TIDMNBDD TIDMNBDX TIDMNBDG
RNS Number : 5119V
NB Distressed Debt Invest. Fd. Ltd
15 April 2021
NB DISTRESSED DEBT INVESTMENT FUND LIMITED
2020 ANNUAL Report
audited CONSOLIDATED Financial Statements
For the year ended 31 December 2020
COMPANY OVERVIEW | Features
Features
NB Distressed Debt Investment Fund Limited (the "Company")
The Company is a closed-ended investment company incorporated
and registered in Guernsey on 20 April 2010 with registration
number 51774 . The Company is governed under the provisions of the
Companies (Guernsey) Law, 2008 (as amended) (the "Law"), and the
Registered Collective Investment Scheme Rules 2018 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.
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
At 31 December 2020 the Company's share capital comprised the
following(1) :
Ordinary Share Class ("NBDD")
15,382,770 Ordinary Shares, none of which were held in
treasury.
Extended Life Share Class ("NBDX")
80,545,074 Extended Life Shares, none of which were held in
treasury.
New Global Share Class ("NBDG")
41,116,617 New Global Shares, none of which were held in
treasury.
(1) In addition the Company has two Class A Shares in issue.
Further information is provided in the Capital Structure section of
this report below
For the purposes of efficient portfolio management, the Company
has established a number of wholly-owned subsidiaries domiciled in
the US, the Cayman Islands and Luxembourg. All references to the
Company in this document refer to the Company together with its
wholly-owned subsidiaries.
Non-Mainstream Pooled Investments
The Company currently conducts its affairs so that the shares
issued by the Company can be recommended by Independent Financial
Advisers to ordinary retail investors in accordance with the
Financial Conduct Authority's ("FCA") rules in relation to
non-mainstream pooled investment ("NMPI") products and intends to
continue to do so for the foreseeable future.
The Company's shares are excluded from the FCA's restrictions
which apply to NMPI products.
Company Numbers
Ordinary Shares
LSE ISIN code: GG00BDFZ6F78
Bloomberg code: NBDD: LN
Extended Life Shares
LSE ISIN code: GG00BMY71631
Bloomberg code: NBDX:LN
New Global Shares
LSE ISIN code: GG00BMY71748
Bloomberg code: NBDG:LN
Legal Entity Identifier
YRFO7WKOU3V511VFX790
Website
www.nbddif.com
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
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/5119V_1-2021-4-14.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 in the Strategic Report 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/5119V_1-2021-4-14.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.
2020 PERFORMANCE REVIEW | Financial Highlights
Financial Highlights
Key Figures
Extended
Ordinary Life Share New Global
At 31 DECEMBER 2020 Share Class Class Share Class(1) Aggregated
-------------------------------- ------------- ------------ ---------------- -----------
Net Asset Value ("NAV")
($ millions) 13.0 63.5 31.9 108.4
================================ ============= ============ ================ ===========
NAV per Share ($) 0.8420 0.7889 0.7767 -
================================ ============= ============ ================ ===========
Share Price ($) 0.720 0.480 0.6356(1) -
================================ ============= ============ ================ ===========
NAV per Share (GBP) - - 0.5682 -
================================ ============= ============ ================ ===========
Share Price (GBP) - - 0.465 -
================================ ============= ============ ================ ===========
Premium /(Discount) to
NAV per Share (14.49%) (39.16%) (18.16%) -
================================ ============= ============ ================ ===========
Portfolio of Distressed
Investments ($ millions) 9.9 55.6 30.8 96.3
================================ ============= ============ ================ ===========
Cash and Cash Equivalents
($ millions) 3.6 9.1 0.9 13.6
================================ ============= ============ ================ ===========
Total Expense Ratio ("TER")(2) 2.89% 2.68% 2.76% -
================================ ============= ============ ================ ===========
Ongoing Charges (3) 2.42% 2.36% 2.39% -
================================ ============= ============ ================ ===========
Extended
Ordinary Life Share New Global
At 31 December 2019 Share Class Class Share Class(1) Aggregated
-------------------------------- ------------- ------------ ---------------- -----------
Net Asset Value ("NAV")
($ millions) 14.0 105.8 79.3 199.1
================================ ============= ============ ================ ===========
NAV per Share ($) 0.9086 0.9266 1.1047 -
================================ ============= ============ ================ ===========
Share Price ($) 0.845 0.735 0.9432(1) -
================================ ============= ============ ================ ===========
NAV per Share (GBP) - - 0.8339 -
================================ ============= ============ ================ ===========
Share Price (GBP) - - 0.712 -
================================ ============= ============ ================ ===========
Premium /(Discount) to
NAV per Share (7.00%) (20.68%) (14.62%) -
================================ ============= ============ ================ ===========
Portfolio of Distressed
Investments ($ millions) 13.2 102.8 76.8 192.8
================================ ============= ============ ================ ===========
Cash and Cash Equivalents
($ millions) 1.9 1.6 2.4 5.9
================================ ============= ============ ================ ===========
Total Expense Ratio ("TER")(2) 2.15% 2.21% 2.31% -
================================ ============= ============ ================ ===========
Ongoing Charges (3) 2.10% 2.11% 2.14% -
================================ ============= ============ ================ ===========
(1) Stated in US Dollars, the GBP price as at 31 December 2020
and 31 December 2019 converted to US Dollars using respective year
end exchange rate.
(2) The TERs represent the Company's management fees and all
other 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 2020, the Company's Ongoing
Charges were 2.38%. This figure is based on an expense figure for
the year to 31 December 2020 of $3,198,067. This figure, which has
been prepared in accordance with AIC guidance represents the
Company's management fees and all other operating expenses,
excluding finance costs payable, expressed as a percentage of
average net assets. No performance fees were payable as at 31
December 2020. The Ongoing Charges by share class are disclosed
above.
Summary of Value in Excess of Original Capital Invested
Ordinary Extended Life New Global
Share Class Share Class Share Class
At 31 December 2020 ($) ($) (GBP)
------------------------------------- -------------- -------------- --------------
Original Capital Invested (124,500,202) (359,359,794) (110,785,785)
------------------------------------- -------------- -------------- --------------
Total Capital Distributions 129,627,394 259,844,033 42,460,798
------------------------------------- -------------- -------------- --------------
Total Income Distributions (1) 3,166,835 14,896,010 2,685,521
------------------------------------- -------------- -------------- --------------
Distributions as % of Original
Capital 107% 76% 41%
------------------------------------- -------------- -------------- --------------
Total Buybacks - 12,112,379 10,924,963
------------------------------------- ============== -------------- --------------
NAV 12,952,965 63,540,650 23,363,139
------------------------------------- -------------- -------------- --------------
Total of NAV Plus Capital and
Income Returned ("Value") 145,747,194 350,393,072 79,434,421
------------------------------------- -------------- -------------- --------------
Value in Excess of Original Capital
Invested 21,246,992 (8,966,722) (31,351,364)
------------------------------------- -------------- -------------- --------------
Value as % of Original Capital
Invested 117% 98% 72%
------------------------------------- -------------- -------------- --------------
Ordinary Extended Life New Global
Share Class Share Class Share Class
At 31 December 2019 ($) ($) (GBP)
------------------------------------- -------------- -------------- --------------
Original Capital Invested (124,500,202) (359,359,794) (110,785,785)
------------------------------------- -------------- -------------- --------------
Total Capital Distributions 129,627,394 236,873,855 24,473,845
------------------------------------- -------------- -------------- --------------
Total Income Distributions (1) 3,166,835 14,896,010 2,685,521
------------------------------------- -------------- -------------- --------------
Distributions as % of Original
Capital 107% 70% 25%
------------------------------------- -------------- -------------- --------------
Total Buybacks - 10,255,281 9,346,306
------------------------------------- -------------- -------------- --------------
NAV 13,976,415 105,771,674 59,862,782
------------------------------------- -------------- -------------- --------------
Total of NAV Plus Capital and
Income Returned ("Value") 146,770,644 367,796,820 96,368,454
------------------------------------- -------------- -------------- --------------
Value in Excess of Original Capital
Invested 22,270,442 8,437,026 (14,417,331)
------------------------------------- -------------- -------------- --------------
Value as % of Original Capital
Invested 118% 102% 87%
------------------------------------- -------------- -------------- --------------
(1) By way of dividend
A detailed breakdown of the Company's distributions is provided
on the Company's website at www.nbddif.com under "Investor
Information", "Capital Activity".
2020 PERFORMANCE REVIEW | Chairman's Statement
Chairman's Statement
Dear Shareholder,
The year ended 31 December 2020 was one of unprecedented global
economic and social disruption with a profound human impact.
Notwithstanding this unparalleled backdrop, I am pleased to report
that the Company has navigated these waters with no operational
impact, in large due to the operational resilience of our
Investment Manager and service providers.
We did, of course, suffer financial setbacks but were able to
deliver further capital distributions to the shareholders of the
NBDX and NBDG share classes consistent with the well-established
and orderly realisation of the portfolios. The process of
realisation has slowed as we have continued with this disciplined
approach. 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 2020, the Company had returned a total of
$132.8m or 106.7% of NBDD investors' original capital of $124.5m,
$274.8m or 76.5% of NBDX investors' original capital of $359.4m and
GBP45.2m or 40.8% of NBDG investors' original capital of GBP110.8m.
Additionally, $1.9m was spent on buying back NBDX shares and
GBP1.6m was spent on buying back NBDG shares in a manner accretive
to net asset value ("NAV").
On 17 June 2020, we announced a further capital distribution of
$10.5m to our NBDX shareholders and GBP10.5m to our NBDG
shareholders which was paid on 10 July 2020.
Securing the balance between the pace of exits and the value for
shareholders is an active exercise. In many instances, assets will
need intense management to realise their full potential. In
response to the market improvements post the March lows the
Investment Manager realised all the remaining holdings of listed
equities so as to safeguard against any further market declines.
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 as evidenced by the increased Total Expense Ratios
reported herein. We would like to remind our investors that our
TERs continue to increase as the NAV decreases through capital
distributions as some expenses of the Company are fixed,
representing a higher portion of costs year on year.
On 16 November 2020 we announced in our quarterly Factsheet that
we would discontinue the buyback programme. The buyback programme
was intended to narrow the discount, during the investment period.
Going forward, we will make cash distributions to our Shareholders
from investment realisations and not through buybacks.
During the year, we appointed Jeffries International Limited as
sole corporate broker and financial adviser to the Company with
effect from 14 September 2020.
On 27 October 2020, we were pleased to announce that the
Investment Manager was waiving its entitlement to any Base Fee
calculated in respect of any cash and cash equivalents held by the
Company that is solely attributable to the account of the Ordinary
Shares, with such waiver having taken effect as at 1 October 2020.
This decision was made because the Ordinary Shares cannot make any
further distributions (given the 10% withholding limit) until a
final distribution is paid at the end of the Share Class's life and
also due to the delay in realising the remaining investments.
Further, we were delighted to announce on 18 March 2021, that the
Investment Manager had waived all fees across the Ordinary Share
Class, Extended Life Share Class and New Global Share Class with
immediate effect. The fee waiver recognises that it is taking
longer than expected to fully realise the Company's assets due to a
number of factors, including the COVID-19 pandemic, as we outlined
in our most recent quarterly update. A partial fee waiver on the
smallest share class, NBDD, was already in place as noted above,
but this has been replaced with a full fee waiver on all three
share classes to reduce costs for shareholders. The Investment
Manager remains committed to the Company and the orderly
realisation of remaining assets.
Annual General Meeting ("AGM") Results
As described in our interim accounts, the Board put its income
distribution policy to a shareholder vote by way of a separate
resolution at the 2020 AGM, which was approved. We will continue to
put our income distribution policy to a shareholder vote at each
annual general meeting. The income distribution policy is set out
in the Distributions to Shareholders section above. I would like to
remind shareholders that such distributions occur on an ad-hoc
basis and are not expected to be material, nor equal to all share
classes.
We view the AGM as a very important event and would urge all
shareholders to use their votes. I would hope that shareholders
will contact us ahead of the AGM to raise any concerns they may
have and would draw your attention to comments I make below on
aspects of governance.
Board Composition, Independence and Diversity
Cognisant of the time remaining for the realisation of all the
portfolios in the next couple of years and final distributions to
shareholders as soon as possible thereafter, the Board considers
that its size and composition remains optimal and in the best
interests of our shareholders. Messrs Legge and Vakil reviewed my
own position as Chairman and they believe it is prudent and in the
best interests of shareholders to continue to have the depth of
experience of a longer serving director on the Board and both
agreed that they consider me to remain independent. To that end, I
will remain as Chairman if re-elected at the next AGM. I am pleased
to report that the Board appointed Stephen Vakil as the Senior
Independent Director effective 1 January 2020.
While the Board believes it is currently in the best interests
of shareholders for the Company not to refresh the Board or
implement a formal succession plan, for the reasons given above,
the long-term outlook for the Company (as an umbrella structure) is
unknown. Any future capital raise would change this picture and be
preceded by a process of board refreshment. Naturally, we would
seek to appoint directors as needed to replace a key vacant
position should it arise.
We recognise that this approach does not strictly accord with
best practice but hope that shareholders will support it as a
pragmatic approach to the current situation.
While we currently have no female members on the Board, we
maintain our strong belief in the value of diversity in the
boardroom and recognise its importance. As I have already noted, we
will continue to assess the Board's composition, considering the
needs of the Company and the benefits to shareholders. We welcome
shareholder engagement and discussion on board composition and
diversity, as with all aspects of our governance.
Brexit
As previously reported in our interim report, Brexit has not
impacted our operations or Portfolios in any material manner, and
there is no significant impact from the trade deal agreed between
the UK and EU. Shareholders are reminded that the NBDD and NBDX
Portfolios are US Dollar denominated and any non-US exposure is
hedged back to the US Dollars and that NBDG, on the other hand, is
a Pound Sterling denominated, but unhedged, share class with a
broader geographic remit than the other two share classes.
COVID-19
The world has experienced unprecedented times as a result of the
COVID-19 pandemic and the values of many of our assets have been
negatively affected. I am pleased to be able to report that our key
service providers have continued to provide services to the Company
throughout the pandemic and thank them for their efforts in
maintaining our operational resilience .
The various valuation methodologies we use to value your
portfolio's holdings have been reviewed and we consider that they
remain appropriate for determining values at any given point in
time.
As global virus outbreaks continue to occur, the COVID-19 virus
remains the primary issue for investors. The outbreaks and calls
for additional lockdowns diminish near term virus containment
hopes, while also restricting behaviour and curtailing more robust
economic activity. Nevertheless, the development and implementation
of vaccines has provided reason for optimism. Given these
circumstances, the longer-term financial impact on our assets
remains difficult to predict. Despite the uncertainty, the
Investment Manager remains committed to realising the investments
in an orderly manner. However, the timing of the orderly
realisation of some assets is less certain and the quantum of the
proceeds therefrom is difficult to predict.
Our objectives remain the same; to maximise the benefit to
investors during this harvest period and to continue to provide
updated information regarding asset values.
Outlook
The Ordinary class of shares will be the first to commence the
final wind up process, 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 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 $35m and GBP9m
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.
We had previously indicated that we expected the final
distribution of the Ordinary share class to be made during 2020,
but the delay to the realisation of the final assets owing to the
ongoing global pandemic has delayed this expectation to 2021. The
wind up of the other two classes will take a little longer but we
hope to complete the realisation process in the next couple of
years. As noted earlier, upheaval in financial markets and global
economic uncertainty may impact these timings and we will keep
shareholders updated via the quarterly fact sheets.
On behalf of the Board, I would like to thank our longstanding
shareholders for your support of our Company. We look forward to
updating you further on investment realisations throughout the
remainder of the year.
John Hallam
Chairman
14 April 2021
2020 PERFORMANCE REVIEW | Investment Manager's Report
Investment Manager's Report
Ordinary Share Class
Summary
The NAV per share decreased by 7.3% for the year ended 2020. We
continued to see significant volatility in the markets due to the
spread of COVID-19 and its impact on global growth expectations.
The long-term effects of COVID-19 on the global economy remain
unknown. With the sale of the public equities in the first half of
the year, the remaining investments await realisation events. 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. The Investment Manager
is evaluating options to wind down the share class.
Portfolio Update
NBDD ended the year with a NAV per share of $0.8420 compared to
$0.9086 at end of 2019. The NAV decrease was principally driven by
lower prices in the investments in light of the COVID-19 crisis and
realised losses in exits of public equities. At 31 December 2020,
60% of NBDD's NAV was invested in distressed assets, and $5M in US
Government securities which represented a further 40% of NAV, with
minimal 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 6 issuers across 5 sectors. The largest sector
concentrations were in containers & packaging, surface
transportation and financial intermediaries.
Cash Analysis
====================== ========
Balance Sheet - Cash $3.6m
====================== ========
Collateral cash ($3.1m)
====================== ========
Other payables ($0.0m)
====================== ========
Total available cash $0.5m
====================== ========
Notable events below describe activity in the investments during
2020:
-- During the year, Exide Technologies filed for Chapter 11
bankruptcy due to the global shutdown and COVID-19. The company
sold its US operations and lenders credit are bidding for the
European business. The valuation impact was a $1.1m unrealised
loss. The magnitude of the unrealised loss is due to the decline in
business operations as well as the decision to not reorganise and
sell off the business units.
-- NBDD completed the exit of all public equities in early 2020
in view of the market uncertainties at that time.
-- The Financial Intermediary investment received approval to
make first distribution on surplus notes in July 2020 and received
approval in the fourth quarter to make another distribution in
early 2021 as a result of which the Company will receive $110K.
Significant Price Movement during 2020 (approximately 1% of NBDD
NAV or $130,000)
INDUSTRY INSTRUMENT TOTAL RETURN COMMENT
(US DOLLARS MILLIONS)
------------------------- --------------- ------------------------ ------------------------------------------------
Improvement in profitability on strong
Containers & packaging Private Equity 2.09 end-market demand
Improvement in profitability on strong
Containers & packaging Private Equity 0.29 end-market demand
COVID-19 related restructuring due to liquidity
Auto Components Private Equity (1.15) shortfall
Financial Intermediaries Private Note (0.14) COVID-19 impacted underlying asset performance
Exits
During the year, we saw five exits, which generated a total
return of $ (7.6m) and generated net cash inflows of $ 13.6m. This
brings the total number of exits since inception in NBDD to 50,
with a total return of $35.8m. Detailed descriptions of the exits
are at the end of this report.
Partial Realisations
The partial realisations generated a net realised gain of $8.8m
over the life of the fund. Detailed descriptions of the partial
realisations are at the end of this report.
Distributions
To date, $132.8m or 107% of original capital has been
distributed to investors in the form of capital distributions via
redemptions and income dividends. Total value to investors
including NAV and all distributions paid is $145.7m (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. Our intent is to wind down the
share class as soon as practicable but there is one asset, we are
working through which will determine the final distribution date.
We will continue to update investors as we gain clarity on the
realisations.
Extended Life Share Class
Summary
The NAV per share decreased by 14.9% for the year ended 2020.
During the year, we saw significant volatility in the markets due
to the spread of COVID-19 and its impact on global growth
expectations and economic recovery. The effects of COVID-19 on the
global economy and timeframe for recovery remain unknown. With the
sale of the public equities in the first half of the year, the
remaining investments await realisation events. The Investment
Manager is committed to realising the investments in a timely
manner and winding down the share class as soon as practicable.
Portfolio Update
NBDX ended the year with a NAV per share of $0.7889 compared to
$0.9266 at end of 2019. At 31 December 2020, 96% of NBDX's NAV was
invested in distressed assets, and $2.8M in US Government
securities which represented a further 4% of NAV with a minimal 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 cannot be distributed
until the final liquidation of the share class. The NAV per share
decreased 14.9% during the year principally due to losses in public
equities and unrealised losses in the existing portfolio with the
impact of COVID-19. With the exit of the public equities, the NBDX
portfolio consists of 13 issuers across 9 sectors. The largest
sector concentrations were in surface transportation, containers
& packaging, shipping, lodging & casinos, and financial
intermediaries.
Cash Analysis
====================== ========
Balance Sheet - Cash $9.1m
====================== ========
Collateral cash ($8.5m)
====================== ========
Other payables ($0.3m)
====================== ========
Total available cash $0.3m
====================== ========
Notable events below describe activity in the investments during
2020:
-- During the period, Exide Technologies filed for Chapter 11
bankruptcy due to the global shutdown and COVID-19. The company
does not expect to reorganise and has begun a sales process for the
various business units. The valuation impact was a ($9.7m)
unrealised loss. The magnitude of the unrealised loss is due to the
decline in business operations as well as the decision not to
reorganise and sell off the business units.
