Annual Financial Report
NB Global Floating Rate Income Fund Limited
Annual Report and Audited Financial Statements For the year ended 31 December 2016
FEATURES
NB Global Floating Rate Income Fund Limited (the "Company")
The Company is a closed-ended investment Company incorporated and registered in Guernsey on 10 March 2011 with registered number 53155. The Company is governed under the provisions of the Companies (Guernsey) Law, 2008 as amended (the "Law"), and the Registered Collective Investment Scheme Rules 2008 issued by the Guernsey Financial Services Commission. It is a non-cellular Company limited by shares and has been declared by the Guernsey Financial Services Commission to be a registered closed-ended collective investment scheme. On 20 April 2011 the Company was admitted to the Official List of the U.K. Listing Authority with a premium listing trading on the Main Market of the London Stock Exchange ("LSE"). The Company was admitted to the FTSE 250 in March 2012.
The Company is a member of the Association of Investment Companies (the "AIC") and is classified within the Debt Category.
Alternative Investment Fund Manager ("AIFM") and Manager
Investment management services are provided to the Company by Neuberger Berman Investment Advisers LLC (the "AIFM") and Neuberger Berman Europe Limited (the "Manager"), collectively the "Investment Manager". The AIFM is responsible for risk management and discretionary management of the Company's portfolio and the Manager provides certain administrative services to the Company.
Capital Structure
As at 31 December 2016 the Company's share capital comprised 1,090,614,330 Sterling Ordinary Shares of no par value (of which 75,000,000 were held in treasury) and 41,242,736 U.S. Dollar Ordinary Shares of no par value (of which 2,972,627 were held in treasury).
For the purposes of efficient portfolio management, the Company has established a wholly-owned Luxembourg incorporated subsidiary, NB Global Floating Rate Income Fund (Lux) 1 S.à.r.l. which in turn holds a wholly-owned subsidiary, NB Global Floating Rate Income Fund (Lux) 2 S.à.r.l. Part of the portfolio of the Company is held through NB Global Floating Rate Income Fund (Lux) 2 S.à.r.l. All references to the Company in this document refer to the Company together with its wholly-owned Luxembourg subsidiaries.
Company Numbers
Sterling Ordinary Shares ("NBLS")
LSE ISIN code: GG00B3KX4Q34
Bloomberg code: NBLS:LN
U.S. Dollar Ordinary Shares ("NBLU")
LSE ISIN code: GG00B3P7S359
Bloomberg code: NBLU:LN
Legal Entity Identifier
549300P4FSBHZFALLG04
Dividends
Paid quarterly in respect of each calendar quarter.
Rolling 12 month dividend yield (based on the previous four quarterly dividends paid and share price as at 31 December 2016):
· Sterling Ordinary Shares - 4.18%
· U.S. Dollar Ordinary Shares - 4.12%
Website
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 investment 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 non-mainstream investment products because they are shares in an investment company, which if it were domiciled in the United Kingdom, would qualify as an investment trust.
BUSINESS MODEL
Principal Activities and Structure
The principal activity of the Company is to carry out business as an investment company. The Directors do not envisage any changes in this activity for the foreseeable future.
The chart below sets out the ownership, organisational and investment structure of the Company.
http://www.rns-pdf.londonstockexchange.com/rns/7313B_-2017-4-5.pdf
Investment Objective
The Company's investment objective is to provide its shareholders with regular dividends, at levels that are sustainable, whilst preserving the capital value of its investment portfolio, utilising the investment skills of the Investment Manager.
Investment Policy
To pursue its investment objective, the Company invests mainly in senior secured floating rate loans issued in United States Dollars ("U.S. Dollars"), Pound Sterling and Euros by primarily North American and European Union corporations, partnerships and other business issuers. These loans are at the time of investment often non-investment grade. The Company considers debt instruments to be non-investment grade if, at the time of investment, they are rated below the four highest categories (Aaa, Aa, A and Baa) by at least two independent credit ratings agencies or, if unrated, are deemed by the Investment Manager to be of comparable quality.
