addition, note 4 to the 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. The Directors therefore 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 adopt the going concern basis of accounting in
preparing the Financial Statements and confirm that they have been prepared in
accordance with Guidance on the Going Concern Basis of Accounting and
Reporting on Solvency and Liquidity Risks, published by the FRC.
The going concern statement required by the 2019 AIC Code of Corporate
Governance (the "AIC Code") is set out in the "Directors' Responsibilities
Statement" below.
Viability Statement
In accordance with provision 8.2 paragraph 36 of the AIC Code of Corporate
Governance, published in February 2019 (the "AIC Code"), the Directors have
assessed the future prospects of the Company. In making their assessment the
Directors have considered the Company's status as an investment entity, its
investment objectives, the principal and emerging risks it faces, its current
position and the time period over which its assets are likely to be realised.
In their assessment of the viability of the Company over the forthcoming
twelve months, being the expected time to realisation of the final assets of
the share classes of the Company, the Directors have carried out a robust
assessment of the emerging risks, principal risks and uncertainties the
Company faces, as detailed below. These risks include the timing of asset
realisations during the Portfolios' harvest periods, the Company's income and
expenditure projections, and the expected cash flows arising in particular
from capital distributions to shareholders. The Directors noted that such
distributions may be restricted if the interest and dividend income generated
in the Portfolios is not sufficient to meet operational expenses.
As part of their review, the Directors carried out a series of stress tests
under different scenarios which assumed a significant fall in income and asset
levels and a corresponding increase in expenses and were satisfied with the
results of this analysis. The Directors have performed a quantitative and
qualitative analysis that included the Company's income and expenditure
projections and the fact that the Company's investments can be expected to be
sold, within a reasonable timeframe, to meet future funding requirements if
necessary. As part of this assessment, the Directors reviewed a series of
stress test scenarios carried out by the Investment Manager, which included an
assumption of a significant 70% fall in income and no reduction in expenses,
and were satisfied that the Company would continue to be viable financially.
The Directors have concluded that there is a reasonable expectation that the
Company will be able to continue in operation and meet its liabilities as they
fall due over the remaining life of each of its three share classes, which the
Directors consider to be the twelve month period from the signing date of
these financial statements. However, the Directors noted that the prospects
for the Company, which has an indefinite life, are subject to change should
the Company add new share classes to its structure before the existing
Portfolios' assets are fully realised.
Key Performance Indicators
In order to measure the success of the Company in meeting its objectives and
to evaluate the performance of the Investment Manager, the Directors take into
account the following performance indicators:
· Returns and NAV - At each meeting the Board reviews the NAV, income
and share price of each share class. To assist in this review the Board
considers formal reports from both the Investment Manager and brokers which
assess the performance of the asset class and look at trading activity. The
Investment Manager also provides an in-depth analysis of the holdings within
the Portfolios;
· Discount/premium to NAV - At each Board meeting, the Board monitors
the level of the Company's discount or premium to NAV per share class and
reviews the average discount/premium for other debt-orientated investment
companies. The Company publishes a NAV per share on a daily basis through the
official newswire of the London Stock Exchange.
· Ongoing Charges - In the year to 31 December 2023, the Company's
Ongoing Charges were 1.53%. This figure is based on an annual expense figure
for the year of $1,324,249. 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. No
performance fees were payable as at 31 December 2023. The Ongoing Charges by
share class are disclosed above.
• Total Expense Ratio ("TER") - In the year to 31 December 2023, the
Company's TER was 1.60%. This figure is based on an annual expense figure for
the year of $1,382,337. This figure which has been prepared in accordance with
the U.S. Generally Accepted Accounting Principles ("US GAAP") methodology,
represents the annual percentage reduction in shareholder returns as a result
of recurring operational expenses including any performance fee. No
performance fees were payable as at 31 December 2023. The TERs by share class
are disclosed above.
Alternative Performance Measures ("APMs")
Alternative Performance Measures ("APMs") included in the Annual Financial
Report and Financial Statements which require further clarification have been
considered by the Board. An APM is defined as a financial measure of
historical or future financial performance, financial position, or cash flows,
other than a financial measure defined or specified in the applicable
financial reporting framework. APMs may not have a standard meaning prescribed
by US GAAP and therefore may not be comparable to similar measures presented
by other entities. APMs included in the Annual Report and Financial Statements
are deemed to be as follows:
Alternative performance
measures
PURPOSE and/or description CALCULATION
Internal Rate of Return ("IRR") The IRR is calculated by first calculating the net present value (NPV), being
(Today's value of the expected future cash flows) - (Today's value of invested
cash). The IRR is a determination of what discount rate would cause the net
present value (NPV) of an investment to be $0.
Rate of Return ("ROR") The RoR is the net gain or loss on an investment over a specified time period, It is calculated by taking the difference between the current (or expected)
expressed as a percentage of the investment's initial cost. value and original value, divided by original value and multiplied by 100.
Opening NAV per share (A)
Closing NAV per share (B)
Rate of Return = (B-A)/A
Total Expense Ratio ("TER") The TER is Management fees and all other operating expenses expressed as a Annualised charges (A)
percentage of average net assets during the year.
Average undiluted net asset value in the period (B)
Total Expense Ratio (%) = (A)/(B)
On-going charges On-going Charges are calculated to the AIC Methodology, which is a measure, Ongoing charges (%) = (A)/(B)
expressed as a percentage of NAV, of the regular, recurring costs of the
Company. "On-going charges are those expenses of a type which are likely to Annualised ongoing charges (A)
recur in the foreseeable future, whether charged to capital or revenue, and
which relate to the operation of Company, excluding the costs of Average undiluted net asset value in the period (B)
acquisition/disposal of investments, financing charges and gains/losses
arising on investments. Ongoing charges are based on costs incurred in the
year as being the best estimate of future costs".
Net Asset Value per share ("NAV") The NAV per share represents the net assets attributable to equity
shareholders divided by the number of shares in issue, excluding any shares
held in treasury.
The NAV per Ordinary Share is published daily. This APM relates to past
performance and is used to assess performance.
Total Return Total return is expressed as a percentage of the amount invested and Original Investment cost (A)
represents the amount of value our investors earn from a security over a
specific period. Current Investments value (B)
Total Return = (B-A)/A
Ratio of Total Value to original capital Ratio of Total Value to original capital is a total of NAV plus capital Total Capital Distributions (A)
returned to investors expressed as a percentage of the original amount
invested since inception. Total Income Distributions (B)
Total Buybacks (C)
Current NAV (D)
Total of NAV Plus Capital Returned, where (E) = A+B+C+D
Original Capital Invested (F)
Ratio of Total Value to original capital (%) = E/F
(Discount) or Premium to NAV The share price of an Investment Company is derived from buyers and sellers NAV per share (NBDD) (A)
trading their shares on the stock market. This price is not identical to the
NAV. If the share price is lower than the NAV per share, the shares are Share price per share (NBDD) (B)
trading at a discount. This could indicate that there are more sellers than
buyers. Shares trading at a price above the NAV per share, are said to be at a
premium. This is expressed as a percentage.
NBDD (Discount) or Premium = (B-A)/A
NAV per share (NBDX) (A)
Share price per share (NBDX) (B)
NBDX (Discount) or Premium = (B-A)/A
NAV per share (NBDG) (A)
Share price per share (NBDG) (B)
NBDG (Discount) or Premium = (B-A)/A
Management Arrangements
Investment Management Agreement
On 17 July 2014, the Company, the Manager and the AIFM made certain
classificatory amendments to their contractual arrangements for the purposes
of compliance with the European Commission's Directive on Alternative
Investment Fund Managers (the "AIFM Directive"). The Sub-Investment Management
Agreement was terminated on 17 July 2014 and Neuberger Berman Investment
Advisers LLC, which was the Sub-Investment Manager, was appointed as the AIFM
per the amended and restated Investment Management Agreement ("IMA") dated 17
July 2014. The IMA was further amended and restated on 31 December 2017. Under
this agreement, the AIFM is responsible for risk management and day-to-day
discretionary management of the Company's Portfolios (including un-invested
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. Please refer to Note 6 below
for details of fee entitlement.
The IMA can be terminated either by the Company on one hand or the Investment
Manager on the other, but in certain circumstances, the Company would be
required to pay compensation to the Investment Manager of six months'
management charges. No compensation is payable if notice of termination of
more than six months is given. Effective 1 October 2020 the Investment Manager
waived its fee on cash in relation to the NBDD share class. Effective 18 March
2021, the Investment Manager waived its entitlement to all fees from the
Company.
Administration and Custody Agreement
Effective 1 March 2015, the Company entered into an Administration and
Sub-Administration Agreement with U.S. Bank Global Fund Services (Guernsey)
Limited ("USBG") and U.S. Bank Global Fund Services (Ireland) Limited ("USBI")
a wholly-owned subsidiary of USBG. Under the terms of the agreement,
Sub-Administration services are delegated to USBI (the "Sub-Administrator").
US Bank National Association (the "Custodian") was appointed custodian to the
Company effective 1 March 2015. See Note 6 below for details of fee
entitlement.
On 1 June 2018 the Company entered into an Amendment to the Administration and
Sub-Administration agreement to reflect the requirements of the General Data
Protection Regulation (EU) 2016/679 ("GDPR") and the Data Protection
(Bailiwick of Guernsey) Law, 2017, as amended from time to time.
Company Secretarial and Registrar Arrangements
Effective 20 June 2017, company secretarial services are provided by Suntera
(Guernsey) Limited (formerly named Carey Commercial Limited). Registrar
services are provided by Link Market Services (Guernsey) Limited.
See Note 6 below for details of fee entitlement.
Related Party Transactions
The relationships 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
these related parties which have affected the financial position or
performance of the Company in the financial year.
For information on performance fees and Directors' fees please refer to Note 6
below.
For and on behalf of the Board,
John Hallam
Christopher Legge
Chairman
Director
25 April 2024
25 April 2024
GOVERNANCE | Directors
Directors
John Hallam (Chairman)
John Hallam is a fellow of the Institute of Chartered Accountants in England
and Wales and qualified as an accountant in 1971. Previously, Mr Hallam was a
partner at PricewaterhouseCoopers and retired in 1999 after 27 years with the
firm in Guernsey and in other countries. He is a director of Real Estate
Credit Investment Limited and a number of other financial services companies,
some of which are listed on recognised exchanges. Mr Hallam served for many
years as a member and latterly chairman of the GFSC, from which he retired in
2006.
Michael J. Holmberg
Michael J. Holmberg, Managing Director of Neuberger Berman, joined the NB
Group in 2009. Mr Holmberg is the head of distressed portfolio management.
Prior to joining NB Group, Mr Holmberg founded Newberry Capital Management LLC
in 2006 and before that he founded and managed Ritchie Capital Management's
Special Credit Opportunities Group. He was also a managing director at
Strategic Value Partners and Moore Strategic Value Partners. He began
investing in distressed and credit-oriented strategies as a portfolio manager
at Continental Bank/Bank of America, where he established the bank's global
proprietary capital account. Mr Holmberg received a BA in economics from
Kenyon College and an MBA from the University of Chicago.
Christopher Legge (Chairman of the Audit Committee)
Chris Legge is a Guernsey resident and worked for Ernst & Young in
Guernsey from 1983 to 2003. Having joined the firm as an audit manager in
1983, he was appointed a partner in 1986 and managing partner in 1998. From
1990 to 1998, he was head of Audit and Accountancy and was responsible for the
audits of a number of banking, insurance, investment fund, property fund and
other financial services clients. He also had responsibility for the firm's
training, quality control and compliance functions. He was appointed managing
partner for the Channel Islands region in 2000 and merged the business with
Ernst & Young LLP in the United Kingdom. He retired from Ernst & Young
in 2003. Chris currently holds a number of non-executive directorships in the
financial services sector. He is an FCA and holds a BA (Hons) in Economics
from the University of Manchester.
Stephen Vakil (Chairman of the Management Engagement Committee and Chairman of
the Remuneration Committee and Senior Independent Director)
After graduating with a BSc in economics from Bath University in 1983, Stephen
Vakil joined L Messel & Co and moved to Chase Manhattan in 1987 to focus
on private client portfolio management. In 1989, he left to join Foster &
Braithwaite where he established the research function and subsequently became
a director. Following Foster & Braithwaite's merger with Quilter Goodison
to form Quilter & Co in 1996, Mr Vakil was given responsibility for the
London investment teams, the research department and marketing function. He
was made a managing director in 2001. Having played a key role in a number of
corporate transactions, Mr Vakil left Quilter Cheviot in 2013. He is an
Associate of the Society of Investment Professionals.
GOVERNANCE | Directors' Report
Directors' Report
The Directors present their report and Financial Statements of the Company and
their report for the year ended 31 December 2023.
Share Capital
The number of shares in issue at 31 December 2023 was as follows:
Class A Shares
2
Ordinary Shares
15,382,770
Extended Life Shares
44,234,790
New Global Shares
27,821,698
Share Buybacks
At the Annual General Meeting ("AGM") of the Company held on 28 June 2023, the
Directors were granted the general authority to purchase in the market up to
14.99% of the Ordinary Shares, 14.99% of the Extended Life Shares and 14.99%
of the New Global Shares in issue (as at 28 June 2023). The latest authority
will expire at the AGM to be held on 26 June 2024. Pursuant to this authority,
and subject to the Law and the discretion of the Directors, the Company may
purchase shares of any of its classes in the market on an ongoing basis with a
view to addressing any imbalance between the supply of and demand for such
shares, thereby increasing the NAV per share of the shares and assisting in
controlling the share price discount to NAV per share.
There were no buybacks of the Company's Shares in 2023 as on 16 November 2020
the Company announced in its quarterly Factsheet that the share buyback
programme had been discontinued. The buyback programme was intended to narrow
the discount, if any, during the investment period. At this point of the
harvest period, the priority, based on investor feedback, is the return of
capital. The Directors intend to seek annual renewal of this authority from
Shareholders to retain flexibility.
Distributions
The Company will, from time to time, pay out income distributions by way of
dividend in respect of each share class in accordance with the Company's
dividend policy as set out below. In addition, any capital proceeds
attributable to a share class (as determined by the Directors in accordance
with the Articles), will, at such times and in such amounts as the Directors
shall in their absolute discretion determine, be distributed to shareholders
of that class pro rata to their respective holdings of the relevant shares.
Further information on the Company's income and capital distribution policies
can be found above.
Dividend Policy
As set out in the Company's Prospectus, the Company will pay out in respect of
each class of shares an income distribution by way of dividend, comprising all
net income received on investments of the Company attributable to such class
of shares. It is not anticipated that income from the portfolio will be
material and therefore any dividends may be on an ad-hoc basis. It is a
requirement of an exception to the United Kingdom offshore fund rules that all
income from the Company's Portfolio (after deduction of reasonable expenses)
is to be paid to investors. This policy should ensure that this requirement
will be met. The exact amount of such dividend in respect of any class of
Shares will be variable depending on the amounts of income received by the
Company attributable to such class of Shares and will only be made available
in accordance with applicable law at the relevant time, including the Law
(and, in particular, will be subject to the Company passing the solvency test
contained in the Law at the relevant time). Furthermore, the amount of
dividends paid in respect of one class of shares may be different from that of
another class. This policy will be put to a shareholder vote by way of
separate resolution at the 2024 AGM.
Distributions made during the year
The following distributions were made:
Income distribution by way of dividend
There were no distributions by way of dividend for the year ended 31 December
2023.
Capital distributions by way of a compulsory partial redemption
Ordinary Share Class Extended Life Share Class New Global Share Class
Date Distribution Amount Number of Shares Per Share Amount Distribution Amount Number of Shares Per Share Amount Distribution Amount Number of Shares Per Share
Amount
02 May 2023 - - - $8,149,711 8,487,514 $0.9602 £2,165,132 3,201,911 £0.6762
29 June 2023 - - - $3,352,980 3,753,056 $0.8934 - - -
11 September 2023 - - - $3,754,972 3,640,656 $1.0314 - - -
- - $15,257,663 15,881,226 £2,165,132 3,201,911
Substantial Share Interests
Based upon information deemed to be reliable as provided by the Company's
registrar as at 31 March 2024, the following shareholders owned 5% or more of
the issued shares of the Company.
