NB DISTRESSED DEBT INVESTMENT FUND LIMITED
2019 Interim Report
Unaudited Consolidated Interim Financial Statements
For the six month period ended 30 June 2019
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.
Investment Objective
The Company's primary objective is to provide investors with attractive risk-adjusted returns through long-biased, opportunistic exposure to stressed, distressed and special situation credit-related investments while seeking to limit downside risk by, amongst other things, focusing on senior and senior secured debt with both collateral and structural protection.
Investment Policy
More information on the Company's investment policy is provided on page 4 of the Annual Report and Financial Statements for the year ended 31 December 2018.
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 30 June 2019 the Company's share capital comprised the following1:
Ordinary Share Class ("NBDD")
15,382,770 Ordinary Shares, none of which were held in treasury.
Extended Life Share Class ("NBDX")
132,406,021 Extended Life Shares, none of which were held in treasury.
New Global Share Class ("NBDG")
75,271,400 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: GG00BDFZ6C48
Bloomberg code: NBDX:LN
New Global Shares
LSE ISIN code: GG00BDFZ6D54
Bloomberg code: NBDG:LN
Legal Entity Identifier
YRFO7WKOU3V511VFX790
Website
COMPANY OVERVIEW | Capital Structure |
Capital Structure
The Company's share capital consists of three different share classes, all of which are in the harvest period: the Ordinary Share Class; the Extended Life Share Class; and the New Global Share Class. These share classes each have different capital return profiles and, in one instance a different geographical remit. In addition the Company has two Class A Shares in issue. While the Company's share classes are all now in harvest, returning capital to shareholders, the Company's corporate umbrella itself has an indefinite life to allow for flexibility for the Company to add new share classes if demand, market opportunities and shareholder approval supported such a move, although the Company has no current plans to create new share classes. Each share class is considered in turn below.
Ordinary Share Class
NBDD was established at the Company's launch on 10 June 2010 with a remit to invest in the global distressed debt market with a focus on North America. The investment period of NBDD expired on 10 June 2013.
Voting rights: Yes
Denomination: US Dollars
Hedging: Portfolio hedged to US Dollars
Authorised share capital: Unlimited
Par value: Nil
Extended Life Share Class
A vote was held at a class meeting of NBDD shareholders on 8 April 2013 where the majority of shareholders voted in favour of a proposed extension.
Following this meeting and with the NBDD shareholders' approval of the extension, on 9 April 2013 a new Class, NBDX, was created and the NBDX Shares were issued to 72% of initial NBDD investors who elected to convert their NBDD Shares to NBDX Shares. NBDX had a remit to invest in the global distressed debt market with a focus on North America. The investment period of NBDX expired on 31 March 2015.
Voting rights: Yes
Denomination: US Dollars
Hedging: Portfolio hedged to US Dollars
Authorised share capital: Unlimited
Par value: Nil
New Global Share Class
NBDG was created on 4 March 2014 and had a remit to invest in the global distressed market with a focus on Europe and North America. The investment period of NBDG expired on 31 March 2017.
Voting rights: Yes
Denomination: Pound Sterling
Hedging: Unhedged portfolio
Authorised share capital: Unlimited
Par value: Nil
Class A Shares
The Class A Shares are held by a trustee pursuant to a purpose trust established under Guernsey law. Under the terms of the Trust Deed the Trustee holds the Class A Shares for the purpose of exercising the right to receive notice of general meetings of the Company but the Trustee shall only have the right to attend and vote at general meetings of the Company when there are no other Shares of the Company in issue.
Voting rights: No
Denomination: US Dollars
Authorised share capital: 10,000 Class A Shares
Par value: US Dollar $1
2019 INTERIM PERFORMANCE REVIEW | Financial Highlights |
Financial Highlights
Key Figures
At 30 JUNE 2019 (unaudited) |
Ordinary Share Class |
Extended Life Share Class |
New Global Share Class |
Aggregated |
Net Asset Value ("NAV") ($ millions) |
14.4 |
125.9 |
87.2 |
227.5 |
NAV per Share ($) |
0.9386 |
0.9507 |
1.1583 |
- |
Share Price ($) |
0.905 |
0.85 |
1.00071 |
- |
NAV per Share (£) |
- |
- |
0.9102 |
- |
Share Price (£) |
- |
- |
0.78625 |
- |
Premium /(Discount) to NAV per Share |
(3.58%) |
(10.59%) |
(13.61%) |
- |
Portfolio of Distressed Investments ($ millions) |
13.1 |
118.0 |
82.3 |
213.5 |
Cash and Cash Equivalents ($ millions) |
1.2 |
7.6 |
4.5 |
13.3 |
Total Expense Ratio ("TER")2 |
(2.19%) |
(2.22%) |
(2.29%) |
- |
Ongoing Charges 3 |
2.13% |
2.11% |
2.13% |
- |
At 31 December 2018 (AUDIted) |
Ordinary Share Class |
Extended Life Share Class |
New Global Share Class |
Aggregated |
Net Asset Value ("NAV") ($ millions) |
22.9 |
148.5 |
97.0 |
268.4 |
NAV per Share ($) |
0.9778 |
0.9635 |
1.1724 |
- |
Share Price ($) |
0.9150 |
0.9025 |
1.05071 |
- |
NAV per Share (£) |
- |
- |
0.9206 |
- |
Share Price (£) |
- |
- |
0.8250 |
- |
Premium /(Discount) to NAV per Share |
(6.42%) |
(6.33%) |
(10.38%) |
- |
Portfolio of Distressed Investments ($ millions) |
20.4 |
142.1 |
94.2 |
256.7 |
Cash and Cash Equivalents ($ millions) |
1.7 |
4.0 |
1.9 |
7.6 |
Total Expense Ratio ("TER")2 |
(2.01%) |
(2.16%) |
(2.38%) |
- |
Ongoing Charges3 |
1.95% |
2.01% |
2.14% |
- |
1 Stated in US Dollars, the £ price as at 30 June 2019 and 31 December 2018 converted to US Dollars using respective period/year end exchange rates.
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 The Ongoing Charges represent the Company's management fees and all other operating expenses, excluding finance costs payable, expressed as a percentage of average net assets and calculated in accordance with guidance issued by the AIC.
Summary of Value in Excess of Original Capital Invested
At 30 June 2019
|
Ordinary |
Extended Life |
New Global |
Original Capital Invested |
(124,500,202) |
(359,359,794) |
(110,785,785) |
Total Capital Distributions |
129,627,394 |
221,389,953 |
21,980,378 |
Total Income Distributions 1 |
3,166,835 |
13,904,610 |
2,685,521 |
Distributions as % of Original Capital |
107% |
65% |
22% |
Total Buybacks |
- |
9,147,436 |
8,859,452 |
NAV |
14,438,096 |
125,878,067 |
68,508,367 |
Total of NAV Plus Capital and Income Returned ("Value") |
147,232,325 |
370,320,066 |
102,033,718 |
Value in Excess of Original Capital Invested |
22,732,123 |
10,960,272 |
(8,752,067) |
Value as % of Original Capital Invested |
118% |
103% |
92% |
At 31 December 2018
|
Ordinary |
Extended Life |
New Global |
Original Capital Invested |
(124,500,202) |
(359,359,794) |
(110,785,785) |
Total Capital Distributions |
121,635,419 |
201,398,001 |
15,486,915 |
Total Income Distributions 1 |
3,166,835 |
13,904,610 |
2,685,521 |
Distributions as % of Original Capital |
100% |
60% |
16% |
Total Buybacks |
- |
8,229,063 |
8,620,393 |
NAV |
22,876,360 |
148,482,314 |
76,195,678 |
Total of NAV Plus Capital and Income Returned ("Value") |
147,678,614 |
372,013,988 |
102,988,507 |
Value in Excess of Original Capital Invested |
23,178,412 |
12,654,194 |
(7,797,278) |
Value as % of Original Capital Invested |
119% |
104% |
93% |
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".
2019 INTERIM PERFORMANCE REVIEW | Chairman's Statement |
Chairman's Statement
Dear Shareholder,
During the six-month period ended 30 June 2019, NB Distressed Debt Investment Fund delivered further capital distributions to the shareholders of the NBDG, NBDD and NBDX share classes consistent with the now well-established orderly realisation of the portfolios. With each share class in its harvest period, we seek to balance the pace of exits and the value achieved for shareholders as we continue to return capital to our investors.
Company Performance
By the 30 June 2019, the Company had returned a total of $132.8m or 106.7% of NBDD investors' original capital of $124.5m, $235.3m or 65.5% of NBDX investors' original capital of $359.4m and £24.7m or 22.3% of NBDG investors' original capital of £110.8m. Additionally, $9.1m was spent on buying back NBDX shares and £8.9m was spent on buying back NBDG shares in a manner accretive to net asset value ("NAV"). The Board continually reviews the most appropriate means to return capital to shareholders to maximise the benefit to shareholders and I am pleased to report that further distributions totalling $5m and £2.5m were declared in respect NBDX and NBDG earlier this month. We look forward to reporting further realisations in the coming quarters and the subsequent distribution of those proceeds on the receipt of the funds.
The Investment Manager's main objective is to maximise the value of the remaining underlying investments and return capital to shareholders. During the first quarter, one of our significant private equity investments owned across all classes was sold resulting in the receipt of cash substantially equal to the then current fair market value of that asset representing an IRR of 4% and ROR of between 13% and 40%. On 18 March 2019, we announced a capital distribution of $8.0m for the holders of NBDD shares, $20.0m for NBDX shareholders and £6.5m for NBDG shareholders.
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. To ensure shareholders' net returns remain managed, the Board continues to monitor all costs to ensure that they are appropriate. We are conscious that shareholders may be concerned about the impact of costs on a reducing portfolio during the harvest period.
The balance between capital distributions and buybacks is nuanced. Our policy continues to be to try to control the share price discount to NAV in a way that is accretive to those shareholders who do not wish to sell.
Board Composition
Cognisant of the time remaining for the realisation of all the portfolios by the end of 2020 and final distributions to shareholders as soon thereafter as possible, the Board has reviewed its composition and the size of the Board. In light of his nine years' tenure, and reducing size of the Company, Christopher Sherwell will step down at the end of 2019. I asked the other two independent directors, Messrs Legge and Vakil, to review my own position and they advised that they think 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, to that end, I will remain as Chairman. Should the outlook of the Company change, we will undertake a programme to refresh the Board. 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.
Outlook
With all share classes well into harvest mode, the Board considers it appropriate to give further details about the course of business for the fund over the next couple of years. The Ordinary class of shares will be the first to commence the final wind up process, followed by the Extended share class and 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.
Accordingly, the Ordinary class shareholders will now only receive one final distribution once all assets have been realised, whereas the Extended and Global classes will continue to distribute until their net assets are reduced to approximately $40 million and £10 million respectively. We have previously indicated that we expect all the assets attributable to the Ordinary class to be realised before the end of this year but some uncertainty has developed over the optimal timing in which the three key investments can be realised. Either way, this may mean that the final distribution will not be made in 2019 as, in certain cases, the cash 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 these assets.
The wind up of the other two classes will take a little longer but we hope to complete the realisation process by the end of 2020 with the final payments to shareholders being made as soon as possible afterwards.
Needless to say, upheaval in financial markets and global trade 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 confidence in our Company. We look forward to updating you further on investment realisations throughout the remainder of the year.
John Hallam
Chairman
22 August 2019
2019 INTERIM PERFORMANCE REVIEW | Investment Manager's Report
Investment Manager's Report
Ordinary Share Class
Summary
The NAV per share, adjusted for the impact of distributions during the year, decreased by 4.01% for the six months ended 30 June 2019. The Investment Manager seeks a catalyst for each of the remaining investments that will allow for a realisation and return of capital and profits, if applicable. During the harvest period, a larger percentage of NBDD's investments was in reorganised equities, including public equities, which were affected by the market volatility during the year.
Portfolio Update
NBDD ended the first half of the year with a NAV per share of $0.9386 compared to $0.9778 at end of 2018. At 30 June 2019, 90% of NBDD's NAV was invested in distressed assets (including cash held in subsidiary accounts, receivables and net payables) with 10% held in cash net of payables (see table below).
Cash Analysis |
|
Balance Sheet - Cash |
$1.3m |
Cash held in wholly-owned subsidiary accounts |
$0.2m |
Other payables |
($0.1m) |
Total available cash |
$1.4m |
The portfolio consists of 12 issuers across 8 sectors. The largest sector concentrations were in surface transportation, utilities, building and development and auto components.
Notable events below describe activity in the investments during first half of 2019:
· Vistra - During the first quarter, the company initiated a quarterly dividend payment programme targeted to return cash to shareholders and increase share visibility.
· Financial Intermediary investment - Industry turmoil and illiquidity in the private notes negatively impacted pricing despite positive regulatory developments - including the approval of a distribution to noteholders in the third quarter of 2019.
· Auto components investment - during the second quarter the company completed a recapitalisation. It issued $150mm of super priority notes, completed coercive exchange offers for its existing first lien and second lien notes and amended its credit facilities. The company increased its current liquidity by $125 million, equitised nearly $175 million of debt, reduced its ongoing cash interest burden and extended its maturity profile.
Significant Price Movement during first half of 2019 (approximately 1% of NBDD NAV or $140,000)
INDUSTRY |
INSTRUMENT |
TOTAL RETURN |
COMMENT |
Building & Development |
Public Equity |
0.2 |
Company (Five Point Holdings LLC) is close to selling lots in Newhall Ranch development and cash flow positive
|
Auto Components |
Private Note |
(0.6) |
New financing transaction and coercive distressed exchange offer decreased valuation of existing securities
|
Exits
During the first half of the year, there was one exit, which generated a total return of $2.1m. This brought the total number of exits since inception to 43 with a total return of $43.1m. Detailed descriptions of the 2019 exits are at the end of this report.
Partial Realisations
The partial realisations generated a total return of $6.2m as of 30 June 2019 and detailed descriptions are at the end of this report.
Distributions
Capital distributions of $8.0m were paid to investors by way of compulsory share redemptions during the first half of 2019. This brings total distributions (capital and an income distribution by way of dividend) paid and approved to date to $132.8m, or 107% of investors' original capital, since the realisation phase for this share class began. The ratio of total value (capital distributions, income distribution by way of dividend and current NAV) to original capital was 118%.