The coupon received when investing in floating rate loans varies with, and is periodically adjusted to reflect changes in, a generally recognised base interest rate such as LIBOR. The Company generally seeks to focus on loans of issuers that the Investment Manager believes have the ability to generate cash flow through a full business cycle, maintain adequate liquidity, possess an enterprise value in excess of senior debt and have access to both debt and equity capital.
The Company also makes investments in senior bonds on an opportunistic basis if the Investment Manager believes that such investments are attractively valued, up to a maximum in aggregate of 20% of the Net Asset Value ("NAV") at the time of investment, provided that no more than 10% of NAV may be invested in unsecured senior bonds at the time of investment.
Diversification
The Investment Manager seeks to manage risk through in-depth credit research utilising proprietary analytic processes, diversifying across industries, companies and investment size and adjusting sector weightings based on economic and market analysis.
The Company's portfolio of investments is intended to represent at least 100 investments across a minimum of 20 industries, with a focus on those industries regarded as defensive. Defensive industries are those the Investment Manager believes are less affected by changes in economic conditions and likely to demonstrate the strongest capital preservation. The Board considers that it is not appropriate to make available a full portfolio listing to shareholders as the information is considered commercially sensitive.
Typically, at the time such investment is made, no industry will represent more than 15% of Net Asset Value and no single investment will represent more than 5% of Net Asset Value.
What Are Senior Secured Floating Rate Loans?
Senior secured floating rate loans are debt obligations arranged by banks and other financial entities on behalf of corporations, partnerships and other business issuers. Such loans are typically used to finance mergers and acquisitions, leveraged buyouts, recapitalisations, refinancings, capital expenditure and for other general corporate purposes.
Senior secured floating rate loans are originated by a bank or other financial institution (also known as an arranger) and will typically be syndicated to a pool of lenders that collaborate to provide financing for the borrower. Once the bank loan is issued, lenders have the option to hold their portion for the life of the loan or to sell it to other investors in the secondary market.
The senior secured floating rate loans that the Company invests in are generally non-investment grade, that is rated at or below Ba1 by Moody's Investors Service or at or below BB+ by Standard & Poor's or an equivalent rating by a third party rating agency.
The senior secured floating rate loans that comprise the Portfolio typically hold the most senior position in the capital structure of the borrower and are secured with specific collateral, giving lenders a claim on the assets that are senior to the claims of unsecured creditors, subordinated debt holders and stockholders of the borrower. The security package typically incorporates a first priority over all of the borrower's assets including receivables, inventory, bank accounts, property and plant and equipment. In the event of a default or bankruptcy, the holders of the loans should be in a better position to maximise recovery of their debt than other creditors due to their position in the capital structure.
The below chart shows the typical capital structure of a borrower.
Sample Capital Structure
http://www.rns-pdf.londonstockexchange.com/rns/7313B_-2017-4-5.pdf
Senior secured floating rate loans earn a variable rate of interest that includes a stated 'spread' (also known as the margin or coupon), which reflects issuer risk, over a widely accepted base rate such as LIBOR. The floating rate on senior secured floating rate loans typically resets every 30 to 90 days in line with the prevailing rate of LIBOR and, because such loans reset on a regular basis, the yield is described as ''floating''.
The Investment Manager's experience is that LIBOR floors are a common feature of almost all new loan issues in the U.S.; LIBOR floors guarantee a minimum level of LIBOR to investors irrespective of the prevailing interest rate.
If LIBOR exceeds the floor then such loans pay the prevailing LIBOR as well as the credit spread. The return is generated by LIBOR or the LIBOR floor, the spread over LIBOR paid by the borrower due to the terms of the underlying loan and the discount. The discount occurs because new issues are commonly priced, in the Investment Managers' experience, at a discount to the par value of the loan.