Percentage of Share Class (%)
No. of Ordinary Shares No. of Extended Life Shares No. of New Global Shares
Substantial Shareholders
HAREWOOD NOMINEES LIMITED 4046320 ACCT 13,007,692 84.56
LYNCHWOOD NOMINEES LIMITED 2006420 ACCT 3,320,557 7.51
ROCK (NOMINEES) LIMITED CSHGROSS ACCT 1,458,082 5.24
HSBC GLOBAL CUSTODY NOMINEE (UK) LIMITED 898873 ACCT 2,408,874 8.66
CITIBANK NOMINEES (IRELAND) DESIGNATED ACTIVITY COMPANY CLRLUX ACCT 3,987,669 9.01
J P MORGAN SECURITIES LLC CLIENTSK ACCT 3,382,583 7.65
STATE STREET NOMINEES LIMITED OM04 2,631,648 5.95
3,802,890 13.67
NORTRUST NOMINEES LIMITED GSYA ACCT 9,633,085 21.78
5,074,890 18.24
STATE STREET NOMINEES LIMITED OM04 7,267,563 16.43
8,328,427 29.94
VIDACOS NOMINEES LIMITED 158765 ACCT 1,935,114 6.96
Note: shareholdings may be greater than 5% in the share class but may not be
5% in aggregate of the Company's issued share capital.
Notifications of Shareholdings
In the year to 31 December 2023 the Company has been notified in accordance
with Chapter 5 of the DTR (which covers the acquisition and disposal of major
shareholdings and voting rights), of the following voting rights as a
shareholder of the Company. When more than one notification has been received
from any shareholder, only the latest notification is shown. For non-UK
issuers, the thresholds prescribed under DTR 5.1.2 for notification of
holdings commence at 5%. Class A shares do not hold voting rights.
Percentage of total voting rights (%)
Shareholder(1) Number of Shares
Witan Investment Trust plc 13,007,692 12.2%
Nortrust Nominees Limited 13,207,975 15.11%
Since the year end 31 December 2023 to the date of this report, there have
been no notifications received by the Company.
Directorship in Public Companies (as at 25 April 2024)
Company Names Exchange(s)
Mr John Hallam
NB Distressed Debt Investment Fund Limited SFS, London
Real Estate Credit Investments Limited London
Ruffer Illiquid Multi Strategies Fund 2015 Limited The International Stock Exchange ("TISE")
Mr Michael Holmberg
NB Distressed Debt Investment Fund Limited SFS, London
Mr Christopher Legge
NB Distressed Debt Investment Fund Limited SFS, London
Mr Stephen Vakil
NB Distressed Debt Investment Fund Limited SFS, London
Portfolio REIT PLC TISE
Anti-Bribery and Corruption Policy
The Board of the Company has a zero-tolerance approach to instances of bribery
and corruption. Accordingly, it expressly prohibits any Director or associated
persons, when acting on behalf of the Company, from accepting, soliciting,
paying, offering or promising to pay or authorise any payment, public or
private, in the United Kingdom or abroad to secure any improper benefit for
them or for the Company. The Investment Manager has also adopted a
zero-tolerance approach to instances of bribery and corruption.
The Board insists on strict observance with these same standards by its
service providers in their activities for the Company and continues to refine
its process in this regard. The Company's policy is available on its website
at www.nbddif.com/corporate_governance.html
(http://www.nbddif.com/corporate_governance.html) .
Climate Change
In 2019, the Board identified concerns relating to climate change as an
emerging risk and since then has closely monitored regulatory and other
developments in this area. The Board is conscious of its own impact on the
environment, despite being an investment company with no employees, and has
committed, on a going forward basis, to offset its carbon-emissions arising
from the air travel by the members of the Board undertaking Company related
business. In addition, the Board makes extensive use of teleconferencing
facilities thus limiting the amount of travel, all board papers are produced
and hosted digitally via a dedicated board web-portal and the Company makes
relevant enquiries to our key service providers during face-to-face meetings
about their initiatives and attitudes to climate change.
Criminal Facilitation of Tax Evasion Policy
The Board of the Company has a zero-tolerance commitment to preventing persons
associated with it from engaging in criminal facilitation of tax evasion. The
Board has satisfied itself in relation to its key service providers that they
have reasonable provisions in place to prevent the criminal facilitation of
tax evasion by their own associated persons and will not work with service
providers who do not demonstrate the same zero tolerance commitment to
preventing persons associated with it from engaging in criminal facilitation
of tax evasion. The Company's policy is available on its website at
www.nbddif.com/corporate_governance.html
(http://www.nbddif.com/corporate_governance.html) .
Employee Engagement & Business Relationships
The Company conducts its core activities through third-party service providers
and does not have any employees. The Board recognises the benefits of
fostering strong business relationships with its key service providers and
seeks to ensure each is committed to the performance of their respective
duties to a high standard and, where practicable, that each provider is
motivated to adding value within their sphere of activity. Details on the
Board's approach to service provider engagement and performance review are
contained in the Management Engagement Committee Report.
Employees and Socially Responsible Investment
The Company has a management contract with the Investment Manager. It has no
employees and all of its Directors are non-executive, with day-to-day
activities being carried out by third parties. There are therefore no
disclosures to be made in respect of employees. The Company's main activities
are carried out by Neuberger Berman, which is a signatory of the Principles of
Responsible Investment and has an ongoing commitment to strengthening and
refining its environmental, social and governance approach. An overview of
Neuberger Berman's Principles for Responsible Investment is detailed on its
website at
www.nb.com/pages/public/en-gb/principles-for-responsible-investment.aspx
(http://www.nb.com/pages/public/en-gb/principles-for-responsible-investment.aspx)
.
Gender Metrics
The current Board members are male. More information on the Board's
consideration of diversity is given in the Corporate Governance Report below.
General Data Protection Regulation
The Company takes privacy and security of your information seriously and will
only use such personal information as set out in the Company's privacy notice
which can be found on the Company's website at:
https://www.nbddif.com/pdf/NB_Privacy_Notice_2021.pdf
(https://www.nbddif.com/pdf/NB_Privacy_Notice_2021.pdf) .
Global Greenhouse Gas Emissions
The Company has no significant greenhouse gas emissions to report from its
operations for the year to 31 December 2023, nor does it have responsibility
for any other emissions producing sources.
The Modern Slavery Act 2015 ("MSA")
The MSA requires companies to prepare a slavery and human trafficking
statement for each financial year of the organisation. As the Company has no
employees and does not supply goods or services, the MSA does not directly
apply to it. The MSA requirements more appropriately relate to the Investment
Manager which is a signatory of the Principles of Responsible Investment
(please see "Employees and Socially Responsible Investment" above) which
include social factors such as working conditions, including slavery and child
labour. The MSA of the Investment Manager is available on its website at
NB.com.
Disclosure of Information to Auditors
The Directors who were members of the Board at the time of approving this
report are listed below. Each of those Directors confirms that:
· to the best of his or her knowledge and belief, there is no
information relevant to the preparation of their report of which the auditors
are unaware; and
· he or she has taken all steps a director might reasonably be expected
to have taken to be aware of relevant audit information and to establish that
the Company's auditors are aware of that information.
For and on behalf of the Board.
John Hallam
Christopher Legge
Chairman
Director
25 April 2024
25
April 2024
GOVERNANCE | Corporate Governance Report
Corporate Governance Report
Applicable Corporate Governance Codes
As the Company is listed on the SFS it is only required to follow the GFSC
code of corporate governance (the "Code"), applicable to Guernsey companies.
However, the Board has chosen to follow the AIC Code of Corporate Governance
published in February 2013 and last amended in February 2019 (the "AIC Code").
The AIC Code addresses all the principles set out in the Code as well as
setting out additional principles and recommendations on issues that are of
specific relevance to the Company.
On 1 January 2012, the GFSC's "Finance Sector Code of Corporate Governance"
came into effect and was amended in February 2016, and again in June 2021 to
amend Principle 5 for boards to consider climate change (5.2.1). The GFSC has
stated in its Code that companies which report against the UK Corporate
Governance Code (the "UK Code") or the AIC Code are deemed to meet their Code,
and need take no further action.
The Board of the Company has considered the principles and recommendations of
the 2019 AIC Code.
The Board considers that reporting against the principles and recommendations
of the AIC Code will provide more relevant information to shareholders. Copies
of the AIC Code can be found at www.theaic.co.uk.
Corporate Governance Statement
Throughout the year ended 31 December 2023 the Company has complied with the
recommendations of the AIC Code, except where explanations have been provided.
The Directors believe that this Annual Report and Audited Financial
Statements, presents a fair, balanced and understandable assessment of the
Company's position and prospects, and provides the information necessary for
shareholders to assess the Company's performance, business model and strategy.
The Company complies with the corporate governance statement requirements
pursuant to the FCA's DTRs by virtue of the information included in the
Corporate Governance section of the Annual Report together with information
contained in the Strategic Report and the Directors' Report.
Our Governance Framework
Chairman: John Hallam
Responsibilities:
The leadership, operation and governance of the Board, ensuring effectiveness,
and setting the agenda for the Board.
More details are provided below.
Senior Independent Director: Stephen Vakil
Responsibilities:
The Senior Independent Director's ("SID") role is to work closely with the
chairman, acting as a sounding board and providing support, acting as an
intermediary for other directors as and when necessary. The SID is available
to shareholders and other non-executives to address any concerns or issues
they feel have not been adequately dealt with through the usual channels of
communication (i.e. through the chairman, other directors or Investment
Management executives). The SID is also responsible, along with the
non-executive Directors, for review of the chairman's performance and carrying
out succession planning for the chairman's role as deemed appropriate. The SID
is available to attend meetings with all shareholders to obtain a balanced
understanding of their issues and concerns. A memo is available on the
Company's website
https://www.nbddif.com/pdf/Memorandum_on_the_Duties_of_the_26_August_2020.pdf
(https://www.nbddif.com/pdf/Memorandum_on_the_Duties_of_the_26_August_2020.pdf)
.
The Board members of NB Distressed Debt Investment Fund Limited
John Hallam (Chairman) - independent non-executive Director
Christopher Legge and Stephen Vakil - independent non-executive Directors
Michael Holmberg - non-executive Director
Responsibilities:
Overall conduct of the Company's business and setting the Company's strategy.
More details are provided below.
AUDIT COMMITTEE MANAGEMENT ENGAGEMENT COMMITTEE
Members: Members:
Christopher Legge (Chairman) Stephen Vakil (Chairman)
Stephen Vakil John Hallam
Christopher Legge
Responsibilities: Responsibilities:
The provision of effective governance over the appropriateness of the To review the performance of all service providers (including the Investment
Company's financial reporting including the adequacy of related disclosures, Manager)
the performance of the external auditor, and the management of the Company's
systems of internal controls and business risks.
More details are provided below.
More details are provided below.
REMUNEration Committee inside information COMMITTEE
Members: Members:
Stephen Vakil (Chairman) John Hallam (Chairman)
John Hallam Michael Holmberg
Christopher Legge Christopher Legge
Stephen Vakil
Responsibilities: Responsibilities:
To review the on-going appropriateness and relevance of the remuneration To identify inside information and monitor the disclosure and control of
policy. inside information.
More details are provided below. More details are provided below.
Board Independence and Composition
The biographical details of the Directors holding office at the date of this
report are listed above and demonstrate a breadth of investment, accounting
and professional experience.
As of April 2024 John Hallam had served on the Board for over thirteen years,
the Board remains satisfied that John Hallam continues to exercise independent
judgement, and that retaining the depth of knowledge of the Company held by
John is in the best interests of the Company as a whole, given the current
position of the Company. Mr Hallam was re-elected to the Board at the 2023 AGM
with 95.88% of the votes cast being in favour and expects to stand for
re-election at the next AGM.
John Hallam, Christopher Legge and Stephen Vakil are considered independent
from the Investment Manager. Michael Holmberg is deemed not independent as he
is employed by a Neuberger Berman group company.
The Board believes that Mr Holmberg brings a significant amount of experience
and expertise to the Board; however, as a non-independent Director, Mr
Holmberg does not sit on the Audit Committee, Remuneration Committee or the
Management Engagement Committee and is not involved in any matters discussed
by the Board concerning the evaluation of the performance of the Investment
Manager.
The Directors review their independence annually.
The Company Secretary through its representative acts as Secretary to the
Board and Committees and in doing so it:
· assists the Chairman in ensuring that all Directors have full and
timely access to all relevant documentation;
· will organise induction of new Directors; and
· is responsible for ensuring that the correct Board procedures are
followed and advises the Board on corporate governance matters.
Directors' Appointment
No Director has a service contract with the Company. Directors have agreed
letters of appointment with the Company, copies of which are available for
review by shareholders at the Registered Office and will be available at the
2024 AGM. The length of service of each Director is shown in the Directors'
Remuneration Report below. Any Director may resign in writing to the Board at
any time.
The Board has formal, rigorous and transparent procedures for the appointment
of additional directors. Candidates are identified and selected on merit
against objective criteria and with due regard to the benefits of diversity on
the Board, including gender. The Board undertakes a broad search which
includes obtaining lists of potential candidates from a variety of sources
leading to agreed short-lists. Interviews are then held with potential
candidates. The skills, experience and time availability of each candidate is
considered by the Board with due regard to the skills and experience necessary
to replace those lost by retirements or otherwise considered desirable to
strengthen the Board. Short-listed candidates are invited to meet the Chairman
and the Investment Manager and feedback is provided to the Board prior to
selection.
In accordance with the AIC Code all current Directors will offer themselves
for re-election at the 2024 AGM of the Company; John Hallam, Michael Holmberg,
Christopher Legge and Stephen Vakil were re-elected as Directors at the AGM on
28 June 2023. The names and biographies of the Directors holding office at the
date of this report are listed above.
Tenure of Non-Executive Directors
The Board has adopted a policy on tenure that is considered appropriate for an
investment company. Mr Hallam has served as a director of the Company for over
thirteen years. The Board does not believe that length of service, by itself,
leads to a closer relationship with the Investment Manager or necessarily
affects a Director's independence. The Board has sought to appoint Directors
with past and current experience of various areas relevant to the Company's
business. The Board agreed to adopt an amended tenure and succession policy in
February 2018 which is reflective of the Board's belief that it is not in the
best interests of shareholders to replenish the Board at the current time when
the long-term outlook of the umbrella of the Company is unknown, save for the
appointment of directors to fill a key vacant position with due regard to the
skills and experience necessary to replace those lost by Directors'
retirements.
Directors are expected to devote such time as is necessary to enable them to
discharge their duties. Other business relationships, including those that
conflict or may potentially conflict with the interests of the Company, are
taken into account when appointing Board members and are monitored on a
regular basis.
Re-election of Directors
John Hallam, Michael Holmberg, Christopher Legge and Stephen Vakil have
confirmed their intention to submit themselves for re-election at the next AGM
to be held on 26 June 2024.
The Board recognises that the Portfolios are now in their harvest periods and,
as such, it believes that it is in the best interests of shareholders and the
Company to maintain the current Board composition for the time being in order
to benefit from the Directors' technical knowledge and experience of managing
the Company's affairs as the assets continue to wind down. The Board confirmed
that the contributions made by the Directors offering themselves for
re-election at the AGM on 26 June 2024 continue to be effective and that the
Company should support their re-election.
The dates of appointment of all Directors are provided in the Directors'
Remuneration Committee Report below.
Board Diversity
The Board considers that its members have a balance of skills and experience
which are relevant to the Company. The Board notes the Davies Report,
Hampton-Alexander Review and the Parker Review, and believes in the value and
importance of diversity in the boardroom but it does not consider it is
appropriate or in the interests of the Company and its shareholders
particularly given current circumstances to set prescriptive targets for
gender, ethnicity, nationality or any other criterion of representation on the
Board. At 31 December 2023, the Board members were male. The Board continues
to focus on encouraging diversity of business skills and experience,
recognising that directors with diverse skills sets, capabilities and
experience gained from different backgrounds enhances the Board but has no
current plans to refresh the Board.
