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
following1:
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
Extended Life Shares
LSE ISIN code:
GG00BR88RQ95
New Global Shares
LSE ISIN code:
GG00BNTXRB08
Legal Entity Identifier
YRFO7WKOU3V511VFX790
Website
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
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
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
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
Share
Class
|
Extended Life Share
Class
|
New
Global
Share
Class1
|
Aggregated
|
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
Share
Class
|
Extended Life Share
Class
|
New Global Share
Class1
|
Aggregated
|
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 $1,324,249. This figure, which has
been prepared in accordance with AIC guidance represents the
Company's operating expenses, excluding finance costs payable,
expressed as a percentage of average net assets. Effective 18 March
2021, the Investment Manager had waived its entitlement to all fees
from the Company. The Ongoing Charges by share class are disclosed
above.
Summary of Value in Excess of Original Capital
Invested
AS
At 31 December 2023
|
Ordinary
Share Class ($)
|
Extended Life
Share Class ($)
|
New Global
Share Class (£)
|
Original Capital Invested
|
(124,500,202)
|
(359,359,794)
|
(110,785,785)
|
Total Capital
Distributions
|
129,627,394
|
294,070,076
|
51,444,766
|
Total Income Distributions
1
|
3,166,835
|
20,695,255
|
5,070,285
|
Distributions as % of Original
Capital
|
107%
|
88%
|
51%
|
Total Buybacks
|
-
|
12,112,379
|
10,924,963
|
NAV
|
12,415,231
|
45,614,485
|
17,358,035
|
Total of NAV Plus Capital and Income
Returned ("Value")
|
145,209,460
|
372,492,195
|
84,798,049
|
Value in Excess of Original Capital
Invested
|
20,709,258
|
13,132,401
|
(25,987,736)
|
Value as % of Original Capital
Invested
|
117%
|
104%
|
77%
|
AS
At 31 December 2022
|
Ordinary
Share Class ($)
|
Extended Life
Share Class ($)
|
New Global
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
(USD MILLIONS)
|
COMMENT
|
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
(USD
MILLIONS)
|
COMMENT
|
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
(USD MILLIONS)
|
COMMENT
|
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, IRR1
of 10% and ROR of 19%
NBDX 71 exits with a total return of
$77.0m, IRR1
of 5% and ROR of 12%
NBDG 32 exits with a total return of
£ (2.2) m, IRR1
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 A1
|
Exit
|
Cash
Invested
(millions)
|
Cash
Received
(millions)
|
Total
Return
(millions)
|
IRR
|
ROR
|
Months
Held
|
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 A2
|
Exit
|
Cash
Invested
(millions)
|
Cash
Received
(millions)
|
Total
Return
(millions)
|
IRR
|
ROR
|
Months
Held
|
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
41 Holdings as at 31 December 2023
Holding
|
Sector
|
Purchased Instrument
|
Status
|
Country
|
%
of NAV
|
Primary Asset
|
1
|
Surface
Transport2
|
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
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
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
81 Holdings as at 31 December 2023
Holding
|
Sector
|
Purchased Instrument
|
Status
|
Country
|
% of NAV
|
Primary Asset
|
1
|
Surface
Transport2
|
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
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
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
51 Holdings as at 31 December 2023
Holding
|
Sector
|
Purchased Instrument
|
Status
|
Country
|
% of NAV
|
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
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
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:
Investment Activity and Performance
An unsuccessful investment
strategy may result in underperformance against the Company's
objectives. This might be due to the skills of the Investment
Manager falling short in its selection of sectors or issues in
which to invest and its management of the
restructurings/reorganisations which can ensure their
success.
|
The Board has managed these risks
by ensuring a diversification of investments, although the level of
diversification will diminish as the respective Portfolios
liquidate their positions during their harvest periods. Please see
"Principal Risks Specific to Harvest Periods" below. The Investment
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 investment and the date that
any gain or loss on such investment is realised. Further, towards
the end of the Portfolios' respective harvest periods, a residual
amount is required to be retained for each share class in
accordance with regulatory requirements until such time that all
assets can be liquidated and returned to shareholders.