Indicative Breakdown of Senior Secured Loan returns
http://www.rns-pdf.londonstockexchange.com/rns/7313B_-2017-4-5.pdf
Investment Process
The Investment Manager focuses on experience-based, in-depth credit and industry analyses, disciplined portfolio construction and ongoing portfolio surveillance. The below diagram provides a high level overview of the Investment Manager's investment process.
http://www.rns-pdf.londonstockexchange.com/rns/7313B_-2017-4-5.pdf
Investment Discipline
The Investment Manager's investment discipline seeks to ensure, through its "credit best practices" checklist that it thoroughly understands the investment thesis for each investment and any underlying assumptions:
Top-Down Analysis
http://www.rns-pdf.londonstockexchange.com/rns/7313B_-2017-4-5.pdf
Bottom-Up Analysis
http://www.rns-pdf.londonstockexchange.com/rns/7313B_-2017-4-5.pdf
Investment Philosophy and Selection Process
http://www.rns-pdf.londonstockexchange.com/rns/7313B_-2017-4-5.pdf
Further information on the Company's investment strategy and process can be found in the Company's most recent prospectuses, which are available on the Company's website at www.nbgfrif.com under the "Investor Information" tab.
Hedging
As shares are denominated in Pound Sterling (Sterling Ordinary Shares) and U.S. Dollars (U.S. Dollar Ordinary Shares) and investments are denominated in U.S. Dollars, Euro or Pound Sterling, holders of any class of shares are subject to foreign currency fluctuations between the currency in which such shares are denominated and the currency of the investments made by the Company. Consequently, the Investment Manager seeks to engage in currency hedging between the U.S. Dollar and any other currency in which the assets of the Company or a class of shares is denominated, subject to suitable hedging contracts such as forward currency exchange contracts being available in a timely manner and on terms acceptable to the Investment Manager, in their sole and absolute discretion.
Gearing and Derivatives
The Company does not normally employ gearing or derivatives for investment purposes. The Company may, from time to time, use borrowings for share buybacks and short-term liquidity purposes. The Directors will restrict borrowing to an amount not exceeding 20% of the NAV at the time of drawdown. Derivatives are used for foreign exchange hedging purposes and the U.S. Dollar exposure for Sterling shareholders is explained in Note 2 of the financial statements.
Discount Controls
As set out in the Company's Articles of Incorporation (the "Articles"), if, as at 31 December in any calendar year, the shares of a particular class have, on average over the last three calendar months of the relevant calendar year, traded on the LSE at a discount in excess of 5% to the NAV per share of that class, the Directors will, subject to any legal or regulatory requirements, implement a redemption offer pursuant to which each holder of shares of the relevant class shall be offered the opportunity to redeem up to 50% of their shares of such class. This provision was not triggered at 31 December 2016.
FINANCIAL HIGHLIGHTS
Key Figures
|
(US$ in millions, except per share data) |
|
|
|
|
As at 31 December 2016 |
As at 31 December 2015 |
|
|
|
|
|
Net Asset Value |
|
|
|
- Sterling Ordinary Shares* |
$1,228.2 |
$1,665.3 |
|
- U.S. Dollar Ordinary Shares* |
$37.8 |
$49.7 |
|
|
|
|
|
Net Asset Value per share |
|
|
|
- Sterling Ordinary Shares |
£0.9787 |
£0.9422 |
|
- U.S. Dollar Ordinary Shares |
$0.9881 |
$0.9490 |
|
|
|
|
|
Investments |
$1,256.9 |
$1,715.0 |
|
|
|
|
|
Cash and Cash Equivalents |
$58.8 |
$80.1 |
|
|
|
|
|
12 month rolling dividend yield |
|
|
|
- Sterling Ordinary Shares ** |
4.18% |
4.13% |
|
- U.S. Dollar Ordinary Shares ** |
4.12% |
4.11% |
|
|
|
|
|
Share price |
|
|
|
- Sterling Ordinary Shares |
£0.9690 |
£0.9175 |
|
- U.S. Dollar Ordinary Shares |
$0.9875 |
$0.9238 |
|
|
|
|
|
Discount to Net Asset Value |
|
|
|
- Sterling Ordinary Shares |
(0.99%) |
(2.63%) |
|
- U.S. Dollar Ordinary Shares |
(0.06%) |
(2.66%) |
|
|
|
|
|
Total Return*** |
|
|
|
- Sterling Ordinary Shares |
8.17% |
0.32% |
|
- U.S. Dollar Ordinary Shares |
8.41% |
0.08% |
|
|
|
|
|
Total Expense Ratio**** |
|
|
|
- Sterling Ordinary Shares |
0.95% |
0.87% |
|
- U.S. Dollar Ordinary Shares |
0.93% |
0.84% |
* In the year to 31 December 2016, the Company repurchased 190.8 million Sterling Ordinary Shares at a total U.S. Dollar equivalent cost of $240.7m and 4.0 million U.S. Dollar Shares at a total cost of $3.7m.