Board Responsibilities
The Board reviews all aspects of the Company's affairs including the setting
and monitoring of investment strategy and the review of investment
performance. With the Portfolios now in their harvest periods, the Investment
Manager takes decisions as to the sale of individual investments, in line with
the investment policy and strategy set by the Board. The Investment Manager
together with the Company Secretary and Administrator also ensures that all
Directors receive, in a timely manner, all relevant management, regulatory and
financial information relating to the Company and its portfolio of
investments. Representatives of the Investment Manager attend each Board
meeting, enabling the Directors to question any matters of concern or seek
clarification on certain issues. Matters specifically reserved for decision by
the full Board have been defined and a procedure adopted for Directors in the
furtherance of their duties to take independent professional advice at the
expense of the Company. This is available on the Company's website
www.nbddif.com (http://www.nbddif.com) .
Conflict of Interests
Directors are required to disclose all actual and potential conflicts of
interest to the Board as they arise and the Board may impose restrictions or
refuse to authorise conflicts if deemed appropriate. The Directors have
undertaken to notify the Company Secretary as soon as they become aware of any
new potential conflicts of interest that would need to be approved by the
Board. Only Directors who have no material interest in the matter being
considered will be able to participate in the Board approval process.
It has also been agreed that the Directors will advise the Chairman and the
Company Secretary in advance of any proposed external appointment.
None of the Directors had a material interest in any contract, which is
significant to the Company's business during the year ended 31 December 2023,
except Michael Holmberg, being an employee of the Neuberger Berman Group of
which the Investment Manager is part of.
The Directors' Remuneration Report below provides information on the
remuneration and interests of the Directors.
Performance Evaluation
The performance of the Board, its Committees and the Directors, including the
Chairman, was reviewed by the Board on 14 November 2023, by means of an
internal questionnaire. The Company Secretary collated the results of the
questionnaires and the consolidated results were reviewed and discussed by the
Board and by the Remuneration Committee. The Chairman reviewed each individual
Director's contribution.
The 2023 evaluation concluded that:
· the performance of the Board, its committees, the Chairman and each
of the Directors continues to be effective;
· Mr Hallam, Mr Legge and Mr Vakil are unanimously considered
independent;
· all current Directors should be proposed for re-election at the
2024 AGM; and
· the Board was considered to have an appropriate mix of skills and
experience.
The Board intends to conduct another internal board evaluation in November
2024, and will continue to review its procedures, its effectiveness and
development in the year ahead.
The Directors noted that all three share classes were currently in harvest
phase and agreed that, due to the position of the Company, it was not
beneficial or necessary to incur the costs of an externally facilitated
external evaluation. The Directors agreed that if the Company's life were
extended, further consideration would be given to an externally facilitated
evaluation and therefore agreed to keep this position under review.
The Remuneration Committee (excluding John Hallam) led by the Chairman of the
Remuneration Committee reviewed the Chairman. It was agreed that the Chairman
was well-regarded by the other Board members and that he provided excellent
depth of knowledge of the Company. In addition, the Chairman has actively
offered himself to meet with shareholders over the year.
Induction/Information and Professional Development
Directors are provided, on a regular basis, with key information on the
Company's policies, regulatory requirements and its internal controls.
Regulatory and legislative changes affecting Directors' responsibilities are
advised to the Board as they arise along with changes to best practice by,
amongst others, the Company Secretary and the Auditor. Advisers to the Company
also prepare reports for the Board from time to time on relevant topics and
issues. In addition, Directors attend relevant seminars and events to allow
them continually to refresh their skills and knowledge and keep up with
changes within the investment company industry. The Chairman reviewed the
training and development needs of each Director during the annual Board
evaluation process. The Chairman confirmed that all directors actively kept up
to date with industry developments and issues.
Independent Advice
The Board recognises that there may be occasions when one or more of the
Directors feels it is necessary to take independent legal advice at the
Company's expense. A procedure is set out in the Directors' letters of
appointment to enable them to do so.
Indemnities
To the extent permitted by the Law, the Company's Articles provide an
indemnity for the Directors against any liability except such (if any) as they
shall incur by or through their own breach of trust, breach of duty or
negligence. Each Director has an Instrument of Indemnity with the Company.
During the year, the Company has maintained insurance cover for its Directors
and Officers under a Directors' and Officers' liability insurance policy.
Relationship with the Investment Manager, Company Secretary, Administrator and
Sub-Administrator
All of the Company's management and administration functions are delegated to
external parties including the management of the investment Portfolios, the
custodial services (including the safeguarding of assets), the registration
services and the day-to-day company secretarial, administration and accounting
services. Each of these contracts was entered into after full and proper
consideration by the Board of the quality and cost of services offered,
including the control systems in operation in so far as they relate to the
affairs of the Company. The Management Engagement Committee is responsible for
the oversight of service providers.
The Board receives and considers reports regularly from the Investment Manager
and ad hoc reports and information are supplied to the Board as required. With
the Portfolios now in their harvest periods, the Investment Manager takes
decisions as to the sale of individual investments. The Investment Manager,
Company Secretary, Administrator and Sub-Administrator also ensure that all
Directors receive, in a timely manner, all relevant management, regulatory and
financial information. Representatives of the Investment Manager,
Administrator and Sub-Administrator attend each Board meeting enabling the
Directors to probe further into matters of concern.
The Directors have access to the advice and service of the corporate Company
Secretary through its appointed representative who is responsible to the Board
for ensuring that Board procedures are followed and that applicable rules and
regulations are complied with. The Board, the Investment Manager, Company
Secretary, the Administrator and Sub-Administrator operate in a supportive,
co-operative and open environment.
Shareholder Engagement
The Board believes that the maintenance of good relations with shareholders is
important for the long-term prospects of the Company. It has, since admission,
sought engagement with investors. Where appropriate, the Chairman, and other
Directors are available for discussion about governance and strategy with
major shareholders and the Chairman ensures communication of shareholders'
views to the Board. The Board receives feedback on the views of shareholders
from its Corporate Broker ("Broker") and the Investment Manager, and
shareholders are welcome to contact the Directors at any time via the Company
Secretary by email at: NB.Distressed@suntera.com.
The Directors believe that the AGM provides an appropriate forum for
shareholders to communicate with the Board and encourages participation. There
is an opportunity for individual shareholders to question the Chairman of the
Board, the Audit Committee, Management Engagement Committee, Remuneration
Committee and Inside Information Committee at the AGM. The Board also welcomes
the opportunity to meet with investors on a one-to-one basis, upon request.
The Board assesses the results of AGMs and will consider whether there is a
significant number of votes not lodged in favour of a resolution. Where the
Board considers that a significant number of votes have not been lodged in
favour of a resolution, an immediate announcement will be made and further
disclosures will be made in the next Annual Report. The Broker and the
Investment Manager will seek feedback from investors. In addition to this the
Broker and the Investment Manager will provide the Board with feedback that
has been received from investors about the performance of the Company and the
Investment Manager.
Key Stakeholder Groups
The Company identifies its key stakeholder groups as follows:
Shareholders
All Board decisions are made with the Company's success in mind, which is
ultimately for the long-term benefit of our shareholders.
Key Stakeholder Groups (continued)
Service Providers
Our service providers' relationships are vital to our overall success, so as a
Board we carefully consider the selection of, and engagement and continued
relationship with our key service providers being the Investment Manager,
Administrator, Custodian, Broker, Legal Advisers, Registrar, Auditor and
Company Secretary.
The Board recognises the benefits of fostering strong business relationships
with its key service providers and seeks to ensure each is committed to the
performance of their respective duties to a high standard and, where
practicable, that each provider is motivated to adding value within their
sphere of activity.
The Board has delegated various duties to external parties including the
management of the investment portfolio, the custodial services (including the
safeguarding of assets), the registration services and the day-to-day company
secretarial, administration and accounting services. Each of these contracts
was entered into after full and proper consideration by the Board of the
quality and cost of services offered, including the control systems in
operation in so far as they relate to the affairs of the Company.
The Board continues to have regular face-to-face meetings with all key service
providers.
Stakeholders and Section 172
Whilst only directly applicable to UK domiciled companies, the intention of
the AIC Code is that matters set out in section 172 of the UK Companies Act,
2006 are reported. The following disclosures offer some insight into how the
Board uses its meetings as a mechanism for discharging its duties under
Provision 5 of the AIC Code, including the breadth of matters it discussed and
debated during the year and the key stakeholder groups that were central to
those discussions. The Board's commitment to maintaining the high-standards of
corporate governance recommended in the AIC Code, combined with the directors'
duties enshrined in Company law, the constitutive documents, the Disclosure
Guidance and Transparency Rules, and Market Abuse Regulation, ensures that
shareholders are provided with frequent and comprehensive information
concerning the Company and its activities via the Company's website and
Regulatory Information Service ("RIS") announcements on the London Stock
Exchange such as the quarterly factsheets.
Each Board meeting follows a carefully tailored agenda agreed in advance by
the Board and Company Secretary. A typical meeting will comprise reports on
current financial and operational performance from the Administrator, market
update from the Broker, portfolio performance from the Investment Manager,
with regulatory and governance updates from the Company Secretary and where
required, a detailed deep dive into an area of particular strategic importance
or concern. Through oversight and control, we have in place suitable policies
to ensure the Company maintains high standards of business conduct, treats
customers fairly, and employ high standards of corporate governance.
Whilst the primary duty of the Directors is owed to the Company as a whole,
the Board considers as part of its decision-making process the interests of
all stakeholders. Particular consideration being given to the continued
alignment between the activities of the Company and those that contribute to
delivering the Board's strategy, which include the Investment Manager,
Administrator, and the Company Secretary.
The Annual Report, Key Information Documents and quarterly fact sheets are
available to provide shareholders with a clear understanding of the Company's
activities and its results. This information is supplemented by the daily
calculation and publication via a Regulatory Information Service of the net
asset value of the Company's Ordinary Shares, Extended Life Shares and New
Global Shares. All documents issued by the Company can be viewed on the
Company's website at www.nbddif.com (http://www.nbddif.com) .
The Board respects and welcomes the views of all stakeholders. Any queries or
areas of concern regarding the Company's operations can be raised with the
Company Secretary.
2024 AGM
The 2024 AGM will be held in Guernsey on 26 June 2024. The notice for the AGM
will set out the ordinary and special resolutions to be proposed at the
meeting. Separate resolutions are proposed for each substantive issue.
Shareholders wishing to lodge questions in advance of the meeting and
specifically related to the resolutions proposed are invited to do so by
writing to the Company Secretary at the address given above.
Voting on all resolutions at the AGM will be on a poll. The proxy votes cast,
including details of votes withheld are disclosed to those in attendance at
the meeting and the results are published on the Company's website and
announced via a Regulatory Information Service. Where a significant number of
votes have been lodged against a proposed resolution (being greater than 20%),
in accordance with the AIC Code published in February 2019, it is the Board's
policy that the Board will identify those shareholders and further understand
their views to address the concerns of the Company's shareholders. No
significant votes were cast against the resolutions proposed at the 2023 AGM.
Board Meetings
The Board meets at least four times a year. Certain matters are considered at
all Board meetings including Portfolio composition and asset realisation
strategy, capital repayments and income distributions by way of dividend, NAV
and share price performance and associated matters such as asset allocation,
risks, strategy, marketing and investor relations, peer group information and
industry issues. Consideration is also given to administration and corporate
governance matters, where applicable reports are received from Board
committees.
Directors unable to attend a board meeting are provided with the board papers
and can discuss issues arising in an informal meeting with the Chairman or
another non-executive Director.
The Chairman is responsible for ensuring the Directors receive complete
information in a timely manner concerning all matters which require
consideration by the Board. Through the Board's ongoing shareholder engagement
and the reports produced by each key service provider, the Directors are
satisfied that sufficient information is provided so as to ensure such matters
are taken into consideration as part of the Board's decision-making process.
Attendance at scheduled meetings of the Board and its committees in the 2023
financial year
Audit Committee MANAGEMENT Engagement Committee Remuneration Committee INSIDE INFORMATION COMMITTEE
Board
Number of meetings during the year 4 4 1 1 1
John Hallam 4 N/A 1 1 1
Christopher Legge 4 4 1 1 1
Michael Holmberg 4 N/A N/A N/A N/A
Stephen Vakil 4 4 1 1 1
In addition to these meetings, 3 ad-hoc board and board committee meetings
were held during the year for various matters, primarily of an administrative
nature. These meetings were attended by those Directors available at the time.
Board Committees
The Board has established an Audit Committee, Management Engagement Committee,
Remuneration Committee and an Inside Information Committee with defined terms
of reference and duties. Further details of these committees can be found in
their reports below. The terms of reference for each committee can be found on
the Company's website at www.nbddif.com (http://www.nbddif.com) .
The Board feels that due to the size and structure of the Company,
establishing a Nomination Committee is unnecessary and that the Board as a
whole will consider matters relating to appointment of Directors.
For and on behalf of the Board.
John Hallam
Christopher Legge
Chairman
Director
25 April 2024
25
April 2024
GOVERNANCE | Audit Committee Report
Audit Committee Report
Membership
Christopher Legge - Chairman (Independent non-executive
Director)
Stephen Vakil
(Senior Independent non-executive Director)
Key Objectives
The Audit Committee aims to ensure effective governance over the
appropriateness of the Company's financial reporting including the adequacy of
related disclosures, the performance of the external auditor, and the
management of the Company's systems of internal controls and business risks.
Responsibilities
· reviewing the Company's financial results announcements and
Financial Statements and monitoring compliance with relevant statutory and
listing requirements;
· reporting to the Board on the appropriateness of the Company's
accounting policies and practices including critical accounting policies and
practices;
· advising the Board on whether the Audit Committee believes the
Annual Report and Financial Statements, taken as a whole, is fair, balanced
and understandable and provides the information necessary for shareholders to
assess the Company's performance, business model and strategy;
· overseeing the relationship with the external auditor;
· considering the financial and other implications of the
independence of the auditors arising from any non-audit services to be
provided by the auditor;
· reviewing the effectiveness of the Company's risk management
framework, taking into account the reports on the internal controls of the
Company's service providers;
· considering the nature and extent of the significant risks the
Company faces in achieving its strategic objectives; and
· compiling a report on the Audit Committee's activities to be
included in the Company's Annual Report.
Audit Committee Meetings
The Audit Committee meets at least three times a year with only its members
and the Audit Committee Secretary having the right to attend. However, other
Directors and representatives of the Investment Manager and Administrator will
be invited to attend such meetings on a regular basis and other non-members
may be invited to attend all or part of the meeting as and when appropriate
and necessary. The Company's independent auditor, KPMG Channel Islands Limited
("KPMG"), is also invited on a regular basis.
The Audit Committee determines, in conjunction with KPMG, whether it is
necessary for it to meet the auditors without the Investment Manager or other
service providers being present.
Main Activities during the year
The Audit Committee assisted the Board in carrying out its responsibilities in
relation to financial reporting requirements, risk management and the
assessment of internal controls. It also manages the Company's relationship
with the external auditor. Meetings of the Committee generally take place
prior to a Company Board meeting. The Audit Committee reports to the Board as
part of a separate agenda item on its activities and matters of particular
relevance to Board members in the conduct of their work.
The Board requested that the Audit Committee advise them on whether it
believes the Annual Report, taken as a whole, is fair, balanced and
understandable and provides the information necessary for shareholders to
assess the Company's performance, business model and strategy and the Audit
Committee confirmed this to be the case.
The Audit Committee's terms of reference were updated during the year and can
be found on the Company's website www.nbddif.com (http://www.nbddif.com) .