As capital is returned through
compulsory partial redemptions and buybacks, the number of assets
and shares in a Portfolio will diminish which in turn may lead to
an increased TER and reduced liquidity in a Portfolio's
shares.
|
The Board has ensured that the
Investment Manager has operated in accordance with the investment
limits and restrictions policy set out in the Company's Investment
Policy and Objectives, although it acknowledges that the
diversification of Portfolio investments will diminish as the
Portfolios liquidate their positions and return capital to
shareholders. The Board also 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 contracts with the
Investment Manager and other service providers are at competitive
rates. The Board also notes that the Company's key expenses, the
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 market conditions and the
extent to which investors undervalue the management activities of
the Investment Manager or discount its valuation methodology and
judgement.
|
While the Directors may seek to
mitigate any discount or premium to NAV per share through discount
management mechanisms, such as buybacks or share issuance, there
can be no guarantee that they will do so or that such 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 or Portfolio. The market
value of investments may vary because of a number of factors
including, but not limited to, the financial condition of the
underlying borrowers, the industry in which a borrower operates,
general economic or political conditions, interest rates, the
condition of the debt 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.
|
The Board has, over the Investment
Periods of the various share classes, ensured that the Investment
Manager has operated in accordance with the Company's investment
guidelines. The Directors monitor the status of the Portfolio
investments with the Investment Manager at each quarterly Board
meeting and monitor risk factors in respect of the
Portfolios.
|
Fair Valuation of Illiquid Assets
With respect to investments that
do not have a readily ascertainable market quotation in an active
market, the Investment Manager will value such investments at fair
value and such valuations will be inherently uncertain. Because of
the inherent uncertainty and subjectivity in determining the fair
value of investments that do not have a readily ascertainable
market quotation in an active market, the fair value of the
Company's investments as determined in good faith by the Investment
Manager may differ significantly from the values that would have
been used had a ready market existed for such investments. The
reliability of the NAV calculations published by the Company will
be impacted accordingly.
|
With respect to investments held
in the Company's Portfolios that do not have a readily available
market quotation, such as unquoted investments or investments which
are listed but deemed to be illiquid, the Investment Manager values
such investments at fair value on each NAV calculation date in
accordance with its customary valuation methods, policies and
procedures. Further information on the Company's valuation process
can be found in Note 2(g) under "Investment transactions,
investment income/expenses and valuation", and Note 2(f), "Fair
Value of Financial Instruments", of the Audited Consolidated
Financial Statements (the "Financial Statements").
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 trade on the SFS, the
Company is required to comply with the FCA's Disclosure Guidance
and Transparency Rules ("DTRs"). A breach of the legislation could
result in the Company and/or the Directors being fined or subject
to criminal proceedings and the suspension of the Company's shares
to trading on the SFS.
|
The Board relies on the Company
Secretary and the Company's advisers to ensure adherence to the
Guernsey legislation and the DTRs. The Investment Manager, Company
Secretary and the Administrator, are contracted to provide
investment, company secretarial, administration and accounting
services through qualified professionals.
|
Operational
Disruption to, or the failure of,
either the Investment Manager's or the Administrator's accounting,
dealings or payment systems, or the records of the custodian could
lead to a loss of assets and prevent the accurate reporting or
monitoring of the Company's financial position.
|
Details of how the Board monitors
the services provided by the Investment Manager and the
Administrator, and the key elements designed to provide effective
internal controls are explained further in the internal controls
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, expressed as a
percentage of the investment's initial cost.
|
It is calculated by taking the
difference between the current (or expected) 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 percentage of average net
assets during the year.
|
Annualised charges
(A)
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, 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 recur in the foreseeable
future, whether charged to capital or revenue, and which relate to
the operation of Company, excluding the costs of
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".
|
Ongoing charges (%) =
(A)/(B)
Annualised ongoing charges
(A)
Average undiluted net asset value
in the period (B)
|
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 represents the amount of
value our investors earn from a security over a specific
period.
|
Original Investment cost
(A)
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 returned to investors
expressed as a percentage of the original amount invested since
inception.
|
Total Capital Distributions
(A)
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 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 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.
|
NAV per share (NBDD)
(A)
Share price per share (NBDD)
(B)
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
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.