Extended Life Share Class
Summary
The NAV per share, adjusted for the impact of distributions during the first half of the year, decreased by 1.3% as of 30 June 2019. The Investment Manager seeks a catalyst for each of the remaining investments that will allow for a realisation and return of capital and profits, if applicable. During the harvest period, a larger percentage of the fund's investments in reorganised equities, including public equities, were affected by the market volatility during the year.
Portfolio Update
NBDX ended the period with a NAV per share of $0.9507 compared to $0.9635 at end of 2018. At 30 June 2019, 94% of NBDX's NAV was invested in distressed assets (including cash held in subsidiary accounts, receivables and net payables) with 6% held in cash (see table below). At 30 June 2019, the NBDX portfolio consisted of 28 issuers across 13 sectors. The largest sector concentrations were in shipping, lodging & casinos, auto components and surface transport.
Cash Analysis |
|
Balance Sheet - Cash |
$7.6m |
Cash held in wholly-owned subsidiary accounts |
$0.4m |
Other payables |
($0.5m) |
Total available cash |
$7.5m |
Notable events below describe activity in the investments during first half of 2019:
· Financial Intermediaries investment - Industry turmoil and illiquidity in the private notes negatively impacted pricing despite positive regulatory developments, including the approval of a distribution to noteholders in the third quarter of 2019.
· Auto Components investment - During the quarter the company completed a recapitalisation. It issued $150mm of super priority notes, completed coercive exchange offers for its existing first lien and second lien notes and amended its credit facilities. The company increased its current liquidity by $125 million, equitised nearly $175m of debt, reduced its ongoing cash interest burden and extended its maturity profile.
· Twin River Worldwide Holdings - During the third quarter of 2018, the company announced its intention to merge with a publicly traded competitor, Dover Downs Gaming & Entertainment. The merger was completed, and Twin River Worldwide Holdings became publicly traded on the last day of the first quarter of 2019. Post quarter-end, Twin River conducted a Dutch auction tender. NBDX participated in the tender with approximately 6.2% of our shares accepted for tender and we expect to receive proceeds in the third quarter of 2019.
· Vistra - During the first quarter the company initiated a quarterly dividend payment programme targeted to return cash to shareholders and increase share visibility.
· Oil and Gas: As previously mentioned, the investment entity's directors and requisite shareholders approved the sale of one of its bio-fuel facilities that closed in the first quarter of 2019. The company distributed proceeds to shareholders, which resulted in approximately $3.9 million to NBDX.
Significant Price Movements during first half of 2019 (approximately 1% of NBDX NAV or $1,300,000)
INDUSTRY |
INSTRUMENT |
TOTAL RETURN |
COMMENT |
Financial Intermediaries |
Private Note |
(1.5) |
Industry turmoil and illiquidity in the private notes negatively impacted pricing despite positive regulatory developments, including the approval of a distribution to noteholders
|
Exits
During the first half of the year, there was one exit, which generated a total return of $5.3m. This brought the total number of exits since inception to 53 with a total return of $118.3m. Detailed descriptions of the 2019 exits are at the end of this report.
Partial Realisations
The partial realisations generated a net gain of $23.7m over the life of the fund. Detailed descriptions of the partial realisations are at the end of this report.
Distributions
During the first half of the year, capital distributions of $20.0m were paid to investors by way of compulsory share redemptions. This brings total distributions (capital and an income distribution by way of dividend and share buy-backs) declared to date to $249.5m, or 68% of investors' original capital, since the realisation phase for this share class began. The ratio of total value (capital distributions, income distribution by way of dividend, buybacks and current NAV) to original capital was 104%.
Share Buybacks
During the first six months of 2019, NBDX purchased 1.0m of its own shares under the buyback programme at a cost of $0.9m and weighted average discount of (9.5%). The shares have been cancelled.
New Global Share Class
Summary
The NAV per share, adjusted for the impact of distributions during the year, decreased by 1% for the first half of the year. The investment manager seeks a catalyst for each of the remaining investments that will allow for a realisation and return of capital and profits, if applicable. During the harvest period, a larger percentage of the fund's investments has been in reorganised equities, including public equities, which were affected by the market volatility during the year.
Portfolio Update
NBDG ended 30 June 2019 with a NAV per share of £0.9102 compared to £0.9206 at the end of 2018. At 30 June 2019, 95% of NBDG's NAV was invested in distressed assets (including cash held in subsidiary accounts, receivables and net payables) with 5% held in cash (see table below). At 30 June 2019, the portfolio consisted of 21 issuers across 10 sectors. The largest sector concentrations were in lodging & casinos, shipping, auto components and commercial mortgages.
Cash Analysis |
|
Balance Sheet - Cash |
$4.5m |
Cash held in wholly-owned subsidiary accounts |
$0.2m |
Other payables |
($0.3m) |
Total available cash |
$4.4m |
Notable events involving NBDG's investments during first half of 2019 are below:
· Auto components investment - During the second quarter of 2019 the company completed a recapitalisation. It issued $150m of super priority notes, completed coercive exchange offers for its existing first lien and second lien notes and amended its credit facilities. The company increased its current liquidity by $125m, equitised nearly $175m of debt, reduced its ongoing cash interest burden and extended its maturity profile.
· Twin River Worldwide Holdings - During the third quarter of 2018 the company announced its intention to merge with a publicly traded competitor, Dover Downs Gaming & Entertainment. The merger was completed and Twin River Worldwide Holdings became publicly traded on the last day of the first quarter of 2019. Post quarter-end, Twin River conducted a Dutch auction tender. NBDG participated in the tender with approximately 6.2% of our shares accepted for tender. We expect the proceeds to be received in the third quarter of 2019.
· Vistra - During the quarter, the company initiated a quarterly dividend payment programme targeted to return cash to shareholders and increase share visibility.
· Oil and Gas: The investment entity's directors and requisite shareholders approved the sale of one of its bio-fuel facilities that closed in the first quarter of 2019. The company distributed proceeds to shareholders, which resulted in approximately $1.6m to NBDG.
Significant Price Movements during first half of 2019 (approximately 1% of NBDG NAV or £690,000)
INDUSTRY |
INSTRUMENT |
TOTAL RETURN |
COMMENT |
Shipping |
Public Equity |
1.0 |
Improving product tanker market and announcement of an attractive fleet expansion transaction (Torm A/S)
|
Auto Components |
Private Note |
(1.0) |
New financing transaction and coercive distressed exchange offer decreased valuation of existing securities
|
Exits
During the first half of the year there was one exit, which generated a total return of £0.8m. This brought the total number of exits since inception to 17 with a total return of £10.8m. Detailed descriptions of the 2019 exits are at the end of this report.
Partial Realisations
The partial realisations generated total return as of 30 June 2019 of £2.8m. A detailed description of the 2019 partial realisation is at the end of this report.
Distributions
During the first half of 2019 capital distributions of £8.5m were paid to investors by way of share redemptions. This brings total distributions (capital and an income distribution by way of dividend and share buy-backs) declared to date to £36.0m, or 33% of investors' original capital, since the realisation phase for this share class began. The ratio of total value (capital distributions, income distribution by way of dividend, buybacks and current NAV) to original capital was 94%.
Share Buybacks
During the first half of the year, NBDG purchased 300,000 shares under the buyback programme at a cost of £239,059 and weighted average discount of (13.6%). The shares have been cancelled. Full details are set out in Note 5.
Summary of Exits across all Share Classes
There was one exit during the first half of the year.
Exits experienced from inception to date were:
· NBDD 43 exits with a total return of $43.1M, IRR of 15% and ROR of 28%
· NBDX 53 exits with a total return of $118.3M, IRR of 15% and ROR of 28%
· NBDG 17 exits with a total return of £10.8M, IRR of 17% and ROR of 24%
The annualised internal rate of return ("IRR") is computed based on the actual dates of the cash flows of the security (purchases, sales, interest and principal pay downs), calculated in the base currency of each portfolio. The Rate of Return ("ROR") represents the change in value of the security (capital appreciation, depreciation and income) as a percentage of the purchase amount. The purchase amount can include multiple purchases.
Exit F (Exit 17 for NBDG)
Exit F |
Exit |
Cash Invested (millions) |
Cash Received (millions) |
Total Return (millions) |
IRR |
ROR |
Months Held |
NBDG |
17 |
£6.4 |
£7.2 |
£0.8 |
5.9% |
12.8% |
28 |
Exit G (Exit 43 for NBDD, 53 for NBDX)
Exit G |
Exit |
Cash Invested (millions) |
Cash Received (millions) |
Total Return (millions) |
IRR |
ROR |
Months Held |
NBDD |
43 |
$5.2 |
$7.3 |
$2.1 |
4.3% |
39.5% |
98 |
NBDX |
53 |
$13.4 |
$18.7 |
$5.3 |
4.3% |
39.5% |
98 |
Summary of Partial Realisations across all Share Classes
All partial realisations currently in the portfolio are reported as at 30 June 2019 and it should be noted that their IRR and ROR are likely to be different at the time of the final exit. The partial realisations were:
· NBDD - Two
· NBDX - Three
· NBDG - One
Partial Realisation A:
This investment was Exit F (Exit 42 for NBDD and Exit 52 for NBDX) in 2018.
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 fund 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, the funds 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 $0.7m generating a total return of $3.6m as of 30 June 2019. IRR was 26% and ROR was 51% with a holding period of 79 months at 30 June 2019.
B |
Effective Period |
Cash Invested (millions) |
Cash Received to Date (millions) |
Value of Residual Investment (millions) |
Total Return (millions) |
IRR |
ROR |
MonthS Held |
NBDD |
H1 2017 |
$2.0 |
$2.8 |
$0.2 |
$1.0 |
26% |
51% |
79 |
NBDX |
H1 2017 |
$5.1 |
$7.2 |
$0.5 |
$2.6 |
26% |
51% |
79 |
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 $5.0m, generating a total return of $19.0m as at 30 June 2019. IRR was 53% and ROR was 206% with a holding period of 82 months at 30 June 2019.
C |
Effective Period |
Cash Invested (millions) |
Cash Received to Date (millions) |
Value of Residual Investment (millions) |
Total Return (millions) |
IRR |
ROR |
Months Held |
NBDD |
H1 2017 |
$2.6 |
$6.5 |
$1.4 |
$5.3 |
53% |
206% |
82 |
NBDX |
H1 2017 |
$6.6 |
$16.7 |
$3.6 |
$13.7 |
53% |
206% |
82 |
Partial Realisation D: NBDX
NBDX purchased a 32.5% interest in a holding company formed with a partner to purchase a senior construction loan that was secured by 107 residential condominiums and a 140,000 square feet mixed-use retail space in Greenwood Village, Colorado. The lenders successfully petitioned the court to install a nationally recognised real estate company to act as receiver, refurbish and complete the remaining condominiums for sale, rebrand and lead marketing of the residential units, and lead leasing efforts for the retail space. All of the condominiums and retail space were sold as at 30 June 2017. Certain reserves remain relating to warranties and other miscellaneous potential claims. Cash invested in the project is $23.1m and repayments on the loan to date are $29.8m over 72 months. The current value of the remaining investment is $0.7m. To date, the total return is $7.4m. Once certain reserves expire and any potential claims are resolved, we expect to exit this investment in full. The IRR was 10% and ROR was 32% as at 30 June 2019.
D |
Effective Period |
Cash Invested (millions) |
Cash Received to Date (millions) |
Value of Residual Investment (millions) |
Total Return (millions) |
IRR |
ROR |
Months Held |
NBDX |
H1 2017 |
$23.1 |
$29.8 |
$0.7 |
$7.4 |
10% |
32% |
72 |
Partial Realisation E: NBDG
NBDG invested in a bank debt secured by a large tribal hotel and casino property located in New England. NBDG purchased its position for £4.5m and has received cash of £7.0m to date. The current value of the bank debt position is £0.3m, generating a total return to date of £2.8m. IRR was 18% and ROR was 62% with a holding period of 65 months at 30 June 2019.
E |
Effective Period |
Cash Invested (millions) |
Cash Received to Date (millions) |
Value of Residual Investment (millions) |
Total Return (millions) |
IRR |
ROR |
Months Held |
NBDG |
H1 2018 |
£4.5 |
£7.0 |
£0.3 |
£2.8 |
18% |
62% |
65 |
Neuberger Berman Investment Advisers LLC Neuberger Berman Europe Limited
22 August 2019 22 August 2019
2019 INTERIM PERFORMANCE REVIEW | Portfolio Information |
Portfolio Information
Ordinary Share Class
Top 10 Holdings at 30 June 2019
Holding |
Sector |
Purchased Instrument |
Status |
Country |
% of NAV |
Primary Asset |
1 |
Surface Transport |
Trade Claim |
Defaulted |
Brazil |
23.97% |
Municipal claim |
2 |
Utilities |
Secured Loan |
Post-Reorg |
US |
16.26% |
Power plants |
3 |
Building & Development |
Post-Reorg Equity |
Post-Reorg |
US |
16.20% |
Residential real estate |
4 |
Auto Components |
Secured Notes |
Post-Reorg |
US |
11.16% |
Manufacturing plant |
5 |
Containers & Packaging |
Post-Reorg Equity |
Post-Reorg |
Luxembourg |
9.69% |
Manufacturing/distribution/real estate |
6 |
Financial Intermediaries |
Secured Notes |
Defaulted |
US |
5.38% |
Cash and securities |
7 |
Utilities |
Secured Loan |
Post-Reorg |
US |
2.90% |
Power plants |
8 |
Forest Products |
Secured Notes |
Post-Reorg |
Germany |
1.46% |
Manufacturing plant |
9 |
Shipping |
Secured Loan |
Post-Reorg |
US |
1.45% |
Maritime vessels |
10 |
Containers & Packaging |
Post-Reorg Equity |
Post-Reorg |
UK |
1.34% |
Manufacturing/distribution/real estate |
Total |
|
|
|
|
89.81% |
|
Sector Breakdown1
http://www.rns-pdf.londonstockexchange.com/rns/9974J_1-2019-8-22.pdf
1 Categorisations determined by Neuberger Berman; percentages determined by Neuberger Berman and U.S Bank Global Fund Services (Guernsey) Limited / U.S. Bank Global Fund Services (Ireland) Limited as Administrator / Sub-Administrator to the Company. Please note that irrespective of the "sector" in which an investment is made, the underlying assets constituting the collateral for the investment comprise real estate assets in a majority of cases. As a result, NBDD's overall exposure to the real estate sector may be more than its actual direct exposure to that sector.