** Rolling 12 month dividend yield based on the previous four quarterly dividends paid and share price as at 31 December.
*** The total return is the NAV return per share plus dividends paid during the period.
**** Management fees and all other operating expenses expressed as a percent of average net assets.
Financial Review
At 31 December 2016, the Net Assets of the Company amounted to $1,266,042,532 (2015: $1,714,972,853). The NAV attributable to the U.S. Dollar Ordinary Shares amounted to $ 37,814,352 (2015: $49,710,242) and the NAV per U.S. Dollar Ordinary Share was $0.9881 (2015: $0.9490). The NAV attributable to the Sterling Ordinary Shares amounted to £993,993,590 ($1,228,228,180) (2015:£1,129,834,189 ($1,665,252,611)) and the NAV per Sterling Ordinary Share was £0.9787 (2015: Ordinary Shares: £0.9422).
CHAIRMAN'S STATEMENT
Dear Shareholder,
It is my pleasure to present to you the Annual Report of NB Global Floating Rate Income Fund Limited (the "Company") for the year ended 31 December 2016.
Performance
2016 was a volatile year for global markets as investors digested the United Kingdom's decision to leave the European Union ("Brexit") and the surprise election of Donald Trump as the 45th President of the United States. United States and European senior secured floating rate loans performed well during the year as fears over increasing default rates failed to materialise and favourable economic indicators led the Federal Reserve to increase rates in December 2016 for only the second time in a decade.
The Board remains pleased with the performance of the Company and the progress made by the Investment Manager. During the year the Company's NAV total return (NAV plus dividends) was 8.17% and 8.41% for the Sterling Ordinary Shares and U.S. Dollar Ordinary Shares, respectively. During the same period the Company's share price total return was 5.6% per Sterling Ordinary Share and 6.9% per U.S. Dollar Ordinary Share, respectively reflecting a narrowing of the Company's discount from 2.63% per Sterling Ordinary Share and 2.66% per U.S. Dollar Share at the start of the year to 0.99% per Sterling Ordinary Share and 0.06% per U.S. Dollar Share. As at the latest practicable date prior to publication of this report the Company's Sterling Ordinary Shares and U.S. Dollar Ordinary Shares trade at a premium of 0.04% and 2.75% respectively.
Discount / Premium Management
During the year the Company's (discount)/premium ranged between -8.24% and 0.22% per Sterling Ordinary Share and -9.37% and 0.90% per U.S. Dollar Share. For periods in the year, both share classes traded at a discount wider than the Board's previously stated target of 3% in normal market conditions. Throughout these periods the Board continued to address temporary imbalances between supply and demand in the Company's shares by proactively repurchasing shares. In the year to 31 December 2016, the Company repurchased 190.7 million Sterling Ordinary Shares at a total cost of £171.5m and 4.0 million U.S. Dollar Shares at a total cost of $3.7m representing 15.9% and 7.7% of the share capital (less shares held in treasury) at the start of the year, respectively. The Company has not repurchased any shares from 21 November and up to the latest practicable date prior to publication of this report. Your Board will remain vigilant in its approach to discount and premium management on behalf of shareholders and reaffirms its belief that it is undesirable for the Company's shares to trade at much wider than a 3% discount in normal market conditions. Nor does the Board believe it is desirable for the Company's shares to trade on a wider than 3% premium for a sustained period of time.