Substantial Shareholders
|
No. of Ordinary
Shares
|
No. of Extended Life
Shares
|
No. of New Global
Shares
|
Percentage of Share Class
(%)
|
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
|
3,802,890
|
5.95
13.67
|
NORTRUST NOMINEES LIMITED GSYA
ACCT
|
|
9,633,085
|
5,074,890
|
21.78
18.24
|
STATE STREET NOMINEES LIMITED
OM04
|
|
7,267,563
|
8,328,427
|
16.43
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.
Shareholder1
|
Number of
Shares
|
Percentage of total voting
rights (%)
|
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.
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.
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.
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.
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.
|
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:
Christopher Legge
(Chairman)
Stephen Vakil
|
Members:
Stephen Vakil
(Chairman)
John Hallam
Christopher Legge
|
Responsibilities:
The provision of 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.
More details are provided
below.
|
Responsibilities:
To review the performance of all
service providers (including the Investment Manager)
More details are provided
below.
|
REMUNEration Committee
|
inside information COMMITTEE
|
Members:
Stephen Vakil
(Chairman)
John Hallam
Christopher Legge
|
Members:
John Hallam (Chairman)
Michael Holmberg
Christopher Legge
Stephen Vakil
|
Responsibilities:
To review the on-going
appropriateness and relevance of the remuneration
policy.
More details are provided
below.
|
Responsibilities:
To identify inside information and
monitor the disclosure and control of inside
information.
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.
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.
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
|
Board
|
Audit
Committee
|
MANAGEMENT Engagement
Committee
|
Remuneration
Committee
|
INSIDE INFORMATION
COMMITTEE
|
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.
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.
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.
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.
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.
|
Role
|
TOTAL Board Fees
($)
|
TOTAL Board Fees
(£)
|
John Hallam
|
Chairman
|
60,000
|
10,000
|
Michael
Holmberg1
|
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 Management Engagement
Committee
|
45,000
|
10,000
|
Total
|
|
155,000
|
30,000
|
The Company paid the following
fees to the Directors for the year ended 31 December
2022:
|
Role
|
TOTAL Board Fees
($)
|
TOTAL Board Fees
(£)
|
John Hallam
|
Chairman
|
60,000
|
10,000
|
Michael
Holmberg1
|
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 Management Engagement
Committee
|
45,000
|
10,000
|
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
(USD)
|
Total
(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
Objective
|
Operation
|
Maximum Potential Value
|
Performance Metrics Used
|
To recognise time spent and the
responsibilities borne and to attract high calibre candidates who
have the necessary experience and skills.
|
Directors' fees are set by the
Board.
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.
|
Current fee levels are shown in the
remuneration report.
|
Directors are not remunerated based
on performance and are not eligible to participate in any
performance related arrangements.
|
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:
Director
|
No. of Ordinary
Shares
|
No. of Extended Life
Shares
|
No. of New Global
Shares
|
Total No.
of
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")
$60,883,590 (2022: $73,743,616)
Refer to the Audit Committee Report (above), the
Consolidated Condensed Schedule of Investments (below), Note 2
Summary of Accounting Policies, and Note 2(f) Fair Value of
Financial Instruments.
|
Basis:
The Group's investment portfolio is carried at fair
value in accordance with US generally accepted accounting
principles. It represents a significant proportion (76% (2022:
78%)), and is the principal driver, of the Group's net asset
value.
The Group's holdings in quoted and unquoted equity
and debt investments, representing 49% of the fair value of
investments, are valued at their bid price using broker quotes
|
Our audit procedures
included:
Control evaluation:
We assessed and evaluated the design and
implementation of the control in place over the valuation of
investments.
Challenging managements'
assumptions and inputs including use of KPMG valuation
specialists:
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 providers (the "Price Quotes").
|
vendors.
|
|
Where no Price Quotes are
available or they may not be representative of fair value, the
Group will utilise the resources of the Investment Manager to
augment its own fair value analysis to determine the most
appropriate fair value for such investments (the "Internally
Generated Valuations"). 51% of the fair value of Investments were
valued using Internally Generated Valuations.
Risk:
The valuation of the Group's
investments is considered a significant area of our audit, given
that it represents the majority of the net assets of the
Group.