Country Breakdown2
http://www.rns-pdf.londonstockexchange.com/rns/9974J_1-2019-8-22.pdf
2 Categorisations determined by Neuberger Berman and percentages determined by the Administrator, based on market values at 30 June 2019 and 31 December 2018.
Extended Life Share Class
Top 10 Holdings at 30 June 2019
Holding |
Sector |
Purchased Instrument |
Status |
Country |
% of NAV |
Primary Asset |
1 |
Auto Components |
Secured Notes |
Post-Reorg |
US |
10.65% |
Manufacturing plant and equipment |
2 |
Shipping |
Secured Loan |
Post-Reorg |
Marshall Islands |
9.56% |
Maritime vessels |
3 |
Utilities |
Secured Loan |
Post-Reorg |
US |
7.86% |
Power plants |
4 |
Financial Intermediary |
Secured Notes |
Defaulted |
US |
7.69% |
Cash & securities |
5 |
Surface Transport |
Trade Claim |
Defaulted |
Brazil |
7.06% |
Municipal claim |
6 |
Lodging & Casinos |
Post-Reorg Equity |
Post-Reorg |
US |
5.98% |
Hotel/lodging real estate |
7 |
Building & Development |
Post-Reorg Equity |
Post-Reorg |
US |
5.47% |
Residential real estate |
8 |
Nonferrous Metals/Minerals |
Post-Reorg Equity |
Post-Reorg |
US |
5.25% |
Manufacturing/distribution real estate |
9 |
Oil & Gas |
Post-Reorg Equity |
Post-Reorg |
US |
4.78% |
Bio-fuel plant |
10 |
Commercial Mortgage |
Secured Loan |
Defaulted |
Netherlands |
4.74% |
Commercial real estate |
Total |
|
|
|
|
69.04% |
|
Sector Breakdown1
http://www.rns-pdf.londonstockexchange.com/rns/9974J_1-2019-8-22.pdf
1 Categorisations determined by Neuberger Berman; percentages determined by Neuberger Berman and U.S Bank Global Fund Services (Guernsey) Limited / U.S. Bank Global Fund Services (Ireland) as Administrator / Sub-Administrator to the Company. Please note that irrespective of the "sector" in which an investment is made, the underlying assets constituting the collateral for the investment comprise real estate assets in a majority of cases. As a result, NBDX's overall exposure to the real estate sector may be more than its actual direct exposure to that sector.
Country Breakdown2
http://www.rns-pdf.londonstockexchange.com/rns/9974J_1-2019-8-22.pdf
New Global Share Class
Top 10 Holdings at 30 June 2019
Holding |
Sector |
Purchased Instrument |
Status |
Country |
% of NAV |
Primary Asset |
||
1 |
Lodging & Casino |
Post-Reorg Equity |
Post-Reorg |
US |
20.14% |
Hotel/casino |
||
2 |
Auto Components |
Secured Notes |
Post-Reorg |
US |
8.60% |
Manufacturing plant and equipment |
||
3 |
Commercial Mortgage |
Secured Loan |
Current |
Netherlands |
8.58% |
Commercial real estate |
||
4 |
Lodging & Casino |
Post-Reorg Equity |
Post-Reorg |
Spain |
8.45% |
Hotel/lodging real estate |
||
5 |
Shipping |
Secured Loan |
Post-Reorg |
US |
7.41% |
Maritime vessels |
||
6 |
Nonferrous Metals/Minerals |
Post-Reorg Equity |
Post-Reorg |
US |
6.20% |
Manufacturing/distribution real estate |
||
7 |
Shipping |
Secured Loan |
Post-Reorg |
Denmark |
6.14% |
Maritime vessels |
||
8 |
Shipping |
Secured Loan |
Post-Reorg |
Marshall Islands |
5.55% |
Maritime vessels |
||
9 |
Utilities |
Post-Reorg Equity |
Post-Reorg |
US |
5.19% |
Power plants |
||
10 |
Building & Development |
Post-Reorg Equity |
Post-Reorg |
US |
4.26% |
Residential real estate |
||
Total |
|
|
|
|
80.52% |
|
||
Sector Breakdown1
http://www.rns-pdf.londonstockexchange.com/rns/9974J_1-2019-8-22.pdf
1 Categorisations determined by Neuberger Berman; percentages determined by Neuberger Berman and U.S Bank Global Fund Services (Guernsey) Limited / U.S. Bank Global Fund Services (Ireland) Limited as Administrator / Sub-Administrator to the Company. Please note that irrespective of the "sector" in which an investment is made, the underlying assets constituting the collateral for the investment comprise real estate assets in a majority of cases. As a result, NBDG's overall exposure to the real estate sector may be more than its actual direct exposure to that sector.
Country Breakdown2
http://www.rns-pdf.londonstockexchange.com/rns/9974J_1-2019-8-22.pdf
2 Categorisations determined by Neuberger Berman and percentages determined by the Administrator, based on market values at 30 June 2019 and 31 December 2018.
GOVERNANCE | Interim Management Report and Directors' Responsibility Statement |
Interim Management Report and Directors' Responsibility Statement
Principal Risks and Uncertainties
The principal risks of the Company are in the following areas:
· investment activity and performance;
· risks associated to harvest periods;
· level of premium or discount;
· market price risk;
· fair valuation of illiquid assets;
· accounting, legal and regulatory risk; and
· operational risk.
These risks, and the way in which they are managed, are described in more detail in the Strategic Report on pages 26 to 27 of the Company's latest annual report and audited financial statements for the year ended 31 December 2018, which can be found on the Company's website at www.nbddif.com/pdf/annual_report_nbddif_2018.pdf. The Board's view is that these risks remain appropriately identified for the remainder of 2019.
Going Concern
Having reassessed the principal risks, the Directors consider it appropriate to prepare the Unaudited Consolidated Interim Financial Statements (the "Financial Statements") on a going concern basis.
Related Party Transactions
The contracts with the Investment Manager and Directors are the only related party transactions currently in place. Other than fees payable in the ordinary course of business, there have been no material transactions with related parties, which have affected the financial position or performance of the Company in the six month period ended 30 June 2019. Additional related party disclosures are given in Note 6 below.
Directors' Responsibilities Statement
The Board of Directors confirms that, to the best of its knowledge:
· The Financial Statements have been prepared in conformity with US generally accepted accounting principles ("US GAAP"), give a true and fair view of the assets, liabilities, financial position and the return of the undertakings included in the consolidation as a whole as required by DTR 4.2.4R of the Disclosure Guidance and Transparency Rules ("DTR") of the UK's Financial Conduct Authority (the "UK FCA") and
· The combination of the Chairman's Statement, the Investment Manager's Report, this Interim Management Report and the notes to the Financial Statements meet the requirements of an interim management report, and include a fair view of the information required by:
1. DTR 4.2.7R, being an indication of important events that have occurred during the first six months of the current financial year and their impact on the set of financial statements together with a description of the principal risks and uncertainties for the remaining six months of the year; and
2. DTR 4.2.8R, being related party transactions that have taken place in the first six months of the current financial year and that have materially affected the financial position or performance of the Company during that period; and any changes in the related party transactions described in the last annual report that could do so.
The Directors are responsible for the maintenance and integrity of the corporate and financial information included on the Company's website and for the preparation and dissemination of Financial Statements. Legislation in Guernsey governing the preparation and dissemination of the Financial Statements may differ from legislation in other jurisdictions.
These Interim Report and Financial Statements have been reviewed by the Company's auditor and their report is set out below.
By order of the Board
John Hallam Christopher Legge
Chairman Director
22 August 2019 22 August 2019
GOVERNANCE | Independent Review Report |
Independent Review Report to NB Distressed Debt Investment Fund Limited
Conclusion
We have been engaged by NB Distressed Debt Investment Fund Limited (the "Company") to review the consolidated financial statements (the "Financial Statements") of the Company and its subsidiaries (together the "Group") in the half-yearly interim report for the six months ended 30 June 2019 which comprises the unaudited consolidated statement of assets and liabilities, unaudited consolidated statement of operations, unaudited consolidated statement of changes in net assets, unaudited consolidated statement of cash flows, unaudited consolidated condensed schedule of investments and the related explanatory notes.
Based on our review, nothing has come to our attention that causes us to believe that the Financial Statements for the six months ended 30 June 2019 do not give a true and fair view of the financial position of the Group as at 30 June 2019 and of its financial performance and its cash flows for the six months then ended in conformity with U.S. generally accepted accounting principles and the Disclosure Guidance and Transparency Rules (the "DTR") of the UK's Financial Conduct Authority (the "UK FCA").
Scope of review
We conducted our review in accordance with International Standard on Review Engagements (UK and Ireland) 2410 Review of Interim Financial Information Performed by the Independent Auditor of the Entity issued by the Auditing Practices Board for use in the UK. A review of interim financial information consists of making enquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. We read the other information contained in the half-yearly interim report and consider whether it contains any apparent misstatements or material inconsistencies with the information in the Financial Statements.
A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing (UK) and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.
Directors' responsibilities
The half-yearly interim report is the responsibility of, and has been approved by, the directors. The directors are responsible for preparing the half-yearly interim report in accordance with the DTR of the UK FCA.
The Financial Statements included in this interim report have been prepared in conformity with U.S. generally accepted accounting principles.
Our responsibility
Our responsibility is to express to the Company a conclusion on the Financial Statements in the half-yearly interim report based on our review.
The purpose of our review work and to whom we owe our responsibilities
This report is made solely to the Company in accordance with the terms of our engagement letter to assist the Company in meeting the requirements of the DTR of the UK FCA. Our review has been undertaken so that we might state to the Company those matters we are required to state to it in this report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the Company for our review work, for this report, or for the conclusions we have reached.
Barry Ryan
For and on behalf of KPMG Channel Islands Limited
Chartered Accountants,
Glategny Court, Glategny Esplanade
St Peter Port, Guernsey
GY1 1WR
22 August 2019
FINANCIAL STATEMENTS | Unaudited Consolidated Statement of Assets and Liabilities |
Unaudited Consolidated Statement of Assets and Liabilities
(EXPRESSED IN US DOLLARS EXCEPT WHERE STATED OTHERWISE) |
30 JUNE 2019 (UNAUDITED) |
|
31 December 2018 (AUDITED) |
Assets |
|
|
|
Investments at fair value (2019: cost of $287,661,953; 2018: cost of $329,777,268) |
213,452,878 |
|
256,655,356 |
Forward currency contracts |
2,445 |
|
587,558 |
Warrants (2019: cost of $752,955; 2018: cost of $752,955) |
318 |
|
200,664 |
Cash and cash equivalents |
13,285,474 |
|
7,596,274 |
|
226,741,115 |
|
265,039,852 |
Other assets |
|
|
|
Interest receivables |
691,253 |
|
267,711 |
Receivables for investments sold |
758,407 |
|
780,712 |
Other receivables and prepayments |
374,452 |
|
377,496 |
Federal tax receivable |
94,875 |
|
2,913,342 |
Total assets |
228,660,102 |
|
269,379,113 |
|
|
|
|
Liabilities |
|
|
|
Credit default swap (2019: cost of $32,357; 2018: cost of $32,357) |
35,277 |
|
1,175 |
Forward currency contracts |
244,631 |
|
3,884 |
Accrued expenses and other liabilities |
296,576 |
|
277,315 |
Payables to Investment Manager and affiliates |
576,855 |
|
340,193 |
Deferred tax liability |
- |
|
355,057 |
Total liabilities |
1,153,339 |
|
977,624 |
|
|
|
|
Net assets |
227,506,763 |
|
268,401,489 |
|
|
|
|
Net assets attributable to Ordinary Shares (shares 2019: 15,382,770; 2018: 23,395,578) |
14,438,096 |
|
22,876,360 |
Net asset value per Ordinary Share |
0.9386 |
|
0.9778 |
|
|
|
|
Net assets attributable to Extended Life Shares (shares 2019: 132,406,021; 2018: 154,104,598) |
125,878,067 |
|
148,482,314 |
Net asset value per Extended Life Share |
0.9507 |
|
0.9635 |
|
|
|
|
Net assets attributable to New Global Shares (shares 2019: 75,271,400; 2018: 82,770,361) |
£68,508,367 |
|
£76,195,678 |
Net asset value per New Global Share |
£0.9102 |
|
£0.9206 |
|
|
|
|
Net assets attributable to New Global Shares (USD equivalent) |
87,190,600 |
|
97,042,815 |
Net asset value per New Global Share (USD equivalent) |
1.1583 |
|
1.1724 |
The Financial Statements were approved and authorised for issue by the Board of Directors on 22 August 2019, and signed on its behalf by:
John Hallam Christopher Legge
Chairman Director
The accompanying notes are an integral part of the Interim Financial Statements.
FINANCIAL STATEMENTS | Unaudited Consolidated Statement of Operations |
Unaudited Consolidated Statement of Operations
(EXPRESSED IN US DOLLARS) |
|
30 JUNE 2019 (UNAUDITED) |
|
30 JUNE 2018 (UNAUDITED) |
Income |
|
|
|
|
Interest income |
|
3,770,658 |
|
3,584,489 |
Dividend income net of withholding tax (2019: $Nil; 2018: $Nil) |
|
252,474 |
|
- |
|
|
4,023,132 |
|
3,584,489 |
|
|
|
|
|
Expenses |
|
|
|
|
Investment management fee |
|
1,873,729 |
|
2,498,253 |
Professional and other expenses |
|
571,981 |
|
744,547 |
Administration fee |
|
115,761 |
|
151,636 |
Loan administration and custody fees |
|
112,216 |
|
105,948 |
Directors' fees and expenses |
|
127,029 |
|
122,116 |
|
|
2,800,716 |
|
3,622,500 |
|
|
|
|
|
Net investment income/(loss) |
|
1,222,416 |
|
(38,011) |
|
|
|
|
|
Realised and unrealised (loss)/gain from investments and foreign exchange |
|
|
|
|
Net realised (loss)/gain on investments, credit default swap, warrants and forward currency transactions |
|
(2,565,444) |
|
1,546,514 |
Net change in unrealised (loss)/gain on investments, credit default swap, warrants and forward currency transactions |
|
(2,120,343) |
|
15,487,924 |
Income taxes from net realised/unrealised gain on investments |
|
315,071 |
|
42,247 |
|
|
|
|
|
|
|
|
|
|
Realised and unrealised (loss)/gain from investments and foreign exchange |
|
(4,370,716) |
|
17,076,685 |
|
|
|
|
|
Net (decrease)/increase in net assets resulting from operations |
|
(3,148,300) |
|
17,038,674 |
The accompanying notes are an integral part of the Interim Financial Statements.