Dividend
As at 31 December 2016, the annualised dividend based on the previous four quarterly dividends declared was 4.18% for the Sterling Ordinary Shares and 4.12% for the U.S. Dollar Ordinary. As at the latest practicable date prior to publication of this report, the Company's current dividend yield is 4.15% and 4.03% per Sterling Ordinary Share and U.S. Dollar Share respectively (calculated as the last four quarterly dividends declared in the period up to 31 December 2016 expressed as a percentage of the share price). This reduction is primarily a result of the fourth quarter 2016 dividend (which was paid on 17 February 2017) falling from £0.0109p to £0.0085 per Sterling Ordinary Share and $0.0110 to $0.0086 per U.S. Dollar Share when compared against the third quarter 2016 dividend. This reduction was primarily driven by a high volume of repricing transactions by loan issuers, particularly in the second half of the year. Your Board believes this dividend yield continues to represent attractive value on both an absolute and a risk-adjusted basis given the current low interest rate environment and taking account of the prudent investment approach taken by the Investment Manager.
Portfolio Construction
The Portfolio remains fully invested and continues to take advantage of global opportunities. As of 31 December 2016, 92.99% of the Company was invested in U.S. Dollar denominated assets, with 5.81% invested in Euro denominated assets and 1.20% in Sterling denominated assets (all excluding cash). These allocations reflect the investment opportunities available in the two markets with the United States, as measured by the S&P/LSTA Leveraged Loan Index, being $880bn as at the end of 2016 versus €113bn for the European market (S&P European Leveraged Loan Index). These geographical allocation levels have been relatively constant over the last 12 months reflecting both the market sizes and relative value between the two geographies.
During 2016 the Investment Manager kept the Portfolio's bond allocation well below the 20 per cent. of NAV permitted, being below 5.0 per cent. at each quarter end and closing December 2016 at 3.48%. The majority of the allocations were floating rate securities and only 1.57% of the Portfolio was fixed rate as the Investment Manager remained focused on keeping duration low and limiting potential areas of volatility. Additionally, allocations to higher rated assets continued with BB and above loans accounting for 51.69% of the NAV at the end of December 2016, up from 48.18% at the end of 2015.
The Investment Manager has constructed a diversified Portfolio of investments as at 31 December 2016, consisting of 301 investments across 234 issuers and 30 different sectors.
The Company's Sterling Ordinary Share class hedges all U.S. Dollar and Euro exposure back to Pound Sterling.
Continuation Vote
In accordance with the Company's Articles of Association (the "Articles"), on 5 April 2017 the Company held an Extraordinary General Meeting ("EGM") to consider the Company's continuation as a closed-ended investment company. I am pleased to report that shareholders voted overwhelmingly in favour of the Company's continuation at this meeting. At the same EGM shareholders approved an amendment to the Company's Articles to align the date of future continuation resolutions with the Company's Annual General Meeting ("AGM").
Outlook
Your Board believes that the outlook for 2017 is favourable for short duration asset classes such as senior secured floating rate loans. We expect to see further rate rises in 2017 and President Trump's anticipated expansionary policies will, if delivered, likely result in moderate U.S. economic growth and the pace of these rises may increase. The Investment Manager believes that default rates will stay below historical levels and credit quality is expected to remain favourable with the exception of some identifiable areas, such as commodity sectors. Furthermore, the restraints put on lending banks by regulators through the Interagency Guidance on Leveraged Lending will help to limit excess leverage in new issuance. Still, all of these positive tailwinds come with the caveat of significant uncertainty in political events, such as the upcoming European elections, Brexit negotiations, trade relations and the shaping of fiscal and monetary policies under Trump's administration, which have the potential to derail any positive momentum and could lead to increased volatility across global markets. The Investment Manager will continue to update you on the Company's progress by way of the monthly fact sheets and Investment Manager updates.