The valuation risk for both the
Internally Generated Valuations and single broker quoted investment
valuations incorporate both a risk of fraud and error given the
significance of estimates and judgments that may be involved in the
determination of fair value.
|
For Internally Generated
Valuations and single broker quoted investments, we performed, as
applicable, the following procedures with the support of our KPMG
valuation specialists:
· We obtained and read the fair valuation memoranda prepared by
the Investment Manager, including their fair value analysis to
corroborate broker prices against relevant market metrics and
valuation methods;
· We assessed the appropriateness of the valuation approach and
methodology applied to each investment and where relevant, derived
an independent reference price;
· We compared the assumptions used in the valuations to
observable market data or supporting documentation;
· 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.
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 $103,009,846)
|
60,883,590
|
|
73,743,616
|
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 $16,821)
|
21,309
|
|
21,494
|
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;
2022: 15,382,770)
|
12,415,231
|
|
11,890,321
|
Net
asset value per Ordinary Share
|
0.8071
|
|
0.7730
|
|
|
|
|
Net
assets attributable to Extended Life Shares (shares 2023:
44,234,790;
2022: 60,116,016)
|
45,614,485
|
|
58,477,990
|
Net
asset value per Extended Life Share
|
1.0312
|
|
0.9728
|
|
|
|
|
Net
assets attributable to New Global Shares (shares
2023: 27,821,698;
2022: 31,023,609)
|
£17,358,035
|
|
£20,598,909
|
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 swap and forward
currency transactions
|
|
(92,697)
|
|
|
1,585,726
|
Net change in unrealised gain on
investments, credit default swap, total return swap and forward
currency transactions
|
|
1,542,286
|
|
|
1,419,108
|
|
|
|
|
|
|
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
Ordinary
Shares
|
31 DECEMBER
2023
Extended Life
Shares
|
31 DECEMBER
2023
New Global
Shares
|
31 DECEMBER
2023
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 currency
transactions
|
(229,535)
|
726,939
|
(590,101)
|
(92,697)
|
Net change in unrealised gain/(loss)
on investments, credit default swap and forward currency
transactions
|
732,846
|
955,658
|
(146,218)
|
1,542,286
|
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
Ordinary
Shares
|
31 DECEMBER
2022
Extended Life
Shares
|
31 DECEMBER
2022
New Global
Shares
|
31 DECEMBER
2022
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 transactions
|
(117,445)
|
2,424,254
|
(721,083)
|
1,585,726
|
Net change in unrealised (loss)/gain
on investments, credit default swap and forward currency
transactions
|
(1,902,397)
|
1,620,364
|
1,701,141
|
1,419,108
|
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 swap and forward
currency transactions
|
|
92,697
|
|
(1,585,726)
|
|
Net change in unrealised gain on
investments, credit default swap, total return swap and forward
currency transactions
|
|
(1,542,286)
|
|
(1,419,108)
|
|
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 contracts
|
|
(1,975,089)
|
|
1,962,633
|
|
Payment in kind interest
|
|
(1,965,980)
|
|