FINANCIAL STATEMENTS | Unaudited Consolidated Statement of Changes in Net Assets |
Unaudited Consolidated Statement of Changes in Net Assets
FOR THE SIX MONTH PERIOD ENDED 30 JUNE 2019 (UNAUDITED)
(EXPRESSED IN US DOLLARS) |
30 JUNE 2019 Ordinary Shares |
30 JUNE 2019 Extended Life Shares |
30 JUNE 2019 New Global Shares |
30 JUNE 2019 Aggregated |
Net assets at the beginning of the period |
22,876,360 |
148,482,314 |
97,042,815 |
268,401,489 |
|
|
|
|
|
Net investment (loss)/gain |
(72,200) |
979,245 |
315,371 |
1,222,416 |
Net realised gain on investments, credit default swap and forward currency transactions |
(389,893) |
(2,467,320) |
291,769 |
(2,565,444) |
Net change in unrealised loss on investments, credit default swap, warrants and forward currency transactions |
(94,150) |
(447,790) |
(1,578,403) |
(2,120,343) |
Income taxes from net realised/unrealised gains on investments |
109,954 |
241,943 |
(36,826) |
315,071 |
Net cost of share buybacks |
- |
(918,373) |
(308,469) |
(1,226,842) |
Shares redeemed during the period |
(7,991,975) |
(19,991,952) |
(8,535,657) |
(36,519,584) |
|
|
|
|
|
Net assets at the end of the period |
14,438,096 |
125,878,067 |
87,190,600 |
227,506,763 |
FOR THE SIX MONTH PERIOD ENDED 30 JUNE 2018 (UNAUDITED)
(EXPRESSED IN US DOLLARS) |
30 JUNE 2018 Ordinary Shares |
30 JUNE 2018 Extended Life Shares |
30 JUNE 2018 New Global Shares |
30 JUNE 2018 Aggregated |
Net assets at the beginning of the period |
29,641,938 |
180,009,723 |
123,006,814 |
332,658,475 |
|
|
|
|
|
Net investment (loss)/gain |
(152,142) |
318,506 |
(204,375) |
(38,011) |
Net realised (loss)/gain on investments, credit default swap and forward currency transactions |
(413,908) |
(1,178,001) |
3,138,423 |
1,546,514 |
Net change in unrealised gain on investments, credit default swap, warrants and forward currency transactions |
679,887 |
8,460,425 |
6,347,612 |
15,487,924 |
Income taxes from net realised/unrealised gains on investments |
11,807 |
30,440 |
- |
42,247 |
Net cost of share buybacks |
- |
(23,826) |
- |
(23,826) |
Shares redeemed during the period |
(3,741,968) |
(16,241,937) |
(9,310,392) |
(29,294,297) |
|
|
|
|
|
Net assets at the end of the period |
26,025,614 |
171,375,330 |
122,978,082 |
320,379,026 |
The accompanying notes are an integral part of the Interim Financial Statements.
FINANCIAL STATEMENTS | Unaudited Consolidated Statement of Cash Flows |
Unaudited Consolidated Statement of Cash Flows
FOR THE SIX MONTH PERIOD ENDED 30 JUNE 2019 AND 30 JUNE 2018
(EXPRESSED IN US DOLLARS) |
|
|
30 JUNE 2019 (UNAUDITED) |
|
30 JUNE 2018 (UNAUDITED) |
Cash flows from operating activities: |
|
|
|
|
|
Net (decrease)/increase in net assets resulting from operations |
|
(3,148,300) |
|
17,038,674 |
|
|
|
|
|
|
|
Adjustment to reconcile net decrease in net assets resulting from operations to net cash flow provided by operations: |
|
|
|
|
|
Net realised gain on investments, credit default swap, warrants and forward currency transactions |
|
2,565,444 |
|
(1,546,514) |
|
Net change in unrealised (loss)/gain on investments, credit default swap, warrants and forward currency transactions |
|
2,120,343 |
|
(15,487,924) |
|
Accretion of discount on loans and bonds |
|
(298,350) |
|
(413,262) |
|
Changes in interest receivable |
|
(423,542) |
|
998,216 |
|
Changes in receivables for investments sold |
|
22,305 |
|
(9,121,263) |
|
Changes in other receivables and prepayments |
|
3,044 |
|
968,120 |
|
Changes in federal tax receivable |
|
2,818,467 |
|
- |
|
Changes in deferred tax liability |
|
(355,057) |
|
- |
|
Changes in payables for investments purchased |
|
- |
|
(7,760,428) |
|
Changes in payables, accrued expenses and other liabilities |
|
255,923 |
|
(164,641) |
|
Cash received/(paid) on settled forward currency contracts and spot currency contracts |
|
972,266 |
|
(1,041,615) |
|
Purchase of investments |
|
(3,606,497) |
|
(1,927,868) |
|
Sale of investments |
|
42,520,216 |
|
41,398,745 |
|
Net sale of short term investments |
|
- |
|
8,102 |
|
|
|
|
|
|
|
Net cash provided by operating activities |
|
43,446,262 |
|
22,948,342 |
|
|
|
|
|
|
|
Cash flows from financing activities: |
|
|
|
|
|
Net cost of share buybacks |
|
(1,226,842) |
|
(23,826) |
|
Shares redeemed during the period |
|
(36,519,584) |
|
(29,294,297) |
|
Dividends paid |
|
- |
|
(6,038,502) |
|
Net cash used in financing activities |
|
(37,746,426) |
|
(35,356,625) |
|
|
|
|
|
|
|
Net increase/(decrease) in cash and cash equivalents |
|
5,699,836 |
|
(12,408,283) |
|
|
|
|
|
|
|
Cash and cash equivalents at the beginning of the period |
|
7,596,274 |
|
23,824,956 |
|
Effect of exchange rate changes on cash and cash equivalents |
|
(10,636) |
|
(206,830) |
|
|
|
|
|
|
|
Cash and cash equivalents at the end of the period |
|
13,285,474 |
|
11,209,843 |
Supplemental cash flow information
$933,040 has been excluded from purchases of and proceeds from the sale of investments in relation to the value of non-cash investment transactions, including transfers, reorganisations and exchanges.
Net tax received during the period was $476,577 (30 June 2018: $42,247).
The accompanying notes are an integral part of the Interim Financial Statements.
FINANCIAL STATEMENTS | Unaudited Consolidated Condensed Schedule of Investments |
Unaudited Consolidated Condensed Schedule of Investments (by financial instrument)
AT 30 JUNE 2019 (UNAUDITED) (EXPRESSED IN US DOLLARS) |
|
Cost |
Fair Value |
Ordinary Shares (%)1 |
Extended Life Shares (%)1 |
New Global Shares (%)1 |
Total Company (%)1 |
Portfolio of Distressed Investments |
|
|
|
|
|
|
|
Bank Debt Investments |
|
84,993,473 |
48,458,581 |
1.98 |
21.02 |
24.91 |
21.30 |
Private Equity |
|
59,864,526 |
58,585,973 |
14.02 |
21.68 |
33.56 |
25.75 |
Private Note |
|
64,820,721 |
40,011,799 |
16.85 |
22.12 |
11.17 |
17.59 |
Public Equity |
|
64,951,144 |
53,892,676 |
33.77 |
21.77 |
24.79 |
23.69 |
Trade Claim 2 |
|
13,032,089 |
12,503,849 |
24.22 |
7.16 |
- |
5.50 |
|
|
|
|
|
|
|
|
Total Investments |
|
287,661,953 |
213,452,878 |
90.84 |
93.75 |
94.43 |
93.83 |
|
|
|
|
|
|
|
|
Ordinary Shares |
|
18,541,263 |
13,115,397 |
90.84 |
- |
- |
5.76 |
Extended Life Shares |
|
166,964,477 |
118,013,748 |
- |
93.75 |
- |
51.88 |
New Global Shares |
|
102,156,213 |
82,323,733 |
- |
- |
94.43 |
36.19 |
|
|
287,661,953 |
213,452,878 |
90.84 |
93.75 |
94.43 |
93.83 |
|
|
|
|
|
|
|
|
Credit Default Swap |
|
|
|
|
|
|
|
Ordinary Shares |
|
(9,168) |
(9,995) |
(0.07) |
- |
- |
- |
Extended Life Shares |
|
(23,189) |
(25,282) |
- |
(0.02) |
- |
(0.01) |
|
|
(32,357) |
(35,277) |
(0.07) |
(0.02) |
- |
(0.01) |
|
|
|
|
|
|
|
|
Forward Currency Contracts |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ordinary Shares |
|
- |
(43,459) |
(0.30) |
- |
- |
(0.02) |
Extended Life Shares |
|
- |
(198,727) |
- |
(0.16) |
- |
(0.09) |
|
|
- |
(242,186) |
(0.30) |
(0.16) |
- |
(0.11) |
Warrants |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Extended Life Shares |
|
478,733 |
227 |
- |
- |
- |
- |
New Global Shares |
|
274,222 |
91 |
- |
- |
- |
- |
|
|
752,955 |
318 |
- |
- |
- |
- |
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 are an integral part of the Interim Financial Statements.
FINANCIAL STATEMENTS | Consolidated Condensed Schedule of Investments |
Consolidated Condensed Schedule of Investments (by financial instrument)
AT 31 DECEMBER 2018 (AUDITED) (EXPRESSED IN US DOLLARS) |
|
Cost |
Fair Value |
Ordinary Shares (%)1 |
Extended Life Shares (%)1 |
New Global Shares (%)1 |
Total Company (%)1 |
Portfolio of Distressed Investments |
|
|
|
|
|
|
|
Bank Debt Investments |
|
90,219,466 |
54,152,197 |
1.82 |
20.24 |
24.41 |
20.18 |
Private Equity |
|
100,143,233 |
98,416,196 |
38.65 |
33.21 |
41.47 |
36.66 |
Private Note |
|
61,431,337 |
41,865,849 |
13.56 |
19.14 |
10.66 |
15.60 |
Public Equity |
|
64,951,143 |
50,139,798 |
20.51 |
17.23 |
20.48 |
18.68 |
Trade Claim 2 |
|
13,032,089 |
12,081,316 |
14.75 |
5.86 |
0.00 |
4.50 |
|
|
329,777,268 |
256,655,356 |
89.29 |
95.68 |
97.02 |
95.62 |
|
|
|
|
|
|
|
|
Total Investments |
|
329,777,268 |
256,655,356 |
89.29 |
95.68 |
97.02 |
95.62 |
|
|
|
|
|
|
|
|
Ordinary Shares |
|
25,932,255 |
20,427,220 |
89.29 |
- |
- |
7.61 |
Extended Life Shares |
|
191,384,472 |
142,072,933 |
- |
95.68 |
- |
52.93 |
New Global Shares |
|
112,460,541 |
94,155,203 |
- |
- |
97.02 |
35.08 |
|
|
329,777,268 |
256,655,356 |
89.29 |
95.68 |
97.02 |
95.62 |
|
|
|
|
|
|
|
|
Credit Default Swap |
|
|
|
|
|
|
|
Ordinary Shares |
|
(9,168) |
(333) |
- |
- |
- |
- |
Extended Life Shares |
|
(23,189) |
(842) |
- |
- |
- |
- |
|
|
(32,357) |
(1,175) |
- |
- |
- |
- |
|
|
|
|
|
|
|
|
Forward Currency Contracts |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ordinary Shares |
|
- |
125,152 |
0.55 |
- |
- |
0.05 |
Extended Life Shares |
|
- |
458,522 |
- |
0.31 |
- |
0.17 |
|
|
- |
583,674 |
0.55 |
0.31 |
- |
0.22 |
Warrants |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Extended Life Shares |
|
478,733 |
143,332 |
- |
0.10 |
- |
0.05 |
New Global Shares |
|
274,222 |
57,332 |
- |
- |
0.06 |
0.02 |
|
|
752,955 |
200,664 |
- |
0.10 |
0.06 |
0.07 |
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 are an integral part of the Interim Financial Statements.