-- The Company completed the exit of 11 investments. All but one
exit related to equity investments, in view of the market
uncertainties in early 2020.
-- The Financial Intermediary investment received approval to
make first distribution on surplus notes in July 2020 and received
approval in the fourth quarter to make another distribution in
early 2021 as a result of which the Company will receive
$1.37m.
Significant Price Movements during 2020 (approximately 1% of
NBDX NAV or $640,000)
INDUSTRY INSTRUMENT TOTAL RETURN COMMENT
(US DOLLARS MILLIONS)
-------------------------- ----------------------- ------------------------ ---------------------------------------
Improvement in profitability on strong
Containers & packaging Private Equity 5.38 end-market demand
Improvement in profitability on strong
Containers & packaging Private Equity 0.76 end-market demand
COVID-19 related restructuring due to
Auto Components Private Equity (9.78) liquidity shortfall
Shipping Bank Debt Investments (2.67) Lower dry bulk asset values
COVID-19 impacted underlying asset
Financial Intermediaries Private Note (1.73) performance
Exits
In 2020 we saw eleven exits for NBDX, which generated a total
return of $(51.5m) and generated net cash inflows of $46.2m. This
brings the total number of exits since inception in NBDX to 67 with
total return of $63.7m. Detailed descriptions of the exits are at
the end of this report.
Partial Realisations
The partial realisations generated a net realised gain of $22.7m
over the life of the Company. Detailed descriptions of the partial
realisations are at the end of this report.
Distributions
During 2020, NBDX approved distributions of $23m bringing total
distributions to date (dividends, redemptions and buy-backs) of
$287.0m or 80% of original capital. Total value to investors
including NAV and all distributions paid is $350.4m or 98% of
original capital. With the uncertainty as to how long the economic
downturn will last, certain realisations in NBDX have been delayed.
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 is
committed to realising the investments in a timely manner to
distribute cash to investors as soon as possible.
Share Buybacks
During 2020, NBDX purchased 3.7m of its own shares under the
buyback programme at a cost of $1.9m and a weighted average
discount of 33%. The shares have been cancelled.
Global Share Class
Summary
The NAV per share decreased by 31.9%. We continued to see
significant volatility in the markets due to the spread of COVID-19
and its impact on global growth expectations and economic recovery.
The effects of COVID-19 on the global economy remain unknown. With
the sale of the public equities in the first half of the year, the
remaining investments await realisation events. The Investment
Manager is committed to realising the investments in a timely
manner and winding down the share class as soon as practicable.
Portfolio Update
NBDG ended 2020 with a NAV per share of GBP0.5682 compared to
GBP0.8339 at the end of 2019. At 31 December 2020, 90% of NBDG's
NAV was invested in distressed assets, and $2M in US Government
securities which represented a further 7% of NAV (including cash
receivables and net payables held in subsidiaries) with 3% held in
cash (see table below). NAV per share decreased 31.9% during the
year principally due to losses in public equities and unrealised
losses in the existing portfolio with the impact of COVID-19. With
the exit of the public equity investments, the portfolio consisted
of 7 issuers across 6 sectors. The largest sector concentrations
were in lodging & casinos, commercial mortgage, surface
transportation and shipping.
Cash Analysis
====================================== ========
Balance Sheet - Cash $0.9m
====================================== ========
Cash held in wholly-owned subsidiary
accounts $0.0m
====================================== ========
Other payables ($0.1m)
====================================== ========
Total available cash $0.8m
====================================== ========
Notable events involving NBDG's investments during 2020 are
below :
-- During the period, Exide Technologies filed for Chapter 11
bankruptcy due to the global shutdown and COVID-19. The company
does not expect to reorganise and has begun a sales process for the
various business units. The valuation impact was a (GBP4.0m)
unrealised loss. The magnitude of the unrealised loss is due to the
decline in business operations as well as the decision to not
reorganise and sell off the business units.
-- The Company completed the exit of all public equities in
early 2020 in view of the market uncertainties at that time.
Significant Price Movements during 2020 (approximately 1% of
NBDG NAV or GBP230,000)
INDUSTRY INSTRUMENT TOTAL COMMENT
RETURN
(US DOLLARS
MILLIONS)
---------------- ------------------------------ -------------- -------------------------------
COVID-19 related restructuring
Auto Components Private Note (4.06) due to liquidity shortfall
Lodging & Bank Debt Investments/Private
Casinos Equity (1.51) Hotel closed due to COVID-19
Shipping Bank Debt Investments (1.08) Lower dry bulk asset values
Exits
During 2020, we saw eleven exits, which generated a total return
of GBP (15.2m) and generated net cash inflows of GBP46.9m. This
brought the total number of exits since inception to 30 with a
total return of GBP (7.2m). Detailed descriptions of the exits are
at the end of this report.
Partial Realisations
There were no partial realisations in NBDG during 2020.
Distributions
During 2020, the Company made GBP18.0m capital distributions via
redemption of shares, which brings total distributions to date
(dividends, redemptions and buy-backs) of GBP56.1m or 51% of
original capital. Total value to investors including NAV and all
distributions paid is GBP79.4m or 72% of original capital. With the
uncertainty as to how long the economic downturn will last, certain
realisations in NBDG have been delayed. 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 is committed to realising the
investments in a timely manner to distribute cash to investors as
soon as possible.
Share Buybacks
During 2020, NBDG purchased 3.0m shares under the buyback
programme at a cost of GBP1.6m and weighted average discount of
19%. The shares have been cancelled.
Summary of Exits across all Share Classes
The total exits during 2020 can be summarised as follows:
-- NBDD - Five exits
-- NBDX - Eleven exits
-- NBDG - Eleven exits
Exits experienced from inception to date were as follows:
NBDD 50 exits with a total return of $35.6m, IRR (1) of 10% and
ROR of 19%
NBDX 67 exits with a total return of $63.4m, IRR (1) of 5% and
ROR of 10%
NBDG 30 exits with a total return of GBP (7.27m), IRR (1) of (5)
% and ROR of (6) %
The annualised internal rate of return ("IRR") (1) 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") (1)
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 L (Exit 20 for NBDG and Exit 56 for NBDX)
Cash Invested Cash Received Total Return Months
Exit (millions) (millions) (millions) IRR ROR Held
L Exit
======== ===== ================ ================ =============== ======= ======= =========
(32.3) (85.2)
NBDG 20 GBP1.5 GBP0.2 (GBP1.3) % % 59
======== ===== ================ ================ =============== ======= ======= =========
(34.2) (87.1)
NBDx 56 $5.7 $0.7 ($5.0) % % 59
======== ===== ================ ================ =============== ======= ======= =========
(1) Defined under Alternative Performance Measures ("APMs") in the Strategic Report below
Exit M (Exit 21 for NBDG and Exit 57 for NBDD)
Cash Invested Cash Received Total Return Months
Exit (millions) (millions) (millions) IRR ROR Held
M Exit
======== ===== ================ ================ =============== ======= ======= =========
(29.2) (62.4)
NBDG 21 GBP1.6 GBP0.6 (GBP1.0) % % 59
======== ===== ================ ================ =============== ======= ======= =========
(30.5) (68.9)
NBDX 57 $1.7 $0.5 ($1.2) % % 59
======== ===== ================ ================ =============== ======= ======= =========
Exit N (Exit 46 for NBDD and Exit 58 for NBDX)
Cash Invested Cash Received Total Return Months
Exit (millions) (millions) (millions) IRR ROR Held
N Exit
======== ===== ================ ================ =============== ======= ======= =========
(23.3) (21.0)
NBDD 46 $2.0 $1.6 ($0.4) % % 84
======== ===== ================ ================ =============== ======= ======= =========
(23.3) (21.0)
NBDX 58 $5.1 $4.0 ($1.1) % % 84
======== ===== ================ ================ =============== ======= ======= =========
Exit O (Exit 22 for NBDG and 60 for NBDX)
Cash Invested Cash Received Total Return Months
Exit (millions) (millions) (millions) IRR ROR Held
O Exit
======== ===== ================ ================ =============== ======= ======= =========
(44.2) (61.1)
NBDG 22 GBP8.8 GBP3.4 (GBP5.4) % % 64
======== ===== ================ ================ =============== ======= ======= =========
(52.9) (69.9)
NBDX 60 $7.5 $2.3 ($5.2) % % 64
======== ===== ================ ================ =============== ======= ======= =========
Exit P (Exit 24 for NBDG, exit 47 for NBDD and Exit 62 for
NBDX)
Cash Invested Cash Received Total Return Months
Exit (millions) (millions) (millions) IRR ROR Held
P Exit
======== ===== ================ ================ =============== ======= ======= =========
(23.1) (73.2)
NBDG 24 GBP7.2 GBP1.9 (GBP5.3) % % 71
======== ===== ================ ================ =============== ======= ======= =========
(7.1) (45.1)
NBDD 47 $3.0 $1.6 ($1.4) % % 111
======== ===== ================ ================ =============== ======= ======= =========
(9.1) (52.5)
NBDX 62 $10.1 $4.8 ($5.3) % % 111
======== ===== ================ ================ =============== ======= ======= =========
Exit Q (Exit 25 for NBDG and Exit 63 for NBDX)
Cash Invested Cash Received Total Return Months
Exit (millions) (millions) (millions) IRR ROR Held
Q Exit
======== ===== ================ ================ =============== ====== ======= =========
(2.1) (9.4)
NBDG 25 GBP6.2 GBP5.6 (GBP0.6) % % 75
======== ===== ================ ================ =============== ====== ======= =========
(7.7) (32.1)
NBDX 63 $10.1 $6.8 ($3.3) % % 75
======== ===== ================ ================ =============== ====== ======= =========
Exit R (Exit 26 for NBDG)
Cash Invested Cash Received Total Return Months
Exit (millions) (millions) (millions) IRR ROR Held
R Exit
======== ===== ================ ================ =============== ======= ======= =========
(20.1) (39.6)
NBDG 26 GBP1.3 GBP0.8 (GBP0.5) % % 44
======== ===== ================ ================ =============== ======= ======= =========
Exit S (Exit 27 for NBDG and Exit 64 for NBDX)
Cash Invested Cash Received Total Return Months
Exit (millions) (millions) (millions) IRR ROR Held
S Exit
======== ===== ================ ================ =============== ====== ====== =========
NBDG 27 GBP5.8 GBP9.6 GBP3.8 11.8% 66.4% 74
======== ===== ================ ================ =============== ====== ====== =========
NBDX 64 $3.2 $4.9 $1.7 9.0% 53.8% 74
======== ===== ================ ================ =============== ====== ====== =========
Exit T (Exit 28 for NBDG and Exit 65 for NBDX)
Cash Invested Cash Received Total Return Months
Exit (millions) (millions) (millions) IRR ROR Held
T Exit
======== ===== ================ ================ =============== ====== ======= =========
(3.4) (16.5)
NBDG 28 GBP5.4 GBP4.5 (GBP0.9) % % 74
======== ===== ================ ================ =============== ====== ======= =========
(9.0) (41.8)
NBDX 65 $11.8 $6.8 ($5.0) % % 80
======== ===== ================ ================ =============== ====== ======= =========
Exit U (Exit 29 for NBDG, exit 48 for NBDD and Exit 66 for
NBDX)
Cash Invested Cash Received Total Return Months
Exit (millions) (millions) (millions) IRR ROR Held
U Exit
======== ===== ================ ================ =============== ======= ======= =========
(13.5) (26.8)
NBDG 29 GBP9.1 GBP6.7 (GBP2.4) % % 68
======== ===== ================ ================ =============== ======= ======= =========
(26.6) (66.3)
NBDD 48 $1.0 $0.3 ($0.7) % % 85
======== ===== ================ ================ =============== ======= ======= =========
(28.4) (69.0)
NBDX 66 $19.6 $6.1 ($13.5) % % 85
======== ===== ================ ================ =============== ======= ======= =========
Exit V (Exit 30 for NBDG and Exit 49 for NBDD)
Cash Invested Cash Received Total Return Months
Exit (millions) (millions) (millions) IRR ROR Held
V Exit
======== ===== ================ ================ =============== ====== ====== =========
(3.7) (6.0)
NBDG 30 GBP12.8 GBP12.0 (GBP0.8) % % 76
======== ===== ================ ================ =============== ====== ====== =========
(3.4) (9.5)
NBDD 49 $8.8 $7.9 ($0.9) % % 111
======== ===== ================ ================ =============== ====== ====== =========
Exit W (Exit 50 for NBDD and Exit 67 for NBDX)
EXIT CASH INVESTED CASH RECEIVED TOTAL RETURN MONTHS
W EXIT (MILLIONS) (MILLIONS) (MILLIONS) IRR ROR HELD
====== ===== ============== ============== ============= ======= ======= =======
(53.8) (67.3)
NBDD 50 GBP6.5 GBP2.1 ($4.4) % % 91
====== ===== ============== ============== ============= ======= ======= =======
(50.5) (66.9)
NBDX 67 $16.7 $5.5 ($11.2) % % 99
====== ===== ============== ============== ============= ======= ======= =======
Exit X (Exit 23 for NBDG and Exit 61 for NBDX)
EXIT CASH INVESTED CASH RECEIVED TOTAL RETURN MONTHS
X EXIT (MILLIONS) (MILLIONS) (MILLIONS) IRR ROR HELD
====== ===== ============== ============== ============= ======= ======= =======
(40.8) (38.9)
NBDG 23 GBP2.40 GBP1.50 ($0.9) % % 65
====== ===== ============== ============== ============= ======= ======= =======
(43.6) (41.2)
NBDX 61 $6.4 $3.7 ($2.7) % % 65
====== ===== ============== ============== ============= ======= ======= =======
Summary of Partial Realisations across all Share Classes
All partial realisations currently in the portfolio are reported
as at 31 December 2020 and it should be noted that their IRR and
ROR are likely to be different at the time of the final exit. These
were the following partial realisations:
-- NBDD - Two
-- NBDX - Two
-- NBDG - None
Partial Realisation B: NBDD and NBDX
NBDD and NBDX invested $7.1m to purchase first lien secured bank
debt with attached private equity of an international packaging
company. The debt was repaid in full shortly after the purchase
with the receipt of $5.8m and the Company retained the equity,
receiving dividends of $1.7m during the holding period. During the
second quarter the company's sale to a complementary packaging
company was announced. NBDX and NBDD elected to receive sale
proceeds in cash and newly created shares in the acquirer for a
combined value of $4.0m. In the third quarter of 2017, the Company
received $1.5m cash as part of the sale proceeds from the disposal
completed at the end of the second quarter of 2017 and $1.0m for
partial redemption of new shares received in the acquirer. The
company's operating performance declined due to raw material price
increases. The current value of the private equity position is
$1.8m generating a total return of $4.7m as of 31 December 2020.
IRR was 27% and ROR was 66% with a holding period of 98 months at
31 December 2020.
Value of
Cash Received Residual
Effective Cash Invested to Date Investment Total Return MonthS
B Period (millions) (millions) (millions) (millions) IRR ROR Held
====== ============= ================ ============== ============= =============== ====== ====== =========
NBDD H1 2017 $2.0 $2.8 $0.5 $1.3 27% 66% 98
====== ============= ================ ============== ============= =============== ====== ====== =========
NBDX H1 2017 $5.1 $7.2 $1.3 $3.4 27% 66% 98
====== ============= ================ ============== ============= =============== ====== ====== =========
Partial Realisation C: NBDD and NBDX
NBDD and NBDX invested $9.2m in preferred equity certificates
("PECs") and private equity of a European packaging company. The
PECs were retired in full in 2015 and the company paid dividends on
the equity during the holding period. Cash received to date is
$23.2m. In the second quarter, the company announced it was
purchasing another complementary packaging company (Partial
Realisation B, above) and completing a recapitalisation to
refinance existing debt, provide cash for the acquisition and pay a
dividend to shareholders. The company's operating performance
declined due to raw material price increases. The current value of
the private equity position is $12.9m, generating a total return of
$26.9m as at 31 December 2020. IRR was 54% and ROR was 291% with a
holding period of 101 months at 31 December 2020.
Cash Value of
Received Residual
Effective Cash Invested to Date Investment Total Return Months
C Period (millions) (millions) (millions) (millions) IRR ROR Held
====== ============= ================ ============ ============= =============== ====== ====== =========
NBDD H1 2017 $2.6 $6.5 $3.6 $7.5 54% 291% 101
====== ============= ================ ============ ============= =============== ====== ====== =========
NBDX H1 2017 $6.6 $16.7 $9.3 $19.4 54% 291% 101
Neuberger Berman Investment Advisers LLC Neuberger Berman Europe Limited
14 April 2021 14 April 2021
2020 PERFORMANCE REVIEW | Portfolio Information
Portfolio Information
Ordinary Share Class
Top 5(1) Holdings at 31 December 2020
Purchased % of
Holding Sector Instrument Status Country NAV Primary Asset
---------- ------------------------- ------------ ----------- ----------- ----- --------------------
Post-Reorg Manufacturing Plant
1 Specialty Packaging Equity Post-Reorg Luxembourg 28% and Equipment
========== ========================= ============ =========== =========== ===== ====================
2 Surface Transport Trade Claim Defaulted Brazil 21% Municipal Claim
========== ========================= ============ =========== =========== ===== ====================
Secured
3 Financial Intermediaries Notes Post-Reorg US 5% Cash & Securities
========== ========================= ============ =========== =========== ===== ====================
Post-Reorg Manufacturing Plant
4 Specialty Packaging Equity Post-Reorg Luxembourg 4% and Equipment
========== ========================= ============ =========== =========== ===== ====================
Building & Secured
5 Development Loan Defaulted US 1% Land
========== ========================= ============ =========== =========== ===== ====================
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/5119V_1-2021-4-14.pdf
Extended Life Share Class
Top 10 Holdings at 31 December 2020
Purchased % of
Holding Sector Instrument Status Country NAV Primary Asset
---------- ------------------ -------------- ----------- ------------ ----- -----------------------
Specialty Post-Reorg Manufacturing Plant
1 Packaging Equity Post-Reorg Luxembourg 15% and Equipment
========== ================== ============== =========== ============ ===== =======================
Secured Loan
/ Private Marshall
2 Shipping Equity Post-Reorg Islands 14% Ships
========== ================== ============== =========== ============ ===== =======================
Financial
3 Intermediaries Secured Notes Defaulted US 12% Cash and Securities
========== ================== ============== =========== ============ ===== =======================
4 Surface Transport Trade Claim Defaulted Brazil 11% Municipal Claim
========== ================== ============== =========== ============ ===== =======================
Commercial
5 Mortgage Secured Loan Defaulted Netherlands 9% Commercial Real Estate
========== ================== ============== =========== ============ ===== =======================
Lodging & Hotel/Lodging Real
6 Casinos Secured Notes Post-Reorg US 7% Estate and Casino
========== ================== ============== =========== ============ ===== =======================
7 Surface Transport Secured Loan Defaulted Spain 7% Concession
========== ================== ============== =========== ============ ===== =======================
Post-Reorg
8 Oil & Gas Equity Post-Reorg US 7% Ethanol Plant
========== ================== ============== =========== ============ ===== =======================
Lodging & Hotel/Lodging Real
9 Casinos Secured Loan Defaulted US 6% Estate and Casino
========== ================== ============== =========== ============ ===== =======================
Manufacturing Plant
10 Auto Components Secured Loan Post-Reorg US 4% and Equipment
========== ================== ============== =========== ============ ===== =======================
Total 92%
========== ================== ============== =========== ============ ===== =======================
[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/5119V_1-2021-4-14.pdf
New Global Share Class
Top 7(1) Holdings at 31 December 2020
Purchased % of
Holding Sector Instrument Status Country NAV Primary Asset
---------- ----------------------- ------------------ ----------- ------------ ----- -------------------
Secured
Lodging & Loan / Private
1 Casino Equity Current Spain 27% Hotel/Casino
========== ======================= ================== =========== ============ ======= =================
Commercial Secured Commercial Real
2 Mortgage Loan Defaulted Netherlands 22% Estate
========== ======================= ================== =========== ============ ======= =================
Secured
3 Surface Transportation Loan Defaulted Spain 15% Legal Claim
========== ======================= ================== =========== ============ ======= =================
Secured
Loan / Private Marshall
4 Shipping Equity Post-Reorg Islands 11% Ships
========== ======================= ================== =========== ============ ======= =================
Lodging & Secured
5 Casino Notes Defaulted US 7% Hotel/Casino
========== ======================= ================== =========== ============ ======= =================
Private
6 Oil & Gas Equity Post-Reorg US 6% Ethanol Plant
========== ======================= ================== =========== ============ ======= =================
Secured Manufacturing
7 Auto Components Loan Post-Reorg US 3% Plant
========== ======================= ================== =========== ============ ======= =================
Total 91%
========== ========================= ================ =========== ============ ======= =================
[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]
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(1) Global Share Class holds seven investments by issuer
2020 PERFORMANCE REVIEW | Strategic Report
Strategic Report
Since 31 March 2017, the Portfolios have all been in their
respective harvest period. As such this strategic report is
presented in the context of the current positioning of the
Portfolios in their lifecycle. The Company's corporate umbrella
itself has an indefinite life to allow for flexibility for the
Company to add new share classes if demand, market opportunities
and shareholder approval supported such a move, although the
Company has no current plans to create new share classes.