(2,736,347)
|
|
Purchase of
investments2
|
|
(317,725)
|
|
(205,537)
|
|
Sale of
investments2
|
|
16,634,461
|
|
32,240,146
|
|
Sale of short term
investments1
|
|
-
|
|
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
(EXPRESSED IN US
DOLLARS)
|
Cost
|
Fair Value
|
Ordinary
Shares
(%)1
|
Extended
Life
Shares
(%)1
|
New Global
Shares
(%)1
|
Total
Company
(%)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 Swap2
|
|
|
|
|
|
|
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
(EXPRESSED IN US
DOLLARS)
|
Cost
|
Fair Value
|
Ordinary
Shares
(%)1
|
Extended
Life
Shares
(%)1
|
New Global
Shares
(%)1
|
Total
Company
(%)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 Swap2
|
|
|
|
|
|
|
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
(EXPRESSED IN US
DOLLARS)
|
Country
|
Industry
|
Nominal
|
Cost
|
Fair Value
|
Ordinary
Shares
(%)1
|
Extended
Life
Shares
(%)1
|
New Global
Shares
(%)1
|
Total
Company
(%)1
|
Investments at fair value
|
|
|
|
|
|
|
|
|
|
White Energy Holding Company
LLC
(Private Equity)
|
United
States
|
Oil
& Gas
|
367
|
9,174,989
|
11,010,000
|
-
|
17.23
|
14.24
|
13.74
|
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
(Bank Debt Investments)
|
Spain
|
Surface
Transport
|
18,787,735
|
18,531,522
|
4,150,774
|
-
|
4.57
|
9.35
|
5.18
|
TP Ferro Concesionaria TP Ferro
T/L-A (First-Lien)
(Bank Debt Investments)
|
Spain
|
Surface
Transport
|
2,945,545
|
2,945,545
|
2,945,545
|
-
|
3.23
|
6.66
|
3.67
|
TP Ferro Concesionaria TP Ferro 1L
T/L-B EUR (First-Lien) EUR (Bank Debt Investments)
|
Spain
|
Surface
Transport
|
593,063
|
666,784
|
655,127
|
-
|
0.72
|
1.48
|
0.82
|
TP Ferro PIK 5A 4/20
(Bank Debt Investments)
|
Spain
|
Surface
Transport
|
522,319
|
522,319
|
522,319
|
-
|
0.57
|
1.18
|
0.65
|
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
(Bank Debt Investments)
|
Spain
|
Surface
Transport
|
298,046
|
298,046
|
298,046
|
-
|
0.33
|
0.67
|
0.37
|
TP Ferro Concesionaria TP Ferro 1L
T/L-C (First-Lien)
(Bank Debt Investments)
|
Spain
|
Surface
Transport
|
256,553
|
256,553
|
256,553
|
-
|
0.28
|
0.58
|
0.32
|
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
(Bank Debt Investments)
|
Spain
|
Lodging
& Casinos
|
1,090,003
|
1,281,898
|
1,177,582
|
-
|
-
|
5.32
|
1.47
|
US Treasury N/B 1.500%
02/15/30
(US Treasury Bills)
|
United
States1
|
United
States
|
6,975,000
|
7,326,847
|
6,085,143
|
33.20
|
4.30
|
-
|
7.59
|
|
|
|
|
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
(EXPRESSED IN US
DOLLARS)
|
Country
|
Industry
|
Nominal
|
Cost
|
Fair Value
|
Ordinary
Shares
(%)1
|
Extended
Life
Shares
(%)1
|
New Global
Shares
(%)1
|
Total
Company
(%)1
|
Investments at fair value
|
|
|
|
|
|
|
|
|
|
White Energy Holding Company
LLC
(Private Equity)
|
United
States
|
Oil
& Gas
|
367
|
9,174,989
|
11,010,000
|
-
|
13.44
|
12.71
|
11.57
|
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
(Bank Debt Investments)
|
Spain
|
Surface
Transport
|
18,787,735
|
18,531,522
|
4,010,242
|
-
|
3.44
|
8.06
|
4.21
|
TP Ferro Concesionaria TP Ferro
T/L-A (First-Lien)
(Bank Debt Investments)
|
Spain
|
Surface
Transport
|
2,309,778
|
2,309,778
|
2,309,778
|
-
|
1.97
|
4.66
|
2.43
|
TP Ferro PIK 5B 7/22
(Bank Debt Investments)
|
Spain
|
Surface
Transport
|
234,516