FINANCIAL STATEMENTS | Unaudited Consolidated Condensed Schedule of Investments |
Unaudited Consolidated Condensed Schedule of Investments
Investments with the following issuers comprised greater than 5% of Total Company NAV
30 JUNE 2019 (UNAUDITED) (EXPRESSED IN US DOLLARS) |
Country |
Industry |
Nominal |
Cost |
Fair Value |
Ordinary Shares (%)1 |
Extended Life Shares (%)1 |
New Global Shares (%)1 |
Total Company (%)1 |
Securities |
|
|
|
|
|
|
|
|
|
Twin Rivers Worldwide Holdings |
United States |
Lodging & Casinos |
846,808 |
6,777,499 |
25,116,325 |
- |
5.98 |
20.14 |
11.04 |
Vistra Energy Corp |
United States |
Utilities |
714,872 |
11,437,963 |
16,184,702 |
15.69 |
7.61 |
4.97 |
7.11 |
Dumas Shipping Term Loan B |
Marshall Islands |
Shipping |
16,022,475 |
15,482,913 |
13,939,553 |
- |
7.90 |
4.58 |
6.13 |
Dumas Shipping Term Loan A |
Marshall Islands |
Shipping |
1,899,735 |
1,899,735 |
1,652,769 |
- |
0.94 |
0.54 |
0.73 |
Dumas Shipping |
Marshall Islands |
Shipping |
349 |
1,003,803 |
1,289,598 |
- |
0.73 |
0.42 |
0.56 |
AB Zwolle T/L EUR 01/06/2020 |
Netherlands |
Commercial Mortgage |
18,526,730 |
13,646,548 |
13,460,677 |
- |
4.74 |
8.58 |
5.92 |
Five Point Holdings LLC-CL A |
United States |
Building & Development |
1,720,599 |
23,945,425 |
12,938,904 |
16.17 |
5.47 |
4.26 |
5.69 |
Eagle Bulk Shipping Inc |
United States |
Shipping |
2,303,182 |
7,582,125 |
11,976,545 |
1.45 |
4.21 |
7.41 |
5.26 |
Aleris International Inc |
United States |
Nonferrous Metals/Minerals |
589,611 |
20,100,668 |
11,792,220 |
- |
5.15 |
6.08 |
5.18 |
Tratex III |
Brazil |
Surface Transport |
9 |
12,015,693 |
11,411,035 |
22.09 |
6.53 |
- |
5.02 |
Exide Technologies 11% 30/04/2022 |
United States |
Auto Components |
9,220,509 |
8,476,860 |
7,560,818 |
0.34 |
4.26 |
2.46 |
3.32 |
Exide Technologies 7.000% 04/30/25 SR:AI CVT |
United States |
Auto Components |
16,261,944 |
13,388,289 |
7,317,875 |
4.00 |
3.63 |
2.48 |
3.22 |
Exide Technologies 7.25% 04/30/20 |
United States |
Auto Components |
7,296,913 |
6,795,427 |
4,378,148 |
6.24 |
0.97 |
2.58 |
1.92 |
Exide Intl Hldgs Lp 10.750% 10/31/21 SR:Regs |
United States |
Auto Components |
2,607,254 |
2,347,786 |
2,607,254 |
0.12 |
1.47 |
0.85 |
1.15 |
Exide Private Common 2 |
United States |
Auto Components |
164,922 |
992,386 |
288,614 |
0.13 |
0.15 |
0.10 |
0.13 |
Exide Private Common |
United States |
Auto Components |
138,600 |
693,000 |
242,550 |
0.24 |
0.11 |
0.08 |
0.11 |
Exide Technologies Common Stock Escrow |
United States |
Auto Components |
23,389,000 |
- |
2 |
- |
0.00 |
0.00 |
- |
|
|
|
|
146,586,120 |
142,157,589 |
66.47 |
59.85 |
65.53 |
62.49 |
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 are an integral part of the Interim Financial Statements.
31 DECEMBER 2018 (AUDITED) (EXPRESSED IN US DOLLARS) |
Country |
Industry |
Nominal |
Cost |
Fair Value |
Ordinary Shares (%)1 |
Extended Life Shares (%)1 |
New Global Shares (%)1 |
Total Company (%)1 |
Securities |
|
|
|
|
|
|
|
|
|
Harko LLC |
United States |
Lodging & Casinos |
2,517,756 |
34,067,954 |
34,065,239 |
30.49 |
12.11 |
9.38 |
12.69 |
Twin Rivers Worldwide Holdings |
United States |
Lodging & Casinos |
211,702 |
6,777,499 |
25,263,035 |
- |
5.10 |
18.23 |
9.41 |
Vistra Energy Corp |
United States |
Utilities |
714,872 |
11,437,963 |
16,356,271 |
10.01 |
6.52 |
4.52 |
6.09 |
Dumas Shipping Term Loan B |
Marshall Islands |
Shipping |
15,964,343 |
15,332,632 |
14,878,768 |
- |
7.15 |
4.40 |
5.54 |
Dumas Shipping Term Loan A |
Marshall Islands |
Shipping |
1,892,842 |
1,892,842 |
1,764,129 |
- |
0.85 |
0.52 |
0.66 |
Dumas Shipping |
Marshall Islands |
Shipping |
349 |
1,003,803 |
1,340,260 |
- |
0.64 |
0.40 |
0.50 |
White Energy Holding Company LLC |
United States |
Oil & Gas |
367 |
14,680,000 |
14,680,000 |
- |
7.06 |
4.33 |
5.47 |
Exide Technologies 7.000% 30/04/2025 SR:AI CVT |
United States |
Auto Components |
15,712,023 |
13,085,833 |
8,641,613 |
2.98 |
3.64 |
2.63 |
3.22 |
Exide Technologies 11% 30/04/2022 |
United States |
Auto Components |
8,908,705 |
8,065,437 |
7,126,964 |
0.20 |
3.41 |
2.08 |
2.66 |
Exide Technologies 7.25% 30/04/2020 |
United States |
Auto Components |
7,012,915 |
6,479,544 |
6,662,269 |
6.00 |
1.25 |
3.53 |
2.47 |
Exide Private Common 2 |
United States |
Auto Components |
164,922 |
693,000 |
97,020 |
0.06 |
0.04 |
0.03 |
0.03 |
Exide Private Common |
United States |
Auto Components |
138,600 |
992,386 |
115,445 |
0.03 |
0.05 |
0.03 |
0.03 |
Exide Technologies Common Stock Escrow |
United States |
Auto Components |
23,389,000 |
0 |
2 |
0.00 |
0.00 |
0.00 |
-0.01 |
AB Zwolle T/L EUR 01/06/2020 |
Netherlands |
Commercial Mortgage |
18,526,730 |
13,646,548 |
13,427,379 |
- |
4.01 |
7.70 |
5.00 |
|
|
|
|
128,155,441 |
144,418,394 |
49.77 |
51.83 |
57.78 |
53.76 |
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 are an integral part of the Interim Financial Statements.
FINANCIAL STATEMENTS | Unaudited Consolidated Condensed Schedule of Investments |
Unaudited Consolidated Condensed Schedule of Investments (by geography)
AT 30 JUNE 2019 (UNAUDITED) (EXPRESSED IN US DOLLARS) |
|
Cost |
Fair Value |
Ordinary Shares (%)1 |
Extended Life Shares (%)1 |
New Global Shares (%)1 |
Total Company (%)1 |
|
|
|
|
|
|
|
|
Geographic diversity of Portfolios |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Portfolio of Distressed Investments |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Brazil |
|
13,032,089 |
12,503,848 |
24.21 |
7.16 |
- |
5.50 |
Denmark |
|
14,207,442 |
10,115,007 |
- |
3.77 |
6.16 |
4.45 |
Germany |
|
- |
751,584 |
1.46 |
0.43 |
- |
0.33 |
Greece |
|
357,242 |
240,239 |
0.47 |
0.14 |
- |
0.11 |
Luxembourg |
|
1,893,980 |
5,689,977 |
11.01 |
3.26 |
- |
2.50 |
Marshall Islands |
|
18,386,451 |
16,881,920 |
- |
9.56 |
5.55 |
7.42 |
Netherlands |
|
13,646,548 |
13,460,677 |
- |
4.74 |
8.59 |
5.92 |
Spain |
|
26,568,720 |
14,110,303 |
- |
2.74 |
12.22 |
6.20 |
United States |
|
199,569,481 |
139,699,323 |
53.69 |
61.95 |
61.91 |
61.40 |
|
|
287,661,953 |
213,452,878 |
90.84 |
93.75 |
94.43 |
93.83 |
|
|
|
|
|
|
|
|
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 are an integral part of the Interim Financial Statements.
AT 31 DECEMBER 2018 (AUDITED) (EXPRESSED IN US DOLLARS) |
|
Cost |
Fair Value |
Ordinary Shares (%)1 |
Extended Life Shares (%)1 |
New Global Shares (%)1 |
Total Company (%)1 |
|
|
|
|
|
|
|
|
|
|
Geographic diversity of Portfolios |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Portfolio of Distressed Investments |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Brazil |
|
13,032,089 |
12,081,315 |
14.75 |
5.86 |
- |
4.50 |
|
Denmark |
|
14,207,442 |
7,809,069 |
- |
2.47 |
4.27 |
2.91 |
|
Germany |
|
- |
1,220,949 |
1.49 |
0.59 |
- |
0.45 |
|
Greece |
|
357,242 |
228,016 |
0.28 |
0.11 |
- |
0.08 |
|
Luxembourg |
|
1,893,980 |
5,451,450 |
6.66 |
2.65 |
- |
2.03 |
|
Marshall Islands |
|
18,229,277 |
17,983,157 |
- |
8.64 |
5.32 |
6.70 |
|
Netherlands |
|
13,646,548 |
13,427,379 |
- |
4.01 |
7.70 |
5.00 |
|
Spain |
|
26,283,871 |
15,182,559 |
- |
2.68 |
11.54 |
5.66 |
|
United States |
|
242,126,819 |
183,271,462 |
66.11 |
68.67 |
68.19 |
68.29 |
|
|
|
329,777,268 |
256,655,356 |
89.29 |
95.68 |
97.02 |
95.62 |
|
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 are an integral part of the Interim Financial Statements.
FINANCIAL STATEMENTS | Unaudited Consolidated Condensed Schedule of Investments |
Unaudited Consolidated Condensed Schedule of Investments (by sector)
AT 30 JUNE 2019 (UNAUDITED) (EXPRESSED IN US DOLLARS) |
Cost |
Fair Value |
Ordinary Shares (%)1 |
Extended Life Shares (%)1 |
New Global Shares (%)1 |
Total Company (%)1 |
Industry diversity of Portfolios |
|
|
|
|
|
|
Portfolio of Distressed Investments |
|
|
|
|
|
|
Air Transport |
20,522 |
4,079 |
- |
- |
- |
- |
Auto Components |
32,693,749 |
22,395,260 |
11.07 |
10.60 |
8.55 |
9.84 |
Building & Development |
25,893,454 |
13,210,149 |
16.69 |
5.63 |
4.26 |
5.81 |
Commercial Mortgage |
13,646,548 |
14,145,453 |
- |
5.28 |
8.59 |
6.22 |
Containers and Packaging |
1,893,980 |
5,689,977 |
11.01 |
3.26 |
- |
2.50 |
Financial Intermediaries |
21,464,316 |
10,460,336 |
5.37 |
7.69 |
- |
4.60 |
Forest Products |
- |
751,584 |
1.46 |
0.43 |
- |
0.33 |
Lodging & Casinos |
30,087,520 |
44,531,006 |
- |
13.47 |
31.64 |
19.58 |
Nonferrous Metals/Minerals |
20,303,171 |
12,018,480 |
- |
5.25 |
6.21 |
5.28 |
Oil & Gas |
16,884,421 |
10,824,881 |
- |
5.37 |
4.69 |
4.76 |
Shipping |
40,533,260 |
39,213,712 |
1.92 |
17.66 |
19.13 |
17.24 |
Surface Transport |
32,782,123 |
19,387,594 |
24.21 |
9.90 |
3.94 |
8.52 |
Utilities |
51,458,888 |
20,820,367 |
19.11 |
9.21 |
7.42 |
9.15 |
|
287,661,953 |
213,452,878 |
90.84 |
93.75 |
94.43 |
93.83 |
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 are an integral part of the Interim Financial Statements.
AT 31 DECEMBER 2018 (AUDITED) (EXPRESSED IN US DOLLARS) |
Cost |
Fair Value |
Ordinary Shares (%)1 |
Extended Life Shares (%)1 |
New Global Shares (%)1 |
Total Company (%)1 |
Industry diversity of Portfolios |
|
|
|
|
|
|
Portfolio of Distressed Investments |
|
|
|
|
|
|
Air Transport |
20,522 |
4,079 |
- |
- |
- |
- |
Auto Components |
29,316,200 |
22,643,313 |
9.27 |
8.39 |
8.32 |
8.44 |
Building & Development |
25,893,454 |
12,212,201 |
9.75 |
4.41 |
3.54 |
4.55 |
Commercial Mortgage |
13,646,548 |
14,142,054 |
- |
4.49 |
7.70 |
5.27 |
Containers & Packaging |
1,893,980 |
5,451,450 |
6.66 |
2.65 |
- |
2.03 |
Financial Intermediaries |
21,464,317 |
12,039,509 |
3.90 |
7.51 |
- |
4.49 |
Forest Products |
- |
1,220,949 |
1.49 |
0.59 |
- |
0.45 |
Lodging & Casinos |
67,386,065 |
81,106,379 |
30.49 |
24.47 |
38.95 |
30.22 |
Nonferrous Metals/Minerals |
20,303,171 |
11,732,055 |
- |
4.34 |
5.44 |
4.37 |
Oil & Gas |
26,324,309 |
19,348,602 |
- |
8.40 |
7.09 |
7.21 |
Shipping |
40,376,087 |
36,614,877 |
1.09 |
14.37 |
15.48 |
13.64 |
Surface Transportation |
32,644,021 |
20,030,460 |
14.75 |
8.55 |
4.08 |
7.46 |
Utilities |
50,508,594 |
20,109,428 |
11.89 |
7.51 |
6.42 |
7.49 |
|
329,777,268 |
256,655,356 |
89.29 |
95.68 |
97.02 |
95.62 |
|
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 are an integral part of the Interim Financial Statements.
FINANCIAL STATEMENTS | Notes to the Unaudited Consolidated Interim Financial Statements |
NOTE 1 - ORGANISATION AND DESCRIPTION OF BUSINESS
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 March 2017, FASB issued Accounting Standard Update ("ASU") 2017-08, Receivables - Non-refundable Fees and Other Costs (Subtopic 310-20) - Premium Amortisation on Purchased Callable Debt Securities. The amendments in this ASU require that certain callable debt securities held at a premium be amortised to the earliest call date. The ASU is effective for annual periods beginning after December 15, 2018, and interim periods within those annual periods. The standard is not expected to have a significant impact on the Company's financial statements.
In August 2018, FASB issued ASU 2018-13, Fair Value Measurement (Topic 820) - Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurement. The amendments in this ASU modify the disclosure requirements on fair value measurements. Among the requirements, entities will be required to make additional disclosures about significant unobservable inputs in developing Level 3 fair value measurements and are permitted to remove disclosure of the amount and reason for transfers between Level 1 and Level 2. This ASU is effective for annual periods beginning after December 15, 2019, and interim periods within those annual periods. The Company has not elected early adoption for the removal of the transfers between Level 1 and Level 2 disclosure and is currently evaluating the impact that the remainder of the ASU will have on the Company' financial statements in future.
(a) Basis of Preparation
The accompanying Unaudited Consolidated Interim Financial Statements ("Financial Statements") give a true and fair view of the assets, liabilities, financial position and return and have been prepared in conformity with accounting principles generally accepted in the United States of America ("US GAAP") and Companies Law and are expressed in US Dollars. All adjustments considered necessary for the fair presentation of the financial statements, for the period presented, have been included.