I would like to close by thanking you for your commitment and support.
___________________________
William Frewen
Chairman
5 April 2017
INVESTMENT MANAGER'S REPORT
Market Environment
The U.S. loan market, as measured by the S&P/LSTA Leveraged Loan Index, returned 10.16% for 2016.
After a challenging start in January and February, a "risk on" theme prevailed for the remainder of the year which meant that lower rated assets outperformed the better quality high single B/BB credits on which the Fund focuses.
In the U.S., demand for loans continued to be seen from collaterised loan obligation ("CLO") managers and retail funds and they reported annual inflows of $71 billion and $5.4 billion respectively. For the majority of the year, demand exceeded supply, which meant that a lot of the issuance that came to market was opportunistic, i.e., repricing of existing facilities or owners looking to take dividends or draw small add on facilities. The value of the Index ended the year at $887 billion, just $7 billion up for the year and, within that, approximately 80.9% of the Index names were trading at bid prices of 99 or above as compared to 29.9% at the same time last year. The U.S. trailing 12 month default rate ended 2016 at 1.58% by amount which was just marginally up, 0.04%, on the 2015 number.
In Europe the S&P European Leveraged Loan Index ("ELLI") recorded a full year total return of 5.72% and the average bid finished at 98.62, well up over the year from a 96.91 start point. Demand was strong and CLO issuance totalled €16.8bn, the largest annual issuance level pre crisis. During the year, more new deals were printed than got repaid and the ELLI actually rose in value to €114 billion, the highest level since 2010 and the first time it has grown for eight years. In Europe, the trailing 12-month default rate ended the year at 2.40%.
Portfolio Management
During 2016 the Portfolio remained very much weighted towards USD issuance which accounted for 93.3% of the Portfolio at the end of December. The bond allocation remained well below the 20% of NAV permitted, at 3.5%, as we remained focused on keeping duration low and limiting potential areas of volatility. We continued to allocate to better rated assets, and the BBB/BB weighting ended the year at 52.4%, up from 47.9% at the end of 2015.
Outlook
Our outlook for the loan market remains positive. Generally we feel that issuers are performing steadily, leverage is being controlled and cash cover metrics are strong. The market today is pricing in approximately a 2.7% implied default rate, which is in line with our 2017 expectations of 2-3%. We believe that moderate U.S. economic growth will lead to further interest rate increases, which should be constructive for senior floating rate loans. We continue to believe that loans will be attractive given the returns on offer, the expected low volatility compared to other risk asset classes and their senior secured nature.
Neuberger Berman Investment Advisers LLC Neuberger Berman Europe Limited
5 April 2017 5 April 2017
PORTFOLIO INFORMATION
Top 10 Issuers as at 31 December 2016 (excluding Cash)
|
Issuer |
Sector |
Fair value |
Portfolio Weight |
|
Valeant Pharma |
Drugs |
33,740,844.00 |
2.7% |
|
First Data |
Business Equipment & Services |
25,146,475.00 |
2.0% |
|
Texas Energy Future Holdings |
Utilities |
19,703,064.00 |
1.6% |
|
Avago Technologies |
Electronics/Electrical |
18,738,885.00 |
1.5% |
|
Community Health System |
Health Care |
16,637,580.00 |
1.3% |
|
Energy Transfer Equity |
Oil & Gas |
15,510,094.00 |
1.2% |
|
Intelsat |
Telecommunication/Cellular Communications |
14,692,419.00 |
1.2% |
|
Information Resources |
Business Equipment & Services |
13,731,457.85 |
1.1% |
|
Endo Pharmaceutical |
Drugs |
13,489,003.00 |
1.1% |
|
Reynolds Group |
Containers & Glass Products |
12,641,463.00 |
1.0% |
Top 10 S&P Sector Breakdown (ex Cash)
http://www.rns-pdf.londonstockexchange.com/rns/7313B_-2017-4-5.pdf
Key Statistics as at 31 December 2016
|
Current Gross Portfolio Yield* |
4.53% |
|
Number of Investments |
302 |
|
Number of Issuers |
235 |
*The Company's Current Gross Portfolio Yield is a market-value weighted average of the current yields of the holdings in the portfolio, calculated as the coupon (base rate plus spread) divided by current price. The calculation does not take into account any fees, fund expenses or sales charges paid, which would reduce the results. The Current Gross Portfolio Yield for the Company will fluctuate from month to month. The Current Gross Portfolio Yield should be regarded as an estimate of the Company's rate of investment income, and it will not equal the realised distribution rate for each share class.