|
234,516
|
234,516
|
-
|
0.20
|
0.47
|
0.25
|
TP Ferro Concesionaria TP Ferro 1L
T/L-B EUR (First-Lien) EUR (Bank Debt Investments)
|
Spain
|
Surface
Transport
|
465,056
|
527,661
|
496,331
|
-
|
0.42
|
1.00
|
0.52
|
TP Ferro PIK 5A 4/20
(Bank Debt Investments)
|
Spain
|
Surface
Transport
|
409,581
|
409,581
|
409,581
|
-
|
0.35
|
0.83
|
0.43
|
TP Ferro Concesionaria TP Ferro 1L
T/L-C (First-Lien)
(Bank Debt Investments)
|
Spain
|
Surface
Transport
|
201,179
|
201,179
|
201,179
|
-
|
0.17
|
0.41
|
0.21
|
ACA Fin Guaranty Corp 12-12/31/2025
Frn
(Private Note)
|
United
States
|
Financial Intermediaries
|
66,659,722
|
10,617,941
|
4,332,882
|
5.21
|
6.35
|
-
|
4.55
|
ACA Fin Gur Sur Non Vt 12-12/31/2025
Frn
(Private Note)
|
United
States
|
Financial Intermediaries
|
61,989,978
|
9,840,909
|
4,029,349
|
-
|
6.89
|
-
|
4.23
|
Hotel Puerta America PIK T/L
EUR
(Bank Debt Investments)
|
Spain
|
Lodging
& Casinos
|
3,643,760
|
4,017,977
|
3,888,803
|
-
|
-
|
15.69
|
4.09
|
Hotel Puerta America
(Private Equity)
|
Spain
|
Lodging
& Casinos
|
934
|
3,013,332
|
1,110,956
|
-
|
-
|
4.48
|
1.18
|
Hotel Puerta America PIK PPL
EUR
(Bank Debt Investments)
|
Spain
|
Lodging
& Casinos
|
1,090,003
|
1,281,898
|
1,163,306
|
-
|
-
|
4.69
|
1.22
|
Hotel Puerta America PIK Addon
EUR
(Bank Debt Investments)
|
Spain
|
Lodging
& Casinos
|
1,438,272
|
1,566,706
|
1,534,996
|
-
|
-
|
6.19
|
1.61
|
Buffalo Thunder Dev Auth 11.00%
12/09/29 SR: Regs
(Private Note)
|
United
States
|
Lodging
& Casinos
|
14,001,965
|
11,641,233
|
7,561,061
|
-
|
8.62
|
10.17
|
7.95
|
US Treasury N/B 1.500%
02/15/30
(US Treasury Bills)
|
United
States
|
United
States
|
6,975,000
|
7,382,792
|
5,959,811
|
33.95
|
3.29
|
-
|
6.26
|
|
|
|
|
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
(EXPRESSED IN US DOLLARS)
|
|
Cost
|
Fair Value
|
Ordinary
Shares
(%)1
|
Extended
Life
Shares
(%)1
|
New Global
Shares
(%)1
|
Total
Company
(%)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
(EXPRESSED IN US DOLLARS)
|
|
Cost
|
Fair Value
|
Ordinary
Shares
(%)1
|
Extended
Life
Shares
(%)1
|
New Global
Shares
(%)1
|
Total
Company
(%)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
(EXPRESSED IN US
DOLLARS)
|
Cost
|
Fair Value
|
Ordinary
Shares
(%)1
|
Extended
Life
Shares
(%)1
|
New Global
Shares
(%)1
|
Total
Company
(%)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
(EXPRESSED IN US
DOLLARS)
|
Cost
|
Fair Value
|
Ordinary
Shares
(%)1
|
Extended
Life
Shares
(%)1
|
New Global
Shares
(%)1
|
Total
Company
(%)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 Consolidated
Statement of Operation for Level 3 investments held as at 31
December 2023
|
|
(98,561)
|
|
(553,444)
|
|
2,089,781
|
|
(3,920,612)
|
|
(2,482,836)
|
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 Consolidated
Statement of Operation for Level 3 investments held as at 31
December 2022
|
|
(867,184)
|
|
(8,344,317)
|
|
2,433,541
|
|
2,386,295
|
|
(4,391,665)
|
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
|
-
|
-
|
$10,960,348
|
2
|
The following tables show, as at 31
December 2023 and 31 December 2022, the fair value amounts of
derivative contracts included in the Consolidated Statement of
Assets and Liabilities, categorised by primary underlying risk.