At its four meetings during the year, the Committee focused on:
Financial Reporting
The primary role of the Audit Committee in relation to financial reporting is
to review with the Investment Manager, Administrator and the external auditor
the appropriateness of the Annual Financial Statements concentrating on,
amongst other matters:
· the quality and acceptability of accounting policies and practices;
· the clarity of the disclosures and compliance with financial
reporting standards and relevant financial and governance reporting
requirements;
· material areas in which significant judgements have been applied or
there has been discussion with the external auditor;
· the viability of the Company, taking into account the principal and
emerging risks it faces;
· whether the Annual Report and Financial Statements, taken as a
whole, is fair, balanced and understandable and provides the information
necessary for shareholders to assess the Company's performance, business model
and strategy; and
· any correspondence from regulators in relation to financial
reporting.
To aid its review, the Audit Committee considered reports from the Investment
Manager, Administrator, Sub-Administrator, Company Secretary and also reports
from the external auditor on the outcomes of their half-year review and annual
audit.
The members of the Audit Committee had meetings with KPMG, where their
findings in respect of both the Interim Review and the Annual Audit were
reported.
Significant Issues
In relation to the Annual Report and Financial Statements for the year ended
31 December 2023, the significant issue considered by the Audit Committee was
the valuation of the Company's investments.
The Committee received a report from the Investment Manager on the valuation
of the Portfolios and on the assumptions used in valuing the Portfolios. It
analysed the investment Portfolios of the Company in terms of investment mix,
fair value hierarchy and valuation and held detailed discussions with the
Investment Manager regarding the methodology and procedures used in valuing
the Portfolios.
The Committee discussed in depth with KPMG their approach to testing the
appropriateness and robustness of the valuation methodology applied by the
Investment Manager to the Company's Portfolios. KPMG did not report any
significant differences between the valuations used by the Company and the
results of the work performed during their testing process. Based on their
above review and analysis the Audit Committee confirmed that it is satisfied
with the valuation of the investments.
Internal Controls and Risk Management
The Audit Committee has established a process for identifying, evaluating and
managing any major risks faced by the Company. The process is subject to
regular review by the Board and accords with the AIC Code.
The Audit Committee has overall responsibility for the Company's system of
internal financial and operating controls and for reviewing its effectiveness.
However, such a system is designed to manage rather than eliminate risks of
failure to achieve the Company's business objectives and can only provide
reasonable and not absolute assurance against material misstatement or loss.
The Board has undertaken a full review of the Company's business risks, which
have been analysed and recorded in a risk matrix, which is updated regularly
and is formally reviewed at each quarterly Board meeting. The Board receives,
each quarter, a formal report from the Investment Manager which details the
steps taken to monitor and manage the areas of risk including those that are
not directly the responsibility of the Investment Manager and which reports
the details of any known internal control failures.
The Company itself does not have an internal audit function, but instead
relies on the internal audit functions and departments of the Investment
Manager. The Committee was satisfied that this function provided significant
control to help mitigate the risks to the Company.
In addition, the Audit Committee annually receives and reviews Internal
Controls reports from independent sources, in respect of the Administrator,
Sub-Administrator, Registrar, Custodian and Investment Manager.
The Investment Manager has established an internal control framework to
provide reasonable but not absolute assurance on the effectiveness of the
internal controls operated on behalf of its clients. The effectiveness of the
internal controls is assessed by the Investment Manager's compliance and risk
department on an ongoing basis.
The Board's assessment of the Company's principal risks is set out above.
By means of the procedures set out above, the Audit Committee confirms that it
has reviewed the effectiveness of the Company's system of internal controls
for the year ended 31 December 2023 and to the date of approval of this Annual
Report and that no concerns have been noted.
External Audit
The effectiveness of the external audit process is dependent on appropriate
audit risk identification at the start of the audit cycle. The Audit Committee
received a detailed audit plan from KPMG, identifying their assessment of
these significant risks. For the 2023 financial year the significant risk
identified was in relation to the valuation of investments. This risk is
tracked through the year and the Committee has considered the work done by the
auditor to challenge management's assumptions and estimates around these
areas. The Committee has assessed the effectiveness of the audit process in
addressing these matters through the reports received from KPMG at both the
half-year and year end. In addition, the Committee has sought feedback from
the Investment Manager, the Administrator and Sub-administrator on the
effectiveness of the audit process. For the 2023 financial year the Committee
is satisfied that there had been appropriate focus and challenge on the
primary areas of audit risk and assessed the quality of the audit process to
be appropriate.
The Audit Committee considers the re-appointment of the external auditor,
including the rotation of the audit partner, and assesses their independence
on an annual basis. The external auditor is required to rotate the audit
partner responsible for the Company audit every five years. The Company's
current audit partner, Barry Ryan, took over the role as lead audit engagement
partner for the year ended 31 December 2019.
KPMG has been the Company's external auditor since its stock exchange listing
in 2010 (13 years). The Company has not formally tendered the audit since
then. The Audit Committee would normally consider putting the Company's audit
out to tender at least every ten years (with the maximum duration of a
continuous audit engagement being twenty years) and has given consideration to
doing so this coming year. However it concluded that, given the current
expectation of the wind down of the Company share classes, it was not in the
best interests of the Company to do so. In its assessment of the independence
of the auditor, the Audit Committee receives details of any relationships
between the Company and KPMG that may have a bearing on their independence and
receives confirmation from them that they are independent of the Company.
The Audit Committee approved the fees for audit services for 2023 after a
review of the level and nature of work to be performed. The Board was
satisfied that the fees were appropriate for the scope of the work required.
Non-Audit Services
To safeguard the objectivity and independence of the external auditor from
becoming compromised, the Audit Committee has a policy governing the
engagement of the external auditor to provide non-audit services. The
Committee made amendments to this policy in April 2023 and follows the certain
provisions of the FRC's Revised Ethical Standard 2019 relating to non-audit
services as it applies to public interest entities. The Audit Committee must
be advised by the commissioning entity/person, and by the audit firm, of all
assignments undertaken by the external auditors that fall within the
pre-approved categories as soon as practicable.
All non-audit services require prior approval by the Audit Committee. In
respect of each calendar year the Audit Committee monitors the provision of
non-audit services by receiving at least half yearly a list of the non-audit
services provided (and expected to be provided) by the external auditor in
that calendar year, and the fees involved, so that the Audit Committee can
consider the impact on auditors' objectivity. The Audit Committee's policy on
the Independence of External Auditor (including the provision of non-audit
services) is available on its website at www.nbddif.com
(http://www.nbddif.com) .
Auditor's Remuneration
31 December 2023
(£)
Audit (Guernsey) 183,600
Audit related services (review of interim report) (Guernsey) 44,200
Total 227,800
Appointment and Independence
The Audit Committee has therefore recommended to the Board that KPMG be
reappointed as external auditor for the year ended 31 December 2024, and to
authorise the Directors to determine their remuneration. Accordingly, a
resolution proposing the reappointment of KPMG as the Company's auditor will
be put to the shareholders at the 2024 AGM on 26 June 2024.
There are no contractual obligations restricting the Committee's choice of
external auditor and the Company does not indemnify the external auditor.
The Committee's activities formed part of the Board evaluation performed in
the year. Details of this process can be found under "Performance evaluation"
above. The Committee was satisfied that it had undertaken its duties
efficiently and effectively.
Christopher Legge
On behalf of the Audit Committee
25 April 2024
GOVERNANCE | Management Engagement Committee Report
Management Engagement Committee Report
Membership
Stephen Vakil - Chairman (Senior Independent
non-executive Director)
John Hallam
(Chairman of the Company and Independent non-executive Director)
Christopher Legge
(Independent non-executive Director)
Key Objectives
To review performance of all service providers (including the Investment
Manager).
Responsibilities
· To review annually the performance, relationships and contractual
terms of all service providers (including the Investment Manager);
· Review and make recommendations on any proposed amendment to the
Investment Manager Agreement ("IMA");
· To review the performance of, and contractual arrangements with the
Investment Manager including:
- Monitor and evaluate the Investment Manager's performance and, if
necessary, provide appropriate guidance;
- To consider whether an independent appraisal of the Investment
Manager's services should be made;
- To review the level and method of remuneration and notice period,
using peer group comparisons (where available); and
- To ensure that the Investment Manager has a sound system of risk
management and internal controls and that these are maintained to safeguard
shareholders' investment and the Company's assets.
Committee Meetings
Only members of the Management Engagement Committee and the Secretary have the
right to attend Committee meetings. However, representatives of the Investment
Manager and Administrator may be invited by the Committee to attend meetings
as and when appropriate.
Main Activities during the year
The Management Engagement Committee met once during the year and reviewed
performance, standard and value for money of the Company's service providers
and the Investment Manager. The Management Engagement Committee reviewed the
contractual terms, disaster recovery and business continuity arrangements,
information security arrangements, details of anti-bribery and corruption
policies, anti-facilitation of tax evasion policies, and the level of
professional indemnity insurance of all service providers as at 14 November
2023, including the Investment Manager.
The Management Engagement Committee reviewed the Terms of Reference for the
Committee and considered that they remained appropriate.
Continued Appointment of the Investment Manager and Other Service Providers
The Board reviews investment performance at each Board meeting and the
performance of the Company's service providers are reviewed annually as part
of the Management Engagement Committee's annual review.
Taking into consideration supplementary guidance issued by the AIC in 2020
which described certain measures by which investment companies may assess the
relationship with the manager, in November 2023 the Board undertook an
enhanced qualitative assessment of the performance of the Investment Manager.
The feedback from this assessment confirmed that the Investment Manager's
focus remained on the performance of their core duties, and that there existed
a high level of congruence between the duties of the Investment Manager and
the objectives of the Company. The Board does not consider it necessary to
obtain an independent appraisal of the Investment Manager's services.
As a result of the 2023 annual review it is the opinion of the Directors that
the continued appointment of the current service providers, including the
Investment Manager, on the terms agreed is in the best interests of the
Company's shareholders as a whole. The Investment Manager has extensive
investment management resources and wide experience in managing portfolios of
distressed investments.
Stephen Vakil
On behalf of the Management Engagement Committee
25 April 2024
GOVERNANCE | Inside Information Committee Report
Inside Information Committee Report
Membership
John Hallam
(Chairman of the Company and Independent non-executive Director)
Michael Holmberg
(non-executive Director)
Christopher Legge (Independent
non-executive Director)
Stephen Vakil
(Senior Independent non-executive Director)
Key Objectives
To identify inside information and monitor the disclosure and control of
inside information.
Responsibilities
· Identify inside information as it arises;
· Review and prepare project insider lists as required; and
· Consider the need to announce or to delay the announcement of inside
information.
Committee Meetings
Only members of the Inside Information Committee and the Secretary have the
right to attend Inside Information Committee meetings. However,
representatives of the Investment Manager and Administrator may be invited by
the Inside Information Committee to attend meetings as and when appropriate.
Main Activities During the year
The Inside Information Committee met on 16 March 2023 and the Inside
Information Committee reviewed its Terms of Reference, the Company's policies
and procedures for inside information and personal dealing. There was no
update made on the Inside Information Committee's terms of reference in 2023
and it was agreed that the policies and procedures remained relevant and
accurate.
There were no delays to the disclosure of information during the year.
John Hallam
On behalf of the Inside Information Committee
25 April 2024
GOVERNANCE | Remuneration Committee Report
Remuneration Committee Report
Membership
Stephen Vakil - Chairman (Senior Independent
non-executive Director)
John Hallam
(Chairman of the Company and Independent non-executive Director)
Christopher Legge
(Independent non-executive Director)
Key Objectives
To review the ongoing appropriateness and relevance of the Company's
remuneration policy.
Responsibilities
· Determine the remuneration of the Directors;
· Prepare an Annual Report on Directors' remuneration;
· Consider the need to appoint external remuneration consultants; and
· Oversee the performance evaluation of the Board; its committees and
individual directors.
Committee Meetings
Only members of the Remuneration Committee and the Secretary have the right to
attend Remuneration Committee meetings. However, representatives of the
Investment Manager and Administrator may be invited by the Remuneration
Committee to attend meetings as and when appropriate.
Main Activities During the year
The Remuneration Committee met once during the year and reviewed the
Directors' remuneration. The Remuneration Committee's terms of reference were
updated during the year and can be found on the Company's website
www.nbddif.com (http://www.nbddif.com) .
The Remuneration Committee considered the Directors' Remuneration and agreed
that the current policy remained appropriate.
A detailed Directors' Remuneration report to shareholders from the
Remuneration Committee is contained below.
Stephen Vakil
On behalf of the Remuneration Committee
25 April 2024
GOVERNANCE | Directors' Remuneration Report
Directors' Remuneration Report
Annual Statement
The following report describes how the Board has applied the principles
relating to Directors' remuneration. An ordinary resolution to ratify this
report will be proposed at the AGM to be held on 26 June 2024.
Directors' Fees
The Company paid the following fees to the Directors for the year ended 31
December 2023. These fees have remained unchanged since 2014.
TOTAL Board Fees ($) TOTAL Board Fees (£)
Role
John Hallam Chairman 60,000 10,000
Michael Holmberg(1) non-executive Director - -
Christopher Legge non-executive Director and Chairman of the Audit Committee 50,000 10,000
Stephen Vakil non-executive Director, Chairman of the Remuneration Committee and Chairman of 45,000 10,000
Management Engagement Committee
Total 155,000 30,000
The Company paid the following fees to the Directors for the year ended 31
December 2022:
TOTAL Board Fees ($) TOTAL Board Fees (£)
Role
John Hallam Chairman 60,000 10,000
Michael Holmberg(1) non-executive Director - -
Christopher Legge non-executive Director and Chairman of the Audit Committee 50,000 10,000
Stephen Vakil non-executive Director, Chairman of the Remuneration Committee and Chairman of 45,000 10,000
Management Engagement Committee
Total 155,000 30,000
(1) Michael Holmberg has waived his right to Director fees.
No other remuneration was paid or payable by the Company during the year to
any of the Directors (2022: $Nil).
Remuneration Policy
The determination of the Directors' fees is a matter dealt with by the Board.
The Board considers the remuneration policy annually to ensure that it remains
appropriately positioned. The Board reviewed the fees paid to the boards of
similar investment companies. No Director is involved in decisions relating to
his or her own remuneration.
No Director has a service contract with the Company and Director appointments
may be terminated at any time with no compensation payable at termination.
The Company's policy is for the Directors to be remunerated in the form of
fees, payable quarterly in arrears. No Director has any entitlement to a
pension and the Company has not awarded any share options or long-term
performance incentives to any of the Directors. No element of the Directors'
remuneration is performance related.
Directors are authorised to claim reasonable expenses from the Company in
relation to the performance of their duties. The Company's policy is that the
fees payable to the Directors should reflect the time spent by the Board on
the Company's affairs and the responsibilities borne by the Directors and
should be sufficient to enable high calibre candidates to be recruited. The
policy is for the Chairman of the Board and Chairman of the Audit Committee to
be paid a higher fee than the other Directors in recognition of their more
onerous roles and additional time spent performing their duties. The Board may
amend the level of remuneration paid within the limits of the Company's
Articles. In 2017, the remuneration policy needed to be reviewed by
attributing the company as a whole to the individual share classes. The
aggregate remuneration for each director has not changed since 2014.
The remuneration policy reflects the changing status of the Company as the
existing Portfolios are realised as follows:
Company Fee (USD) NBDD Fee (USD) NBDX Fee (USD) NBDG Fee (GBP) Total Total
(USD) (GBP)
Chairman 40,000 10,000 10,000 10,000 60,000 10,000
Audit Committee Chairman 30,000 10,000 10,000 10,000 50,000 10,000
Other Directors 25,000 10,000 10,000 10,000 45,000 10,000
Directors' Fees Policy
Maximum Potential Value Performance Metrics Used
Objective Operation
To recognise time spent and the responsibilities borne and to attract high Directors' fees are set by the Board. Current fee levels are shown in the remuneration report. Directors are not remunerated based on performance and are not eligible to
calibre candidates who have the necessary experience and skills.
participate in any performance related arrangements.