Currency Breakdown
http://www.rns-pdf.londonstockexchange.com/rns/7313B_-2017-4-5.pdf
Rating Breakdown
Security Breakdown
STRATEGIC REPORT
Principal Risks and Risk Management
The Board is responsible for the Company's system of internal financial and operating controls and for reviewing its effectiveness. The Board also monitors the investment limits and restrictions set out in the Company's investment objective and policy. The principal risks and uncertainties that have been identified and the steps taken by the Board to mitigate these areas are as follows:
|
RISK |
MITIGATION |
Macroeconomic Conditions
|
Macroeconomic conditions change significantly and to the detriment of the portfolio or the Company causing a Credit or Liquidity risk to crystallise. |
The Board receives regular reports from the Investment Manager on the health of the Portfolio and the approach to managing credit risk and liquidity risk is set out further below. |
Credit Risk
|
The key risk for the Company remains Credit risk i.e. that the Investment Manager buys a loan or bond of a particular Issuer and it does not perform as expected and either defaults on a payment or experiences a significant drop in the secondary market value.
|
The Investment Manager carries out extensive, independent due diligence on each borrower, and has a particular focus on stable, performing credits that evidence strong track records through previous economic cycles. Additionally, the size of an issuer is also considered and the Investment Manager continues to favour the larger issuers in the market, defined by having debt issuance greater than $500m or equivalent in sterling or euros. These issuers tend to have broader syndicates, which can aid liquidity in the secondary market. As well as screening out the smaller issuers, the Investment Manager also excludes highly cyclical industries and companies with limited earning visibility from its Investment Process.
Once a particular investment has been made, the Investment Manager is very focused on the monitoring of it. A range of relevant data is reviewed on an ongoing basis for each investment, including, but not limited to, key financial drivers, commodity prices, stock prices, regulatory developments, financial results, press releases and management commentary to identify any indicators of credit deterioration.
To manage this risk further, the Board ensures a diversification of investments with the Investment Manager operating in accordance with the investment limits and restrictions policy determined by the Board. The Directors monitor the implementation and results of the investment process with the Investment Manager at each quarterly Board meeting and monitor risk factors in respect of the Portfolio.
|
Liquidity Risk
|
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 to ensure that the Company maintains sufficient working capital in cash or near cash form so as to be able to meet the Company's ongoing requirements as these are budgeted for. In addition the Investment Manager maintains a diversified portfolio of investments and assesses potential investments to screen smaller, potentially less liquid, issuers. |
Fund Performance
|
The Company's Investment performance could fall below its stated objective or peer group for a variety of reasons including market conditions. |
The Investment Manager has robust processes in place and monitors the underlying investments on a daily basis. The Board receives regular, detailed updates from the Investment Manager. |
Level of Discount or Premium
|
A discount or premium to NAV can occur for a variety of reasons, including market conditions or to the extent investors undervalue the management activities of the Investment Manager or discount their valuation methodology and judgment.
|
While the Directors may seek to mitigate any discount to NAV per Share through the discount management mechanisms set out in the Prospectus, there can be no guarantee that they will do so or that such mechanisms will be successful.