Principal and Emerging Risks and Risk Management
The Board is responsible for the Company's system of internal
financial and operating controls and for reviewing its
effectiveness. The Board uses the Company's risk matrix as its core
element in establishing the Company's system of internal financial
and reporting controls. The Board has carried out a robust
assessment of the Company's emerging and principal risks and
uncertainties including those that would threaten its business
model, future performance, solvency or liquidity. The principal
risks, which have been identified, and the steps taken by the Board
to mitigate these areas are as follows:
RISK MITIGATION
===== ===========
Investment Activity and Performance
An unsuccessful investment strategy The Board has managed these risks
may result in underperformance by ensuring a diversification of
against the Company's objectives. investments, although the level
This might be due to the skills of diversification will diminish
of the Investment Manager falling as the respective Portfolios liquidate
short in its selection of sectors their positions during their harvest
or issues in which to invest periods. Please see "Principal Risks
and its management of the restructurings/reorganisations Specific to Harvest Periods" below.
which can ensure their success. 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 The Board has ensured that the Investment
between the date the Company Manager has operated in accordance
makes an investment and the date with the investment limits and restrictions
that any gain or loss on such policy set out in the Company's
investment is realised. Further, Investment Policy and Objectives,
towards the end of the Portfolios' although it acknowledges that the
respective harvest periods, a diversification of Portfolio investments
residual amount is required to will diminish as the Portfolios
be retained for each share class liquidate their positions and return
in accordance with regulatory capital to shareholders. The Board
requirements until such time also receives regular updates on
that all assets can be liquidated the status of the Portfolios' investments
and returned to shareholders. and anticipated realisation dates.
The Board monitors the Company's
As capital is returned through expenses on a regular basis and
compulsory partial redemptions ensures that contracts with the
and buybacks, the number of assets Investment Manager and other service
and shares in a Portfolio will providers are at competitive rates.
diminish which in turn may lead The Board also notes that the Company's
to an increased TER and reduced key expenses, such as the management
liquidity in a Portfolio's shares. fee, will diminish in line with
a reduction of assets.
The Company retains the services
of its broker, Jefferies International
Limited (1) to, amongst other things,
enhance liquidity in the underlying
shares.
(1) Stifel Nicolaus Europe Limited until 13 September 2020
Level of Premium or Discount
A discount or premium to NAV While the Directors may seek to
can occur for a variety of reasons, mitigate any discount or premium
including market conditions and to NAV per share through discount
the extent to which investors management mechanisms, such as buybacks
undervalue the management activities or share issuance, there can be
of the Investment Manager or no guarantee that they will do so
discount its valuation methodology or that such mechanisms will be
and judgement. successful and the Directors accept
no responsibility for any failure
of any such strategy to effect a
reduction in any discount or premium.
Market Price Risk
Market price risk is the potential The Board has, over the Investment
for changes in the value of an Periods of the various share classes,
investment or Portfolio. The ensured that the Investment Manager
market value of investments may has operated in accordance with
vary because of a number of factors the Company's investment guidelines.
including, but not limited to, The Directors monitor the status
the financial condition of the of the Portfolio investments with
underlying borrowers, the industry the Investment Manager at each quarterly
in which a borrower operates, Board meeting and monitor risk factors
general economic or political in respect of the Portfolios.
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.
Fair Valuation of Illiquid Assets
With respect to investments that With respect to investments comprised
do not have a readily ascertainable in the Company's Portfolios that
market quotation in an active do not have a readily available
market, the Investment Manager market quotation, such as unquoted
will value such investments at investments or investments which
fair value and such valuations are listed but deemed to be illiquid,
will be inherently uncertain. the Investment Manager values such
Because of the inherent uncertainty investments at fair value on each
and subjectivity in determining NAV calculation date in accordance
the fair value of investments with its customary valuation methods,
that do not have a readily ascertainable policies and procedures. Further
market quotation in an active information on the Company's valuation
market, the fair value of the process can be found in Note 2(g)
Company's investments as determined under "Investment Transactions,
in good faith by the Investment investment income/expenses and valuation",
Manager may differ significantly and Note 2(f), "Fair Value of Financial
from the values that would have Instruments", of the Audited Consolidated
been used had a ready market Financial Statements (the "Financial
existed for such investments. Statements").
The reliability of the NAV calculations
published by the Company will The Board monitors, reviews and
be impacted accordingly. 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 Board relies on the Company
the provisions of the Law, and Secretary and the Company's advisers
since its shares trade on the to ensure adherence to the Guernsey
SFS, the Company is required legislation and the DTRs. The Investment
to comply with the FCA's Disclosure Manager, Company Secretary and the
Guidance and Transparency Rules Administrator, are contracted to
("DTRs"). A breach of the legislation provide investment, company secretarial,
could result in the Company and/or administration and accounting services
the Directors being fined or through qualified professionals.
subject to criminal proceedings
and the suspension of the Company's
shares to trading on the SFS.
Operational
Disruption to, or the failure Details of how the Board monitors
of, either the Investment Manager's the services provided by the Investment
or the Administrator's accounting, Manager and the Administrator, and
dealings or payment systems, the key elements designed to provide
or the records of the custodian effective internal controls are
could lead to a loss of assets explained further in the internal
and prevent the accurate reporting controls section of the Corporate
or monitoring of the Company's Governance Report which is set out
financial position. 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. Such examples of emerging risks
identified in the year included, the emergence of COVID-19, climate
related risks and the issuance of new regulations, new risks
associated with the Brexit trade deal and the results of the US
presidential election. 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, it has been discussed on a quarterly basis as a
continued risk, it is however not a principal risk. The Board have
actively monitored its service providers for operational resilience
and the impact of COVID-19 on the portfolio which is discussed in
the Chairman's Statement above.
Going Concern
The Company's principal activities are set out in the Business
Model section above. The financial position of the Company is set
out in the Consolidated Statement of Assets and Liabilities 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 impacts of COVID-19 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 two years, being the expected time to realisation of
the final assets, the Directors have carried out a robust
assessment of the emerging risks, principal risks and uncertainties
the Company faces, as detailed in the Strategic Report above. 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 (60%) 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 two year period to 31 December 2022. 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 and
compares against other debt-orientated investment companies and
various indices the performance of the Portfolios as well as 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. The Company's Extended Life Shares traded
between a discount of 20.8% and 46.8% with an average discount of
33.0 %. The Company's New Global Shares traded between a discount
of 8.3% and 22.4 % with an average discount of 19.5 %. The
Company's Ordinary Share Class did not trade at a discount during
the year ended 31 December 2020.
-- Ongoing Charges - In the year to 31 December 2020, the
Company's Ongoing Charges were 2.38%. This figure is based on an
annual expense figure for the year of $3,198,067. This figure,
which has been prepared in accordance with AIC guidance represents
the Company's management fees and all other operating expenses,
excluding finance costs payable, expressed as a percentage of
average net assets. No performance fees were payable as at 31
December 2020. The Ongoing Charges by share class are disclosed in
the Financial Highlights section above.
-- Total Expense Ratio ("TER") - In the year to 31 December
2020, the Company's TER was 2.72%. This figure is based on an
annual expense figure for the year of $3,662,388. This figure which
has been prepared in accordance with the US 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 2020. The TERs by
share class are disclosed in the Financial Highlights 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 The IRR is calculated
Return ("IRR") 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 The RoR is the net gain It is calculated by taking the
("ROR") or loss on an investment difference between the current
over a specified time (or expected) value and original
period, expressed as value, divided by original value
a percentage of the and multiplied by 100.
investment's initial
cost. Opening NAV per share (A)
Closing NAV per share (B)
Rate of Return = (B-A)/A
========================== =================================== ======================================
Total Expense Ratio The TER is Management Annualised charges (A)
("TER") fees and all other operating Average undiluted net asset
expenses expressed as value in the period (B)
a percentage of average
net assets during the Total Expense Ratio (%) = (A)/(B)
year.
========================== =================================== ======================================
On-going charges On-going Charges are calculated Ongoing charges (%) = (A)/(B)
to the AIC Methodology, Annualised ongoing charges (A)
which is a measure, expressed Average undiluted net asset
as a percentage of NAV, value in the period (B)
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".
======================== ===================================== ======================================
Net Asset Value The NAV per share represents
per share ("NAV") 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 Original Investment cost (A)
as a percentage of the Current Investments value (B)
amount invested and represents
the amount of value our Total Return = (B-A)/A
investors earn from a
security over a specific
period.
======================== ===================================== ======================================
Ratio of Total Ratio of Total Value to Total Capital Distributions
Value to original original capital is a (A)
capital total of NAV plus capital Total Income Distributions (B)
returned to investors Total Buybacks (C)
expressed as a percentage Current NAV (D)
of the original amount
invested since inception. 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 The share price of an NAV per share (NBDD) (A)
Premium to NAV Investment Company is Share price per share (NBDD)
derived from buyers and (B)
sellers trading their
shares on the stock market. NBDD (Discount) or Premium =
This price is not identical (B-A)/A
to the NAV. If the share
price is lower than the NAV per share (NBDX) (A)
NAV per share, the shares Share price per share (NBDX)
are trading at a discount. (B)
This could indicate that
there are more sellers NBDX (Discount) or Premium =
than buyers. Shares trading (B-A)/A
at a price above the NAV
per share, are said to NAV per share (NBDG) (A)
be at a premium. This Share price per share (NBDG)
is expressed as a percentage. (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 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 contracts with the Investment Manager and Directors are the
only related party transactions currently in place. Other than fees
payable in the ordinary course of business there have been no
material transactions with 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
14 April 2021 14 April 2021
GOVERNANCE | Directors
Directors
John Hallam (Chairman)
John Hallam is a fellow of the Institute of Chartered
Accountants in England and Wales and qualified as an accountant in
1971. Previously, Mr Hallam was a partner at PricewaterhouseCoopers
and retired in 1999 after 27 years with the firm in Guernsey and in
other countries. He is a director of Real Estate Credit Investment
Limited and a number of other financial services companies, some of
which are listed on recognised exchanges. Mr Hallam served for many
years as a member and latterly chairman of the GFSC, from which he
retired in 2006.
Michael J. Holmberg
Michael J. Holmberg, Managing Director of Neuberger Berman,
joined the NB Group in 2009. Mr Holmberg is the head of distressed
portfolio management. Prior to joining NB Group, Mr Holmberg
founded Newberry Capital Management LLC in 2006 and before that he
founded and managed Ritchie Capital Management's Special Credit
Opportunities Group. He was also a managing director at Strategic
Value Partners and Moore Strategic Value Partners. He began
investing in distressed and credit oriented strategies as a
portfolio manager at Continental Bank/Bank of America, where he
established the bank's global proprietary capital account. Mr
Holmberg received a BA in economics from Kenyon College and an MBA
from the University of Chicago.
Christopher Legge (Chairman of the Audit Committee)
Chris Legge is a Guernsey resident and worked for Ernst &
Young in Guernsey from 1983 to 2003. Having joined the firm as an
audit manager in 1983, he was appointed a partner in 1986 and
managing partner in 1998. From 1990 to 1998, he was head of Audit
and Accountancy and was responsible for the audits of a number of
banking, insurance, investment fund, property fund and other
financial services clients. He also had responsibility for the
firm's training, quality control and compliance functions. He was
appointed managing partner for the Channel Islands region in 2000
and merged the business with Ernst & Young LLP in the United
Kingdom. He retired from Ernst & Young in 2003. Chris currently
holds a number of non-executive directorships in the financial
services sector including several Guernsey investment companies
which are listed in the UK and where he also chairs the Audit
Committee. 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
2020.
Share Capital
The number of shares in issue at 31 December 2020 was as
follows:
Class A Shares 2
Ordinary Shares 15,382,770
Extended Life Shares 80,545,074
New Global Shares 41,116,617
Share Buybacks
At the Annual General Meeting ("AGM") of the Company held on 25
June 2020, 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 25 June 2020). The latest authority will expire at the
AGM to be held on 24 June 2021. 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.
During the year, 3,661,822 Extended Life Shares and 3,035,833
New Global Shares were repurchased by the Company for immediate
cancellation for gross consideration of $1,857,123 and GBP1,578,657
respectively. There were no buybacks of the Company's Ordinary
Shares in 2020. As noted in the Chairman's Statement above, on 16
November 2020 the Company announced in its quarterly Factsheet that
the share buyback programme was 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 in the Distributions to
Shareholders section 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 2021 AGM.
Distributions made during the year
Set out below are details of the distributions made during the
year.
Income distribution by way of dividend
There was no dividend due for the period ending 31 December
2020.
Capital distributions by way of a compulsory partial
redemption
Extended Life Share
Ordinary Share Class Class New Global Share Class
Date Distribution Number Per Share Distribution Number Per Share Distribution Number Per Share
Amount of Shares Amount Amount of Shares Amount Amount of Shares Amount
========= ============ ========= ========= ============ ========== ========= ============ ========== =========
19 March
2020 - - - 4,986,260 5,434,023 $0.9176 - - -
========= ============ ========= ========= ============ ========== ========= ============ ========== =========
18 May
2020 - - - 7,491,958 9,536,606 $0.7856 7,493,478 11,206,038 GBP0.6687
========= ============ ========= ========= ============ ========== ========= ============ ========== =========
30 June
2020 - - - 10,491,960 14,969,269 $0.7009 10,493,475 16,429,427 GBP0.6387
========= ============ ========= ========= ============ ========== ========= ============ ========== =========
Substantial Share Interests
Based upon information deemed to be reliable as provided by the
Company's registrar as at 31 March 2021, the following shareholders
owned 5% or more of the issued shares of the Company.
Percentage
No. of Ordinary No. of Extended No. of New of Share
Substantial Shareholders Shares Life Shares Global Shares Class (%)
=============================== ================== ================== ================ ===========
Harewood Nominees Limited
4046320 ACCT 12,711,139 - - 82.63
=============================== ================== ================== ================ ===========
Prudential Client HSBC GIS
Nominee (UK) Limited PAC
ACCT - - 12,308,287 29.94
=============================== ================== ================== ================ ===========
Prudential Client HSBC GIS
Nominee (UK) Limited PAC
ACCT - 14,345,466 - 17.81
=============================== ================== ================== ================ ===========
State Street Nominees Limited
OM04 ACCT - 7,152,574 - 8.88
=============================== ================== ================== ================ ===========
State Street Nominees Limited
OM04 ACCT - - 5,619,249 13.67
=============================== ================== ================== ================ ===========
BNY(OCS) Nominees Limited - 7,907,693 - 9.82
=============================== ================== ================== ================ ===========
Nortrust Nominees Limited - - 3,830,779 9.32
=============================== ================== ================== ================ ===========
Citibank Nominees (Ireland)
Designated Activity Company
CLRLUC ACCT - 7,286,998 - 9.05
=============================== ================== ================== ================ ===========
HSBC Global Custody Nominee
(UK) Limited 898873 ACCT - - 3,559,990 8.66
=============================== ================== ================== ================ ===========
Lynchwood Nominees 2006420
ACCT - 6,195,233 - 7.69
=============================== ================== ================== ================ ===========
Roy Nominees Limited 802644
ACCT - - 2,858,259 6.95
=============================== ================== ================== ================ ===========
Nortrust Nominees Limited
GSYA ACCT - - 2,500,000 6.08
=============================== ================== ================== ================ ===========
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 2020 the Company has been notified in
accordance with Chapter 5 of the DTR (which covers the acquisition
and disposal of major shareholdings and voting rights), of the
following voting rights as a shareholder of the Company. When more
than one notification has been received from any shareholder, only
the latest notification is shown. For non-UK issuers, the
thresholds prescribed under DTR 5.1.2 for notification of holdings
commence at 5%. Class A shares do not hold voting rights.
Percentage of
Shareholder (1) Number of Shares total voting rights
(%)
======================================= =================== =====================
City of Bradford Met District Council
(West Yorkshire Pension Fund) 3,270,047 4%
======================================= =================== =====================
16,876,142 NBDX 11.98%
M&G Plc 12,308,287 NBDG 8.74%
======================================= =================== =====================
Since the year end at the date of this report, there have been
no notifications received by the Company.
Directorship Disclosures in Public Companies (as at 2 March
2021)
Company Names Exchange(s)
=================================== ==========================================
Mr John Hallam
=================================== ==========================================
Investec Premier Funds PCC Limited The International Stock Exchange ("TISE")
=================================== ==========================================
NB Distressed Debt Investment
Fund Limited SFS, London
=================================== ==========================================
Real Estate Credit Investments
Limited London
=================================== ==========================================
Ruffer Multi Strategies Fund
Limited Euronext Dublin
=================================== ==========================================
Ruffer Illiquid Multi Strategies
Fund 2015 Limited TISE
=================================== ==========================================
Mr Michael Holmberg
=================================== ==========================================
NB Distressed Debt Investment
Fund Limited SFS, London
=================================== ==========================================
Mr Christopher Legge
=================================== ==========================================
NB Distressed Debt Investment
Fund Limited SFS, London
=================================== ==========================================
Sherborne Investors (Guernsey)
B Limited SFS, London
=================================== ==========================================
Sherborne Investors (Guernsey)
C Limited SFS, London
=================================== ==========================================
Twenty Four Select Monthly Income
Fund Limited London
=================================== ==========================================
Mr Stephen Vakil
=================================== ==========================================
NB Distressed Debt Investment
Fund Limited SFS, London
=================================== ==========================================
The Property Hub 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
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 .
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_2020.pdf
COVID-19
As global virus outbreaks continue to occur, the COVID-19 virus
remains a primary issue. The outbreaks and calls for additional
lockdowns diminish near term virus containment hopes, while also
restricting behaviour and curtailing more robust economic activity.
Given these circumstances, the longer-term financial impact on the
Company's assets remains difficult to predict. Despite the
uncertainty, the Investment Manager remains committed to realising
the investments in an orderly manner. However, the timing of the
orderly realisation of some assets is less certain and the quantum
of the proceeds therefrom is difficult to predict.
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
.
Global Greenhouse Gas Emissions
The Company has no significant greenhouse gas emissions to
report from its operations for the year to 31 December 2020 (2019 -
none), nor does it have responsibility for any other emissions
producing sources.
Climate Change
In 2019, the Board identified activism relating to climate
change as an emerging risk. 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. In respect to the Company's investments, as an
example, the three publicly traded shipping companies have all
invested in modern, more fuel efficient vessels while selling or
scrapping older, less efficient assets. These companies, as well as
the private shipping investments, have worked to comply with the
new environmentally friendly International Maritime Organization
regulations that require either the use of cleaner fuel or the
installation of scrubbers on each vessel to prevent the emission of
sulphur oxide into the atmosphere.
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.
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.
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.
Disclosure of Information to Auditors
The Directors who were members of the Board at the time of
approving this report are listed in the Directors section above.
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
14 April 2021 14 April 2021
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 . 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 2020 the Company has
complied with the recommendations of the AIC Code and the relevant
provisions of the UK 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 in the Corporate Governance Report
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: Members:
Christopher Legge (Chairman) Stephen Vakil (Chairman)
Stephen Vakil John Hallam
Christopher Legge
Responsibilities: Responsibilities:
The provision of effective governance To review the performance of all
over the appropriateness of the service providers (including the
Company's financial reporting including Investment Manager)
the adequacy of related disclosures,
the performance of the external More details are provided in the
auditor, and the management of the Management Engagement Committee
Company's systems of internal controls Report below.
and business risks.