The Company is regarded as an Investment Company and follows the accounting and reporting guidance in Financial Accounting Standards Board ("FASB") Accounting Standards Codification ("ASC") Topic 946. Accordingly, the Company reflects its investments on the Unaudited Consolidated Statement of Assets and Liabilities at their estimated fair values, with unrealised gains and losses resulting from changes in fair value reflected in net change in unrealised gain/(loss) on investments, credit default swap, warrants and forward currency transactions in the Unaudited Consolidated Statement of Operations.
The Financial Statements include the results of the Company and its wholly-owned subsidiaries, whose accounting policies are consistent with those of the Company.
Wholly-owned subsidiaries, London Granite Ridge LLC, London Madison LLC, London Wabash LLC, London Jackson Holdco LLC, London Granite Ridge (Global) LLC, London Madison (Global) LLC, London Dearborn (Global) 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.
(b) Use of Estimates
The preparation of these Financial Statements in conformity with US GAAP requires that the Directors make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and reported amounts of income and expenses during the reporting period.
Actual results could differ significantly from these estimates.
(c) Cash and Cash Equivalents
The Company holds cash and cash equivalents in US Dollar and non-US Dollar denominated currencies with original maturities of less than 90 days that are both readily convertible to known amounts of cash and so near maturity that they represent an insignificant risk of change in value to be cash equivalents. As at 30 June 2019, the Company has cash balances in various currencies equating to $13,285,474 (31 December 2018: $7,596,274). These balances consisted of Pound Sterling: $156,388 (31 December 2018: $400,458), Euro: $1,081,232 (31 December 2018: $958,696), US Dollar: $12,024,885 (31 December 2018: $6,214,077), and Australian Dollar: $22,969 (31 December 2018: $23,043).
(d) Payables/Receivables on Investments Purchased/Sold
At 30 June 2019, the amount payable/receivable on investments purchased/sold represents amounts due for investments purchased/sold that have been contracted for but not settled on the Unaudited Consolidated Statement of Assets and Liabilities date.
(e) Foreign Currency Translation
Assets and liabilities denominated in foreign currency are translated into US Dollars at the currency exchange rates on the date of valuation. On initial recognition, foreign currency sales and purchases transactions are recorded and translated at the spot exchange rate at the transaction date and for all other transactions, the average rate is applied. Non-monetary assets and liabilities are translated at the historic exchange rate.
The Company does not separate the changes relating to currency exchange rates from those relating to changes in fair value of the investments. These fluctuations are included in the net realised gain and net change in unrealised gain/(loss) on investments, credit default swap, warrants and forward currency transactions in the Unaudited Consolidated Statements of Operations.
(f) Fair Value of Financial Instruments
The fair value of the Company's assets and liabilities that qualify as financial instruments under FASB ASC 825, Financial Instruments, approximate the carrying amounts presented in the Unaudited Consolidated Statement of Assets and Liabilities.
Fair value prices are estimates made at a discrete point in time, based on relevant market data, information about the financial instruments, and other factors.
Fair value is determined using available market information and appropriate valuation methodologies. Estimates of fair value of financial instruments without quoted market prices are subjective in nature and involve various assumptions and estimates that are matters of judgement. Accordingly fair values are not necessarily indicative of the amounts that will be realised on disposal of financial instruments. The use of different market assumptions and/or estimation methodologies may have a material effect on estimated fair value amounts.
The following estimates and assumptions were used at 30 June 2019 and 31 December 2018 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.
· Forward currency contracts are revalued using the forward exchange rate prevailing at the Unaudited Consolidated Statement of Assets and Liabilities date.
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 judgment 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 judgment 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 30 JUNE 2019 (UNAUDITED) |
||||
(EXPRESSED IN US DOLLARS) |
LEVEL 1 |
LEVEL 2 |
LEVEL 3 |
TOTAL |
Bank Debt Investments |
- |
1,572,185 |
46,886,396 |
48,458,581 |
Private Equity |
25,116,325 |
593,073 |
32,876,575 |
58,585,973 |
Private Note |
- |
17,741,357 |
22,270,442 |
40,011,799 |
Public Equity |
53,892,676 |
- |
- |
53,892,676 |
Trade Claim |
- |
- |
12,503,849 |
12,503,849 |
Warrants |
- |
318 |
- |
318 |
Credit Default Swap |
- |
(35,277) |
- |
(35,277) |
Forward Currency Contracts |
- |
(242,186) |
- |
(242,186) |
Total investments that are accounted for at fair value |
79,009,001 |
19,629,470 |
114,537,262 |
213,175,733 |
|
FAIR VALUE OF FINANCIAL INSTRUMENTS AT 31 DECEMBER 2018 (AUDITED) |
||||
(EXPRESSED IN US DOLLARS) |
LEVEL 1 |
LEVEL 2 |
LEVEL 3 |
TOTAL |
Bank Debt Investments |
- |
15,950,837 |
38,201,360 |
54,152,197 |
Private Equity |
- |
52,904,670 |
45,511,526 |
98,416,196 |
Private Note |
- |
34,809,068 |
7,056,781 |
41,865,849 |
Public Equity |
50,139,798 |
- |
- |
50,139,798 |
Trade Claim |
- |
- |
12,081,316 |
12,081,316 |
Warrants |
919 |
- |
199,745 |
200,664 |
Credit Default Swap |
- |
(1,175) |
- |
(1,175) |
Forward Currency Contracts |
- |
583,674 |
- |
583,674 |
Total investments that are accounted for at fair value |
50,140,717 |
104,247,074 |
103,050,728 |
257,438,519 |
|
The following table summarises the significant unobservable inputs the Company used to value its investments categorised within Level 3 at 30 June 2019. The table is not intended to be all-inclusive but instead captures the significant unobservable inputs relevant to our determination of fair values.
Type |
Sector |
Fair Value ($) |
Primary Valuation Technique |
Significant unobservable Inputs |
Range Input |
Weighted Average |
||
Bank Debt Investments |
Building & Development |
271,244 |
Market Information |
Unadjusted Broker Quote |
N/A |
N/A |
||
Bank Debt Investments |
Commercial Mortgage |
13,460,677 |
Market Comparables |
Discount Rate |
10% |
N/A |
||
Bank Debt Investments |
Forest Products |
751,584 |
Market Comparables |
Discount Rate |
10% |
N/A |
||
Bank Debt Investments |
Lodging & Casinos |
4,041,680 |
Market Comparables |
EBITDA Multiple |
7x |
N/A |
||
Bank Debt Investments |
Lodging & Casinos |
4,907,103 |
Market Information |
Unadjusted Broker Quote |
N/A |
N/A |
||
Bank Debt Investments |
Shipping |
15,592,322 |
Market Information |
Value Per Vessel |
$9.25 million |
N/A |
||
Bank Debt Investments |
Surface Transport |
6,883,746 |
Market Information |
Unadjusted Broker Quote |
N/A |
N/A |
||
Bank Debt Investments |
Utilities |
978,040 |
Market Information |
Unadjusted Broker Quote |
N/A |
N/A |
||
Private Equity |
Air Transport |
4,079 |
Market Information |
Residual Value/ Cash Receivable |
N/A |
N/A |
||
Private Equity |
Auto Components |
531,165 |
Market Information |
Adjusted Broker Quote |
N/A |
N/A |
||
Private Equity |
Commercial Mortgage |
684,775 |
Residual Value |
Recovery Estimate |
63% |
N/A |
||
Private Equity |
Containers and Packaging |
5,689,977 |
Market Comparables |
EBITDA Multiple |
10x |
N/A |
||
Private Equity |
Lodging & Casinos |
3,184,876 |
Market Comparables |
EBITDA Multiple |
7x |
N/A |
||
Private Equity |
Nonferrous Metals/Minerals |
11,792,223 |
Market Information |
Unadjusted Broker Quote |
N/A |
N/A |
||
Private Equity |
Oil & Gas |
8,441,000 |
Market Information |
Unadjusted Broker Quote |
N/A |
N/A |
||
Private Equity |
Oil & Gas |
172,862 |
Market Information |
Unadjusted Broker Quote |
N/A |
N/A |
||
Private Equity |
Shipping |
1,289,598 |
Market Information |
Value Per Vessel |
$9.25 million |
N/A |
||
Private Equity |
Utilities |
1,086,020 |
Market Information |
Unadjusted Broker Quote |
N/A |
N/A |
||
Private Note |
Auto Components |
21,864,094 |
Market Information |
Adjusted Broker Quote |
N/A |
N/A |
||
Private Note |
Utilities |
406,348 |
Market Information |
Unadjusted Broker Quote |
N/A |
N/A |
||
Trade Claim |
Surface Transport |
12,503,849 |
Market Information |
Unadjusted Broker Quote |
N/A |
N/A |
||
Total |
|
114,537,262 |
|
|
|
|
||
The following table summarises the significant unobservable inputs the Company used to value its investments categorised within Level 3 at 31 December 2018. The table is not intended to be all-inclusive but instead captures the significant unobservable inputs relevant to our determination of fair values.
Type |
Sector |
Fair Value ($) |
Primary Valuation Technique |
Significant unobservable Inputs |
Range Input |
Weighted Average |
Bank Debt Investments |
Building & Development |
271,244 |
Market Information |
Unadjusted Broker Quote |
N/A |
N/A |
Bank Debt Investments |
Commercial Mortgage |
13,427,379 |
Market Comparables |
Discount Rate |
10% |
N/A |
Bank Debt Investments |
Forest Products |
1,220,949 |
Market Comparables |
Discount Rate |
10% |
N/A |
Bank Debt Investments |
Lodging & Casinos |
3,910,371 |
Market Comparables |
EBITDA Multiple |
14x |
N/A |
Bank Debt Investments |
Oil & Gas |
1,292,077 |
Market Information |
Unadjusted Broker Quote |
N/A |
N/A |
Bank Debt Investments |
Shipping |
16,642,897 |
Market Information |
Value of Shipping Vessels |
$9.75 million per vessel |
N/A |
Bank Debt Investments |
Surface Transport |
1,076,443 |
Market Information |
Unadjusted Broker Quote |
N/A |
N/A |
Bank Debt Investments |
Utilities |
360,000 |
Market Information |
Unadjusted Broker Quote |
N/A |
N/A |
Private Equity |
Air Transport |
4,079 |
Residual Value |
Residual Value/ Cash Receivable |
N/A |
N/A |
Private Equity |
Auto Components |
212,465 |
Market Information |
Unadjusted Broker Quote |
N/A |
N/A |
Private Equity |
Commercial Mortgage |
714,675 |
Residual Value |
Recovery Estimate |
63% |
N/A |
Private Equity |
Containers & Packaging |
5,451,450 |
Market Information |
EBITDA Multiple |
10x |
N/A |
Private Equity |
Lodging & Casinos |
3,323,041 |
Market Comparables |
EBITDA Multiple |
14x |
N/A |
Private Equity |
Lodging & Casinos |
34,065,244 |
Market Comparables |
Land value per acre |
$2.2 million |
N/A |
Private Equity |
Oil & Gas |
400,312 |
Market Information |
Unadjusted Broker Quote |
N/A |
N/A |
Private Equity |
Shipping |
1,340,260 |
Market Information |
Value Per Vessel |
$9.75 million |
N/A |
Private Note |
Auto Components |
6,662,269 |
Market Information |
Unadjusted Broker Quote |
N/A |
N/A |
Private Note |
Utilities |
394,512 |
Market Information |
Unadjusted Broker Quote |
N/A |
N/A |
Trade Claim |
Surface Transport |
12,081,316 |
Market Information |
Unadjusted Broker Quote |
N/A |
N/A |
Warrants |
Oil & Gas |
199,745 |
Market Information |
Unadjusted Broker Quote |
N/A |
N/A |
Total |
|
103,050,728 |
|
|
|
|
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 30 June 2019 and 31 December 2018 are outlined in the tables above.
These inputs vary by asset class. For example, real estate asset valuations may utilise discounted cash flow models using an average value per square foot and appropriate discount rate. Other assets may be valued based on analysis of the liquidation of the underlying assets. In general, increases/(decreases) to per unit valuation inputs such as value per square foot, will result in increases/(decreases) to investment value.
Similarly, increases/(decreases) of asset realisation inputs (liquidation estimate, letter of intent, etc.) will also result in increases/(decreases) in value. In situations where discounted cash flow models are used, increasing/(decreasing) discount rates or increasing/(decreasing) weighted average life, in isolation, will generally result in (decreased)/increased valuations.
The following is a reconciliation of opening and closing balances of assets and liabilities measured at fair value on a recurring basis using Level 3 inputs:
FOR THE PERIOD ENDED 30 JUNE 2019 (UNAUDITED) (EXPRESSED IN US DOLLARS) |
|
|||||||||||
|
|
Bank Debt Investments |
|
Private Equity |
|
Trade Claim |
|
Warrants |
|
Private Note |
|
Total |
Balance, 31 December 2018 |
|
38,201,360 |
|
45,511,526 |
|
12,081,316 |
|
199,745 |
|
7,056,781 |
|
103,050,728 |
Purchases |
|
1,282,912 |
|
- |
|
- |
|
- |
|
3,256,625 |
|
4,539,537 |
Sales and distributions |
|
(2,002,074) |
|
(34,294,836) |
|
- |
|
- |
|
- |
|
(36,296,910) |
Realised gain on sale of investments |
|
(2,973,754) |
|
(478,868) |
|
- |
|
- |
|
- |
|
(3,452,622) |
Unrealised (loss)/gain on investments |
|
968,814 |
|
1,114,319 |
|
422,533 |
|
(199,745) |
|
(3,811,540) |
|
(1,505,619) |
Transfers into Level 3 |
|
11,409,137 |
|
21,024,434 |
|
- |
|
- |
|
15,768,576 |
|
48,202,148 |
Balance, 30 June 2019 |
|
46,886,396 |
|
32,876,575 |
|
12,503,849 |
|
- |
|
22,270,442 |
|
114,537,262 |
Change in unrealised (loss)/gain on investments included in Unaudited Consolidated Statement of Operation for Level 3 investments held as of 30 June 2019 |
|
(3,236,869) |
|
(3,619,108) |
|
422,532 |
|
(199,745) |
|
(3,811,540) |
|
(10,444,730) |
The Company's policy is to recognise transfers into and out of various levels as of the actual date of the event or change in circumstances that caused the transfer. During the period the Company had two transfers out of Level 1 into Level 2 of fair value amounting to $318 due to only one quoted price being observable. The Company also had one transfer out of Level 2 into Level 1 of fair value amounting to $25,116,325 as quoted prices were observable.