Balances are presented on a gross basis prior to application of the
impact of counterparty and collateral netting. Total derivative
assets and liabilities are adjusted on an aggregate basis to take
into account the effects of master netting arrangements and, where
applicable, have been adjusted by the application of cash
collateral receivables and payables with its counterparties. The
tables also identify, as at 31 December 2023 and 31 December 2022,
the realised and unrealised gain and loss amounts included in the
Consolidated Statement of Operations, categorised by primary
underlying risk:
31
DECEMBER 2023
Primary underlying risk
|
Derivative
Assets
($)
|
Derivative
Liabilities
($)
|
Realised
gain
(loss)
($)
|
NET CHANGE IN Unrealised
gain (loss)
($)
|
Foreign currency exchange rate
|
|
|
|
|
Forward currency
contracts
|
18,235
|
(1,545,570)
|
(1,975,088)
|
(269,987)
|
Credit
|
|
|
|
|
Purchased protection
|
|
|
|
|
Credit default swap
|
-
|
(21,309)
|
(84,550)
|
3,223
|
Total return swap
|
3,648,201
|
-
|
-
|
2,078,684
|
31
DECEMBER 2022
Primary underlying risk
|
Derivative
Assets
($)
|
Derivative
Liabilities
($)
|
Realised
gain
(loss)
($)
|
NET CHANGE IN Unrealised
gain (loss)
($)
|
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
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 ASSETS AND
LIABILITIES
|
FINANCIAL INSTRUMENTS (POLICY
ELECTION)
|
FINANCIAL COLLATERAL
RECEIVED1
|
NET
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 ASSETS AND
LIABILITIES
|
FINANCIAL INSTRUMENTS (POLICY
ELECTION)
|
FINANCIAL COLLATERAL
RECEIVED1
|
NET AMOUNT
|
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 ASSETS AND
LIABILITIES
|
FINANCIAL INSTRUMENTS (POLICY
ELECTION)
|
FINANCIAL COLLATERAL
RECEIVED1
|
NET AMOUNT
|
|
|
|
|
|
|
|
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 ASSETS AND
LIABILITIES
|
FINANCIAL INSTRUMENTS (POLICY
ELECTION)
|
FINANCIAL COLLATERAL
RECEIVED1
|
NET AMOUNT
|
|
|
|
|
|
|
| |
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
Shares
|
Extended Life
Shares
|
New Global
Shares
|
Total
|
|
|
|
|
|
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
20231
|
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
Shares
|
Extended Life
Shares
|
New Global
Shares
|
Total
|
|
|
|
|
|
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
20221
|
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
|
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
|
$2,697,863
|
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
|
Number of
Shares
|
Per Share
Amount
|
Distribution
Amount
|
Number of
Shares
|
Per Share
Amount
|
Distribution
Amount
|
Number of
Shares
|
Per Share
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
$Nil1 was in relation to the administration of the
ongoing buyback programme, (31 December 2022: $109,3161)
and the loan administration and custody fee expense was
$30,7431 (31 December 2022: $24,7261).
At 31 December 2023, the administration fee
payable is $5,8522 (31 December 2022:
$5,9552), the secretarial fee payable is
$25,4502 (31 December 2022: $24,5592) and the
loan administration and custody fee payable is $9,0882
(31 December 2022: $3,3442).
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: $188,088). Michael
J. Holmberg, the non-independent Director, has waived the fees for
his services as a Director. There were no other related interests
for the year ended 31 December 2023.
The Company has not set any
requirements or guidelines for Directors to own shares in the
Company. The beneficial interests of the Directors and their
connected persons in the Company's shares as at 31 December 2023
are shown in the table below:
Director
|
No. of Ordinary
Shares
|
No. of Extended Life
Shares
|
No. of New Global
Shares
|
Total No.
of
Shares
|
John Hallam
|
-
|
40,507
|
33,462
|
73,969
|
Michael Holmberg
|
-
|
17,885
|
34,982
|
52,867
|
Christopher Legge
|
-
|
-
|
-
|
-
|
Stephen Vakil
|
-
|
-
|
18,253
|
18,253
|
NOTE 7 - FINANCIAL HIGHLIGHTS
|
Ordinary
Shares
|
Extended Life
Shares
|
New Global
Shares
|
Ordinary
Shares
|
Extended
Life
Shares
|
New Global
Shares
|
|
($)
|
($)
|
(£)
|
($)
|
($)
|
(£)
|
Per share operating performance
|
Year Ended
31 December
2023
|
Year Ended
31 December
2023
|
Year Ended
31 December
2023
|
Year Ended
31 December
2022
|
Year Ended
31 December
2022
|
Year Ended
31 December
2022
|
Net asset value per share at
beginning of the year
|
0.7730
|
0.9728
|
0.6640
|
0.9028
|
0.9243
|
0.5785
|
Impact of capital
distribution
|
-
-
|
0.0069
|
0.0001
|
-
|
-
|
-
|
Impact of dividend
distribution
|
-
|
-
|
-
|
-
|
0.0025
|
(0.0052)
|
Income from investment
operations 1
|
|
|
|
|
|
|
Net investment
income
|
0.0014
|
0.0139
|
0.0214
|
0.0015
|
0.0605
|
0.0531
|
Net realised and unrealised
gain/(loss) from investments and foreign exchange
|
0.0327
|
0.0376
|
(0.0616)
|
(0.1313)
|
(0.0145)
|
0.0376
|
Gain/(loss) from investment
operations
|
0.0341
|
0.0515
|
(0.0402)
|
(0.1298)
|
0.0460
|
0.0907
|
Net asset value per share
at end of the year2
|
0.8071
|
1.0312
|
0.6239
|
0.7730
|
0.9728
|
0.6640
|
1Weighted average number of shares outstanding was used for
calculation.