More details are provided in the
Audit Committee Report below.
REMUNEration Committee inside information COMMITTEE
======================================== =====================================
Members: Members:
Stephen Vakil (Chairman) John Hallam
John Hallam Michael Holmberg
Christopher Legge Christopher Legge
Stephen Vakil
Responsibilities: Responsibilities:
To review the on-going appropriateness To identify inside information and
and relevance of the remuneration monitor the disclosure and control
policy. of inside information.
More details are provided in the More details are provided in the
Remuneration Committee below. Inside Information Committee below.
Board Independence and Composition
The biographical details of the Directors holding office at the
date of this report are listed in the Directors' report above and
demonstrate a breadth of investment, accounting and professional
experience.
Whilst in April 2020 John Hallam had served on the Board for
over ten 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.
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 2021 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 offer
themselves for re-election at the 2021 AGM of the Company; John
Hallam, Michael Holmberg, Christopher Legge and Stephen Vakil were
re-elected as Directors at the AGM on 25 June 2020. The names and
biographies of the Directors holding office at the date of this
report are listed in the Directors' Report 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 ten 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 24 June 2021.
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 25 June 2020 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 to set prescriptive
targets for gender, ethnicity, nationality or any other criterion
of representation on the Board. At 31 December 2020, 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 2020, except Michael Holmberg, an employee of the
Neuberger Berman Group of which the Investment Manager is a
part.
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 26 August
2020, 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 2020 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 2021 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 August 2021, 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 and Nomination Committee (excluding John
Hallam) led by the Chairman of the Remuneration and Nomination
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@wearecarey.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.
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 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.
2021 AGM
The 2021 AGM will be held in Guernsey on 24 June 2021. 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 in the Additional Information
section below.
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. There were no significant votes cast
against the resolutions proposed at the 2020 AGM.
COVID-19 and Stay at Home Measures
The Directors wish to reassure shareholders that the Company has
considered the potential for impact on the AGM of the COVID-19
pandemic and restrictive measures in place as at the date of
posting this Notice. At the time of writing, "stay at home"
measures are in place in Guernsey and it is possible that
restrictions around travel, both within and to and from the island,
and public gatherings may remain in force on the scheduled date of
the AGM, which could mean that it is not practicable to physically
convene the AGM at the intended time and venue. The Board feels it
is important to proceed with the AGM, noting that alternative
practical arrangements may be required, such as an adjournment and
possibly a change of time and venue. The Directors will continue to
consider the latest instructions from relevant authorities in
conjunction with guidance available from professional and
regulatory bodies to ensure the AGM is held in accordance with its
statutory requirements and with the Company's Articles. May we
finally take this opportunity to encourage shareholders to use the
online proxy appointment facilities, rather than requesting a paper
proxy card, as in the current circumstances we cannot guarantee
that there will be staff at the office of the Registrar to receive
post.
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 2020 financial year
MANAGEMENT
Engagement Remuneration INSIDE INFORMATION
Board Audit Committee Committee Committee COMMITTEE
==================== ======== ================ ============ ============= ===================
Number of meetings
during the year 5 3 1 1 1
==================== ======== ================ ============ ============= ===================
John Hallam 5 n/a 1 1 1
==================== ======== ================ ============ ============= ===================
Christopher Legge 5 3 1 1 1
==================== ======== ================ ============ ============= ===================
Michael Holmberg 5 n/a n/a n/a 0
==================== ======== ================ ============ ============= ===================
Stephen Vakil 5 3 1 1 1
==================== ======== ================ ============ ============= ===================
In addition to these meetings, 8 ad-hoc board and board
committee meetings were held during the year for various matters,
primarily of an administrative nature including, but not limited
to, distributions. 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
respective 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
14 April 2021 14 April 2021
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 2020, 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 in the Strategic Report 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 2020 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 2020 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 2020 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 in
2019.
KPMG has been the Company's external auditor since its stock
exchange listing in 2010 (10 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
2020 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 2017 in order to voluntarily adopt certain provisions of the
FRC's Revised Ethical Standard 2016 relating to non-audit services
as it applies to E.U. public interest entities. In 2020, in light
of the life cycle of the Company, the Audit Committee recommended
to the Board that the policy in respect to non-audit services be
updated to remove the provision of a cap on non-audit services of
70% of the average of the audit fees in the last three years and
the Board approved the updated policy. 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 2020
====================================== =================
(GBP)
====================================== =================
Audit 170,000
====================================== =================
Taxation (1) compliance & consulting
services 67,000
====================================== =================
Audit related services (review
of interim report) 33,000
====================================== =================
Total 270,000
====================================== =================
(1) with effect from 1 January 2021, taxation compliance and
consulting services will be provided by PricewaterhouseCoopers
LLP.
Appointment and Independence
The Committee noted that for the year ended 31 December 2020
non-audit fees did not exceed audit fees.
In light of the growing focus on non-audit fees the Committee
has enhanced its scrutiny to ensure that it is comfortable, on an
ongoing basis that the nature of the non-audit work commissioned
does not impinge on audit independence. The Committee did not
consider that tax compliance and tax consultancy services
undertaken in 2020 presented a conflict as the services provided
were all assessed as permissible prior to the commencement of the
work and did not impact the audit work performed by the audit
team.
The Investment Manager has responsibility for preparing and
approving all tax calculations and tax returns. The output is not
relied upon by the audit team and the performance of these services
is led by a tax partner who is independent of the audit team. Those
tax services are subject to separate terms of engagement to that of
the audit engagement.
The Audit Committee has therefore recommended to the Board that
KPMG be reappointed as external auditor for the year ended 31
December 2020, 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 2021 AGM on 24 June 2021.
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
14 April 2021
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 24
November 2020, including the Investment Manager. On 13 September
2020, Jefferies International Limited was appointed as corporate
broker.
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
2020 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.
Continued Appointment of the Investment Manager and Other
Service Providers (continued)
As a result of the 2020 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 investment companies.
Stephen Vakil
On behalf of the Management Engagement Committee
14 April 2021
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 once in the year on 25
February 2020 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 2020
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
14 April 2021
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 Director's 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
14 April 2021
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 24 June 2021.
Directors' Fees
The Company paid the following fees to the Directors for the
year ended 31 December 2020:
TOTAL Board TOTAL Board
Role Fees ($) Fees (GBP)
===================== ======================================== ============ ============
John Hallam Chairman 60,000 10,000
===================== ======================================== ============ ============
Michael Holmberg(1) non-executive Director - -
===================== ======================================== ============ ============
Christopher non-executive Director and Chairman
Legge of the Audit Committee 50,000 10,000
===================== ======================================== ============ ============
non-executive Director, Chairman
of the Remuneration Committee
and Chairman of Management Engagement
Stephen Vakil 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 2019:
TOTAL Board TOTAL Board
Role Fees ($) Fees (GBP)
===================== ======================================== ============ ============
John Hallam Chairman 60,000 10,000
===================== ======================================== ============ ============
Michael Holmberg(1) non-executive Director - -
===================== ======================================== ============ ============
Christopher non-executive Director and Chairman
Legge of the Audit Committee 50,000 10,000
===================== ======================================== ============ ============
Christopher
Sherwell(2) non-executive Director 45,000 10,000
===================== ======================================== ============ ============
non-executive Director, Chairman
of the Remuneration Committee
and Chairman of Management Engagement
Stephen Vakil Committee 45,000 10,000
===================== ======================================== ============ ============
Total 200,000 40,000
=============================================================== ============ ============
(1) Michael Holmberg has waived his right to Director fees.
(2) Christopher Sherwell stepped down as a Director on 31
December 2019.
No other remuneration was paid or payable by the Company during
the year to any of the Directors, other than travel expenses of
$1,056 (2019: $1,318).
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's 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 Board recognised that its remuneration policy needed to
be reviewed to reflect the changing status of the Company as the
existing Portfolios are realised as follows:
Company NBDD Fee NBDX Fee NBDG Fee Total Total
Fee (USD) (USD) (USD) (GBP) (USD) (GBP)
================= ============ =========== =========== =========== ======== ========
Chairman 40,000 10,000 10,000 10,000 60,000 10,000
================= ============ =========== =========== =========== ======== ========
Audit Committee
Chairman 30,000 10,000 10,000 10,000 50,000 10,000
================= ============ =========== =========== =========== ======== ========
Other Directors 25,000 10,000 10,000 10,000 45,000 10,000
================= ============ =========== =========== =========== ======== ========
Directors' Fees Policy
Maximum Potential Performance Metrics
Objective Operation Value Used
================================ ========================= ====================== =======================
To recognise time Directors' fees are Current fee levels Directors are
spent and the responsibilities set by the Board. are shown in the not remunerated
borne and to attract remuneration report. based on performance
high calibre candidates Annual fees are paid and are not eligible
who have the necessary quarterly in arrears. to participate
experience and in any performance
skills. Fees are reviewed related arrangements.
annually and against
those for Directors
in companies of similar
scale and complexity.
Fees were last reviewed
in November 2020.
Directors do not
receive benefits
and do not participate
in any incentive
or pension plans.
Service Contracts and Policy on Payment of Loss of Office
The Directors' appointments are not subject to any duration or
limitation. Any Director may resign in writing at any time.
Directors' appointments are reviewed during the annual Board
evaluation. No Director has a service contract with the Company.
Directors have agreed letters of appointment with the Company.
As detailed in the Corporate Governance Report 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 in the Directors' Report 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
================== ==============================
20 April 2010 (amended on 8
John Hallam May 2018)
================== ==============================
21 April 2010 (amended on 22
Michael Holmberg August 2018)
================== ==============================
5 February 2016 (amended on
Stephen Vakil 8 May 2018)
================== ==============================
Christopher Legge 17 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 8 March 2021 are shown in the table below:
Total No.
No. of Ordinary No. of Extended No. of New of
Director Shares Life Shares Global Shares Shares
=================== ================= ================ =============== ==========
John Hallam - 73,753 49,450 123,203
=================== ================= ================ =============== ==========
Michael Holmberg - 32,563 51,698 84,261
=================== ================= ================ =============== ==========
Christopher Legge - - - -
=================== ================= ================ =============== ==========
Stephen Vakil - - 26,974 26,974
=================== ================= ================ =============== ==========
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
14 April 2021
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 are
required 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; and
-- assess 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 2020 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 company; 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 Company's position and
performance, business model and strategy.
John Hallam Christopher Legge
Chairman Director
14 April 2021 14 April 2021
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
2020, 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 2020, and of the Group's financial
performance and cash flows for the year then ended;
-- are prepared in conformity 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 FRC
Ethical Standards, as applied to listed entities. 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 2019):
The risk:
Our response
Valuation of Investments Basis: Our audit procedures
at fair value ("Investments") The Group's investment included:
$96,283,120; (2019: $192,864,208) portfolio is carried at Control evaluation:
Refer to the Audit Committee fair value in conformity We assessed the design
Report above, the Consolidated with US generally accepted and implementation of
Schedule of Investments accounting principles. the control in place
below, Note 2 Summary It represents a significant over the valuation of
of Accounting policies proportion (89% (2019: Investments.
and note 2(f) Fair Value 97%)), and is the principal Challenging managements'
of Financial Instruments driver, of the Group's assumptions and inputs
net asset value. including use of KPMG
The Group's holdings in valuation specialists:
unquoted equity and debt For investments where
investments and quoted market quotes were available,
equity and debt investments, we obtained prices from
representing 36% of the third party data sources
fair value of investments, and pricing vendors.
are valued at their bid We assessed their reliability
price using broker quotes through checking the
(including use of single frequency of the pricing,
broker quotes) or third the number of independent
party pricing service quotes available and
providers (the "Price the range of the quoted
Quotes"). prices, in order to derive
Where no Price Quotes an independent reference
are available or they price.
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 For a selection of the
appropriate fair value Internally Generated
for such investments (the Valuations and single
"Internally Generated broker quoted investments,
Valuations"). 64% of the chosen on the basis of
fair value of Investments their fair value, we
were valued using Internally performed, as applicable,
Generated Valuations. the following procedures
Risk : with the support of our
The valuation of the Group's KPMG valuation specialists:
investments is considered * We assessed the appropriateness of the valuation
a significant area of approach and methodology applied to each investment
our audit, given that and where relevant, derived an independent reference
it represents the majority price;
of the net assets of the
Group.
The valuation risk for * We compared the assumptions used in the valuation to
both the Internally Generated observable market data or supporting documentation;
Valuations and single
broker quoted investment
valuations incorporate * We corroborated significant inputs used to supporting
both a risk of fraud and documentation; and
error given the significance
of estimates and judgments
that may be involved in * We assessed the effect of the investee entity's
the determination of fair financial performance upon the fair value.
value.
Assessing disclosures:
We also considered the
Group's disclosures (Note
2(b)) in relation to
the use of estimates,
the Group's valuation
of investments policies
(Note 2(f)) and fair
value of financial instruments
(Note 2(f)) for compliance
with US generally accepted
accounting principles.
Our application of materiality and an overview of the scope of
our a udi t
Materiality for the consolidated financial statements as a whole
was set at $2,160,000, determined with reference to a benchmark of
Group net assets of $108,429,859 of which it represents
approximately 2.0% (2019: 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 consolidated financial statements as a whole.
Performance materiality for the Group was set at 75% (2019: 75%) of
materiality for the consolidated financial statements as a whole,
which equates to $1,620,000. 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 $108,000, 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 decrease 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 the
consolidated 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 risk 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 assessment 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 minutes of meetings 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 the 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
14 April 2021
FINANCIAL STATEMENTS | Consolidated Statement of Assets and
Liabilities
Consolidated Statement of Assets and Liabilities
(EXPRESSED IN US DOLLARS EXCEPT WHERE 31 December 31 December
STATED OTHERWISE) 2020 2019
================================================================= ======================= ===============
Assets
================================================================= ======================= ===============
Investments at fair value (2020: cost
of $130,252,550; 2019: cost of $248,770,370) 96,283,120 192,864,208
================================================================= ======================= ===============
Forward currency contracts 653,125 -
================================================================= ======================= ===============
Warrants (2020: cost of $Nil; 2019: cost
of $752,955) - 153
================================================================= ======================= ===============
Cash and cash equivalents 2,035,320 5,379,726
================================================================= ======================= ===============
Restricted Cash:
================================================================= ======================= ===============
Forward currency contracts Collateral 630,000 430,000
================================================================= ======================= ===============
Total return swap Collateral 10,970,000 -
================================================================= ======================= ===============
110,571,565 198,674,087
================================================================= ======================= ===============
Other assets
================================================================= ======================= ===============
Interest receivables 258,913 707,187
================================================================= ======================= ===============
Receivables for investments sold 783,764 895,182
================================================================= ======================= ===============
Other receivables and prepayments 33,872 643,658
================================================================= ======================= ===============
Withholding tax receivable 421,788 -
================================================================= ======================= ===============
Total assets 112,069,902 200,920,114
================================================================= ======================= ===============
Liabilities
================================================================= ======================= ===============
Credit default swap (2020: cost of $67,076;
2019: cost of $99,945) 54,306 77,983
================================================================= ======================= ===============
Total return swap (2020: cost of $Nil) 1,222,546 -
================================================================= ======================= ===============
Forward currency contracts 1,979,765 890,781
================================================================= ======================= ===============
Accrued expenses and other liabilities 249,238 406,717
================================================================= ======================= ===============
Payables to Investment Manager and affiliates 134,188 493,060
================================================================= ======================= ===============
Total liabilities 3,640,043 1,868,541
================================================================= ======================= ===============
Net assets 108,429,859 199,051,573
================================================================= ======================= ===============
Net assets attributable to Ordinary Shares
(shares 2020: 15,382,770;
2019: 15,382,770) 12,952,965 13,976,415
================================================================= ======================= ===============
Net asset value per Ordinary Share 0.8420 0.9086
================================================================= ======================= ===============
Net assets attributable to Extended Life
Shares (shares 2020: 80,545,074;
2019: 114,146,794) 63,540,650 105,771,674
================================================================= ======================= ===============
Net asset value per Extended Life Share 0.7889 0.9266
================================================================= ======================= ===============
Net assets attributable to New Global
Shares (shares 2020: 41,116,617;
2019: 71,787,915) GBP23,363,139 GBP 59,862,782
================================================================= ======================= ===============
Net asset value per New Global Share GBP0.5682 GBP0.8339
================================================================= ======================= ===============
Net assets attributable to New Global
Shares (USD equivalent) 31,936,244 79,303,484
================================================================= ======================= ===============
Net asset value per New Global Share (USD
equivalent) 0.7767 1.1047
================================================================= ======================= ===============
The Financial Statements were approved and authorised for issue
by the Board of Directors on 14 April 2021, and signed on its
behalf by:
John Hallam Christopher Legge
Chairman Director
The accompanying notes below are an integral part of the
Financial Statements.
FINANCIAL STATEMENTS | Consolidated Statement of Operations
Consolidated Statement of Operations
31 December 31 December
(EXPRESSED IN US DOLLARS) 2020 2019
================================================ ============= =============
Income
================================================ ============= =============
Interest income 4,826,798 7,775,446
================================================= ============= =============
Dividend income net of withholding
tax (2020:3,372; 2019: 278,886) 271,866 662,028
================================================= ============= =============
Other income - 85,026
================================================= ============= =============
5,098,664 8,522,500
================================================ ============= =============
Expenses
================================================ ============= =============
Investment management fee 1,952,064 3,428,612
================================================= ============= =============
Professional and other expenses 1,336,429 1,117,163
================================================= ============= =============
Administration fee 123,097 211,457
================================================= ============= =============
Loan administration and custody fees 55,840 183,623
================================================= ============= =============
Directors' fees and expenses 194,960 253,482
================================================= ============= =============
3,662,390 5,194,337
================================================ ============= =============
Net investment income 1,436,274 3,328,163
================================================= ============= =============
Realised and unrealised gain/(loss)
from investments and foreign exchange
================================================ ============= =============
Net realised loss on investments,
credit default swap, warrants, total
return swap and forward currency transactions (64,163,138) (29,423,579)
================================================= ============= =============
Net change in unrealised gain on investments,
credit default swap, warrants. total
return swap and forward currency transactions 21,059,253 15,533,893
================================================= ============= =============
Income taxes from net realised/unrealised
(loss)/gain on investments (7,172) 220,197
================================================= ============= =============
Realised and unrealised loss from
investments and foreign exchange (43,111,057) (13,669,489)
================================================= ============= =============
Net decrease in net assets resulting
from operations (41,674,783) (10,341,326)
================================================= ============= =============
The accompanying notes below are an integral part of the
Financial Statements.
FINANCIAL STATEMENTS | Consolidated Statement of Changes in Net
Assets
Consolidated Statement of Changes in Net Assets
FOR THE YEARED 31 DECEMBER 2020
31 December 31 December 31 December
2020 2020 2020
Ordinary Extended Life New Global 31 December
(EXPRESSED IN US DOLLARS) Shares Shares Shares 2020 Aggregated
==================================== ============ =============== ============= =================
Net assets at the beginning
of the year 13,976,415 105,771,674 79,303,484 199,051,573
==================================== ============ =============== ============= =================
Net investment (loss)/income (299,794) 1,141,393 594,675 1,436,274
==================================== ============ =============== ============= =================
Net realised loss on investments,
credit default swap, warrants
and forward currency transactions (6,838,452) (33,800,902) (23,523,784) (64,163,138)
==================================== ============ =============== ============= =================
Net change in unrealised
gain/(loss) on investments,
credit default swap, warrants
and forward currency transactions 6,114,839 15,257,674 (313,260) 21,059,253
==================================== ============ =============== ============= =================
Income taxes from net
realised/unrealised loss
on investments (43) (1,913) (5,216) (7,172)
==================================== ============ =============== ============= =================
Dividends Nil Nil Nil Nil
==================================== ============ =============== ============= =================
Net cost of share buybacks - (1,857,098) (2,017,495) (3,874,593)
==================================== ============ =============== ============= =================
Distributions during the
year - (22,970,178) (22,102,160) (45,072,338)
==================================== ============ =============== ============= =================
Net assets at the end
of the year 12,952,965 63,540,650 31,936,244 108,429,859
==================================== ============ =============== ============= =================
FOR THE YEARED 31 DECEMBER 2019
31 December 31 December 31 December
2019 2019 2019
Ordinary Extended Life New Global 31 December
(EXPRESSED IN US DOLLARS) Shares Shares Shares 2019 Aggregated
==================================== ============ =============== ============= =================
Net assets at the beginning
of the year 22,876,360 148,482,314 97,042,815 268,401,489
==================================== ============ =============== ============= =================
Net investment (loss)/income (110,368) 2,458,755 979,776 3,328,163
==================================== ============ =============== ============= =================
Net realised loss on investments,
credit default swap, warrants
and forward currency transactions (1,557,957) (15,765,042) (12,100,580) (29,423,579)
==================================== ============ =============== ============= =================
Net change in unrealised
gain on investments, credit
default swap, warrants
and forward currency transactions 650,401 8,847,176 6,036,316 15,533,893
==================================== ============ =============== ============= =================
Income taxes from net
realised/unrealised gain/(loss)
on investments 109,954 241,943 (131,700) 220,197
==================================== ============ =============== ============= =================
Dividends - (991,400) - (991,400)
==================================== ============ =============== ============= =================
Net cost of share buybacks - (2,026,218) (926,631) (2,952,849)
==================================== ============ =============== ============= =================
Distributions during the
year (7,991,975) (35,475,854) (11,596,512) (55,064,341)
==================================== ============ =============== ============= =================
Net assets at the end
of the year 13,976,415 105,771,674 79,303,484 199,051,573
==================================== ============ =============== ============= =================
The accompanying notes below are an integral part of the
Financial Statements.