Annual fees are paid quarterly in arrears.
Fees are reviewed annually and against those for Directors in companies of
similar scale and complexity.
Fees were last reviewed on 14 November 2023.
Directors do not receive benefits and do not participate in any incentive or
pension plans.
Service Contracts and Policy on Payment of Loss of Office
The Directors' appointments are not subject to any duration or limitation. Any
Director may resign in writing at any time. Directors' appointments are
reviewed during the annual Board evaluation. No Director has a service
contract with the Company. Directors have agreed letters of appointment with
the Company.
As detailed above, all of the independent non-executive Directors are
re-elected at the first AGM after their appointment and are then subject to
annual re-election. The names and biographies of the Directors holding offices
at the date of this report are listed above.
Dates of Directors' Letters of Appointment
Copies of the Directors' letters of appointment are available for inspection
by shareholders at the Company's Registered Office and will be available at
the AGM. The dates of their letter of appointments are shown below.
Date of Letter of Appointment
John Hallam 20 April 2010 (amended on 8 May 2018)
Michael Holmberg 20 April 2010 (amended on 22 August 2018)
Stephen Vakil 5 February 2016 (amended on 8 May 2018)
Christopher Legge 12 April 2018
Directors' Interests
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 at 31 March 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
Advisors to the Remuneration Committee
The Remuneration Committee has not sought the paid advice or professional
services by any outside person in respect of its consideration of the
Directors' remuneration. The Remuneration Committee sought input from
Neuberger Berman Europe Limited ("NBEL") and the Brokers during its
deliberations of the remuneration policy.
Stephen Vakil
On behalf of the Remuneration Committee
25 April 2024
GOVERNANCE | Directors' Responsibilities Statement
Statement of Directors' responsibilities in respect of the Annual Report and
the Financial Statements
The directors are responsible for preparing the Annual Report and financial
statements in accordance with applicable law and regulations.
Company law requires the directors to prepare financial statements for each
financial year. Under that law they have elected to prepare the financial
statements in accordance with accounting principles generally accepted in the
United States of America and applicable law.
Under company law the directors must not approve the financial statements
unless they are satisfied that they give a true and fair view of the state of
affairs of the Company and of its profit or loss for that period. In preparing
these financial statements, the directors are required to:
· select suitable accounting policies and then apply them
consistently;
· make judgements and estimates that are reasonable, relevant and
reliable;
· state whether applicable accounting standards have been followed,
subject to any material departures disclosed and explained in the financial
statements;
· assess the Group's or the Company's ability to continue as a going
concern, disclosing, as applicable, matters related to going concern; and
· use the going concern basis of accounting unless liquidation is
imminent.
The directors confirm that they have complied with the above requirements in
preparing the financial statements.
The directors are responsible for keeping proper accounting records that are
sufficient to show and explain the Company's transactions and disclose with
reasonable accuracy at any time the financial position of the Company and
enable them to ensure that its financial statements comply with the Companies
(Guernsey) Law, 2008. They are responsible for such internal control as they
determine is necessary to enable the preparation of financial statements that
are free from material misstatement, whether due to fraud or error, and have
general responsibility for taking such steps as are reasonably open to them to
safeguard the assets of the Company and to prevent and detect fraud and other
irregularities.
The directors of the Company have elected to prepare consolidated financial
statements for the Company for the year ended 31 December 2023 as the parent
of the Group in accordance with Section 244(5) of the Law.
The directors are responsible for the maintenance and integrity of the
corporate and financial information included on the Company's website.
Legislation in Guernsey governing the preparation and dissemination of
financial statements may differ from legislation in other jurisdictions. The
directors who hold office at the date of approval of this Director's Report
confirm that so far as they are aware, there is no relevant audit information
of which the Company's auditor is unaware, and that each Director has taken
all the steps they ought to have taken as a director to make themselves aware
of any relevant audit information and to establish that the Company's auditor
is aware of that information.
Responsibility statement of the directors in respect of the Annual Report
We confirm that to the best of our knowledge:
· the financial statements, prepared in accordance with the applicable
set of accounting standards, give a true and fair view of the assets,
liabilities, financial position and profit or loss of the Group; and
· the Annual Report includes a fair review of the development and
performance of the business and the position of the issuer, together with a
description of the principal risks and uncertainties that they face.
We consider the Annual Report and accounts, taken as a whole, is fair,
balanced and understandable and provides the information necessary for
shareholders to assess the Group's position and performance, business model
and strategy.
John Hallam
Christopher Legge
Chairman
Director
25 April 2024
25
April 2024
GOVERNANCE | Independent Auditor's Report
Independent Auditor's Report to the Members of NB Distressed Debt Investment
Fund Limited
Our opinion is unmodified
We have audited the consolidated financial statements of NB Distressed Debt
Investment Fund Limited (the "Company") and its subsidiaries (together, the
"Group"), which comprise the consolidated statement of assets and liabilities
including the consolidated condensed schedule of investments as at 31 December
2023, the consolidated statements of operations, changes in net assets and
cash flows for the year then ended, and notes, comprising significant
accounting policies and other explanatory information.
In our opinion, the accompanying consolidated financial statements:
· give a true and fair view of the financial position of the Group as at
31 December 2023, and of the Group's financial performance and cash flows for
the year then ended;
· are prepared in accordance with U.S. generally accepted accounting
principles; and
· comply with the Companies (Guernsey) Law, 2008.
Basis for opinion
We conducted our audit in accordance with International Standards on Auditing
(UK) ("ISAs (UK)") and applicable law. Our responsibilities are described
below. We have fulfilled our ethical responsibilities under, and are
independent of the Company and Group in accordance with, UK ethical
requirements including the FRC Ethical Standard as required by the Crown
Dependencies' Audit Rules and Guidance. We believe that the audit evidence we
have obtained is a sufficient and appropriate basis for our opinion.
Key audit matters: our assessment of the risks of material misstatement
Key audit matters are those matters that, in our professional judgment, were
of most significance in the audit of the consolidated financial statements and
include the most significant assessed risks of material misstatement (whether
or not due to fraud) identified by us, including those which had the greatest
effect on: the overall audit strategy; the allocation of resources in the
audit; and directing the efforts of the engagement team. These matters were
addressed in the context of our audit of the consolidated financial statements
as a whole, and in forming our opinion thereon, and we do not provide a
separate opinion on these matters. In arriving at our audit opinion above,
the key audit matter was as follows (unchanged from 2022):
The risk Our response
Valuation of Investments, at fair value ("Investments") Basis: Our audit procedures included:
$60,883,590 (2022: $73,743,616) The Group's investment portfolio is carried at fair value in accordance with Control evaluation:
US generally accepted accounting principles. It represents a significant
Refer to the Audit Committee Report (above), the Consolidated Condensed proportion (76% (2022: 78%)), and is the principal driver, of the Group's net We assessed and evaluated the design and implementation of the control in
Schedule of Investments (below), Note 2 Summary of Accounting Policies, and asset value. place over the valuation of investments.
Note 2(f) Fair Value of Financial Instruments.
The Group's holdings in quoted and unquoted equity and debt investments, Challenging managements' assumptions and inputs including use of KPMG
representing 49% of the fair value of investments, are valued at their bid valuation specialists:
price using broker quotes
For Investments where market quotes were available, we obtained prices from
third party data sources and pricing
(including use of single broker quotes) or third party pricing service vendors.
providers (the "Price Quotes").
Where no Price Quotes are available or they may not be representative of fair For Internally Generated Valuations and single broker quoted investments, we
value, the Group will utilise the resources of the Investment Manager to performed, as applicable, the following procedures with the support of our
augment its own fair value analysis to determine the most appropriate fair KPMG valuation specialists:
value for such investments (the "Internally Generated Valuations"). 51% of the
fair value of Investments were valued using Internally Generated Valuations. · We obtained and read the fair valuation memoranda prepared by the
Investment Manager, including their fair value analysis to corroborate broker
Risk: prices against relevant market metrics and valuation methods;
The valuation of the Group's investments is considered a significant area of · We assessed the appropriateness of the valuation approach and
our audit, given that it represents the majority of the net assets of the methodology applied to each investment and where relevant, derived an
Group. independent reference price;
The valuation risk for both the Internally Generated Valuations and single · We compared the assumptions used in the valuations to observable
broker quoted investment valuations incorporate both a risk of fraud and error market data or supporting documentation;
given the significance of estimates and judgments that may be involved in the
determination of fair value. · We corroborated significant inputs used to supporting documentation;
and
· We assessed the effect of the investee entity's financial performance
upon the fair value.
Assessing disclosures:
We considered the Group's disclosures (Note 2(c)) in relation to the use of
estimates and judgements regarding the valuation of investments and the
Group's investment valuation policies (Note 2(f)) adopted and fair value
disclosures.
Our application of materiality and an overview of the scope of our audit
Materiality for the consolidated financial statements as a whole was set at
$1,590,000, determined with reference to a benchmark of group net assets of
$80,157,738 of which it represents approximately 2.0% (2022: 2.0%).
In line with our audit methodology, our procedures on individual account
balances and disclosures were performed to a lower threshold, performance
materiality, so as to reduce to an acceptable level the risk that individually
immaterial misstatements in individual account balances add up to a material
amount across the financial statements as a whole. Performance materiality for
the Group was set at 75% (2022: 75%) of materiality for the financial
statements as a whole, which equates to $1,190,000. We applied this percentage
in our determination of performance materiality because we did not identify
any factors indicating an elevated level of risk.
We reported to the Audit Committee any corrected or uncorrected identified
misstatements exceeding $79,500, in addition to other identified misstatements
that warranted reporting on qualitative grounds.
Our audit of the Group was undertaken to the materiality level specified
above, which has informed our identification of significant risks of material
misstatement and the associated audit procedures performed in those areas as
detailed above.
The group team performed the audit of the Group as if it was a single
aggregated set of financial information. The audit was performed using the
materiality level set out above and covered 100% of total Group net increase
in net assets resulting from operations and total Group assets and
liabilities.
Going concern
The directors have prepared the consolidated financial statements on the going
concern basis as they do not intend to liquidate the Group or the Company or
to cease their operations, and as they have concluded that the Group and the
Company's financial position means that this is realistic. They have also
concluded that there are no material uncertainties that could have cast
significant doubt over their ability to continue as a going concern for at
least a year from the date of approval of theconsolidated financial statements
(the "going concern period").
In our evaluation of the directors' conclusions, we considered the inherent
risks to the Group and the Company's business model and analysed how those
risks might affect the Group and the Company's financial resources or ability
to continue operations over the going concern period. The risks that we
considered most likely to affect the Group and the Company's financial
resources or ability to continue operations over this period was availability
of capital to meet operating costs and other financial commitments.
We considered whether this risk could plausibly affect the liquidity in the
going concern period by comparing severe, but plausible downside scenarios
that could arise from this risk against the level of available financial
resources indicated by the Company's financial forecasts.
We considered whether the going concern disclosure in note 2(a) to the
financial statements gives a full and accurate description of the directors'
assessment of going concern.
Our conclusions based on this work:
· we consider that the directors' use of the going concern basis of
accounting in the preparation of the consolidated financial statements is
appropriate;
· we have not identified, and concur with the directors' assessment that
there is not, a material uncertainty related to events or conditions that,
individually or collectively, may cast significant doubt on the the Group and
the Company's ability to continue as a going concern for the going concern
period; and
· we found the going concern disclosure in the notes to the consolidated
financial statements to be acceptable.
However, as we cannot predict all future events or conditions and as
subsequent events may result in outcomes that are inconsistent with judgements
that were reasonable at the time they were made, the above conclusions are not
a guarantee that the Group and the Company will continue in operation.
Fraud and breaches of laws and regulations - ability to detect
Identifying and responding to risks of material misstatement due to fraud
To identify risks of material misstatement due to fraud ("fraud risks") we
assessed events or conditions that could indicate an incentive or pressure to
commit fraud or provide an opportunity to commit fraud. Our risk assessments
procedures included:
· enquiring of management as to the Group's policies and procedures to
prevent and detect fraud as well as enquiring whether management have
knowledge of any actual, suspected or alleged fraud;
· reading of minutes of those charged with governance; and
· using analytical procedures to identify any unusual or unexpected
relationships.
As required by auditing standards, and taking into account possible incentives
or pressures to misstate performance and our overall knowledge of the control
environment, we perform procedures to address the risk of management override
of controls, in particular the risk that management may be in a position to
make inappropriate accounting entries, and the risk of bias in accounting
estimates such as valuation of single broker quoted investments and Internally
Generated Valuations.
On this audit we do not believe there is a fraud risk related to revenue
recognition because the Group's revenue streams are simple in nature with
respect to accounting policy choice, and are easily verifiable to external
data sources or agreements with little or no requirement for estimation from
management. We did not identify any additional fraud risks.
We performed procedures including:
· identifying journal entries and other adjustments to test based on risk
criteria and comparing any identified entries to supporting documentation;
· incorporating an element of unpredictability in our audit procedures;
and
· assessing significant accounting estimates for bias
Further detail in respect of valuation of single broker quoted investments and
Internally Generated Valuations is set out in the key audit matter section of
in this report.
Identifying and responding to risks of material misstatement due to
non-compliance with laws and regulations
We identified areas of laws and regulations that could reasonably be expected
to have a material effect on the consolidated financial statements from our
general commercial and sector experience and through discussion with
management (as required by auditing standards), and from inspection of the
Group's regulatory and legal correspondence, and discussed with management the
policies and procedures regarding compliance with laws and regulations. As the
Group is regulated, our assessment of risks involved gaining an understanding
of the control environment including the entity's procedures for complying
with regulatory requirements.
The Group is subject to laws and regulations that directly affect the
consolidated financial statements including financial reporting legislation
and taxation legislation and we assessed the extent of compliance with these
laws and regulations as part of our procedures on the related financial
statement items.
The Group is subject to other laws and regulations where the consequences of
non-compliance could have a material effect on amounts or disclosures in the
consolidated financial statements, for instance through the imposition of
fines or litigation or impacts on the Group and the Company's ability to
operate. We identified financial services regulation as being the area most
likely to have such an effect, recognising the regulated nature of the Group's
activities and its legal form. Auditing standards limit the required audit
procedures to identify non-compliance with these laws and regulations to
enquiry of management and inspection of regulatory and legal correspondence,
if any. Therefore if a breach of operational regulations is not disclosed to
us or evident from relevant correspondence, an audit will not detect that
breach.
Context of the ability of the audit to detect fraud or breaches of law or
regulation
Owing to the inherent limitations of an audit, there is an unavoidable risk
that we may not have detected some material misstatements in the consolidated
financial statements, even though we have properly planned and performed our
audit in accordance with auditing standards. For example, the further removed
non-compliance with laws and regulations is from the events and transactions
reflected in the consolidated financial statements, the less likely the
inherently limited procedures required by auditing standards would identify
it.
In addition, as with any audit, there remains a higher risk of non-detection
of fraud, as this may involve collusion, forgery, intentional omissions,
misrepresentations, or the override of internal controls. Our audit procedures
are designed to detect material misstatement. We are not responsible for
preventing non-compliance or fraud and cannot be expected to detect
non-compliance with all laws and regulations.
Other information
The directors are responsible for the other information. The other
information comprises the information included in the annual report but does
not include the consolidated financial statements and our auditor's report
thereon. Our opinion on the consolidated financial statements does not cover
the other information and we do not express an audit opinion or any form of
assurance conclusion thereon.
In connection with our audit of the consolidated financial statements, our
responsibility is to read the other information and, in doing so, consider
whether the other information is materially inconsistent with the consolidated
financial statements or our knowledge obtained in the audit, or otherwise
appears to be materially misstated. If, based on the work we have performed,
we conclude that there is a material misstatement of this other information,
we are required to report that fact. We have nothing to report in this regard.