The following is a reconciliation of opening and closing balances of assets and liabilities measured at fair value on a recurring basis using Level 3 inputs:
FOR THE YEAR ENDED 31 DECEMBER 2018 (AUDITED) (EXPRESSED IN US DOLLARS) |
|
|||||||||||||
|
|
Bank Debt Investments |
|
Private Equity |
|
Private Equity: Real Estate Development |
|
Trade Claim |
|
Warrants |
|
Private Note |
|
Total |
Balance, 31 December 2017 |
|
49,303,230 |
|
69,427,360 |
|
620,287 |
|
12,360,847 |
|
92,017 |
|
6,961,010 |
|
138,764,751 |
Purchases |
|
2,201,646 |
|
3,056 |
|
- |
|
- |
|
- |
|
261,552 |
|
2,466,254 |
Sales and distributions |
|
(12,841,297) |
|
7,301 |
|
(665,979) |
|
- |
|
- |
|
- |
|
(13,499,975) |
Realised gain on sale of investments |
|
2,396,427 |
|
- |
|
665,979 |
|
- |
|
- |
|
- |
|
3,062,406 |
Unrealised loss on investments |
|
(2,297,922) |
|
(9,136,217) |
|
(620,287) |
|
(279,531) |
|
(91,097) |
|
210,243 |
|
(12,214,811) |
Reclassification within level 3 categories |
|
3,658,607 |
|
(3,658,607) |
|
- |
|
- |
|
- |
|
- |
|
- |
Transfers into or (out of) Level 3 |
|
(4,219,331) |
|
(11,131,367) |
|
- |
|
- |
|
198,825 |
|
(376,024) |
|
(15,527,897) |
Balance, 31 December 2018 |
|
38,201,360 |
|
45,511,526 |
|
- |
|
12,081,316 |
|
199,745 |
|
7,056,781 |
|
103,050,728 |
Change in unrealised loss on investments included in Consolidated Statement of Operation for Level 3 investments held as of 31 December 2018 |
|
(2,603,732) |
|
(5,075,649) |
|
- |
|
(279,532) |
|
(8,624) |
|
(411,107) |
|
(8,378,644) |
The Company's policy is to recognise transfers into and out of various levels as of the actual date of the event or change in circumstances that caused the transfer. During the year the Company had zero transfers between Level 1 and Level 2 of the fair value hierarchy.
(g) Investment transactions, investment income/expenses and valuation
Investment transactions are accounted for on a trade-date basis. Upon sale or maturity, the difference between the consideration received and the cost of the investment is recognised as a realised gain or loss. The cost is determined based on the average cost method. All transactions relating to the restructuring of current investments are recorded at the date of such restructuring. The difference between the fair value of the new consideration received and the cost of the original investment is recognised as a realised gain or loss. Unrealised gains and losses on an investment are the difference between the cost if purchased during the period or fair value at the previous year end and the fair value at the current period end. Unrealised gains and losses are included in the Unaudited Consolidated Statement of Operations.
Operating expenses are recognised on an accruals basis. Operating expenses include amounts directly or indirectly incurred by the Company as part of its operations. Each share class will bear its respective pro-rata share based on its respective NAVs of the ongoing costs and expenses of the Company. Each share class will also bear all costs and expenses of the Company determined by the Directors to be attributable solely to it. Any costs incurred by a share buyback are charged to that share class.
For the period ended 30 June 2019, $298,350 (30 June 2018: $413,262) 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 Unaudited Consolidated Statement of Assets and Liabilities at fair value in accordance with US GAAP, with changes in fair value recognised in the Unaudited Consolidated Statement of Operations in each reporting period. Fair value is defined as the price that would be received on the sale of an asset or paid to transfer a liability (i.e. the "exit price") in an orderly transaction between market participants at the measurement date.
Quoted investments are valued according to their bid price at the close of the relevant reporting date. Investments in private securities are priced at the bid price using a pricing service for private loans.
If a price cannot be ascertained from the above sources the Company will seek bid prices from third party broker/dealer quotes for the investments. The Investment Manager believes that bid price is the best estimate of fair value and is in line with the valuation policy adopted by the Company.
In cases where no third party price is available, or where the Investment Manager determines that the provided price is not an accurate representation of the fair value of the investment, the Administrator will value such investments with the input of the Investment Manager who will determine the valuation based on its fair valuation policy. As part of the investment fair valuation policy, the Investment Manager prepares a fair valuation memorandum for each such investment presenting the methodology and assumptions used to derive the price. This analysis is presented to the Investment Manager's Valuation Committee for approval.
The following criteria are considered when applicable:
· The valuation of other securities by the same issuer for which market quotations are available;
· The reasons for absence of market quotations;
· The soundness of the security, its interest yield, the date of maturity, the credit standing of the issue and the current general interest rates;
· Any recent sales prices and/or bid and ask quotations for the security;
· The value of similar securities of issuers in the same or similar industries for which market quotations are available;
· The economic outlook of the industry;
· The issuer's position in the industry;
· The financial statements of the issuer; and
· The nature and duration of any restriction on disposition of the security.
(h) Derivative Contracts
The Company may, from time to time, hold derivative financial instruments for the purposes of managing foreign currency exposure. These derivatives are measured at fair value in conformity with US GAAP with changes in fair value recognised in the Unaudited Consolidated Statement of Operations in each reporting period.
As part of the Company's investment strategy, the Company enters into over-the-counter ("OTC") derivative contracts which may include forward currency contracts, credit default swap 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 Company also holds six warrants (2018: six warrants) which it prices based on the bid price provided by a third party broker/dealer quote.
(i) Taxation
The Company is not subject to income taxes in Guernsey; however it may be subject to taxes imposed by other countries on income it derives from investments.
Such taxes are reflected in the Unaudited Consolidated Statement of Operations. In accordance with US GAAP, management is required to determine whether a tax position of the Company is more likely than not to be sustained upon examination by the applicable taxing authority, including resolution of any related appeals or litigation processes, based on the technical merits of the position. The tax benefit to be recognised is measured as the largest amount of benefit that is greater than fifty percent likely of being realised upon ultimate settlement. De-recognition of a tax benefit previously recognised could result in the Company recording a tax liability that would reduce net assets. US GAAP also provides guidance on thresholds, measurement, de-recognition, classification, interest and penalties, accounting in interim periods, disclosure, and transition that is intended to provide better financial statement comparability among different entities.
There were no uncertain tax positions at 30 June 2019 or 31 December 2018. The Company is subject to examination for US Federal and state tax returns for calendar years 2015-2019.
During the period ended 30 June 2019, the Company recorded current income tax benefit from realised gain/loss on investments of $4,036 (31 December 2018: $139,788 income tax expense). 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 amount of deferred tax benefit for the period ended 30 June 2019 is equal to $355,057 (31 December 2018: $355,057 deferred income tax benefit). The net total income tax expense from realised/unrealised gains/(losses) on investments for the period ended 30 June 2019 was $359,093 (31 December 2018 income tax expense: $494,845).
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 held at 30 June 2019 (31 December 2018: one).
Derivative activity
For the six month period ended 30 June 2019 and for the year ended 31 December 2018 the volume of the Company's derivative activities based on their notional amounts and number of contracts, categorised by primary underlying risk, are as follows:
30 JUNE 2019 (UNAUDITED) |
LONG EXPOSURE |
SHORT EXPOSURE |
||
Primary underlying risk |
NOTIONAL AMOUNTS |
NUMBER OF CONTRACTS |
NOTIONAL AMOUNTS |
NUMBER OF CONTRACTS |
Foreign currency exchange rate |
|
|
|
|
Forward Currency Contracts |
$43,669,253 |
8 |
$10,670,199 |
9 |
Financial assets |
|
|
|
|
Credit Default Swap |
$12,000,000 |
1 |
- |
- |
Total |
$55,669,253 |
8 |
$10,670,199 |
9 |
Equity price |
|
|
|
|
Warrants |
$752,955 |
6 |
- |
- |
31 DECEMBER 2018 (AUDITED) |
LONG EXPOSURE |
SHORT EXPOSURE |
||
Primary underlying risk |
NOTIONAL AMOUNTS |
NUMBER OF CONTRACTS |
NOTIONAL AMOUNTS |
NUMBER OF CONTRACTS |
Foreign currency exchange rate |
|
|
|
|
Forward Currency Contracts |
$45,863,164 |
9 |
$9,976,010 |
4 |
Financial assets |
|
|
|
|
Credit Default Swap |
$12,000,000 |
1 |
- |
- |
Total |
$57,863,164 |
9 |
$9,976,010 |
4 |
Equity price |
|
|
|
|
Warrants |
$752,955 |
6 |
- |
- |
The following tables show, at 30 June 2019 and 31 December 2018, the fair value amounts of derivative contracts included in the Unaudited Consolidated Statement of Assets and Liabilities, categorised by primary underlying risk. Balances are presented on a gross basis prior to application of the impact of counterparty and collateral netting. Total derivative assets and liabilities are adjusted on an aggregate basis to take into account the effects of master netting arrangements and, where applicable, have been adjusted by the application of cash collateral receivables and payables with its counterparties. The tables also identify, at 30 June 2019 and 31 December 2018, the realised and unrealised gain and loss amounts included in the Unaudited Consolidated Statement of Operations, categorised by primary underlying risk:
30 JUNE 2019 (UNAUDITED) Primary underlying risk |
Derivative Assets ($) |
Derivative Liabilities ($) |
Realised gain (loss) ($) |
NET CHANGE IN Unrealised gain (loss) ($) |
Foreign currency exchange rate |
|
|
|
|
Forward Currency Contracts |
2,445 |
(244,631) |
932,638 |
(825,860) |
Credit |
|
|
|
|
Purchased protection |
|
|
|
|
Credit Default Swap |
- |
(35,277) |
(60,667) |
(34,102) |
Equity price |
|
|
|
|
Warrants |
318 |
- |
- |
(200,345) |
Total |
2,763 |
(279,908) |
871,971 |
(1,060,307) |
31 DECEMBER 2018 (AUDITED) Primary underlying risk |
Derivative Assets ($) |
Derivative Liabilities ($) |
Realised gain (loss) ($) |
NET CHANGE IN Unrealised gain (loss) ($) |
Foreign currency exchange rate |
|
|
|
|
Forward Currency Contracts |
587,558 |
(3,884) |
3,417,058 |
424,647 |
Credit |
|
|
|
|
Purchased protection |
|
|
|
|
Credit Default Swap |
- |
(1,175) |
(97,337) |
31,183 |
Equity price |
|
|
|
|
Warrants |
200,664 |
- |
- |
(6,422) |
Total |
788,222 |
(5,059) |
3,319,721 |
449,408 |
Offsetting assets and liabilities
Amounts due from and to brokers are presented on a net basis, by counterparty, to the extent the Company has the legal right to offset the recognised amounts and intends to settle on a net basis.
The Company presents on a net basis the fair value amounts recognised for OTC derivatives executed with the same counterparty under the same master netting agreement.
The Company is required to disclose the impact of offsetting assets and liabilities presented in the Unaudited Consolidated Statement of Assets and Liabilities to enable users of the Financial Statements to evaluate the effect or potential effect of netting arrangements on its financial position for recognised assets and liabilities.
These recognised assets and liabilities include financial instruments and derivative contracts that are either subject to an enforceable master netting arrangement or similar agreement or meet the following right of set off criteria:
· each of the two parties owes the other determinable amounts;
· the Company has the right to set off the amounts owed with the amounts owed by the other party;
· the Company intends to set off; and
· the Company's right of set off is enforceable at law.
The Company is subject to enforceable master netting agreements with its counterparties of credit default swap with Bank of America Merrill Lynch of $Nil (31 December 2018: $Nil), and foreign currency exchange contracts with Royal Bank of Canada of ($10,686) (31 December 2018: $211,558), Societe Generale of $2,445 (31 December 2018: ($3,884)) and UBS AG of ($233,945) (31 December 2018: $376,000). 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 were no new collateral arrangements during the period.
The following tables, at 30 June 2019 and 31 December 2018, show the gross and net derivatives assets and liabilities by contract type and amount for those derivatives contracts for which netting is permissible.
30 JUNE 2019 (UNAUDITED)
(EXPRESSED IN US DOLLARS)
DESCRIPTION |
GROSS AMOUNTS OF RECOGNISED ASSETS |
GROSS AMOUNTS OFFSET IN THE STATEMENTS OF ASSETS AND LIABILITIES |
NET AMOUNTS OF RECOGNISED ASSETS PRESENTED IN THE UNAUDITED CONSOLIDATED STATEMENT OF ASSETS AND LIABILITIES |
|
Forward Currency Contracts |
156,175 |
(153,730) |
2,445 |
|
Warrant |
318 |
- |
318 |
|
Total |
156,493 |
(153,730) |
2,763 |
Description |
Gross Amounts of Recognised Liabilities |
Gross Amounts Offset in the Statements of Assets and Liabilities |
Net Amounts of Recognised LIABILITIES Presented in the UNAUDITED Consolidated Statement of Assets and Liabilities |
|
Forward Currency Contracts |
(398,361) |
153,730 |
(244,631) |
|
Credit Default Swap |
(35,277) |
- |
(35,277) |
|
Total |
(433,638) |
153,730 |
(279,908) |
31 DECEMBER 2018 (AUDITED)
(EXPRESSED IN US DOLLARS)
DESCRIPTION |
GROSS AMOUNTS OF RECOGNISED ASSETS |
GROSS AMOUNTS OFFSET IN THE STATEMENTS OF ASSETS AND LIABILITIES |
NET AMOUNTS OF RECOGNISED ASSETS PRESENTED IN THE UNAUDITED CONSOLIDATED STATEMENT OF ASSETS AND LIABILITIES |
|
Forward Currency Contracts |
628,158 |
(40,600) |
587,558 |
|
Warrant |
200,664 |
- |
200,664 |
|
Total |
828,822 |
(40,600) |
788,222 |
Description |
Gross Amounts of Recognised Liabilities |
Gross Amounts Offset in the Statements of Assets and Liabilities |
Net Amounts of Recognised LIABILITIES Presented in the UNAUDITED Consolidated Statement of Assets and Liabilities |
|
Forward Currency Contracts |
(44,484) |
40,600 |
(3,884) |
|
Credit Default Swap |
(1,175) |
- |
(1,175) |
|
Total |
(45,659) |
40,600 |
(5,059) |
NOTE 4 - RISK FACTORS
The Company is subject to various risks, including, but not limited to, market risk, credit risk and liquidity risk. The Investment Manager monitors and seeks to manage these risks on an ongoing basis. While the Investment Manager generally seeks to hedge certain portfolio risks, the Investment Manager is not required and may not attempt to hedge all market or other risks in the Portfolio, and it may decide only to partially hedge certain risks.