FINANCIAL STATEMENTS | Consolidated Statement of Cash Flows
Consolidated Statement of Cash Flows
FOR THE YEARED 31 DECEMBER 2020 AND 31 DECEMBER 2019
31 December 31 December
(EXPRESSED IN US DOLLARS) 2020 2019
================================================ ============= =============
Cash flows from operating activities:
================================================= ============= =============
Net decrease in net assets resulting
from operations (41,674,783) (10,341,326)
================================================= ============= =============
Adjustment to reconcile net decrease
in net assets resulting from operations
to net cash flow provided by operations:
================================================= ============= =============
Net realised loss on investments, credit
default swap, warrants, total return
swap and forward currency transactions 64,163,138 29,423,579
================================================= ============= =============
Net change in unrealised gain on investments,
credit default swap, warrants, total
return swap and forward currency transactions (21,059,253) (15,533,893)
================================================= ============= =============
Accretion of discount on loans and bonds (97,467) (275,938)
================================================= ============= =============
Changes in interest receivable 448,274 (439,476)
================================================= ============= =============
Changes in receivables for investments
sold 111,418 (114,470)
================================================= ============= =============
Changes in other receivables and prepayments 609,786 (266,162)
================================================= ============= =============
Change in withholding tax receivable (421,788) 2,913,342
================================================= ============= =============
Change in deferred taxes - (355,057)
================================================= ============= =============
Changes in payables, accrued expenses
and other liabilities (516,351) 282,269
================================================= ============= =============
Cash received on settled forward currency
contracts and spot currency contracts 2,173,678 2,665,608
================================================= ============= =============
Capitalised payment in kind (3,940,500) (2,466,500)
================================================= ============= =============
Purchase of investments (1,707,076) (10,986,950)
================================================= ============= =============
Sale of investments 65,059,170 66,784,769
================================================= ============= =============
Purchase of short term investments (1) (46,129,874) (4,034,406)
================================================= ============= =============
Sale of short term investments (1) 39,950,463 -
================================================= ============= =============
Net cash provided by operating activities 56,968,835 57,255,389
================================================= ============= =============
Cash flows from financing activities:
================================================= ============= =============
Cost of share buybacks (3,874,593) (2,952,849)
================================================= ============= =============
Shares redeemed during the year (45,072,338) (55,064,341)
================================================= ============= =============
Dividends paid - (991,400)
================================================= ============= =============
Net cash used in financing activities (48,946,931) (59,008,590)
================================================= ============= =============
Net increase/(decrease) in cash, cash
equivalents and restricted cash 8,021,904 (1,753,201)
================================================= ============= =============
Cash and cash equivalents at the beginning
of the year 5,379,726 7,596,274
================================================= ============= =============
Restricted cash at the beginning of the
year 430,000 -
================================================= ============= =============
Effect of exchange rate changes on cash
and cash equivalents (196,310) (33,347)
================================================= ============= =============
Cash and cash equivalents at the end
of the year 2,035,320 5,379,726
================================================= ============= =============
Restricted cash at the end of the year 11,600,000 430,000
================================================= ============= =============
Supplemental cash flow information
$3,705,792 is related to non-cash transactions due to the Exide restructure.
This figure is excluded from purchase of investments and sale of investments
above.
(1) Short term investments are typically sold or converted to
cash within 3 to 12 months
The accompanying notes below are an integral part of the
Financial Statements.
FINANCIAL STATEMENTS | Consolidated Condensed Schedule of
Investments
Consolidated Condensed Schedule of Investments (by financial
instrument)
Extended
Ordinary Life
New Global Total
AT 31 DECEMBER 2020 Shares Shares Shares Company
(EXPRESSED IN US DOLLARS) Cost Fair Value (%)(1) (%)(1) (%)(1) (%)(1)
============================ ============ ============ ========== ========== ============ ==========
Portfolio of Distressed
Investments
============================ ============ ============ ========== ========== ============ ==========
Bank Debt Investments 68,103,787 44,348,976 0.58 36.15 66.71 40.90
============================ ============ ============ ========== ========== ============ ==========
Private Equity 18,791,896 26,664,758 31.74 27.86 15.19 24.59
============================ ============ ============ ========== ========== ============ ==========
Private Note 33,002,300 15,060,365 4.61 19.09 7.30 13.89
============================ ============ ============ ========== ========== ============ ==========
Short term Investments
============================ ============ ============ ========== ========== ============ ==========
US Treasury Bills 10,354,567 10,209,021 39.61 4.41 7.12 9.42
============================ ============ ============ ========== ========== ============ ==========
Total Investments 130,252,550 96,283,120 76.54 87.51 96.32 88.80
============================ ============ ============ ========== ========== ============ ==========
Ordinary Shares 7,905,282 9,913,802 76.54 - - 9.14
============================ ============ ============ ========== ========== ============ ==========
Extended Life Shares 78,752,876 55,603,896 - 87.51 - 51.29
============================ ============ ============ ========== ========== ============ ==========
New Global Shares 43,594,392 30,765,422 - - 96.32 28.37
============================ ============ ============ ========== ========== ============ ==========
130,252,550 96,283,120 76.54 87.51 96.32 88.80
============================ ============ ============ ========== ========== ============ ==========
Credit Default Swap
============================ ============ ============ ========== ========== ============ ==========
Ordinary Shares (18,553) (15,021) (0.12) - - (0.01)
============================ ============ ============ ========== ========== ============ ==========
Extended Life Shares (48,523) (39,285) - (0.06) - (0.04)
============================ ============ ============ ========== ========== ============ ==========
(67,076) (54,306) (0.12) (0.06) - (0.05)
============================ ============ ============ ========== ========== ============ ==========
Forward Currency Contracts
============================ ============ ============ ========== ========== ============ ==========
Assets
============================ ============ ============ ========== ========== ============ ==========
Ordinary Shares - 181,051 1.40 - - 0.17
============================ ============ ============ ========== ========== ============ ==========
Extended Life Shares - 472,074 - 0.74 - 0.44
============================ ============ ============ ========== ========== ============ ==========
- 653,125 1.40 0.74 - 0.61
============================ ============ ============ ========== ========== ============ ==========
Liabilities
============================ ============ ============ ========== ========== ============ ==========
Ordinary Shares - (467,425) (3.61) - - (0.43)
============================ ============ ============ ========== ========== ============ ==========
Extended Life Shares - (1,512,340) - (2.38) - (1.39)
============================ ============ ============ ========== ========== ============ ==========
- (1,979,765) (3.61) (2.38) - (1.82)
============================ ============ ============ ========== ========== ============ ==========
Total return swap(2)
============================ ============ ============ ========== ========== ============ ==========
Ordinary Shares - (341,368) (2.64) - - (0.31)
============================ ============ ============ ========== ========== ============ ==========
Extended Life Shares - (881,178) - (1.40) - (0.81)
============================ ============ ============ ========== ========== ============ ==========
- (1,222,546) (2.64) (1.40) - (1.12)
============================ ============ ============ ========== ========== ============ ==========
(1) This is the Fair Value expressed as a percentage of total
Company NAV, Ordinary Share NAV, Extended Life Share NAV and New
Global Share NAV .
(2) The trade claim was structured through a fully funded total
return swap with a major US financial institution. See Note 3.
Extended
Ordinary Life
New Global Total
AT 31 DECEMBER 2019 Shares Shares Shares Company
(EXPRESSED IN US DOLLARS) Cost Fair Value (%)(1) (%)(1) (%)(1) (%)(1)
============================ ============ ============ ========== ========== ============ ==========
Portfolio of Distressed
Investments
============================ ============ ============ ========== ========== ============ ==========
Bank Debt Investments 63,993,341 44,839,681 0.54 23.20 25.50 22.53
============================ ============ ============ ========== ========== ============ ==========
Private Equity 60,966,636 39,031,269 21.17 19.57 19.39 19.61
============================ ============ ============ ========== ========== ============ ==========
Private Note 44,371,898 28,347,559 6.30 20.81 6.88 14.24
============================ ============ ============ ========== ========== ============ ==========
Public Equity 62,363,549 64,453,075 33.83 22.64 45.11 32.38
============================ ============ ============ ========== ========== ============ ==========
Trade Claim(2) 13,032,089 12,149,475 24.31 8.27 - 6.10
============================ ============ ============ ========== ========== ============ ==========
Temporary Investments
============================ ============ ============ ========== ========== ============ ==========
US Treasury Bills 4,042,857 4,043,149 8.22 2.74 - 2.03
============================ ============ ============ ========== ========== ============ ==========
Total Investments 248,770,370 192,864,208 94.37 97.23 96.88 96.89
============================ ============ ============ ========== ========== ============ ==========
Ordinary Shares 17,758,457 13,188,939 94.37 - - 6.63
============================ ============ ============ ========== ========== ============ ==========
Extended Life Shares 141,969,927 102,843,628 - 97.23 - 51.66
============================ ============ ============ ========== ========== ============ ==========
New Global Shares 89,041,986 76,831,641 - - 96.88 38.60
============================ ============ ============ ========== ========== ============ ==========
248,770,370 192,864,208 94.37 97.23 96.88 96.89
============================ ============ ============ ========== ========== ============ ==========
Credit Default Swap
============================ ============ ============ ========== ========== ============ ==========
Ordinary Shares (28,318) (22,095) (0.16) - - (0.01)
============================ ============ ============ ========== ========== ============ ==========
Extended Life Shares (71,627) (55,888) - (0.05) - (0.03)
============================ ============ ============ ========== ========== ============ ==========
(99,945) (77,983) (0.16) (0.05) - (0.04)
============================ ============ ============ ========== ========== ============ ==========
Forward Currency Contracts
============================ ============ ============ ========== ========== ============ ==========
Assets
============================ ============ ============ ========== ========== ============ ==========
Ordinary Shares - 121,184 0.87 - - 0.06
============================ ============ ============ ========== ========== ============ ==========
Extended Life Shares - 335,899 - 0.32 - 0.17
============================ ============ ============ ========== ========== ============ ==========
- 457,083 0.87 0.32 - 0.23
============================ ============ ============ ========== ========== ============ ==========
Liabilities
============================ ============ ============ ========== ========== ============ ==========
Ordinary Shares - (280,190) (2.00) - - (0.14)
============================ ============ ============ ========== ========== ============ ==========
Extended Life Shares - (1,067,674) - (1.01) - (0.54)
============================ ============ ============ ========== ========== ============ ==========
- (1,347,864) (2.00) (1.01) - (0.68)
============================ ============ ============ ========== ========== ============ ==========
Warrants
============================ ============ ============ ========== ========== ============ ==========
Extended Life Shares 478,733 109 - - - -
============================ ============ ============ ========== ========== ============ ==========
New Global Shares 274,222 44 - - - -
============================ ============ ============ ========== ========== ============ ==========
752,955 153 - - - -
============================ ============ ============ ========== ========== ============ ==========
(1) This is the Fair Value expressed as a percentage of total
Company NAV, Ordinary Share NAV, Extended Life Share NAV and New
Global Share NAV .
(2) The trade claim was structured through a fully funded total
return swap with a major US financial institution.
The accompanying notes below are an integral part of the
Financial Statements.
Consolidated Condensed Schedule of Investments
Investments with the following issuers comprised greater than 5%
of Total Company NAV
Extended
Ordinary Life
New
Global Total
31 DECEMBER 2020 Shares Shares Shares Company
(EXPRESSED IN Fair
US DOLLARS) Country Industry Nominal Cost Value (%)(1) (%)(1) (%)(1) (%)(1)
========================== ============= ================= ===================== ====================== ===================== ===================== ==================== ========= ======================
Securities
========================== ============= ================= ===================== ====================== ===================== ===================== ==================== ========= ======================
Dumas Shipping
TL B Marshall
(Bank Debt Investments) Islands Shipping 20,015,014 19,812,305 11,081,139 - 12.44 9.95 10.22
========================== ============= ================= ===================== ====================== ===================== ===================== ==================== ========= ======================
Dumas Shipping
TL A Marshall
(Bank Debt Investments) Islands Shipping 2,373,118 2,373,118 1,313,856 - 1.47 1.18 1.21
========================== ============= ================= ===================== ====================== ===================== ===================== ==================== ========= ======================
Dumas Shipping Marshall
(Private Equity) Islands Shipping 349 1,003,803 - - - - -
========================== ============= ================= ===================== ====================== ===================== ===================== ==================== ========= ======================
Package Holdings
1
Containers
(Private Note) Luxembourg and Packaging 11,108,610 - 12,841,665 27.71 14.56 - 11.84
========================== ============= ================= ===================== ====================== ===================== ===================== ==================== ========= ======================
Package Holdings
6
Containers
(Private Note) Luxembourg and Packaging 2,948,481 1,893,980 1,780,718 3.84 2.02 - 1.64
========================== ============= ================= ===================== ====================== ===================== ===================== ==================== ========= ======================
AB Zwolle T/L
EUR 01/06/2020 Commercial
(Bank Debt Investments) Netherlands Mortgage 18,526,730 13,646,548 12,329,248 - 8.60 21.49 11.37
========================== ============= ================= ===================== ====================== ===================== ===================== ==================== ========= ======================
US Treasury
N/B 1.500% 02/15/30
(US Treasury United United
Bills) States States 9,650,000 10,354,566 10,209,021 39.61 4.41 7.12 9.42
========================== ============= ================= ===================== ====================== ===================== ===================== ==================== ========= ======================
Buffalo Thunder
Dev Auth 11.000%
12/09/22 SR:
Regs United Lodging
(Private Note) States & Casinos 14,001,965 11,641,233 7,000,982 - 7.35 7.30 6.46
========================== ============= ================= ===================== ====================== ===================== ===================== ==================== ========= ======================
TP Ferro Concesionaria
TL 1L 31/03/2016 Surface
(Bank Debt Investments) Spain Transport 18,787,735 18,531,522 6,896,320 - 5.45 10.76 6.36
========================== ============= ================= ===================== ====================== ===================== ===================== ==================== ========= ======================
TP Ferro Concesionaria
TP Ferro TL-A
(First-Lien) Surface
(Bank Debt Investments) Spain Transport 1,422,129 1,422,129 1,422,129 - 1.12 2.23 1.31
========================== ============= ================= ===================== ====================== ===================== ===================== ==================== ========= ======================
TP Ferro Concesionaria
TP Ferro 1L TL-B
EUR (First-Lien)
EUR (Bank Debt Surface
Investments) Spain Transport 286,335 329,920 350,345 - 0.28 0.55 0.32
========================== ============= ================= ===================== ====================== ===================== ===================== ==================== ========= ======================
TP Ferro PIK
5A 4/20
Surface
(Bank Debt Investments) Spain Transport 252,179 252,179 252,179 - 0.20 0.39 0.23
========================== ============= ================= ===================== ====================== ===================== ===================== ==================== ========= ======================
TP Ferro Concesionaria
TP Ferro 1L TL-C
(First-Lien) Surface
(Bank Debt Investments) Spain Transport 123,865 123,865 123,865 - 0.10 0.19 0.11
========================== ============= ================= ===================== ====================== ===================== ===================== ==================== ========= ======================
White Energy
Holding Company
Llc (Private United Oil &
Equity) States Gas 367 9,174,989 6,239,000 - 7.01 5.59 5.75
========================== ============= ================= ===================== ====================== ===================== ===================== ==================== ========= ======================
Aca Fin Guaranty
Corp 12-31/12/2019
Frn (Private United Financial
Note) States Intermediaries 69,599,357 11,086,183 4,175,961 4.61 5.63 - 3.85
========================== ============= ================= ===================== ====================== ===================== ===================== ==================== ========= ======================
Aca Fin Gur
Sur Non Vt 12-31/12/2019
Frn (Private United Financial
Note) States Intermediaries 64,723,682 10,274,884 3,883,421 - 6.11 - 3.58
========================== ============= ================= ===================== ====================== ===================== ===================== ==================== ========= ======================
Hotel Puerta
America Pik TL
EUR (Bank Debt Lodging
Investments) Spain & Casinos 3,728,985 4,065,113 4,562,599 - - 14.29 4.21
========================== ============= ================= ===================== ====================== ===================== ===================== ==================== ========= ======================
Hotel Puerta
America Lodging
(Private Equity) Spain & Casinos 934 3,013,332 1,983,471 - - 6.21 1.83
========================== ============= ================= ===================== ====================== ===================== ===================== ==================== ========= ======================
Hotel Puerta
America Pik Addon
EUR (Bank Debt Lodging
Investments) Spain & Casinos 1,482,704 1,609,295 1,814,163 - - 5.68 1.68
========================== ============= ================= ===================== ====================== ===================== ===================== ==================== ========= ======================
120,608,964 88,260,082 75.77 76.75 92.94 81.39
============== =========================================== ===================== ====================== ===================== ===================== ==================== ========= ======================
(1) T his is the Fair Value expressed as a percentage of total
Company NAV, Ordinary Share NAV, Extended Life Share NAV and New
Global Share NAV.
The accompanying notes below are an integral part of the
Financial Statements.
Investments with the following issuers comprised greater than 5%
of Total Company NAV
Extended
Ordinary Life
New
Global Total
31 DECEMBER 2019 Shares Shares Shares Company
(EXPRESSED IN Fair
US DOLLARS) Country Industry Nominal Cost Value (%)(1) (%)(1) (%)(1) (%)(1)
========================= ============= ================= =========== ============ ============ ========= ========= ========= ========
Securities
========================= ============= ================= =========== ============ ============ ========= ========= ========= ========
Twin Rivers
Worldwide Holdings United Lodging
(Public Equity) States & Casinos 793,386 6,349,931 20,318,615 - 5.76 17.94 10.21
========================= ============= ================= =========== ============ ============ ========= ========= ========= ========
Dumas Shipping
TL B Marshall
(Bank Debt Investments) Islands Shipping 17,232,859 16,788,999 13,596,726 - 9.17 4.92 6.83
========================= ============= ================= =========== ============ ============ ========= ========= ========= ========
Dumas Shipping
TL A Marshall
(Bank Debt Investments) Islands Shipping 2,043,246 2,043,246 1,612,121 - 1.09 0.58 0.81
========================= ============= ================= =========== ============ ============ ========= ========= ========= ========
Torm plc
(Public Equity) Denmark Shipping 1,169,202 14,207,442 13,049,678 - 5.80 8.73 6.56
========================= ============= ================= =========== ============ ============ ========= ========= ========= ========
AB Zwolle T/L
EUR 01/06/2020 Commercial
(Bank Debt Investments) Netherlands Mortgage 18,526,730 13,646,548 12,810,493 - 5.37 8.99 6.44
========================= ============= ================= =========== ============ ============ ========= ========= ========= ========
Five Point Holdings
LLC-CL A (Public United Building
Equity) States & Development 1,720,599 23,945,425 11,975,369 15.46 6.03 4.34 6.02
========================= ============= ================= =========== ============ ============ ========= ========= ========= ========
Aleris International
Inc United Nonferrous
(Private Equity) States Metals/Minerals 589,611 20,100,668 11,202,609 - 5.82 6.35 5.63
========================= ============= ================= =========== ============ ============ ========= ========= ========= ========
Tratex III Surface
(Private Equity) Brazil Transport 9 12,015,693 11,092,750 22.18 7.56 - 5.57
========================= ============= ================= =========== ============ ============ ========= ========= ========= ========
Eagle Bulk Shipping
Inc United
(Public Equity) States Shipping 2,303,182 7,582,125 10,571,605 1.32 4.42 7.20 5.31
========================= ============= ================= =========== ============ ============ ========= ========= ========= ========
Exide Private
Common United
(Private Equity) States Auto Components 4,913,258 8,210,824 8,598,201 7.73 4.08 4.04 4.32
========================= ============= ================= =========== ============ ============ ========= ========= ========= ========
Exide Technologies
11.000% 10/31/24
SR:REGS United
(Private Equity) States Auto Components 6,778,720 6,043,543 6,100,848 0.28 4.09 2.18 3.05
========================= ============= ================= =========== ============ ============ ========= ========= ========= ========
Exide Technologies
11.000% 10/31/24
SR:REGs United
(Warrant) States Auto Components 2,810,467 2,505,671 2,388,897 0.11 1.60 0.85 1.20
========================= ============= ================= =========== ============ ============ ========= ========= ========= ========
Exide Technologies
Common Stock
Escrow United
(Bank Debt Investments) States Auto Components 23,389,000 - 2 - - - -
========================= ============= ================= =========== ============ ============ ========= ========= ========= ========
133,440,115 123,317,914 47.08 60.79 66.12 61.95
========================================================= =========== ============ ============ ========= ========= ========= ========
(1) T his is the Fair Value expressed as a percentage of total
Company NAV, Ordinary Share NAV, Extended Life Share NAV and New
Global Share NAV.