We have nothing to report on other matters on which we are required to report
by exception
We have nothing to report in respect of the following matters where the
Companies (Guernsey) Law, 2008 requires us to report to you if, in our
opinion:
· the Company has not kept proper accounting records; or
· the consolidated financial statements are not in agreement with the
accounting records; or
· we have not received all the information and explanations, which to
the best of our knowledge and belief are necessary for the purpose of our
audit.
Respective responsibilities
Directors' responsibilities
As explained more fully in their statement set out above, the directors are
responsible for: the preparation of the consolidated financial statements
including being satisfied that they give a true and fair view; such internal
control as they determine is necessary to enable the preparation
of consolidated financial statements that are free from material
misstatement, whether due to fraud or error; assessing the Group and Company'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.
Auditor's responsibilities
Our objectives are to obtain reasonable assurance about whether the
consolidated financial statements as a whole are free from material
misstatement, whether due to fraud or error, and to issue our opinion in an
auditor's report. Reasonable assurance is a high level of assurance, but does
not guarantee that an audit conducted in accordance with ISAs (UK) will always
detect a material misstatement when it exists. Misstatements can arise from
fraud or error and are considered material if, individually or in aggregate,
they could reasonably be expected to influence the economic decisions of users
taken on the basis of the consolidated financial statements.
A fuller description of our responsibilities is provided on the FRC's website
at www.frc.org.uk/auditorsresponsibilities
(http://www.frc.org.uk/auditorsresponsibilities) .
The purpose of this report and restrictions on its use by persons other than
the Company's members, as a body
This report is made solely to the Company's members, as a body, in accordance
with section 262 of the Companies (Guernsey) Law, 2008. Our audit work has
been undertaken so that we might state to the Company's members those matters
we are required to state to them in an auditor's 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 and the Company's members, as
a body, for our audit work, for this report, or for the opinions we have
formed.
Barry Ryan
For and on behalf of KPMG Channel Islands Limited
Chartered Accountants and Recognised Auditors
Guernsey
25 April 2024
FINANCIAL STATEMENTS | Consolidated Statement of Assets and Liabilities
Consolidated Statement of Assets and Liabilities
AS AT 31 DECEMBER 2023 AND 31 DECEMBER 2022
(EXPRESSED IN US DOLLARS EXCEPT WHERE STATED OTHERWISE) 31 DECEMBER 2023 31 December 2022
Assets
Investments, at fair value (2023: cost of $90,284,529; 2022: cost of 60,883,590 73,743,616
$103,009,846)
Forward currency contracts, at fair value 18,235 12,018
Total Return Swaps, at fail value (2023: cost of $Nil, 2022: cost of $Nil) 3,648,201 1,558,420
Cash and cash equivalents 4,809,578 8,733,589
Restricted Cash:
Forward currency contracts Collateral 790,000 90,000
Total return swap Collateral 10,970,000 10,970,000
81,119,604 95,107,643
Other assets
Interest receivables 691,898 596,024
Withholding tax receivable 251,051 445,762
Other receivables and prepayments 57,691 72,304
Receivables for investments sold - 498,514
Total assets 82,120,244 96,720,247
Liabilities
Forward currency contracts, at fair value 1,545,570 1,269,365
Accrued expenses and other liabilities 395,627 282,649
Credit default swap, at fair value (2023: cost of $19,860; 2022: cost of 21,309 21,494
$16,821)
Total liabilities 1,962,506 1,573,508
Net assets 80,157,738 95,146,739
Net assets attributable to Ordinary Shares (shares 2023: 15,382,770; 12,415,231 11,890,321
2022: 15,382,770)
Net asset value per Ordinary Share 0.8071 0.7730
Net assets attributable to Extended Life Shares (shares 2023: 44,234,790; 45,614,485 58,477,990
2022: 60,116,016)
Net asset value per Extended Life Share 1.0312 0.9728
Net assets attributable to New Global Shares (shares 2023: 27,821,698; £17,358,035 £20,598,909
2022: 31,023,609)
Net asset value per New Global Share £0.6239 £0.6640
Net assets attributable to New Global Shares (USD equivalent) 22,128,022 24,778,428
Net asset value per New Global Share (USD equivalent) 0.7954 0.7987
The Financial Statements were approved and authorised for issue by the Board
of Directors on 25 April 2024 and signed on its behalf by:
John Hallam
Christopher Legge
Chairman
Director
The accompanying notes below are an integral part of the Consolidated
Financial Statements.
FINANCIAL STATEMENTS | Consolidated Statement of Operations
Consolidated Statement of Operations
FOR THE YEAR ENDED 31 DECEMBER 2023 AND 31 DECEMBER 2022
(EXPRESSED IN US DOLLARS) 31 DECEMBER 2023 31 DECEMBER 2022
Income
Interest income 2,899,273 8,496,913
2,899,273 8,496,913
Expenses
Professional and other expenses 531,886 462,603
Audit Fee 316,352 276,891
Directors' fees and expenses 193,450 188,088
Company Secretary Fee 116,888 109,316
D&O Insurance Fee 105,471 116,889
Administration fee 87,547 97,879
Loan administration and custody fees 30,743 24,726
1,382,337 1,276,392
Net investment income 1,516,936 7,220,521
Realised and unrealised (loss)/gain from investments and foreign exchange
Net realised (loss)/gain on investments, credit default swap, total return (92,697) 1,585,726
swap and forward currency transactions
Net change in unrealised gain on investments, credit default swap, total 1,542,286 1,419,108
return swap and forward currency transactions
Realised and unrealised gain from investments and foreign exchange 1,449,589 3,004,834
Net increase in net assets resulting from operations 2,966,525 10,225,355
The accompanying notes below are an integral part of the Consolidated
Financial Statements.
FINANCIAL STATEMENTS | Consolidated Statement of Changes in Net Assets
Consolidated Statement of Changes in Net Assets
FOR THE YEAR ENDED 31 DECEMBER 2023
(EXPRESSED IN US DOLLARS) 31 DECEMBER 2023 31 DECEMBER 2023 31 DECEMBER 2023 31 DECEMBER 2023
Ordinary Shares Extended Life Shares New Global Shares Aggregated
Net assets at the beginning of the year 11,890,321 58,477,990 24,778,428 95,146,739
Net investment income 21,599 711,561 783,776 1,516,936
Net realised (loss)/gain on investments, credit default swap and forward (229,535) 726,939 (590,101) (92,697)
currency transactions
Net change in unrealised gain/(loss) on investments, credit default swap and 732,846 955,658 (146,218) 1,542,286
forward currency transactions
Shares redeemed during the year - (15,257,663) (2,697,863) (17,955,526)
Net assets at the end of the year 12,415,231 45,614,485 22,128,022 80,157,738
FOR THE YEAR ENDED 31 DECEMBER 2022
(EXPRESSED IN US DOLLARS) 31 DECEMBER 2022 31 DECEMBER 2022 31 DECEMBER 2022 31 DECEMBER 2022
Ordinary Shares Extended Life Shares New Global Shares Aggregated
Net assets at the beginning of the year 13,887,833 74,450,993 32,215,319 120,554,145
Net investment income 22,330 4,750,004 2,448,187 7,220,521
Net realised loss on investments, credit default swap and forward currency (117,445) 2,424,254 (721,083) 1,585,726
transactions
Net change in unrealised (loss)/gain on investments, credit default swap and (1,902,397) 1,620,364 1,701,141 1,419,108
forward currency transactions
Dividends - (5,799,245) (2,828,797) (8,628,042)
Shares redeemed during the year - (18,968,380) (8,036,339) (27,004,719)
Net assets at the end of the year 11,890,321 58,477,990 24,778,428 95,146,739
The accompanying notes below are an integral part of the Consolidated
Financial Statements.
FINANCIAL STATEMENTS | Consolidated Statement of Cash Flows
Consolidated Statement of Cash Flows
FOR THE YEAR ENDED 31 DECEMBER 2023 AND 31 DECEMBER 2022
(EXPRESSED IN US DOLLARS) 31 DECEMBER 2023 31 DECEMBER 2022
Cash flows from operating activities:
Net increase in net assets resulting from operations 2,966,525 10,225,355
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 92,697 (1,585,726)
swap and forward currency transactions
Net change in unrealised gain on investments, credit default swap, total (1,542,286) (1,419,108)
return swap and forward currency transactions
Accretion of discount on loans and bonds 91,550 145,689
Changes in interest receivable (95,874) 75,835
Changes in receivables for investments sold 498,514 (157,540)
Changes in other receivables and prepayments 14,613 3,514
Changes in withholding tax receivable 194,711 -
Changes in accrued expenses and other liabilities 112,978 36,040
Cash received on settled forward currency contracts and spot currency (1,975,089) 1,962,633
contracts
Payment in kind interest (1,965,980) (2,736,347)
Purchase of investments(2) (317,725) (205,537)
Sale of investments(2) 16,634,461 32,240,146
Sale of short term investments(1) - 1,606,375
Net cash provided by operating activities 14,709,095 40,191,329
Cash flows from financing activities:
Shares redeemed during the year (17,955,526) (27,004,719)
Dividend paid - (8,628,042)
Net cash used in from financing activities (17,955,526) (35,632,761)
Net (decrease)/increase in cash, cash equivalents and restricted cash (3,246,431) 4,558,568
Cash and cash equivalents at the beginning of the year 8,733,589 4,370,854
Restricted cash at the beginning of the year 11,060,000 10,970,000
Effect of exchange rate changes on cash and cash equivalents 22,420 (105,833)
Cash and cash equivalents at the end of the year 4,809,578 8,733,589
Restricted cash at the end of the year 11,760,000 11,060,000
Supplemental cash flow information
There were no reorganisations requiring disclosure in the year to 31 December
2023 (31 December 2022: None).
(1) Short term investments are typically sold or converted to cash within 3 to
12 months.
(2) Included in these figures is $Nil (2022: $2,678) of non-cash transactions.
These arose due to the repricing and restructuring of certain investments
during the year.
The accompanying notes below are an integral part of the Consolidated
Financial Statements.
FINANCIAL STATEMENTS | Consolidated Condensed Schedule of Investments
Consolidated Condensed Schedule of Investments (by financial instrument)
AS AT 31 DECEMBER 2023 Cost Fair Value Extended Life New Global Shares Total Company
(EXPRESSED IN US DOLLARS) Ordinary Shares (%)(1) (%)(1)
Shares (%)(1)
(%)(1)
Portfolio of Distressed Investments
Bank Debt Investments 45,428,216 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 above.
The accompanying notes below are an integral part of the Consolidated
Financial Statements.
FINANCIAL STATEMENTS | Consolidated Condensed Schedule of Investments
Consolidated Condensed Schedule of Investments (by financial instrument)
(continued)
AS AT 31 DECEMBER 2022 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 45,738,879 27,358,457 - 18.82 65.99 28.75
Private Equity 17,788,092 24,502,057 21.86 28.64 20.81 25.76
Private Note 32,100,083 15,923,291 5.21 21.86 10.17 16.74
Short term Investments
US Treasury Bills 7,382,792 5,959,811 33.95 3.29 - 6.26
Total Investments 103,009,846 73,743,616 61.02 72.61 96.97 77.51
Portfolio per share class
Ordinary Shares 7,085,668 7,255,206 61.02 - - 7.63
Extended Life Shares 59,089,019 42,461,578 - 72.61 - 44.63
New Global Shares 36,835,159 24,026,832 - - 96.97 25.25
103,009,846 73,743,616 61.02 72.61 96.97 77.51
Credit Default Swap
Ordinary Shares (4,715) (6,025) (0.05) - - (0.01)
Extended Life Shares (12,106) (15,469) - (0.03) - (0.02)
(16,821) (21,494) (0.05) (0.03) - (0.03)
Forward Currency Contracts
Assets
Ordinary Shares - 3,953 0.03 - - -
Extended Life Shares - 8,065 - 0.01 - 0.01
- 12,018 0.03 0.01 - 0.01
Liabilities
Ordinary Shares - (231,261) (1.94) - - (0.24)
Extended Life Shares - (1,038,104) - (1.78) - (1.09)
- (1,269,365) (1.94) (1.78) - (1.33)
Total Return Swap(2)
Ordinary Shares - 435,022 3.66 - - 0.46
Extended Life Shares - 1,123,398 - 1.91 - 1.18
- 1,558,420 3.66 1.91 - 1.64
(1) This is the Fair Value expressed as a percentage of total 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 above.
The accompanying notes below are an integral part of the Consolidated
Financial Statements.
FINANCIAL STATEMENTS | Consolidated Condensed Schedule of Investments
Consolidated Condensed Schedule of Investments
Investments with the following issuers comprised greater than 5% of Total
Company NAV
AS AT 31 DECEMBER 2023 Country Industry Nominal Cost Fair Value Ordinary Extended New Global Shares Total Company
(EXPRESSED IN US DOLLARS) Shares Life (%)(1) (%)(1)
(%)(1) Shares
(%)(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)
AB Zwolle T/L EUR 01/06/2020 (Bank Debt Investments) Netherlands Commercial Mortgage 20,223,504 14,595,720 10,879,528 - 10.57 27.37 13.57
Package Holdings 1 (Private Note) Luxembourg Containers and Packaging 11,108,610 - 9,473,309 21.32 14.96 - 11.82
Package Holdings 6 (Private Note) Luxembourg Containers and Packaging 2,948,481 1,893,980 1,313,564 2.97 6.38 - 1.64
TP Ferro Concesionaria T/L 1L 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
(Bank Debt Investments)
TP Ferro Concesionaria TP Ferro 1L T/L-B EUR (First-Lien) EUR (Bank Debt Spain Surface Transport 593,063 666,784 655,127 - 0.72 1.48 0.82
Investments)
TP Ferro PIK 5A 4/20 Spain Surface Transport 522,319 522,319 522,319 - 0.57 1.18 0.65
(Bank Debt Investments)
TP Ferro PIK 5C 7/23 (Bank Debt Investments) Spain Surface Transport 361,262 361,262 361,262 1.00 0.40 0.82 0.45
TP Ferro PIK 5B 7/22 Spain Surface Transport 298,046 298,046 298,046 - 0.33 0.67 0.37
(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
(Bank Debt Investments)
Hotel Puerta America PIK T/L EUR (Bank Debt Investments) Spain Lodging & Casinos 3,901,657 4,293,218 4,215,146 - - 19.05 5.26
Hotel Puerta America PIK Addon EUR (Bank Debt Investments) Spain Lodging & Casinos 1,540,070 1,675,349 1,663,811 - - 7.52 2.08
Hotel Puerta America PIK PPL EUR Spain Lodging & Casinos 1,090,003 1,281,898 1,177,582 - - 5.32 1.47
(Bank Debt Investments)
US Treasury N/B 1.500% 02/15/30 United States1 United States 6,975,000 7,326,847 6,085,143 33.20 4.30 - 7.59
(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 Consolidated
Financial Statements.