2Each share classes net assets includes the underlying assets
and liabilities directly attributable to the respective share
class.
|
Ordinary
Shares
|
Extended Life
Shares
|
New Global
Shares
|
Ordinary
Shares
|
Extended
Life
Shares
|
New Global
Shares
|
|
($)
|
($)
|
(£)
|
($)
|
($)
|
(£)
|
NAV Total return 2, 3
|
Year Ended
31 December
2023
|
Year Ended
31 December
2023
|
Year Ended
31 December
2023
|
Year Ended
31 December
2022
|
Year Ended
31 December
2022
|
Year Ended
31 December
2022
|
NAV Total Return before
performance fee
|
4.41%
|
6.00%
|
(6.04%)
|
(14.38%)
|
5.25%
|
14.78%
|
NAV Total Return after performance fee including an income
distribution by way of dividend
|
4.41%
|
6.00%
|
(6.04%)
|
(14.38%)
|
5.25%
|
14.78%
|
2 NAV Total Return is calculated for the Ordinary Shares,
Extended Life Shares and New Global Shares only and is calculated
based on movement in the NAV and does not reflect any movement in
the market value of the shares. A shareholder's return may vary
from these returns based on participation in new issues, the timing
of capital transactions etc. It assumes that all income
distributions of the Company, paid by way of dividend, were
reinvested, without transaction costs. Class A shares are not
presented as they are not profit participating shares.
3 An individual shareholder's return may vary from these
returns based on the timing of the shareholder's
subscriptions.
|
Ordinary
Shares
|
Extended Life
Shares
|
New Global
Shares
|
Ordinary
Shares
|
Extended
Life
Shares
|
New Global
Shares
|
|
($)
|
($)
|
(£)
|
($)
|
($)
|
(£)
|
Ratio to average net assets
|
Year Ended
31 December
2023
|
Year Ended
31 December
2023
|
Year Ended
31 December
2023
|
Year Ended
31 December
2022
|
Year Ended
31 December
2022
|
Year Ended
31 December
2022
|
Net investment income before and
after performance fees
|
0.18%
|
1.40%
|
3.24%
|
0.17%
|
6.46%
|
8.36%
|
Total expenses and performance fee
|
(1.28%)
|
(1.38%)
|
(2.21%)
|
(0.97%)
|
(0.99%)
|
(1.33%)
|
NOTE 8 - RECONCILIATION OF NET ASSET VALUE TO PUBLISHED
NAV
In preparing the Financial
Statements, there were adjustments relating to investment
valuations. The impact of these adjustments on the NAV per Ordinary
Share, Extended Life Share and New Global Share is detailed
below:
|
Ordinary
Share Class Net
Assets
($)
|
Ordinary
Share
Class
NAV per
Share
($)
|
Extended
Life
Share
Class
Net Assets
($)
|
Extended
Life
Share Class NAV per
Share
($)
|
New Global
Share
Class
Net Assets
(£)
|
New Global
Share Class NAV per
Share
(£)
|
Published net assets as at 31
December 2023
|
12,323,608
|
0.8011
|
45,378,194
|
1.0258
|
17,358,035
|
0.6239
|
Valuation adjustments
|
91,623
|
0.0060
|
236,291
|
0.0054
|
-
|
-
|
Net
assets per Consolidated Financial Statements
|
12,415,231
|
0.8071
|
45,614,485
|
1.0312
|
17,358,035
|
0.6239
|
|
Ordinary
Share Class Net
Assets
($)
|
Ordinary
Share
Class
NAV per
Share
($)
|
Extended
Life
Share
Class
Net Assets
($)
|
Extended
Life
Share Class NAV per
Share
($)
|
New Global
Share
Class
Net Assets
(£)
|
New Global
Share Class NAV per
Share
(£)
|
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
1st & 2nd
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.
Full contact details of the Company's advisers and Manager can
be found on the Company's website.