The accompanying notes below are an integral part of the
Financial Statements.
Consolidated Condensed Schedule of Investments (by
geography)
Extended
Ordinary Life
New Global Total
AT 31 DECEMBER 2020 Shares Shares Shares Company
(EXPRESSED IN US
DOLLARS) Cost Fair Value (%)(1) (%)(1) (%)(1) (%)(1)
====================== ==== ============ ===================== ================ ===================== ================ ================
Geographic diversity
of Portfolio s
====================== ==== ============ ===================== ================ ===================== ================ ================
Portfolio of
Distressed
Investments
====================== ==== ============ ===================== ================ ===================== ================ ================
France 3,705,793 3,819,904 0.19 4.27 3.39 3.52
============================ ============ ===================== ================ ===================== ================ ================
Luxembourg 1,893,980 14,622,383 31.55 16.58 - 13.49
============================ ============ ===================== ================ ===================== ================ ================
Marshall Islands 23,189,227 12,394,995 - 13.91 11.13 11.43
============================ ============ ===================== ================ ===================== ================ ================
Netherlands 13,646,548 12,329,248 - 8.60 21.49 11.37
============================ ============ ===================== ================ ===================== ================ ================
Spain 29,347,356 17,405,071 - 7.14 40.30 16.05
============================ ============ ===================== ================ ===================== ================ ================
United States 48,115,080 25,502,497 5.19 32.60 12.89 23.52
============================ ============ ===================== ================ ===================== ================ ================
Temporary Investments
====================== ==== ============ ===================== ================ ===================== ================ ================
United States 10,354,566 10,209,022 39.61 4.41 7.12 9.42
============================ ============ ===================== ================ ===================== ================ ================
130,252,550 96,283,120 76.54 87.51 96.32 88.80
=========================== ============ ===================== ================ ===================== ================ ================
(1) This is the Fair Value expressed as a percentage of total
Company NAV, Ordinary Share NAV, Extended Life Share NAV and New
Global Share NAV.
The accompanying notes below are an integral part of the
Financial Statements.
Extended
Ordinary Life
New Global Total
AT 31 DECEMBER 2019 Shares Shares Shares Company
(EXPRESSED IN US
DOLLARS) Cost Fair Value (%)(1) (%)(1) (%)(1) (%)(1)
====================== ==== ============ ============ ================ ================ ================ ================
Geographic diversity
of Portfolio s
====================== ==== ============ ============ ================ ================ ================ ================
Portfolio of
Distressed
Investments
====================== ==== ============ ============ ================ ================ ================ ================
Brazil 13,032,089 12,149,474 24.31 8.27 - 6.10
============================ ============ ============ ================ ================ ================ ================
Denmark 14,207,442 13,049,678 - 5.80 8.73 6.56
============================ ============ ============ ================ ================ ================ ================
Greece 357,242 293,876 0.59 0.20 - 0.15
============================ ============ ============ ================ ================ ================ ================
Luxembourg 1,893,981 6,115,253 12.23 4.17 - 3.07
============================ ============ ============ ================ ================ ================ ================
Marshall Islands 19,836,048 16,144,863 - 10.88 5.84 8.11
============================ ============ ============ ================ ================ ================ ================
Netherlands 13,646,548 12,810,493 - 5.37 8.99 6.44
============================ ============ ============ ================ ================ ================ ================
Spain 26,822,155 16,158,401 - 3.59 15.58 8.12
============================ ============ ============ ================ ================ ================ ================
United States 154,932,009 112,099,021 49.02 56.21 57.74 56.31
============================ ============ ============ ================ ================ ================ ================
Temporary Investments
====================== ==== ============ ============ ================ ================ ================ ================
United States 4,042,856 4,043,149 8.22 2.74 - 2.03
============================ ============ ============ ================ ================ ================ ================
248,770,370 192,864,208 94.37 97.23 96.88 96.89
=========================== ============ ============ ================ ================ ================ ================
(1) This is the Fair Value expressed as a percentage of total
Company NAV, Ordinary Share NAV, Extended Life Share NAV and New
Global Share NAV.
The accompanying notes below are an integral part of the
Financial Statements.
Consolidated Condensed Schedule of Investments (by sector)
Ordinary Extended Life New Global
AT 31 DECEMBER 2020 Shares Shares Shares Total Company
(EXPRESSED IN US DOLLARS) Cost Fair Value (%)(1) (%)(1) (%)(1) (%)(1)
============================ ============ ============ ======================= ================ ================ ================
Industry diversity of
Portfolios
============================ ============ ============ ======================= ================ ================ ================
Portfolio of Distressed
Investments
============================ ============ ============ ======================= ================ ================ ================
Auto Components 3,705,793 3,819,904 0.19 4.27 3.39 3.52
============================ ============ ============ ======================= ================ ================ ================
Building & Development 1,934,272 269,330 0.58 0.31 - 0.25
============================ ============ ============ ======================= ================ ================ ================
Commercial Mortgage 13,646,548 12,329,248 - 8.60 21.49 11.37
============================ ============ ============ ======================= ================ ================ ================
Containers and Packaging 1,893,980 14,622,383 31.55 16.58 - 13.49
============================ ============ ============ ======================= ================ ================ ================
Financial Intermediaries 21,361,067 8,059,383 4.61 11.74 - 7.43
============================ ============ ============ ======================= ================ ================ ================
Lodging & Casinos 24,332,492 19,295,018 - 13.54 33.48 17.80
============================ ============ ============ ======================= ================ ================ ================
Oil & Gas 9,174,989 6,239,000 - 7.01 5.59 5.75
============================ ============ ============ ======================= ================ ================ ================
Shipping 23,189,227 12,394,995 - 13.91 11.13 11.43
============================ ============ ============ ======================= ================ ================ ================
Surface Transport 20,659,616 9,044,838 - 7.14 14.12 8.34
============================ ============ ============ ======================= ================ ================ ================
Temporary Investments
============================ ============ ============ ======================= ================ ================ ================
United States 10,354,566 10,209,021 39.61 4.41 7.12 9.42
============================ ============ ============ ======================= ================ ================ ================
130,252,550 96,283,120 76.54 87.51 96.32 88.80
============================ ============ ============ ======================= ================ ================ ================
(1) This is the Fair Value expressed as a percentage of total
Company NAV, Ordinary Share NAV, Extended Life Share NAV and New
Global Share NAV.
The accompanying notes below are an integral part of the
Financial Statements.
Ordinary Extended Life New Global
AT 31 DECEMBER 2019 Shares Shares Shares Total Company
(EXPRESSED IN US DOLLARS) Cost Fair Value (%)(1) (%)(1) (%)(1) (%)(1)
================================== ============ ============ ========= ============== =========== ==============
Industry diversity of Portfolios
================================== ============ ============ ========= ============== =========== ==============
Portfolio of Distressed
Investments
================================== ============ ============ ========= ============== =========== ==============
Air Transport 20,522 4,079 - - - -
================================== ============ ============ ========= ============== =========== ==============
Auto Components 21,125,365 20,189,585 8.38 11.81 8.23 10.14
================================== ============ ============ ========= ============== =========== ==============
Building & Development 25,882,044 12,245,025 16.00 6.21 4.34 6.15
================================== ============ ============ ========= ============== =========== ==============
Commercial Mortgage 13,646,548 12,810,493 - 5.37 8.99 6.44
================================== ============ ============ ========= ============== =========== ==============
Containers and Packaging 1,893,980 6,115,253 12.23 4.17 - 3.07
================================== ============ ============ ========= ============== =========== ==============
Financial Intermediaries 21,009,992 10,122,906 5.37 8.86 - 5.09
================================== ============ ============ ========= ============== =========== ==============
Lodging & Casinos 28,850,186 39,919,106 - 13.97 31.70 20.05
================================== ============ ============ ========= ============== =========== ==============
Nonferrous Metals/Minerals 20,303,171 11,435,364 - 5.94 6.49 5.74
================================== ============ ============ ========= ============== =========== ==============
Oil & Gas 14,717,311 7,813,912 - 4.71 3.56 3.93
================================== ============ ============ ========= ============== =========== ==============
Shipping 41,982,857 40,060,022 1.91 21.30 21.77 20.13
================================== ============ ============ ========= ============== =========== ==============
Surface Transport 33,035,557 19,729,734 24.30 11.88 4.77 9.91
================================== ============ ============ ========= ============== =========== ==============
Utilities 22,259,981 8,375,580 17.96 0.27 7.03 4.21
================================== ============ ============ ========= ============== =========== ==============
Temporary Investments
================================== ============ ============ ========= ============== =========== ==============
United States 4,042,856 4,043,149 8.22 2.74 - 2.03
================================== ============ ============ ========= ============== =========== ==============
248,770,370 192,864,208 94.37 97.23 96.88 96.89
================================== ============ ============ ========= ============== =========== ==============
(1) This is the Fair Value expressed as a percentage of total
Company NAV, Ordinary Share NAV, Extended Life Share NAV and New
Global Share NAV.
The accompanying notes below are an integral part of the
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
In August 2018, Financial Accounting Standards Board ("FASB")
issued FASB Accounting Standards Update ("ASU") 2018-13, Fair Value
Measurement (Accounting Standards Codification ("ASC") 820) -
Disclosure Framework - Changes to the Disclosure Requirements for
Fair Value Measurement. The Company has adopted ASU 2018-13 for the
current year. The adoption resulted primarily in the removal of
Level 1 and Level 2 transfer disclosures.
(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 accounting principles generally accepted in the United States
of America ("US GAAP") and Companies Law and are expressed in US
Dollars. All adjustments considered necessary for the fair
presentation of the financial statements, for the year presented,
have been included.
The Company is regarded as an Investment Company and follows the
accounting and reporting guidance in FASB Accounting Standards
Codification ("ASC") Topic 946. Accordingly, the Company reflects
its investments on the 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, warrants, 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. Having carried out a
going concern assessment which considered the impact of COVID-19,
the Directors have a reasonable expectation that the Company has
adequate resources to continue in operational existence for the
twelve months from the date these accounts are signed and the
foreseeable future. Thus, they continue to prepare the Financial
Statements in accordance with U.S. generally accepted accounting
principles, as liquidation is not imminent.
The Financial Statements include the results of the Company and
its wholly-owned and partially-owned subsidiaries, whose accounting
policies are consistent with those of the Company. The Consolidated
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 Wabash LLC and London Wabash
(Global) LLC are incorporated in Delaware and operate in the United
States.
Wholly-owned subsidiaries, London Lake Michigan LP and London
Lake Michigan (Global) LP are incorporated in the Cayman
Islands.
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.
Partially owned indirect subsidiaries NB Distressed Debt
Aggregating Inc. and Chicago Aircraft Fund LLC are incorporated in
Delaware and operate in the United States.
London Jackson Holdco LLC and London Dearborn (Global) LLC were
respectively dissolved on 12 November 2020 and 6 October 2020.
(b) Use of Estimates
The preparation of these Financial Statements in conformity with
US GAAP requires that the Directors make estimates and assumptions
(as mentioned in detail on note 2 (f) below) that affect the
reported amounts of assets and liabilities at the date of the
financial statements and reported amounts of income and expenses
during the reporting year.
Actual results could differ significantly from these
estimates.
(c) Cash, Cash Equivalents and Restricted Cash
The Company holds cash and cash equivalents in US Dollar and
non-US Dollar denominated currencies with original maturities of
less than 90 days that are both readily convertible to known
amounts of cash and so near maturity that they represent an
insignificant risk of change in value to be cash equivalents. As at
31 December 2020, the Company has cash balances in various
currencies equating to $13,635,320 (Cost: $13,785,955) (31 December
2019: $5,809,726) including cash and cash equivalents of $2,035,320
(31 December 2019: $5,379,726) as well as restricted cash of
$11,600,000 (31 December 2019: $430,000). Restricted cash of
$630,000 and $10,970,000 are respectively used as collateral for
forward currency contracts and the total return swap positions on
the Consolidated Statement of Assets and Liabilities and are held
by UBS and Bank of America Merrill Lynch. The amount of collateral
will vary depending on the current fair value of the forward
currency contracts and total return swap.
(d) Payables/Receivables on Investments Purchased/Sold
At 31 December 2020, the amount payable/receivable on
investments purchased/sold represents amounts due for investments
purchased/sold that have been contracted for but not settled on the
Consolidated Statement of Assets and Liabilities date.
(e) Foreign Currency Translation
Assets and liabilities denominated in foreign currency are
translated into US Dollars at the currency exchange rates on the
date of valuation. On initial recognition, foreign currency sales
and purchases transactions are recorded and translated at the spot
exchange rate at the transaction date and for all other
transactions, the average rate is applied. Non-monetary assets and
liabilities are translated at the historic exchange rate.
The Company does not separate the changes relating to currency
exchange rates from those relating to changes in fair value of the
investments. These fluctuations are included in the net realised
gain and net change in unrealised gain/(loss) on investments,
credit default swap, warrants, 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.
Fair value is determined using available market information and
appropriate valuation methodologies. Estimates of fair value of
financial instruments without quoted market prices are subjective
in nature and involve various assumptions and estimates that are
matters of judgement. Accordingly, fair values are not necessarily
indicative of the amounts that will be realised on disposal of
financial instruments. The use of different market assumptions
and/or estimation methodologies may have a material effect on
estimated fair value amounts.
The following estimates and assumptions were used at 31 December
2020 and 31 December 2019 to estimate the fair value of each class
of financial instruments:
-- Cash and cash equivalents - The carrying value reasonably
approximates fair value due to the short-term nature of these
instruments.
-- Receivables for investments sold - The carrying value
reasonably approximates fair value as it reflects the value at
which investments are sold to a willing buyer and the settlement
period on their balances is short term.
-- Interest receivables and other receivables and prepayments -
The carrying value reasonably approximates fair value.
-- Quoted investments are valued according to their bid price at
the close of the relevant reporting date. Investments in private
securities are priced at the bid price using a pricing service for
private loans. If a price cannot be ascertained from the above
sources, the Company will seek bid prices from third party
broker/dealer quotes for the investments.
-- Warrants are priced using the bid price provided by third
party broker / dealer market quotes.
-- 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
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.
-- Payables for investments purchased - The carrying value
reasonably approximates fair value as they reflect the value at
which investments are purchased from a willing seller and the
settlement period on their balances is short term.
-- Payables to Investment Manager and affiliates and accrued
expenses and other liabilities - The carrying value reasonably
approximates fair value.
(f) Fair Value of Financial Instruments (continued)
-- Forward currency contracts are revalued using the forward
exchange rate prevailing at the Consolidated Statement of Assets
and Liabilities date.
-- Total return swaps and credit default swaps are priced using
mark to market prices provided by a third party broker.
The Company follows guidance in ASC 820, Fair Value Measurement
("ASC 820"), where fair value is defined as the price that would be
received to sell an asset or paid to transfer a liability in an
orderly transaction between market participants at the measurement
date. Fair value measurements are determined within a framework
that establishes a three-tier hierarchy which maximises the use of
observable market data and minimises the use of unobservable inputs
to establish a classification of fair value measurements for
disclosure purposes.
Inputs refer broadly to the assumptions that market participants
would use in pricing the asset or liability, including assumptions
about risk, such as the risk inherent in a particular valuation
technique used to measure fair value using a pricing model and/or
the risk inherent in the inputs for the valuation technique. Inputs
may be observable or unobservable.
Observable inputs reflect the assumptions market participants
would use in pricing the asset or liability based on market data
obtained from sources independent of the Company. Unobservable
inputs reflect the Company's own assumptions about the assumptions
market participants would use in pricing the asset or liability
based on the information available. The inputs or methodology used
for valuing assets or liabilities may not be an indication of the
risks associated with investing in those assets or liabilities.
ASC 820 classifies the inputs used to measure these fair values
into the following hierarchy:
Level 1 : Quoted prices are available in active markets for
identical investments as of the reporting date.
Level 2 : Pricing inputs are other than quoted prices in active
markets, which are either directly or indirectly observable as of
the reporting date, and fair value is determined through the use of
models or other valuation methodologies.
Level 3 : Pricing inputs are unobservable for the investment and
include situations where there is little, if any, market activity
for the investment. The inputs used in the determination of the
fair value require significant management judgement or
estimation.
In all cases, the level in the fair value hierarchy within which
the fair value measurement in its entirety falls has been
determined based on the lowest level of input that is significant
to the fair value measurement. The Company's assessment of the
significance of a particular input to the fair value measurement in
its entirety requires judgement and considers factors specific to
each investment.
The following is a summary of the levels within the fair value
hierarchy in which the Company invests:
FAIR VALUE OF FINANCIAL INSTRUMENTS AT 31 DECEMBER 2020
(EXPRESSED IN
US DOLLARS) LEVEL 1 LEVEL 2 LEVEL 3 TOTAL
=============== ========================= =========================== ============================ =====================
Bank Debt
Investments - 4,203,132 40,145,844 44,348,976
=============== ========================= =========================== ============================ =====================
Private Equity - 6,239,000 20,425,758 26,664,758
=============== ========================= =========================== ============================ =====================
Private Notes - 7,000,983 8,059,382 15,060,365
=============== ========================= =========================== ============================ =====================
US Treasury
Bills 10,209,021 - - 10,209,021
=============== ========================= =========================== ============================ =====================
Investments at
fair value 10,209,021 17,443,115 68,630,984 96,283,120
=============== ========================= =========================== ============================ =====================
Credit Default
Swap - (54,306) - (54,306)
=============== ========================= =========================== ============================ =====================
Total return
swap - - (1,222,546) (1,222,546)
=============== ========================= =========================== ============================ =====================
Forward
Currency
Contracts - (1,326,640) - (1,326,640)
=============== ========================= =========================== ============================ =====================
Total
investments
that are
accounted for
at fair value 10,209,021 16,062,169 67,408,438 93,679,628
=============== ========================= =========================== ============================ =====================
FAIR VALUE OF FINANCIAL INSTRUMENTS AT 31 DECEMBER 2019
(EXPRESSED IN
US DOLLARS) LEVEL 1 LEVEL 2 LEVEL 3 TOTAL
=============== ========================= =========================== ============================ =====================
Bank Debt
Investments - 11,102,474 33,737,207 44,839,681
=============== ========================= =========================== ============================ =====================
Private Equity - 11,690,747 27,340,522 39,031,269
=============== ========================= =========================== ============================ =====================
Private Note - 17,123,888 11,223,671 28,347,559
=============== ========================= =========================== ============================ =====================
Public Equity 64,453,075 - - 64,453,075
=============== ========================= =========================== ============================ =====================
Trade Claim - - 12,149,475 12,149,475
=============== ========================= =========================== ============================ =====================
US Treasury
Bills 4,043,149 - - 4,043,149
=============== ========================= =========================== ============================ =====================
Investments at
fair value 68,496,224 39,917,109 84,450,875 192,864,208
=============== ========================= =========================== ============================ =====================
Warrants - 153 - 153
=============== ========================= =========================== ============================ =====================
Credit Default
Swap - (77,983) - (77,983)
=============== ========================= =========================== ============================ =====================
Forward
Currency
Contracts - (890,781) - (890,781)
=============== ========================= =========================== ============================ =====================
Total
investments
that are
accounted for
at fair value 68,496,224 38,948,498 84,450,875 191,895,597
=============== ========================= =========================== ============================ =====================
The following table summarises the significant unobservable
inputs the Company used to value its investments categorised within
Level 3 at 31 December 2020. The table is not intended to be
all-inclusive but instead captures the significant unobservable
inputs relevant to our determination of fair values.