Investments with the following issuers comprised greater than 5% of Total
Company NAV
31 DECEMBER 2022 Country Industry Nominal Cost Fair Value Ordinary Extended New Global Shares Total Company
(EXPRESSED IN US DOLLARS) Shares Life (%)(1) (%)(1)
(%)(1) Shares
(%)(1)
Investments at fair value
White Energy Holding Company LLC United States Oil & Gas 367 9,174,989 11,010,000 - 13.44 12.71 11.57
(Private Equity)
AB Zwolle T/L EUR 05/31/2023 (Bank Debt Investments) Netherlands Commercial Mortgage 19,200,256 14,043,835 10,671,960 - 8.09 23.98 11.22
Package Holdings 1 (Private Note) Luxembourg Containers and Packaging 11,108,610 - 8,103,345 19.04 9.99 - 8.52
Package Holdings 6 (Private Note) Luxembourg Containers and Packaging 2,948,481 1,893,980 1,123,710 2.64 1.38 - 1.18
TP Ferro Concesionaria T/L 1L 31/03/2016 Spain Surface Transport 18,787,735 18,531,522 4,010,242 - 3.44 8.06 4.21
(Bank Debt Investments)
TP Ferro Concesionaria TP Ferro T/L-A (First-Lien) Spain Surface Transport 2,309,778 2,309,778 2,309,778 - 1.97 4.66 2.43
(Bank Debt Investments)
TP Ferro PIK 5B 7/22 Spain Surface Transport 234,516 234,516 234,516 - 0.20 0.47 0.25
(Bank Debt Investments)
TP Ferro Concesionaria TP Ferro 1L T/L-B EUR (First-Lien) EUR (Bank Debt Spain Surface Transport 465,056 527,661 496,331 - 0.42 1.00 0.52
Investments)
TP Ferro PIK 5A 4/20 Spain Surface Transport 409,581 409,581 409,581 - 0.35 0.83 0.43
(Bank Debt Investments)
TP Ferro Concesionaria TP Ferro 1L T/L-C (First-Lien) Spain Surface Transport 201,179 201,179 201,179 - 0.17 0.41 0.21
(Bank Debt Investments)
ACA Fin Guaranty Corp 12-12/31/2025 Frn United States Financial Intermediaries 66,659,722 10,617,941 4,332,882 5.21 6.35 - 4.55
(Private Note)
ACA Fin Gur Sur Non Vt 12-12/31/2025 Frn United States Financial Intermediaries 61,989,978 9,840,909 4,029,349 - 6.89 - 4.23
(Private Note)
Hotel Puerta America PIK T/L EUR Spain Lodging & Casinos 3,643,760 4,017,977 3,888,803 - - 15.69 4.09
(Bank Debt Investments)
Hotel Puerta America Spain Lodging & Casinos 934 3,013,332 1,110,956 - - 4.48 1.18
(Private Equity)
Hotel Puerta America PIK PPL EUR Spain Lodging & Casinos 1,090,003 1,281,898 1,163,306 - - 4.69 1.22
(Bank Debt Investments)
Hotel Puerta America PIK Addon EUR Spain Lodging & Casinos 1,438,272 1,566,706 1,534,996 - - 6.19 1.61
(Bank Debt Investments)
Buffalo Thunder Dev Auth 11.00% 12/09/29 SR: Regs United States Lodging & Casinos 14,001,965 11,641,233 7,561,061 - 8.62 10.17 7.95
(Private Note)
US Treasury N/B 1.500% 02/15/30 United States United States 6,975,000 7,382,792 5,959,811 33.95 3.29 - 6.26
(US Treasury Bills)
96,689,829 68,151,806 60.84 64.60 93.34 71.63
(1) This is the Fair Value expressed as a percentage of total 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 Consolidated
Financial Statements.
FINANCIAL STATEMENTS | Consolidated Condensed Schedule of Investments
Consolidated Condensed Schedule of Investments (by geography)
AS AT 31 DECEMBER 2023 Fair Value Ordinary Extended Life New Global Shares Total Company
(EXPRESSED IN US DOLLARS) Cost Shares Shares (%)(1) (%)(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 Consolidated
Financial Statements.
AS AT 31 DECEMBER 2022 Fair Value Ordinary Extended Life New Global Shares Total Company
(EXPRESSED IN US DOLLARS) Cost Shares Shares (%)(1) (%)(1)
(%)(1) (%)(1)
Geographic diversity of Portfolios
Portfolio of Distressed Investments
Luxembourg 1,893,980 9,227,056 21.69 11.37 - 9.70
Netherlands 14,043,835 10,671,960 - 8.09 23.98 11.22
Spain 32,094,148 15,359,687 - 6.56 46.50 16.14
United States 47,595,091 32,525,102 5.38 43.30 26.49 34.19
Short term Investments (US Treasury Bills)
United States 7,382,792 5,959,811 33.95 3.29 - 6.26
103,009,846 73,743,616 61.02 72.61 96.97 77.51
( )
(1) This is the Fair Value expressed as a percentage of total Ordinary Share
NAV, Extended Life Share NAV, New Global Share NAV and Company NAV.
The accompanying notes below are an integral part of the Consolidated
Financial Statements.
FINANCIAL STATEMENTS | Consolidated Condensed Schedule of Investments
Consolidated Condensed Schedule of Investments (by sector)
AS AT 31 DECEMBER 2023 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 Consolidated
Financial Statements..
AS AT 31 DECEMBER 2022 Cost Fair Value Ordinary Extended Life New Global Total Company
(EXPRESSED IN US DOLLARS) Shares Shares Shares (%)(1)
(%)(1) (%)(1) (%)(1)
Industry diversity of Portfolios
Portfolio of Distressed Investments
Auto Components 3,705,793 3,154,044 0.17 3.83 3.61 3.31
Commercial Mortgage 14,043,835 10,671,960 - 8.09 23.98 11.22
Containers and Packaging 1,893,980 9,227,056 21.69 11.37 - 9.70
Financial Intermediaries 20,458,849 8,362,230 5.21 13.24 - 8.79
Lodging & Casinos 24,135,372 17,696,890 - 12.79 41.24 18.60
Oil & Gas 9,174,989 11,010,000 - 13.44 12.71 11.58
Surface Transport 22,214,236 7,661,625 - 6.56 15.43 8.05
Short term Investments
US Treasury Bills 7,382,792 5,959,811 33.95 3.29 - 6.26
103,009,846 73,743,616 61.02 72.61 96.97 77.51
(1) This is the Fair Value expressed as a percentage of total Ordinary Share
NAV, Extended Life Share NAV, New Global Share NAV and Company NAV.
The accompanying notes below are an integral part of the Consolidated
Financial Statements.
FINANCIAL STATEMENTS | Notes to the Consolidated 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 Consolidated 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 year 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 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
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 year.
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 31 December 2023, the
Company has cash balances in various currencies equating to $16,569,578 (Cost:
$16,566,075) (31 December 2022: $19,793,589 (Cost: $19,641,661) including cash
and cash equivalents of $4,809,578 (31 December 2022: $8,733,589) as well as
restricted cash of $11,760,000 (31 December 2022: $11,060,000). Restricted
cash of $10,970,000 (31 December 2022: $10,970,000) is collateral for the
total return swap positions and restricted cash of $790,000 (31 December 2022:
$90,000) 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 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 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 31 December 2023 and
31 December 2022 to estimate the fair value of each class of financial
instruments:
· Cash and cash equivalents - The carrying value reasonably
approximates fair value due to the short-term nature of these instruments.
· 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 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 31 DECEMBER 2023
(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
FAIR VALUE OF FINANCIAL INSTRUMENTS AS AT 31 DECEMBER 2022
(EXPRESSED IN US DOLLARS) LEVEL 1 LEVEL 2 LEVEL 3 TOTAL
Bank Debt Investments - - 27,358,457 27,358,457
Private Equity - 11,010,000 13,492,057 24,502,057
Private Note - 7,561,061 8,362,230 15,923,291
US Treasury Bills 5,959,811 - - 5,959,811
Investments at fair value 5,959,811 18,571,061 49,212,744 73,743,616
Credit Default Swap - (21,494) - (21,494)
Total Return Swap - - 1,558,420 1,558,420
Forward Currency Contracts - Assets - 12,018 - 12,018
Forward Currency Contracts - Liabilities - (1,269,365) - (1,269,365)
Total investments that are accounted for at fair value 5,959,811 17,292,220 50,771,164 74,023,195
The following table summarises the significant unobservable inputs the Company
used to value its investments categorised within Level 3 as at 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
The following table summarises the significant unobservable inputs the Company
used to value its investments categorised within Level 3 as at 31 December
2022. The table is not intended to be all-inclusive but instead captures the
significant unobservable inputs relevant to our determination of fair values.
Type Sector Fair Value ($) Primary Valuation Technique Significant unobservable Inputs Range Input
Bank Debt Investments Commercial Mortgage 10,671,960 Market Comparatives Discount Rate 10%
Bank Debt Investments Lodging & Casinos 6,587,107 Market Comparatives Discount Rate 15%
Bank Debt Investments Lodging & Casinos 2,437,766 Market Information Unadjusted Broker Quote N/A
Bank Debt Investments Surface Transport 7,661,625 Market Information Unadjusted Broker Quote N/A
Private Equity Auto Components 3,154,044 Market Information EBITDA Multiple 4-5X
Private Equity Containers and Packaging 9,227,056 Market Comparatives EBITDA Multiple 11X
Private Equity Lodging & Casinos 1,110,956 Market Comparatives Discount Rate 15%
Private Note Financial Intermediaries 8,362,230 Market Comparatives Discount Rate 25%
Total Return Swap Surface Transport 1,558,420 Market Information Unadjusted Broker Quote N/A
Total 50,771,164
Changes in any of the above inputs may positively or adversely impact the fair
value of the relevant investments.
Level 3 assets are valued using single bid-side broker quotes or by good faith
methods of the Investment Manager. For single broker quotes the Investment
Manager uses unobservable inputs to assess the reasonableness of the broker
quote. For good faith valuations, the Investment Manager directly uses
unobservable inputs to produce valuations. The significant unobservable inputs
used in Level 3 assets as at 31 December 2023 and 31 December 2022 are
outlined in the tables above.
These inputs vary by asset class. For example, real estate asset valuations
may utilise discounted cash flow models using an average value per square foot
and appropriate discount rate. Other assets may be valued based on analysis of
the liquidation of the underlying assets. In general, increases/(decreases) to
per unit valuation inputs such as value per square foot, will result in
increases/(decreases) to investment value.
Similarly, increases/(decreases) of asset realisation inputs (liquidation
estimate, letter of intent, etc.) will also result in increases/(decreases) in
value. In situations where discounted cash flow models are used,
increasing/(decreasing) discount rates or increasing/(decreasing) weighted
average life, in isolation, will generally result in (decreased)/increased
valuations.
FOR THE YEAR ENDED 31 DECEMBER 2023
(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 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 gain/(loss) 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.
The following is a reconciliation of opening and closing balances of assets
and liabilities measured at fair value on a recurring basis using Level 3
inputs:
FOR THE YEAR ENDED 31 DECEMBER 2022
(EXPRESSED IN US DOLLARS)
Bank Debt Investments Private Equity Trade Claim Private Note Total
Balance, 31 December 2021 47,181,981 21,836,374 (875,121) 6,641,858 74,785,092
Purchases (includes purchases-in-kind) 4,240,602 - - - 4,240,602
Sales and distributions (28,047,566) - - (4,187,464) (32,235,030)
Realised (loss)/gain on sale of investments (2,239,259) (1,003,803) - 3,521,541 278,479
Unrealised gain/(loss) on investments 3,766,473 (7,340,514) 2,433,541 2,386,295 1,245,795
Transfers from Level 2 into Level 3 2,456,226 - - - 2,456,226
Balance, 31 December 2022 27,358,457 13,492,057 1,558,420 8,362,230 50,771,164
Change in unrealised (loss)/gain on investments included in Audited (867,184) (8,344,317) 2,433,541 2,386,295 (4,391,665)
Consolidated Statement of Operation for Level 3 investments held as at 31
December 2022
The Company's policy is to recognise transfers into and out of Level 3 as of
the actual date of the event or change in circumstances that caused the
transfer. During the year the Company had no transfers out of Level 3 into
Level 2 of fair value amounting to $Nil. The Company had one transfer out of
Level 2 into Level 3 of fair value amounting to $2,456,226 on 28 December
2022, due to a lack of observable inputs into the valuation.
(g) Investment transactions, investment income/expenses and valuation
Investment transactions are accounted for on a trade-date basis. Upon sale or
maturity, the difference between the consideration received and the cost of
the investment is recognised as a realised gain or loss under Net realised
gain on investments, credit default swap, warrants and forward currency
transactions in the 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 year or fair value at the previous
year end and the fair value at the current year 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
Consolidated Statement of Operations.
For the year ended 31 December 2023, $91,550 (31 December 2022: $145,689) was
recorded to reflect accretion of discount on loans and bonds during the year
and is included as Interest Income in the 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 Consolidated Statement of Assets and
Liabilities at fair value in accordance with US GAAP, with changes in fair
value recognised in the 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 Consolidated Statement of Operations
in each reporting period.
As part of the Company's investment strategy, the Company enters into
over-the-counter ("OTC") derivative contracts which may include forward
currency contracts, credit default swaps and total return swaps.
Forward currency contracts are valued at the prevailing forward exchange rate
of the underlying currencies on the reporting date and the value recorded in
the financial statements represents net unrealised gain and loss on forwards
as at 31 December. Forward contracts are generally categorised in Level 2 of
the fair value hierarchy.
The credit default swap has been entered into on the OTC market. The fair
value of the credit default swap contract is derived using a pricing service
provided by Markit Partners. Markit Partners use a pricing model that is
widely accepted by marketplace participants. Their pricing model takes into
account multiple inputs including specific contract terms, interest rate yield
curves, interest rates, credit curves, recovery rates, and current credit
spreads obtained from swap counterparties and other market participants. Many
inputs into the model do not require material subjectivity as they are
observable in the marketplace or set per the contract. Other than the contract
terms, valuation is mainly determined by the difference between the contract
spread and the current market spread. The contract spread (or rate) is
generally fixed and the market spread is determined by the credit risk of the
underlying debt or reference entity. If the underlying debt is liquid and the
OTC market for the current spread is active, credit default swaps are
categorised in Level 2 of the fair value hierarchy. If the underlying debt is
illiquid and the OTC market for the current spread is not active, credit
default swaps are categorised in Level 3 of the fair value hierarchy.
The total return swap is valued using a mark to market prices provided by a
third-party broker.
(i) Taxation
The Company is not subject to income taxes in Guernsey; however, it may be
subject to taxes imposed by other countries on income it derives from
investments.
Such taxes are reflected in the 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 31 December 2023 or 31 December
2022. The Company files its tax returns as prescribed by the tax laws of the
jurisdictions in which it operates. In the normal course of business, the
Company is subject to examination by federal and certain state, local, and
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 31 December 2023, the Company's U.S.
federal income tax returns are subject to examination under the three-year
statute of limitations.
During the year ended 31 December 2023, the Company recorded current income
tax expense $Nil (31 December 2022 income tax expense: $Nil). Deferred taxes
are recorded to reflect the tax consequences of future years' differences
between the tax basis of assets and their financial reporting basis. The
deferred tax benefit recorded for the year ended 31 December 2023 was $Nil (31
December 2022 deferred tax benefit: $Nil). The net total income tax
benefit/expense from realised/unrealised gains/(losses) on investments for the
year ended 31 December 2023 was $Nil (31 December 2022 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 31 December 2023, the amount 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 date.
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
31 December 2023 (31 December 2022: one).
Total Return Swap
The Company entered into two fully funded total return swaps on 2 May 2011 and
25 April 2012. These swaps matured on 25 February 2020 and rolled over into a
new swap agreement. New ISDA regulations enacted in 2019 require booking the
total return swaps with cash collateral maintained vs fully funded swaps.
The new swap rolls on an annual basis. The swap was booked on 02 March 2022
and matured on 01 February 2023. A realised event occurred on the value of the
swap as at 01 February 2023 $2,075,537. The next maturity will occur on 01
February 2024. The value of the swap, exclusive of related cash collateral, as
at 31 December 2023 is $3,648,201 (31 December 2022: $1,558,420) representing
a change in market value of $1,572,664 in the period since the 01 February
2023 maturity.
As at 31 December 2023 the net value of the swap and related cash collateral
was $14,618,201 (31 December 2022: $12,528,420) (comprised of restricted cash
collateral of $10,970,000 (31 December 2022: $10,970,000) and total return
swap asset of $ 3,648,201 (31 December 2022: swap asset of $1,558,420), as
reflected in the 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 year ended 31 December 2023 and 31 December 2022 the volume of the
Company's derivative activities based on their notional amounts and number of
contracts, categorised by primary underlying risk, are as follows:
31 DECEMBER 2023 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
31 DECEMBER 2022 LONG EXPOSURE SHORT EXPOSURE
Primary underlying risk NOTIONAL AMOUNTS NUMBER OF CONTRACTS NOTIONAL AMOUNTS NUMBER OF CONTRACTS
Foreign exchange risk
Forward currency contracts $131,688,489 61 $107,370,134 64
Credit risk
Credit default swap $9,971,000 1 - -
Total return swap - - $10,960,348 2
The following tables show, as at 31 December 2023 and 31 December 2022, the
fair value amounts of derivative contracts included in the Consolidated
Statement of Assets and Liabilities, categorised by primary underlying risk.