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 30 June 2019 and 31 December 2018 are disclosed in the Unaudited Consolidated Condensed Schedule of Investments. Each separate investment exceeding 5% of net assets is disclosed separately.
Credit Risk
The Company may invest in a range of corporate and other bonds and other credit sensitive securities. Until such investments are sold or are paid in full at maturity, the Company is exposed to credit risk relating to whether the issuer will meet its obligations when the securities fall due. Distressed debt securities by nature are securities in companies which are in default or are heading into default and will expose the Company to a higher than normal amount of credit risk.
The Company 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. 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
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 the 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.
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 30 June 2019, the Company had the following number of shares in issue:
|
30 June 2019 |
31 December 2018 |
Issued and fully paid up: |
(UNAUDITED) |
(AUDITED) |
Class A Shares |
2 |
2 |
Ordinary Share Class of no par value (Nil in treasury; 2018: Nil) |
15,382,770 |
23,395,578 |
Extended Life Share Class of no par value (Nil in treasury; 2018: Nil) |
132,406,021 |
154,104,598 |
New Global Share Class of no par value (Nil in treasury; 2018: Nil) |
75,271,400 |
82,770,361 |
Reconciliation of the number of shares in issue in each class (excluding Class A) at 30 June 2019:
(UNAUDITED) |
Ordinary Shares |
Extended Life Shares |
New Global Shares |
Total |
|
|
|
|
|
Balance at 31 December 2018 |
23,395,578 |
154,104,598 |
82,770,361 |
260,270,537 |
Shares redeemed during the period |
(8,012,808) |
(20,648,577) |
(7,198,961) |
(35,860,346) |
Buybacks (Shares repurchased) |
- |
(1,050,000) |
(300,000) |
(1,350,000) |
Balance at 30 June 20191 |
15,382,770 |
132,406,021 |
75,271,400 |
223,060,191 |
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 2018:
(AUDITED) |
Ordinary Shares |
Extended Life Shares |
New Global Shares |
Total |
|
|
|
|
|
Balance at 31 December 2017 |
26,714,397 |
173,302,953 |
98,733,585 |
298,750,935 |
Shares redeemed during the year |
(3,318,819) |
(17,978,355) |
(15,798,224) |
(37,095,398) |
Buybacks (Shares repurchased) |
- |
(1,220,000) |
(165,000) |
(1,385,000) |
Balance at 31 December 20181 |
23,395,578 |
154,104,598 |
82,770,361 |
260,270,537 |
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 period ended 30 June 2019 and year ended 31 December 2018.
2019 (UNDAUDITED) |
Ordinary Share Class |
Extended Life Share Class |
New Global Share Class |
||||||
|
Distribution Amount |
Number of Shares |
Per Share Amount |
Distribution Amount |
Number of Shares |
Per Share Amount |
Distribution Amount |
Number of Shares |
Per Share Amount |
01 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 |
|
$7,991,975 |
8,012,808 |
- |
$19,991,952 |
20,648,577 |
- |
$8,535,657 |
7,198,961 |
- |
2018 (AUDITED) |
Ordinary Share Class |
Extended Life Share Class |
New Global Share Class |
||||||
|
Distribution Amount |
Number of Shares |
Per Share Amount |
Distribution Amount |
Number of Shares |
Per Share Amount |
Distribution Amount |
Number of Shares |
Per Share Amount |
25 May 2018 |
$3,741,968 |
3,318,819 |
$1.1275 |
$16,241,937 |
15,177,962 |
$1.0701 |
$9,310,391 |
7,387,196 |
$1.2603 |
17 August 2018 |
- |
- |
- |
$2,991,940 |
2,800,393 |
$1.0684 |
$10,820,239 |
8,411,028 |
$1.2864 |
|
$3,741,968 |
3,318,819 |
- |
$19,233,877 |
17,978,355 |
- |
$20,130,630 |
15,798,224 |
- |
Buybacks
Under the authority granted to the Directors at the 2018 and 2019 AGMs, between 1 January 2019 and 30 June 2019, 1,050,000 Extended Life Shares were repurchased and cancelled by the Company for gross consideration of $918,373 and 300,000 New Global Shares were repurchased and cancelled by the Company for gross consideration of $308,469 (£239,060).
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.
For the period ended 30 June 2019, the management fee expense was $1,873,729 (30 June 2018: $2,498,253). At 30 June 2019, the management fee payable was $576,855 (31 December 2018: $340,193).
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 period ended 30 June 2019 or year ended 31 December 2018, nor would any be paid if the Company were to realise all its assets at the period end.
Soft commissions are not used to pay for services used by the Investment Manager.
Administration, Company Secretarial and Custody Agreements
Effective 1 March 2015, the Company entered into an Administration and Sub-Administration Agreement with U.S. Bank Global Fund Services (Guernsey) Limited and U.S. Bank Global Fund Services (Ireland) Limited, a wholly-owned subsidiary of U.S. Bancorp (the "Administration Agreement"). Under the terms of the Administration Agreement, Sub-Administration services are delegated to U.S. Bank Global Fund Services (Ireland) Limited (the "Sub-Administrator"). The Sub-Administration Service Level Agreement was amended and approved on 21 February 2018.
The Sub-Administrator is responsible for the day-to-day administration of the Company (including but not limited to the calculation and publication of the estimated daily NAV).
Under the terms of the Administration Agreement, the Sub-Administrator is entitled to a fee of 0.09% for the first $500m of net asset value, 0.08% for the next $500m and 0.07% for any remaining balance, accrued daily and paid monthly in arrears and subject to an annual minimum of $100,000.
Effective 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 £65,800 plus fees for ad-hoc board meetings and additional services.
For the period ended 30 June 2019, the administration fee expense was $115,761 (30 June 2018: $151,636), the secretarial fee was $72,4051 of which $13,604 was in relation to the administration of the ongoing buyback programme, (30 June 2018: $78,033) and the loan administration and custody fee expense was $112,216 (30 June 2018: $105,948). At 30 June 2019, the administration fee payable is $16,5052 (31 December 2018: $20,364), the secretarial fee payable is $55,0062 (31 December 2018: $123,520) and the loan administration and custody fee payable is $15,2112 (31 December 2018: $17,500).
Directors' Remuneration and Other Interests
The Directors are related parties and are remunerated for their services at a fee of $45,000 plus £10,000 each per annum ($60,000 plus £10,000 for the Chairman, $50,000 plus £10,000 for the Chairman of the Audit Committee). For the period ended 30 June 2019, the Directors' fees and travel expenses amounted to $127,029 (30 June 2018: $122,116). Michael J. Holmberg, the non-independent Director, has waived the fees for his services as a Director. There were no other related interests for the period ended 30 June 2019.
1 Amount is included under Professional and other expenses in the Unaudited Consolidated Statement of Operations
2 Amounts are included under Accrued expenses and other liabilities in the Unaudited Consolidated Statement of Assets and Liabilities
NOTE 7 - FINANCIAL HIGHLIGHTS
|
Ordinary Shares |
Extended Life Shares |
New Global Shares |
Ordinary Shares |
Extended Life Shares |
New Global Shares |
||
|
($) |
($) |
(£) |
($) |
($) |
(£) |
||
Per share operating performance |
Period ended 30 June 2019 |
Period ended 30 June 2019 |
Period ended 30 June 2019 |
Year ended 31 December 2018 |
year ended 31 December 2018 |
year ended 31 December 2018 |
||
|
(UNAUDITED) |
(UNAUDITED) |
(UNAUDITED) |
(audited) |
(audited) |
(audited) |
||
Net asset value per share at beginning of the period/year |
0.9778 |
0.9635 |
0.9206 |
1.1096 |
1.0387 |
0.9210 |
||
Impact of share buybacks |
- |
0.0007 |
0.0005 |
- |
0.0004 |
0.0002 |
||
Impact of share redemptions |
(0.0020) |
0.0001 |
(0.0003) |
(0.0024) |
(0.0142) |
(0.0055) |
||
Income/(loss) from investment operations 3 |
|
|
|
|
|
|
||
Net investment (loss)/ income |
(0.0037) |
0.0068 |
0.0032 |
(0.0109) |
0.0078 |
0.0001 |
||
Net realised and unrealised (loss)/gain from investments and foreign exchange | (0.0335) | (0.0204) | (0.0138) | (0.1185) | (0.0692) | 0.0048 | ||
Total (loss)/ income from investment operations |
(0.0372) |
(0.0136) | (0.0106) | (0.1294) | (0.0614) | 0.0049 | ||
Net asset value per share at end of the period/year | 0.9386 | 0.9507 | 0.9102 | 0.9778 | 0.9635 | 0.9206 | ||
3 Weighted average number of shares outstanding was used for calculation
|
|
|
|
|
|
|
.
|
Ordinary Shares |
Extended Life Shares |
New Global Shares |
Ordinary Shares |
Extended Life Shares |
New Global Shares |
|
|
|
||||
NAV Total Return 1,2 |
Period ended 30 June 2019 |
Period ended 30 June 2019 |
Period ended 30 June 2019 |
Year ended 31 December 2018 |
Year ended 31 December 2018 |
Year ended 31 December 2018 |
|
(UNAUDITED) |
(UNAUDITED) |
(UNAUDITED) |
(AUDITED) |
(audited) |
(audited) |
NAV Total Return before performance fee |
(4.01%) |
(1.33%) |
(1.13%) |
(11.66%) |
(5.87%) |
0.55% |
Performance fee |
- |
- |
- |
- |
- |
- |
NAV Total Return after performance fee including an income distribution by way of dividend |
(4.01%) |
(1.33%) |
(1.13%) |
(11.66%) |
(5.87%) |
0.55% |
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.
|
Ordinary Shares |
Extended Life Shares |
New Global Shares |
Ordinary Shares |
Extended Life Shares |
New Global Shares |
Ratios to avErage net ASSETS |
Period ended 30 June 2019 |
Period ended 30 June 2019 |
Period ended 30 June 2019 |
Year ended 31 December 2018 |
year ended 31 December 2018 |
year ended 31 December 2018 |
|
(UNAUDITED) |
(UNAUDITED) |
(UNAUDITED) |
(AUDITED) |
(AUDITED) |
(AUDITED) |
|
|
|
|
|
|
|
Net investment income before and after performance fee |
(0.75%) |
1.42% |
0.68% |
(1.00%) |
0.74% |
(0.04%) |
Total expenses after performance fee |
(2.19%) |
(2.22%) |
(2.29%) |
(2.01%) |
(2.16%) |
(2.38%) |
NOTE 8 - RECONCILIATION OF NET ASSET VALUE TO PUBLISHED NAV
In preparing the Financial Statements, there were adjustments relating to investment valuations. The impact of these adjustments on the NAV per Ordinary Share, Extended Life Share and New Global Share is detailed below:
|
Ordinary Share Class Net Assets ($) |
Ordinary Share Class NAV per Share ($) |
Extended Life Share Class Net Assets ($) |
Extended Life Share Class NAV per Share ($) |
New Global Share Class Net Assets (£) |
New Global Share Class NAV per Share (£) |
Published net assets at 30 June 2019 |
14,404,978 |
0.9364 |
125,973,776 |
0.9514 |
68,593,866 |
0.9113 |
Deferred Tax Adjustment |
- |
- |
- |
- |
- |
- |
Valuation adjustments |
33,118 |
0.0022 |
(95,709) |
(0.0007) |
(85,499) |
(0.0011) |
Net assets per Unaudited Consolidated Interim Financial Statements |
14,438,096 |
0.9386 |
125,878,067 |
0.9507 |
68,508,367 |
0.9102 |
|
Ordinary Share Class Net Assets ($) |
Ordinary Share Class NAV per Share ($) |
Extended Life Share Class Net Assets ($) |
Extended Life Share Class NAV per Share ($) |
New Global Share Class Net Assets (£) |
New Global Share Class NAV per Share (£) |
Published net assets at 31 December 2018 |
22,983,960 |
0.9824 |
148,828,076 |
0.9658 |
76,511,273 |
0.9244 |
Deferred Tax Adjustment |
(106,864) |
(0.0046) |
(275,713) |
(0.0018) |
(265,174) |
(0.0032) |
Valuation adjustments |
(736) |
- |
(70,049) |
(0.0005) |
(50,421) |
(0.0006) |
Net assets per Consolidated Financial Statements |
22,876,360 |
0.9778 |
148,482,314 |
0.9635 |
76,195,678 |
0.9206 |
NOTE 9 - SUBSEQUENT EVENTS
The Board has evaluated subsequent events from the year through to 22 August 2019 which is the date that the Financial Statements are available for issue.
On 12 August 2019, the Company declared a capital distribution by way of partial redemption for the holders of NBDX and NBDG shares. The Board approved capital distributions of $5.0m for the holders of NBDX shares and £2.5m for the holders of NBDG payable on 10 September 2019.
From 30 June 2019 to 22 August 2019, the Company repurchased 495,499 NBDX and 70,000 NBDG shares.
ADDITIONAL INFORMATION | Contact Details |
Contact Details
Directors
John Hallam (Chairman) Michael Holmberg Christopher Legge Christopher Sherwell Stephen Vakil
All c/o the Company's registered office.
Registered Office
1st & 2nd Floors, Elizabeth House Les Ruettes Brayes St Peter Port Guernsey GY1 1EW
Company Secretary
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 (formerly known as Quintillion Limited)
Financial Adviser and Corporate Broker
Stifel Nicolaus Europe Limited
Solicitors to the Company (as to English law and U.S. securities law)
Herbert Smith Freehills LLP
Advocates to the Company (as to Guernsey law)
Carey Olsen
|
Registrar
Link Market Services (Guernsey) Limited
UK Transfer Agent
Link 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:
|
|
||
Full contact details of the Company's advisers and Manager can be found on the Company's website. |