Significant
Primary Valuation unobservable
Type Sector Fair Value ($) Technique Inputs Range Input
=================== =================== =============== ================== ================= ==================
Bank Debt Commercial Market
Investments Mortgage 12,329,248 Comparatives Discount Rate 10%
=================== =================== =============== ================== ================= ==================
Bank Debt Market
Investments Lodging & Casinos 6,376,763 Comparatives Discount Rate 15%
=================== =================== =============== ================== ================= ==================
Bank Debt Market $7.5 million per
Investments Shipping 12,394,995 Information Value Per Vessel vessel
=================== =================== =============== ================== ================= ==================
Bank Debt Market Unadjusted
Investments Surface Transport 9,044,838 Information Broker Quote N/A
=================== =================== =============== ================== ================= ==================
Market
Private Equity Auto Components 3,819,904 Information EBITDA Multiple 4-5X
=================== =================== =============== ================== ================= ==================
Containers and Market EBITDA Multiple/ 9X/
Private Equity Packaging 14,622,383 Comparatives Discount Rate 20%
=================== =================== =============== ================== ================= ==================
Market
Private Equity Lodging & Casinos 1,983,471 Comparatives Discount Rate 15%
=================== =================== =============== ================== ================= ==================
Market $7.5 million per
Private Equity Shipping - Information Value Per Vessel vessel
=================== =================== =============== ================== ================= ==================
Financial Market Unadjusted
Private Note Intermediaries 8,059,382 Information Broker Quote N/A
=================== =================== =============== ================== ================= ==================
Total 68,630,984
======================================== =============== ===================================== ==================
The following table summarises the significant unobservable
inputs the Company used to value its investments categorised within
Level 3 at 31 December 2019. The table is not intended to be
all-inclusive but instead captures the significant unobservable
inputs relevant to our determination of fair values.
Primary Significant
Valuation unobservable
Type Sector Fair Value ($) Technique Inputs Range Input
=================== ================== =============== ================= ================= ==================
Bank Debt Building & Market Unadjusted
Investments Development 269,656 Information Broker Quote N/A
=================== ================== =============== ================= ================= ==================
Bank Debt Commercial Market
Investments Mortgage 12,810,493 Comparatives Discount Rate 10%
=================== ================== =============== ================= ================= ==================
Bank Debt Market
Investments Lodging & Casinos 3,983,830 Comparatives EBITDA Multiple 13-14x
=================== ================== =============== ================= ================= ==================
Bank Debt Market $9 million per
Investments Shipping 15,208,846 Information Value Per Vessel vessel
=================== ================== =============== ================= ================= ==================
Bank Debt Market Unadjusted
Investments Surface Transport 1,464,382 Information Broker Quote N/A
=================== ================== =============== ================= ================= ==================
Market Residual Value/
Private Equity Air Transport 4,079 Information Cash Receivable N/A
=================== ================== =============== ================= ================= ==================
Market
Private Equity Auto Components 9,181,463 Information EBITDA Multiple 6-7x
=================== ================== =============== ================= ================= ==================
Containers and Market
Private Equity Packaging 6,115,253 Comparatives EBITDA Multiple 10x
=================== ================== =============== ================= ================= ==================
Market
Private Equity Lodging & Casinos 4,594,312 Comparatives EBITDA Multiple 13-14x
=================== ================== =============== ================= ================= ==================
Market Unadjusted
Private Equity Oil & Gas 6,509,399 Information Broker Quote N/A
=================== ================== =============== ================= ================= ==================
Market $9 million per
Private Equity Shipping 936,016 Information Value Per Vessel vessel
=================== ================== =============== ================= ================= ==================
Market
Private Note Auto Components 11,008,124 Information EBITDA Multiple 6-7x
=================== ================== =============== ================= ================= ==================
Market Unadjusted
Private Note Utilities 215,547 Information Broker Quote N/A
=================== ================== =============== ================= ================= ==================
Market Unadjusted
Trade Claim Surface Transport 12,149,475 Information Broker Quote N/A
=================== ================== =============== ================= ================= ==================
Total 84,450,875
======================================= =============== ================= =====================================
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 at 31 December 2020 and 31 December 2019 are outlined in the
tables above.
These inputs vary by asset class. For example, real estate asset
valuations may utilise discounted cash flow models using an average
value per square foot and appropriate discount rate. Other assets
may be valued based on analysis of the liquidation of the
underlying assets. In general, increases/(decreases) to per unit
valuation inputs such as value per square foot, will result in
increases/(decreases) to investment value.
Similarly, increases/(decreases) of asset realisation inputs
(liquidation estimate, letter of intent, etc.) will also result in
increases/(decreases) in value. In situations where discounted cash
flow models are used, increasing/(decreasing) discount rates or
increasing/(decreasing) weighted average life, in isolation, will
generally result in (decreased)/increased valuations.
The following is a reconciliation of opening and closing
balances of assets and liabilities measured at fair value on a
recurring basis using Level 3 inputs:
FOR THE YEARED 31
DECEMBER 2020
(EXPRESSED IN
US DOLLARS)
Bank Debt Private Private
Investments Equity Trade Claim Note Total
=============== ============ ============================ =================== ============================== =============
Balance, 31
December 2019 33,737,207 27,340,522 12,149,475 11,223,671 84,450,875
================ ============ ============================ =================== ============================== =============
Purchases 5,637,229 3,705,792 - 10,346 9,353,367
================ ============ ============================ =================== ============================== =============
Sales and
distributions (32,662) (563,490) (10,963,563) (3,900,503) (15,460,218)
================ ============ ============================ =================== ============================== =============
Realised
gain/(loss) on
sale of
investments 30,317 (10,084,280) (2,068,527) (7,346,911) (19,469,401)
================ ============ ============================ =================== ============================== =============
Unrealised
(loss)/gain on
investments (5,072,795) 6,266,214 (339,931) (2,050,127) (1,196,639)
================ ============ ============================ =================== ============================== =============
Transfers from
level 3 into
Level 2 (269,329) (6,239,000) - - (6,508,329)
================ ============ ============================ =================== ============================== =============
Transfers from
level 2 into
Level 3 6,115,877 - - 10,122,906 16,238,783
================ ============ ============================ =================== ============================== =============
Balance, 31
December 2020 40,145,844 20,425,758 (1,222,546) 8,059,382 67,408,438
================ ============ ============================ =================== ============================== =============
Change in
unrealised
(loss)/gain on
investments
included in
Consolidated
Statement of
Operation
for Level 3
investments
held as of 31
December
2020 (5,072,795) 6,266,214 (339,931) (2,050,122) (1,196,633)
================ ============ ============================ =================== ============================== =============
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 three transfers out of Level 3 into Level 2 of fair value
amounting to $6,508,329 due to quoted prices being observable. The
Company also had one transfer out of Level 2 into Level 3 of fair
value amounting to $16,238,783 as no quoted prices were
observable.
FOR THE YEARED
31 DECEMBER 2019
(EXPRESSED IN US
DOLLARS)
Bank Debt Private Trade Private
Investments Equity Claim Warrants Note Total
==================== ============= ============= =========== ========== ============= =============
Balance, 31 December
2018 38,201,360 45,511,526 12,081,316 199,745 7,056,781 103,050,728
===================== ============= ============= =========== ========== ============= =============
Purchases 1,957,203 7,341,874 - - 4,254,321 13,553,398
===================== ============= ============= =========== ========== ============= =============
Sales and
distributions (2,818,093) (38,966,767) - - ( 7,517,824) (49,302,684)
===================== ============= ============= =========== ========== ============= =============
Realised loss on
sale of investments (22,089,132) (202,957) - - (13,285,081) (35,577,170)
===================== ============= ============= =========== ========== ============= =============
Unrealised
gain/(loss) on
investments 18,485,869 (1,023,154) 68,159 (199,745) 4,946,900 22,278,029
===================== ============= ============= =========== ========== ============= =============
Transfers from level
2 into Level 3 - 14,680,000 - - 15,768,574 30,448,574
===================== ============= ============= =========== ========== ============= =============
Balance, 31 December
2019 33,737,207 27,340,522 12,149,475 - 11,223,671 84,450,875
===================== ============= ============= =========== ========== ============= =============
Change in unrealised
gain/(loss) on
investments
included in
Consolidated
Statement
of Operation for
Level 3 investments
held as of 31
December 2019 18,485,869 (1,023,166) 68,159 (199,745) 4,759,549 22,090,666
===================== ============= ============= =========== ========== ============= =============
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 three transfers out of Level 2 into Level 3 of fair value
amounting to $30,448,574 as prices were unobservable.
(g) Investment transactions, investment income/expenses and
valuation
Investment transactions are accounted for on a trade-date basis.
Upon sale or maturity, the difference between the consideration
received and the cost of the investment is recognised as a realised
gain or loss. The cost is determined based on the average cost
method. All transactions relating to the restructuring of current
investments are recorded at the date of such restructuring. The
difference between the fair value of the new consideration received
and the cost of the original investment is recognised as a realised
gain or loss. Unrealised gains and losses on an investment are the
difference between the cost if purchased during the year or fair
value at the previous year end and the fair value at the current
year end. Unrealised gains and losses are included in the
Consolidated Statement of Operations.
Operating expenses are recognised on an accruals basis.
Operating expenses include amounts directly or indirectly incurred
by the Company as part of its operations. Each share class will
bear its respective pro-rata share based on its respective 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.
For the year ended 31 December 2020, $97,467 (31 December 2019:
$275,938) was recorded to reflect accretion of discount on loans
and bonds during the period.
Interest earned on debt instruments is accounted for, net of
applicable withholding taxes and it is recognised as income over
the terms of the loans and bonds. Discounts received or premiums
paid in connection with the acquisition of loans and bonds are
amortised into interest income using the effective interest method
over the contractual life of the related loan and bond. If a loan
is repaid prior to maturity, the recognition of the fees and costs
is accelerated as appropriate. The Company raises a provision when
the collection of interest is deemed doubtful. Dividend income is
recognised on the ex-dividend date net of withholding tax.
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 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, total
return swaps and warrants.
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.
The Company no longer holds warrants (2019: six warrants) which
it priced based on the bid price provided by a third party
broker/dealer quote in prior year.
(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 at 31 December 2020 or 31
December 2019. The Company is subject to examination for US Federal
and state tax returns for calendar years 2017-2020.
During the year ended 31 December 2020, the Company recorded
current income tax benefit/expense $7,172 (31 December 2019 income
tax benefit: $134,860). 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 2020 was $Nil (31
December 2019 deferred tax benefit: $355,057). The net total income
tax benefit/expense from realised/unrealised gains/(losses) on
investments for the year ended 31 December 2020 was $7,172 (31
December 2019 income tax benefit: $220,197).
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 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 at 31 December 2020 (31 December 2019: one).
Total Return Swap
The Company entered into two fully funded total return swaps on
2 May 2011 and 18 April 2012. These swaps matured on 25 February
2020 and rolled over into a new swap agreement. New ISDA
regulations enacted in 2019 require booking the total return swaps
with cash collateral maintained vs fully funded swaps.
As at 31 December 2019 the net value of the swaps was
$12,149,475. From 1 January 2020 until the maturity date of 25
February 2020, there was a decline in the value of the swaps of
$1,185,912 which is included in "Net realised loss on investments,
credit default swap, warrants, total return swap and forward
currency transactions" and "Net change in unrealised (loss)/gain on
investment, credit default swap, warrants, total return swap and
forward currency transactions" in the Consolidated Statement of
Operations above. Of this amount, $1,434,274 was an unrealised loss
relating to the change in foreign exchange rates during that period
which was partially offset by a change in the fair value of the
position. When the new swap was booked, cash collateral was
required to be deposited with a banking intermediary and is
included in restricted cash as of 31 December 2020. 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. As of 31 December 2020
the net value of the swap and related cash collateral was
$9,747,454 (comprised of restricted cash collateral of $10,970,000
and total return swap liability of $(1,222,546), as reflected in
the Consolidated Statement of Assets and Liabilities.
Derivative activity
For the year ended 31 December 2020 and for the year ended 31
December 2019 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 2020 LONG EXPOSURE SHORT EXPOSURE
==================== ==================================== =======================================
Primary underlying NOTIONAL
risk AMOUNTS NUMBER OF CONTRACTS NOTIONAL AMOUNTS NUMBER OF CONTRACTS
==================== ============== ==================== ================= ====================
Foreign currency
exchange rate
==================== ============== ==================== ================= ====================
Forward currency
contracts $ 197,834,461 5 $ 163,940,579 7
==================== ============== ==================== ================= ====================
Financial assets
==================== ============== ==================== ================= ====================
Credit default
swap $ 9,400,000 1 - -
==================== ============== ==================== ================= ====================
Total return swap - - $ 10,960,348 2
==================== ============== ==================== ================= ====================
31 DECEMBER 2019 LONG EXPOSURE SHORT EXPOSURE
==================== ============================== =======================================
Primary underlying NUMBER OF
risk NOTIONAL AMOUNTS CONTRACTS NOTIONAL AMOUNTS NUMBER OF CONTRACTS
==================== ================= =========== ================= ====================
Foreign currency
exchange rate
==================== ================= =========== ================= ====================
Forward currency
contracts $ 210,139,227 8 $ 210,690,634 9
==================== ================= =========== ================= ====================
Financial assets
==================== ================= =========== ================= ====================
Credit default
swap $ 12,000,000 1 - -
==================== ================= =========== ================= ====================
Total return swap - - - -
==================== ================= =========== ================= ====================
Equity price
==================== ================= =========== ================= ====================
Warrants $ 752,955 6 - -
==================== ================= =========== ================= ====================
The following tables show, at 31 December 2020 and 31 December
2019, 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, at 31 December 2020 and
31 December 2019, the realised and unrealised gain and loss amounts
included in the Consolidated Statement of Operations, categorised
by primary underlying risk:
Realised gain
31 DECEMBER 2020 Derivative Assets Derivative Liabilities (loss) NET CHANGE IN Unrealised gain (loss)
Primary underlying risk ($) ($) ($) ($)
=========================== ================== ======================= ======================== =====================================
Foreign currency exchange
rate
=========================== ================== ======================= ======================== =====================================
Forward currency
contracts 653,125 (1,979,765) 2,173,950 (435,860)
=========================== ================== ======================= ======================== =====================================
Credit
=========================== ================== ======================= ======================== =====================================
Purchased protection
=========================== ================== ======================= ======================== =====================================
Credit default swap - (54,306) (76,482) (143,343)
=========================== ================== ======================= ======================== =====================================
Total return swap (1,222,546) - (1,222,546)
=========================== ================== ======================= ======================== =====================================
Equity price
=========================== ================== ======================= ======================== =====================================
Warrants - - (211,330) 752,802
=========================== ================== ======================= ======================== =====================================
Realised gain
31 DECEMBER 2019 Derivative Assets Derivative Liabilities (loss) NET CHANGE IN Unrealised gain (loss)
Primary underlying risk ($) ($) ($) ($)
=========================== ================== ======================= ============== =====================================
Foreign currency exchange
rate
=========================== ================== ======================= ============== =====================================
Forward currency
contracts - (890,781) 2,591,545 (1,474,455)
=========================== ================== ======================= ============== =====================================
Credit
=========================== ================== ======================= ============== =====================================
Purchased protection
=========================== ================== ======================= ============== =====================================
Credit default swap - (77,983) (89,643) (9,220)
=========================== ================== ======================= ============== =====================================
Equity price
=========================== ================== ======================= ============== =====================================
Warrants 153 - - (200,511)
=========================== ================== ======================= ============== =====================================
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 with Bank of America
Merrill Lynch of $Nil (31 December 2019: $Nil), total return swap
with Bank of America Merrill Lynch of $Nil (31 December 2019: $Nil)
and foreign currency exchange contracts with Royal Bank of Canada
of ($3,694) (31 December 2019: ($2,979)), Societe Generale of $4
(31 December 2019: ($1,861)) and UBS AG of $1,322,951 (31 December
2019: ($885,939)). 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.
There was a new collateral arrangement during the year for the
total return swaps of $10,970,000 with Bank of America Merrill
Lynch.
The following tables, at 31 December 2020 and 31 December 2019,
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 2020
(EXPRESSED IN US DOLLARS )
NET AMOUNTS OF
RECOGNISED ASSETS
GROSS AMOUNTS OFFSET PRESENTED IN THE
GROSS AMOUNTS OF IN THE STATEMENTS CONSOLIDATED STATEMENT
DESCRIPTION RECOGNISED ASSETS OF ASSETS AND LIABILITIES OF ASSETS AND LIABILITIES
================== =================== =========================== ===========================
Forward currency
contracts 653,125 - 653,125
================== =================== =========================== ===========================
Total 653,125 - 653,125
================== =================== =========================== ===========================
Net Amounts of
Recognised LIABILITIES
Gross Amounts Offset Presented in the
Gross Amounts of in the Statements Consolidated Statement
Description Recognised Liabilities of Assets and Liabilities of Assets and Liabilities
=================== ======================== =========================== ===========================
Forward currency
contracts (1,979,765) - (1,979,765)
=================== ======================== =========================== ===========================
Credit default
swap (54,306) - (54,306)
=================== ======================== =========================== ===========================
Total return swap (1,222,546) - (1,222,546)
=================== ======================== =========================== ===========================
Total (3,256,617) - (3,256,617)
=================== ======================== =========================== ===========================
31 DECEMBER 2019
(EXPRESSED IN US DOLLARS )
NET AMOUNTS OF
RECOGNISED ASSETS
GROSS AMOUNTS OFFSET PRESENTED IN THE
GROSS AMOUNTS OF IN THE STATEMENTS CONSOLIDATED STATEMENT
DESCRIPTION RECOGNISED ASSETS OF ASSETS AND LIABILITIES OF ASSETS AND LIABILITIES
================== =================== =========================== ===========================
Forward currency
contracts 457,083 (457,083) -
================== =================== =========================== ===========================
Warrant 153 - 153
================== =================== =========================== ===========================
Total 457,236 (457,083) 153
================== =================== =========================== ===========================
Net Amounts of
Recognised LIABILITIES
Gross Amounts Offset Presented in the
Gross Amounts of in the Statements Consolidated Statement
Description Recognised Liabilities of Assets and Liabilities of Assets and Liabilities
================== ======================== =========================== ===========================
Forward currency
contracts (1,347,864) 457,083 (890,781)
================== ======================== =========================== ===========================
Credit default
swap (77,983) - (77,983)
================== ======================== =========================== ===========================
Total (1,425,847) 457,083 (968,764)
================== ======================== =========================== ===========================
NOTE 4 - RISK FACTORS
The Company's investments are subject to various risk factors
including market and credit risk, interest rate and foreign
exchange risk, and the risks associated with investing in private
securities. Investments in private securities and partnerships are
illiquid, and there can be no assurances that the Company will be
able to realise the value of such investments in a timely manner.
Additionally, the Company's investments may be highly concentrated
in certain industries. Non-U.S. dollar denominated investments may
result in foreign exchange losses caused by devaluations and
exchange rate fluctuations. In addition, consequences of political,
social, economic, diplomatic changes or public health condition may
have disruptive effects on market prices or fair valuations of
foreign investments.
Market Risk
Market risk is the potential for changes in the value of
investments. Categories of market risk include, but are not limited
to, interest rates. Interest rate risks primarily result from
exposures to changes in the level, slope and curvature of the yield
curve, the volatility of interest rates and credit spreads. Details
of the Company's investment Portfolio at 31 December 2020 and 31
December 2019 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 Schedule 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.
Coronavirus
The outbreak of the novel coronavirus in many countries, which
remains a rapidly evolving situation, has, among other things,
disrupted global travel and supply chains, and has adversely
impacted global commercial activity, the transportation industry
and commodity prices in the energy sector. The impact of this virus
has negatively affected and may continue to affect the economies of
many nations, individual companies and the global securities and
commodities markets, including liquidity and volatility, in ways
that cannot necessarily be foreseen at the present time. The rapid
development and fluidity of this situation precludes any prediction
as to its ultimate impact, which may have a continued adverse
effect on economic and market conditions and trigger a period of
global economic slowdown. Such conditions (which may be across
industries, sectors or geographies) have impacted and may continue
to impact the financial performance of the Company.