Balances are presented on a gross basis prior to application of the impact of
counterparty and collateral netting. Total derivative assets and liabilities
are adjusted on an aggregate basis to take into account the effects of master
netting arrangements and, where applicable, have been adjusted by the
application of cash collateral receivables and payables with its
counterparties. The tables also identify, as at 31 December 2023 and 31
December 2022, the realised and unrealised gain and loss amounts included in
the Consolidated Statement of Operations, categorised by primary underlying
risk:
Derivative Assets Derivative Liabilities Realised gain NET CHANGE IN Unrealised gain (loss)
31 DECEMBER 2023 ($) ($) (loss) ($)
Primary underlying risk ($)
Foreign currency exchange rate
Forward currency contracts 18,235 (1,545,570) (1,975,088) (269,987)
Credit
Purchased protection
Credit default swap - (21,309) (84,550) 3,223
Total return swap 3,648,201 - - 2,078,684
Derivative Assets Derivative Liabilities Realised gain NET CHANGE IN Unrealised gain (loss)
31 DECEMBER 2022 ($) ($) (loss) ($)
Primary underlying risk ($)
Foreign currency exchange rate
Forward currency contracts 12,018 (1,269,365) 1,963,445 (1,667,174)
Credit
Purchased protection
Credit default swap - (21,494) 37,783 (8,853)
Total return swap 1,558,420 - - 2,433,541
Offsetting assets and liabilities
Amounts due from and to brokers are presented on a net basis, by counterparty,
to the extent the Company has the legal right to offset the recognised amounts
and intends to settle on a net basis.
The Company presents on a net basis the fair value amounts recognised for OTC
derivatives executed with the same counterparty under the same master netting
agreement.
The Company is required to disclose the impact of offsetting assets and
liabilities presented in the 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 31 December 2023 and 31 December 2022, show the
gross and net derivatives assets and liabilities by contract type and amount
for those derivatives contracts for which netting is permissible.
31 DECEMBER 2023
(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 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
Consolidated Statement of Assets and Liabilities.
The following table, as at 31 December 2022, show the gross and net
derivatives assets and liabilities by contract type and amount for those
derivatives contracts for which netting is permissible.
31 DECEMBER 2022
(EXPRESSED IN US DOLLARS)
AMOUNTS NOT OFFSET IN THE CONSOLIDATED STATEMENT OF ASSETS AND LIABILITIES
DESCRIPTION GROSS AMOUNTS OF RECOGNISED ASSETS GROSS AMOUNTS OFFSET IN THE CONSOLIDATED STATEMENTS OF ASSETS AND LIABILITIES NET AMOUNTS OF RECOGNISED ASSETS PRESENTED IN THE CONSOLIDATED STATEMENT OF FINANCIAL INSTRUMENTS (POLICY ELECTION) FINANCIAL COLLATERAL RECEIVED(1) NET AMOUNT
ASSETS AND LIABILITIES
Forward currency contracts 12,018 - 12,018 (12,018) - -
Total return swaps 1,558,420 - 1,558,420 - - 1,558,420
Total 1,570,438 - 1,570,438 (12,018) - 1,558,420
AMOUNTS NOT OFFSET IN THE CONSOLIDATED STATEMENT OF ASSETS AND LIABILITIES
DESCRIPTION GROSS AMOUNTS OF RECOGNISED LIABILITIES GROSS AMOUNTS OFFSET IN THE CONSOLIDATED STATEMENTS OF ASSETS AND LIABILITIES NET AMOUNTS OF RECOGNISED ASSETS PRESENTED IN THE CONSOLIDATED STATEMENT OF FINANCIAL INSTRUMENTS (POLICY ELECTION) FINANCIAL COLLATERAL RECEIVED(1) NET AMOUNT
ASSETS AND LIABILITIES
Forward currency contracts (1,269,365) - (1,269,365) 12,018 - (1,257,347)
Credit default swap (21,494) - (21,494) - - (21,494)
Total (1,290,859) - (1,290,859) 12,018 - (1,278,841)
(1) The amount netted off is a portion of the total collateral as per the
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 31
December 2023 and 31 December 2022 are disclosed in the 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 Consolidated Condensed Schedules of Investments
above for concentration of credit risk.
The Company maintains positions in a variety of securities, derivative
financial instruments and cash and cash equivalents in accordance with its
investment strategy and guidelines. The Company's trading activities expose
the Company to counterparty credit risk from brokers, dealers and other
financial institutions (collectively, "counterparties") with which it
transacts business. "Counterparty credit risk" is the risk that a counterparty
to a trade will fail to meet an obligation that it has entered into with the
Company, resulting in a financial loss to the Company. The Company's policy
with respect to counterparty credit risk is to minimise its exposure to
counterparties with perceived higher risk of default by dealing only with
counterparties that meet the credit standards set out by the Investment
Manager.
All the Company's cash and investment assets other than derivative financial
instruments are held by the Custodian. The Custodian segregates the assets of
the Company from the Custodian's assets and other Custodian clients.
Management believes the risk is low with respect to any losses as a result of
this concentration. The Company conducts its trading activities with respect
to non-derivative positions with a number of counterparties. Counterparty
credit risk borne by these transactions is mitigated by trading with multiple
counterparties.
In addition, the Company may trade in OTC derivative instruments and in
derivative instruments which trade on exchanges with generally a limited
number of counterparties and as a consequence the Company is subject to
counterparty credit risk related to the potential inability of counterparties
to these derivative transactions to perform their obligations to the Company.
The Company's exposure to counterparty credit risk associated with
counterparty non-performance is generally limited to the fair value
(derivative assets and liabilities) of OTC derivatives reported as net assets,
net of collateral received or paid, pursuant to agreements with each
counterparty. The Investment Manager attempts to reduce the counterparty
credit risk of the Company by establishing certain credit terms in its
International Swaps and Derivatives Association (ISDA) Master Agreements (with
netting terms) with counterparties, and through credit policies and monitoring
procedures. Under ISDA Master Agreements in certain circumstances (e.g. when a
credit event such as a default occurs) all outstanding transactions under the
agreement are terminated, the termination value is assessed and only a single
net amount is due or payable in settlement of all transactions. The Company
receives and gives collateral in the form of cash and marketable securities
and it is subject to the ISDA Master Agreement Credit Support Annex. This
means that securities received/given as collateral can be pledged or sold
during the term of the transaction. The terms also give each party the right
to terminate the related transactions on the other party's failure to post
collateral. Exchange-traded derivatives generally involve less counterparty
exposure because of the margin requirements of the individual exchanges.
Generally, these contracts can be closed out at the discretion of the
Investment Manager and are governed by the futures and options clearing
agreements signed with the future commission merchants ("FCMs"). FCMs have
capital requirements intended to assure that they have sufficient capital to
protect their customers in the event of any inadequacy in customer funds
arising from the default of one or more customers, adverse market conditions,
or for any other reason. The credit risk relating to derivatives is detailed
further in Note 3.
Liquidity Risk
Liquidity risk is the risk that the Company will not be able to meet its
obligations as and when these fall due.
Liquidity risk is managed by the Investment Manager so as to ensure that the
Company maintains sufficient working capital in cash or near cash form so as
to be able to meet the Company's ongoing requirements as these are budgeted
for.
Other Risks
The invasion of Ukraine is of concern and the Company has considered its
potential impact on asset values, and while no direct impact has been
identified, values are affected by its impact on the global economy.
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 31 December 2023, the Company had the following number of shares in
issue:
Issued and fully paid up 31 December 2023 31 December 2022
Class A Shares 2 2
Ordinary Share Class of no par value (Nil in treasury; 2022: Nil) 15,382,770 15,382,770
Extended Life Share Class of no par value (Nil in treasury; 2022: Nil) 44,234,790 60,116,016
New Global Share Class of no par value (Nil in treasury; 2022: Nil) 27,821,698 31,023,609
Reconciliation of the number of shares in issue in each class (excluding Class
A) as at 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
Reconciliation of the number of shares in issue in each class (excluding Class
A) as at 31 December 2022:
Ordinary Extended Life Shares New Global Total
Shares Shares
Balance as at 31 December 2021 15,382,770 80,545,074 41,116,617 137,044,461
Shares redeemed during the year - (20,429,058) (10,093,008) (30,522,066)
Buybacks (Shares repurchased) - - - -
Balance as at 31 December 2022(1) 15,382,770 60,116,016 31,023,609 106,522,395
(1) Balance of issued shares used to calculate NAV
Distributions
Set out below are details of the capital returns by way of compulsory partial
redemptions approved during the year ended 31 December 2023 and 31 December
2022.
31 DECEMBER 2023 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
31 DECEMBER 2022
Ordinary Share Class Extended Life Share Class New Global Share Class
Distribution Amount Per Share Amount Distribution Amount Per Share Amount Distribution Amount Per Share
Number of Shares Number of Shares Number of Shares Amount
21 November 2022 - - - $18,968,380 20,429,058 $0.9285 $8,036,339 10,093,008 $0.7962
- - $18,968,380 20,429,058 $8,036,339 10,093,008
Buybacks
No shares were repurchased by the Company during either the year ended 31
December 2023 and 31 December 2022.
NOTE 6 - MATERIAL AGREEMENTS AND RELATED PARTY TRANSACTIONS
Investment Management Agreement ("IMA")
The Board is responsible for managing the business affairs of the Company but
delegates certain functions to the Investment Manager under an IMA dated 9
June 2010 (as amended).
On 17 July 2014, the Company, the Manager and the AIFM made certain
classificatory amend 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 year or the preceding financial year nor were any fees outstanding at
either 31 December 2023 or 31 December 2022.
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.
Administration, Company Secretarial and Custody Agreements (continued)
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 year ended 31 December 2023, the administration fee expense was
$87,547 (31 December 2022: $97,879), the secretarial fee was $116,888 of which
$Nil(1) was in relation to the administration of the ongoing buyback
programme, (31 December 2022: $109,316(1)) and the loan administration and
custody fee expense was $30,743(1) (31 December 2022: $24,726(1)). At 31
December 2023, the administration fee payable is $5,852(2) (31 December 2022:
$5,955(2)), the secretarial fee payable is $25,450(2) (31 December 2022:
$24,559(2)) and the loan administration and custody fee payable is $9,088(2)
(31 December 2022: $3,344(2)).
(1) Amount is included under Professional and other expenses in the
Consolidated Statement of Operations
(2) Amounts are included under Accrued expenses and other liabilities in the
Consolidated Statement of Assets and Liabilities and 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 year ended 31 December 2023, the Directors' fees and travel expenses
amounted to $193,450 (31 December 2022: $188,088). Michael J. Holmberg, the
non-independent Director, has waived the fees for his services as a Director.
There were no other related interests for the year ended 31 December 2023.
The Company has not set any requirements or guidelines for Directors to own
shares in the Company. The beneficial interests of the Directors and their
connected persons in the Company's shares as at 31 December 2023 are shown in
the table below:
No. of Ordinary Shares No. of Extended Life Shares No. of New Global Shares Total No. of
Director Shares
John Hallam - 40,507 33,462 73,969
Michael Holmberg - 17,885 34,982 52,867
Christopher Legge - - - -
Stephen Vakil - - 18,253 18,253
NOTE 7 - FINANCIAL HIGHLIGHTS
Ordinary Extended Life Shares New Global Ordinary Shares Extended Life New Global
Shares Shares Shares Shares
($) ($) (£) ($) ($) (£)
Per share operating performance Year Ended Year Ended Year Ended Year Ended Year Ended Year Ended
31 December 2023 31 December 31 December 31 December 31 December 31 December
2023 2023 2022 2022 2022
Net asset value per share at 0.7730 0.9728 0.6640 0.9028 0.9243 0.5785
beginning of the year
Impact of capital distribution - - 0.0069 0.0001 - - -
Impact of dividend distribution - - - - 0.0025 (0.0052)
Income from investment operations (1)
Net investment income 0.0014 0.0139 0.0214 0.0015 0.0605 0.0531
Net realised and unrealised gain/(loss) from investments and foreign exchange 0.0327 0.0376 (0.0616) (0.1313) (0.0145) 0.0376
Gain/(loss) from investment operations 0.0341 0.0515 (0.0402) (0.1298) 0.0460 0.0907
Net asset value per share at end of the year(2) 0.8071 1.0312 0.6239 0.7730 0.9728 0.6640
(1)Weighted average number of shares outstanding was used for calculation.
(2)Each share classes net assets includes the underlying assets and
liabilities directly attributable to the respective share class.
Ordinary Extended Life Shares New Global Ordinary Shares Extended Life New Global
Shares Shares Shares Shares
($) ($) (£) ($) ($) (£)
NAV Total return (2, 3) Year Ended Year Ended Year Ended Year Ended Year Ended Year Ended
31 December 31 December 31 December 31 December 31 December 31 December
2023 2023 2023 2022 2022 2022
NAV Total Return before 4.41% 6.00% (6.04%) (14.38%) 5.25% 14.78%
performance fee
NAV Total Return after performance fee including an income distribution by way 4.41% 6.00% (6.04%) (14.38%) 5.25% 14.78%
of dividend
(2) NAV Total Return is calculated for the Ordinary Shares, Extended Life
Shares and New Global Shares only and is calculated based on movement in the
NAV and does not reflect any movement in the market value of the shares. A
shareholder's return may vary from these returns based on participation in new
issues, the timing of capital transactions etc. It assumes that all income
distributions of the Company, paid by way of dividend, were reinvested,
without transaction costs. Class A shares are not presented as they are not
profit participating shares.
(3) An individual shareholder's return may vary from these returns based on
the timing of the shareholder's subscriptions.
Ordinary Extended Life Shares New Global Ordinary Shares Extended Life New Global
Shares Shares Shares Shares
($) ($) (£) ($) ($) (£)
Ratio to average net assets Year Ended Year Ended Year Ended Year Ended Year Ended Year Ended
31 December 31 December 31 December 31 December 31 December 31 December
2023 2023 2023 2022 2022 2022
Net investment income before and after performance fees 0.18% 1.40% 3.24% 0.17% 6.46% 8.36%
Total expenses and performance fee (1.28%) (1.38%) (2.21%) (0.97%) (0.99%) (1.33%)
NOTE 8 - RECONCILIATION OF NET ASSET VALUE TO PUBLISHED NAV
In preparing the Financial Statements, there were adjustments relating to
investment valuations. The impact of these adjustments on the NAV per Ordinary
Share, Extended Life Share and New Global Share is detailed below:
Ordinary Ordinary Extended Life Extended Life New Global New Global
Share Class Net Assets Share Class Share Class Share Class NAV per Share Share Class Share Class NAV per Share
($) NAV per Share Net Assets ($) Net Assets (£)
($) ($) (£)
Published net assets as at 31 December 2023 12,323,608 0.8011 45,378,194 1.0258 17,358,035 0.6239
Valuation adjustments 91,623 0.0060 236,291 0.0054 - -
Net assets per Consolidated Financial Statements 12,415,231 0.8071 45,614,485 1.0312 17,358,035 0.6239
Ordinary Ordinary Extended Life Extended Life New Global New Global
Share Class Net Assets Share Class Share Class Share Class NAV per Share Share Class Share Class NAV per Share
($) NAV per Share Net Assets ($) Net Assets (£)
($) ($) (£)
Published net assets as at 31 December 2022 11,930,152 0.7756 58,517,599 0.9734 20,524,544 0.6616
Valuation adjustments (39,831) (0.0026) (39,609) (0.0006) 74,365 0.0024
Net assets per Consolidated Financial Statements 11,890,321 0.7730 58,477,990 0.9728 20,598,909 0.6640
NOTE 9 - SUBSEQUENT EVENTS
The Directors have evaluated subsequent events up to 25 April 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
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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