Other Risks
Legal, tax and regulatory changes could occur during the term of
the Company that may adversely affect the Company. The regulatory
environment for alternative investment vehicles is evolving, and
changes in the regulation of alternative investment vehicles may
adversely affect the value of investments held by the Company or
the ability of the Company to pursue its trading strategies.
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, which is denominated in
US Dollars, consists of Ordinary Shares, Class A Shares and
Extended Life Shares and in Pounds Sterling consists of New Global
Shares. Shareholders of Ordinary Shares, Extended Life Shares and
New Global Shares have the right to attend and vote at any general
meeting of the Company. Class A shareholders do not have the right
to attend and vote at a general meeting of the Company save where
there are no other shares of the Company in issue.
The Class A Shares are held by Carey Trustees Limited (the
"Trustee"), pursuant to a purpose trust established under Guernsey
law. Under the terms of the NBDDIF Purpose Trust Deed, the Trustee
holds the Class A Shares for the purpose of exercising the right to
receive notice of general meetings of the Company but the Trustee
shall only have the right to attend and vote at general meetings of
the Company when there are no other shares of the Company in
issue.
The original investment period expired on 10 June 2013 and a
proposal was made to Ordinary Shareholders to extend the investment
period by 21 months to 31 March 2015. A vote was held at a class
meeting of shareholders on 8 April 2013 where the majority of
shareholders voted in favour of the proposed extension.
Following this meeting and with the Ordinary Shareholders
approval of the extension, a new class, the Extended Life Shares,
was created and the Extended Life Shares were issued to 72% of
initial Investors who elected to convert their Ordinary Shares to
Extended Life Shares. The rest of investors remain invested on the
basis of the existing investment period.
The New Global Share Class was created in March 2014 and its
investment period ended on 31 March 2017.
At 31 December 2020, the Company had the following number of
shares in issue:
31 December 31 December
2020 2019
Issued and fully paid up:
============================================= ============ ============
Class A Shares 2 2
============================================= ============ ============
Ordinary Share Class of no par value (Nil
in treasury; 2019: Nil) 15,382,770 15,382,770
============================================= ============ ============
Extended Life Share Class of no par value
(Nil in treasury; 2019: Nil) 80,545,074 114,146,794
============================================= ============ ============
New Global Share Class of no par value (Nil
in treasury; 2019: Nil) 41,116,617 71,787,915
============================================= ============ ============
Reconciliation of the number of shares in issue in each class
(excluding Class A) at 31 December 2020:
Ordinary Extended New Global
Shares Life Shares Shares Total
=============================== =========== ============= ============= =============
Balance at 31 December 2019 15,382,770 114,146,794 71,787,915 201,317,479
=============================== =========== ============= ============= =============
Distributions during the
year - (29,939,898) (27,635,465) (57,575,363)
=============================== =========== ============= ============= =============
Buybacks (Shares repurchased) - (3,661,822) (3,035,833) (6,697,655)
=============================== =========== ============= ============= =============
Balance at 31 December 2020
(1) 15,382,770 80,545,074 41,116,617 137,044,461
=============================== =========== ============= ============= =============
(1) Balance of issued shares (less Treasury shares) used to
calculate NAV
Reconciliation of the number of shares in issue in each class at
31 December 2019:
Ordinary Extended New Global
Shares Life Shares Shares Total
=============================== ============ ============= ============= =============
Balance at 31 December 2018 23,395,578 154,104,598 82,770,361 260,270,537
=============================== ============ ============= ============= =============
Distributions during the
year (8,012,808) (37,527,305) (10,032,446) (55,572,559)
=============================== ============ ============= ============= =============
Buybacks (Shares repurchased) - (2,430,499) (950,000) (3,380,499)
=============================== ============ ============= ============= =============
Balance at 31 December 2019
(1) 15,382,770 114,146,794 71,787,915 201,317,479
=============================== ============ ============= ============= =============
(1) Balance of issued shares (less Treasury 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 2020 and year ended 31 December 2019.
Extended Life Share
2020 Ordinary Share Class Class New Global Share Class
Number
Distribution of Per Share Distribution Number Per Share Distribution Number Per Share
Amount Shares Amount Amount of Shares Amount Amount of Shares Amount
========= ============ ======== ========= ============ ========== ========= ============ ========== =========
19 March
2020 - - - $ 4,986,260 5,434,023 $ 0.9176 - - -
========= ============ ======== ========= ============ ========== ========= ============ ========== =========
18 May
2020 - - - $ 7,491,958 9,536,606 $ 0.7856 $ 9,136,423 11,206,038 $ 0.8153
========= ============ ======== ========= ============ ========== ========= ============ ========== =========
30 June
2020 - - - $ 10,491,960 14,969,269 $ 0.7009 $ 12,965,737 16,429,427 $ 0.7892
========= ============ ======== ========= ============ ========== ========= ============ ========== =========
- - - $22,970,178 29,939,898 - $22,102,160 27,635,465 -
========= ============ ======== ========= ============ ========== ========= ============ ========== =========
Extended Life Share
2019 Ordinary Share Class Class New Global Share Class
Number Per
Distribution of Per Share Distribution Number Per Share Distribution Number Share
Amount Shares Amount Amount of Shares Amount Amount of Shares Amount
========= ============ ========= ========= ============ ========== ========= ============ ========== ========
1 April
2019 $ 7,991,975 8,012,808 $ 0.9974 $ 19,991,952 20,648,577 $ 0.9682 $ 8,535,657 7,198,961 $ 1.1857
========= ============ ========= ========= ============ ========== ========= ============ ========== ========
27 August
2019 - - - $ 4,991,952 5,418,379 $ 0.9213 $ 3,060,855 2,833,485 $ 1.0802
========= ============ ========= ========= ============ ========== ========= ============ ========== ========
25
November
2019 - - - $ 10,491,950 11,460,349 $ 0.9155 - - -
========= ============ ========= ========= ============ ========== ========= ============ ========== ========
$7,991,975 8,012,808 - $35,475,854 37,527,305 - $11,596,512 10,032,446 -
========= ============ ========= ========= ============ ========== ========= ============ ========== ========
Buybacks
Under the authority granted to the Directors at the 2019 and
2020 AGMs, between 1 January 2020 and 31 December 2020, 3,661,822
Extended Life Shares were repurchased and cancelled by the Company
for gross consideration of $1,857,098 and 3,035,833 New Global
Shares were repurchased and cancelled by the Company for gross
consideration of $2,017,495 (GBP1,578,657).
NOTE 6 - MATERIAL AGREEMENTS AND RELATED PARTY TRANSACTIONS
Investment Management Agreement ("IMA")
The Board is responsible for managing the business affairs of
the Company but delegates certain functions to the Investment
Manager under an IMA dated 9 June 2010 (as amended).
On 17 July 2014, the Company, the Manager and the AIFM made
certain classificatory amendments to their contractual arrangements
for the purposes of the AIFM Directive. The Sub-Investment
Management Agreement was terminated on 17 July 2014 and Neuberger
Berman Investment Advisers LLC (formerly Neuberger Berman Fixed
Income LLC), which was the Sub-Investment Manager, was appointed as
the AIFM per the amended and restated IMA dated 17 July 2014. Under
this agreement, the AIFM is responsible for risk management and
day-to-day discretionary management of the Company's Portfolios
(including 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. On 31
December 2017 the Company entered into an Amendment Agreement
amending the IMA.
Per the IMA and in relation to the Ordinary Shares and Extended
Life Shares, the Manager is entitled to a management fee, which
shall accrue daily, and be 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 are not used.
Per the IMA and in relation to the New Global Shares, the
Manager is entitled to a management fee, which accrues daily, and
is 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 is 85% invested, any cash balances (or
cash equivalents)). The 85% threshold was crossed on 16 June 2015
and the Company is charged 0.125% per month on the NAV of the New
Global Share Class.
The Manager waived its entitlement to any base fee calculated in
respect to any cash and cash equivalents held by the Company that
is solely attributable to the account of the Ordinary Shares, with
such a waiver taking effect as at 1 October 2020. Effective 18
March 2021, the Manager waived its entitlement to all fees from the
Company. For the year ended 31 December 2020, the management fee
expense was $1,952,064 (31 December 2019: $3,428,612). At 31
December 2020, the management fee payable was $134,188 (31 December
2019: $493,060).
The Manager pays a fee to the AIFM out of the management fee
received from the Company. The Company does not pay any fees
directly to the AIFM.
Performance Fee
In addition, the Manager is entitled to a performance fee. The
performance fee for Ordinary Shares, Extended Life Shares and New
Global Shares (collectively the "Shares") will only become payable
once the Company has made aggregate distributions in cash to the
shareholders of the Shares (which shall include the aggregate price
of all Shares repurchased or redeemed by the Company) equal to the
aggregate gross proceeds from issuing Shares (the "Contributed
Capital") plus such amounts as will result in the shareholders
having received a realised (cash-paid) IRR in respect of the
Contributed Capital equal to Preferred Return, following which
there will be a 100% catch up payable to the Manager until the
Manager has received 20% of all amounts in excess of Contributed
Capital distributed to the shareholders and paid to the Manager as
a performance fee with, thereafter, all amounts distributed by the
Company 20:80 between the Manager's performance fee and the cash
distributed to shareholders.
The preferred rate of return for Ordinary Shares is an
annualised 6%, for Extended Life Shares was an annualised 6% from
2010 to April 2013 and is 8% from April 2013 to date and for New
Global Shares is an annualised 8%. For the purposes of financial
reporting, the performance fee is recognised on an accruals
basis.
No performance fees were paid or payable in respect of any of
the classes for the year ended 31 December 2020 or 31 December
2019, nor would any be paid if the Company were to realise all its
assets at their carrying values at the year end.
Soft commissions are not used to pay for services used by the
Investment Manager.
Administration, Company Secretarial and Custody Agreements
Effective 1 March 2015, the Company entered into an
Administration and Sub-Administration Agreement with U.S. Bank
Global Fund Services (Guernsey) Limited and U.S. Bank Global Fund
Services (Ireland) Limited, a wholly-owned subsidiary of U.S.
Bancorp (the "Administration Agreement"). Under the terms of the
Administration Agreement, Sub-Administration services are delegated
to U.S. Bank Global Fund Services (Ireland) Limited (the
"Sub-Administrator"). The Sub-Administration Service Level
Agreement was amended and approved on 21 February 2018.
The Sub-Administrator is responsible for the day-to-day
administration of the Company (including but not limited to the
calculation and publication of the estimated daily NAV).
Under the terms of the Administration Agreement, the
Sub-Administrator is entitled to a fee of 0.09% for the first $500m
of net asset value, 0.08% for the next $500m and 0.07% for any
remaining balance, accrued daily and paid monthly in arrears and
subject to an annual minimum of $100,000.
Effective 1 March 2015, the Company entered into a Custody
Agreement with U.S. Bank National Association (the "Custodian") to
provide loan administration and custody services to the Company.
Under the terms of the Custody Agreement the Custodian is entitled
to an annual fee of 0.025% of net asset value with a minimum annual
fee of $25,000.
Effective 20 June 2017, Carey Commercial Limited was appointed
the Company Secretary. The Company Secretary is entitled to an
annual fee of GBP65,800 plus fees for ad-hoc board meetings and
additional services.
For the year ended 31 December 2020, the administration fee
expense was $123,097 (31 December 2019: $211,457), the secretarial
fee was $116,314(1) of which $24,110(1) was in relation to the
administration of the ongoing buyback programme, (31 December 2019:
$164,747) and the loan administration and custody fee expense was
$55,840 (31 December 2019: $183,623). At 31 December 2020, the
administration fee payable is $6,908(2) (31 December 2019:
$14,535), the secretarial fee payable is $49,598(2) (31 December
2019: $86,256) and the loan administration and custody fee payable
is $2,311(2) (31 December 2019: $11,779).
Directors' Remuneration and Other Interests
The Directors are related parties and are remunerated for their
services at a fee of $45,000 plus GBP10,000 each per annum ($60,000
plus GBP10,000 for the Chairman, $50,000 plus GBP10,000 for the
Chairman of the Audit Committee). For the year ended 31 December
2020, the Directors' fees and travel expenses amounted to
$194,960(1) (31 December 2019: $253,482). Michael J. Holmberg, the
non-independent Director, has waived the fees for his services as a
Director. There were no other related interests for the year ended
31 December 2020.
(1) Amount is included under Professional and other expenses in
the Consolidated Statement of Operations
(2) Amounts are included under Accrued expenses and other
liabilities in the Consolidated Statement of Assets and Liabilities
and Consolidated Statement of Operations
The Company has not set any requirements or guidelines for
Directors to own shares in the Company. The beneficial interests of
the Directors and their connected persons in the Company's shares
at 8 March 2021 are shown in the table below:
Total No.
No. of Ordinary No. of Extended No. of New of
Director Shares Life Shares Global Shares Shares
=================== ================= ================ =============== ==========
John Hallam - 73,753 49,450 123,203
=================== ================= ================ =============== ==========
Michael Holmberg - 32,563 51,698 84,261
=================== ================= ================ =============== ==========
Christopher Legge - - - -
=================== ================= ================ =============== ==========
Stephen Vakil - - 26,974 26,974
=================== ================= ================ =============== ==========
NOTE 7 - FINANCIAL HIGHLIGHTS
Extended
Ordinary Extended New Global Ordinary Life New Global
Shares Life Shares Shares Shares Shares Shares
($) ($) (GBP) ($) ($) (GBP)
Per share operating YEAR ended YEAR ended YEAR ended Year ended Year ended Year ended
performance 31 December 31 December 31 December 31 DECEMBER 31 DECEMBER 31 DECEMBER
2020 2020 2020 2019 2019 2019
(audited) (audited) (audited)
Net asset value per
share at beginning of
the year 0.9086 0.9266 0.8339 0.9778 0.9635 0.9206
============================ ============= ============= ============= ============= ============= =============
Impact of share buybacks - 0.0096 0.0063 - 0.0020 0.0015
============================ ============= ============= ============= ============= ============= =============
Impact of share redemptions - (0.0029) (0.0038) (0.0022) 0.0008 (0.0009)
============================ ============= ============= ============= ============= ============= =============
Income/(loss) from
investment
operations (3)
Net investment
(loss)/income (0.0195) 0.0121 0.0080 (0.0063) 0.0183 0.0098
============================ ============= ============= ============= ============= ============= =============
Net realised and unrealised
loss from investments
and foreign exchange (0.0471) (0.1565) (0.2762) (0.0607) (0.0580) (0.0971)
Total loss from investment
operations (0.0666) (0.1444) (0.2682) (0.0670) (0.0397) (0.0873)
============================ ============= ============= ============= ============= ============= =============
Net asset value per
share at end of the
year 0.8420 0.7889 0.5682 0.9086 0.9266 0.8339
============================ ============= ============= ============= ============= ============= =============
(3) Weighted average number of shares outstanding was used for
calculation.
Extended Extended
Ordinary Life New Global Ordinary Life New Global
Shares Shares Shares Shares Shares Shares
($) ($) (GBP) ($) ($) (GBP)
====================== ============= ============= ============= ============= ============= =============
YEAR ended YEAR ended YEAR ended Year ended Year ended Year ended
NAV Total Return 31 December 31 December 31 December 31 DECEMBER 31 DECEMBER 31 DECEMBER
(1,2) 2020 2020 2020 2019 2019 2019
NAV Total Return
before performance
fee (7.33%) (14.86%) (31.86%) (7.08%) (3.83%) (9.42%)
Performance fee - - - - - -
NAV Total Return
after performance
fee including an
income distribution
by way of dividend (7.33%) (14.86%) (31.86%) (7.08%) (3.83%) (9.42%)
(1) 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.
(2) An individual shareholder's return may vary from these
returns based on the timing of the shareholder's subscriptions.
Extended Extended
Ordinary Life New Global Ordinary Life New Global
Shares Shares Shares Shares Shares Shares
============================ ============= ============= ============= ============= ============= =============
YEAR ended YEAR ended YEAR ended Year ended Year ended Year ended
Ratios to avErage 31 December 31 December 31 December 31 DECEMBER 31 DECEMBER 31 DECEMBER
net ASSETS 2020 2020 2020 2019 2019 2019
Net investment
income/(loss)
before and after
performance fees (2.55%) 1.52% 1.25% (0.66%) 1.92% 1.13%
============================ ============= ============= ============= ============= ============= =============
Total expenses after
performance fee (2.89%) (2.68%) (2.76%) (2.15%) (2.21%) (2.31%)
============================ ============= ============= ============= ============= ============= =============
NOTE 8 - RECONCILIATION OF NET ASSET VALUE TO PUBLISHED NAV
In preparing the Financial Statements, there were adjustments
relating to investment valuations and deferred tax. The impact of
these adjustments on the NAV per Ordinary Share, Extended Life
Share and New Global Share is detailed below:
Extended
Ordinary Extended Life New Global
Ordinary Share Class Life Share Class New Global Share Class
Share Class NAV per Share Class NAV per Share Class NAV per
Net Assets Share Net Assets Share Net Assets Share
($) ($) ($) ($) (GBP) (GBP)
============================ ============ ============ ============ ============ ============ ============
Published net assets
at 31 December 2020 12,945,021 0.8415 63,589,978 0.7895 22,938,029 0.5579
============================ ============ ============ ============ ============ ============ ============
Deferred Tax adjustment - - - - 11,412 0.0003
============================ ============ ============ ============ ============ ============ ============
Valuation adjustments 7,944 0.0005 (49,328) 0.0006 413,698 0.0100
============================ ============ ============ ============ ============ ============ ============
Net assets per Consolidated
Financial Statements 12,952,965 0.8420 63,540,650 0.7889 23,363,139 0.5682
============================ ============ ============ ============ ============ ============ ============
Extended
Ordinary Extended Life New Global
Ordinary Share Class Life Share Class New Global Share Class
Share Class NAV per Share Class NAV per Share Class NAV per
Net Assets Share Net Assets Share Net Assets Share
($) ($) ($) ($) (GBP) (GBP)
============================ ============ ============ ============ ============ ============ ============
Published net assets
at 31 December 2019 13,976,415 0.9086 105,771,674 0.9266 59,934,598 0.8349
============================ ============ ============ ============ ============ ============ ============
Deferred Tax adjustment - - - - (71,816) (0.0010)
============================ ============ ============ ============ ============ ============ ============
Valuation adjustments - - - - - -
============================ ============ ============ ============ ============ ============ ============
Net assets per Consolidated
Financial Statements 13,976,415 0.9086 105,771,674 0.9266 59,862,782 0.8339
============================ ============ ============ ============ ============ ============ ============
NOTE 9 - SUBSEQUENT EVENTS
On 18 March 2021, the Company announced that, effective
immediately, the Investment Manager had waived its entitlement to
all fees from the Company. The Directors have evaluated subsequent
events up to 14 April 2021, which is the date that the Consolidated
Financial Statements were available to be issued, and have
concluded there are no further items that require disclosure or
adjustment to the Consolidated Financial Statements.
ADDITIONAL INFORMATION | Contact Details
Contact Details
Directors
John Hallam (Chairman)
Michael Holmberg
Christopher Legge
Stephen Vakil
All c/o the Company's registered office.
Registered Office
1(st) & 2(nd) Floors, Elizabeth House
Les Ruettes Brayes
St Peter Port
Guernsey
GY1 1EW
Company Secretary
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
Stifel Nicolaus Europe Limited until 13 September 2020
Jefferies International Limited after 13 September 2020
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 Asset Services
34 Beckenham Road
Beckenham
Kent
BR3 4TU
United Kingdom
Shareholders holding shares directly and not through a broker,
saving scheme or ISA and have queries in relation to their
shareholdings should contact the Registrar on +44 (0)371 664 0445.
(Calls are charged at the standard geographic rate and will vary by
provider. Calls outside the United Kingdom will be charged at the
applicable international rate. Lines are open between 9 a.m. to
5:30 p.m. (excluding bank holidays)). Shareholders can also access
their details via the Registrar's website:
www.signalshares.com .
Full contact details of the Company's advisers and Manager can
be found on the Company's website.
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END
FR DKQBDOBKDOQD
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