|
Operational Risk
|
Disruption to, or the failure of either the Investment Manager's, Administrator's or Sub- Administrator's accounting, dealings or payment systems, or the Custodian's records could prevent the accurate reporting or monitoring of the Company's financial position and the receipt or transmission of payments. |
Details of how the Board monitors the services provided by the Investment Manager, the Administrator and Sub-Administrator, and the key elements designed to provide effective internal control are explained further in the internal controls section of the Corporate Governance Report. The Investment Manager, the Company Secretary, the Administrator and Sub-Administrator are contracted to provide investment, company secretarial, administration and accounting services through qualified professionals and the Board receives regular internal control reports from the Administrator and Sub-Administrator that confirm compliance. Furthermore, the Company must comply with the provisions of the Law and, since its shares are admitted to listing on the Official List of the UK Listing Authority and to trading on the Main Market of the LSE, the Company is subject to the FCA's Listing, FCA's Disclosure and Transparency Rules ("DTRs"). A breach of the legislation could result in the Company and/or the Directors being fined or subject to criminal proceedings. A breach of the Listing Rules could result in the suspension of the Company's shares. The Board relies on its Company Secretary and advisers to ensure adherence to the Guernsey legislation and the FCA's rules.
|
Heat Map of Principal Risks
Principal Risks' Expected Direction of Change
Going Concern
The Directors also considered it appropriate to prepare the Financial Statements on the going concern basis, as explained in the basis of preparation paragraph in Note 2 to the Financial Statements. In making this statement the Directors have considered the levels of working capital available to the Company, the closed ended nature of the Company and the tradable nature of the investment portfolio held.
Viability Statement
The Directors have assessed the prospects of the Company over the three year period to 31 December 2019 in accordance with provision C.2.2 of the UK Corporate Governance Code, published by the Financial Reporting Council in September 2014 (the "Code"). The Board conducted this review for a period of 3 years, a period that was selected for the following reasons:
· The nature of the loan investments held by the Company have an aggregate maturity of approximately 3 years which allows the investment cash flows, recycling of investments, and expenditure commitments of the Company to be reasonably forecast over this timeframe.
· The impacts on the Company of other factors can be reasonably assessed within this timeframe. Beyond a 3 year timeframe, the impact of external forces, such as changes to legislation, market forces or other unknown factors, becomes less able to be predicted or assessed in analysing the viability of the company.
The 3 year review considers the Company's cash flow, cash distributions and other key financial ratios over the period. The 3 year review also makes certain assumptions about the normal level of expenditure likely to occur and considers whether additional financing facilities will be required. Furthermore, the 3 year review period to 31 December 2019 makes assumptions on the Company's continuation vote in 2018, and each year thereafter, as well as the annual Redemption Offer. The Directors note that the annual Redemption Offer will be triggered if, in the last three months of each calendar year, the Company's Ordinary Shares trade at an average discount to NAV in excess of 5%.
In its assessment of the viability of the Company, the Directors have carried out a robust assessment of the principal risks and uncertainties detailed in the Principal Risks and Risk Management section and in particular the impact of a significant fall in the value of the Company's investment portfolio. The Directors have performed a quantitative and qualitative analysis that included the Company's income and expenditure projections and the fact that the Company's investments include readily realisable securities which can be expected to be sold to meet funding requirements if necessary.
Based on the Company's processes for monitoring operating costs, the Investment Manager's compliance with the investment objective, asset allocation, the portfolio risk profile, liquidity risk and financial controls, and assuming normal market conditions the Directors have concluded that there is a reasonable expectation that the Company will be able to continue in operation and meet its liabilities as they fall due over the three year period to 31 December 2019.
Performance Measurement and Key Performance Indicators
In order to measure the success of the Company in meeting its objectives and to evaluate the performance of the Investment Manager, the Directors take into account the following performance indicators:
· Returns and NAV - The Board reviews at each board meeting the performance of the Portfolio as well as the NAV, income and share price of the Company;
· Discount/premium to NAV - At each quarterly Board meeting, the Board monitors the level of the Company's discount or premium to NAV and reviews the average discount/premium for the Company's peer group. The Company publishes a NAV per share for both share classes on a daily basis through the official newswire of the LSE. This figure is calculated in accordance with the AIC's guide which includes current financial year revenue, the same basis as that calculated for the Financial Statements;
· The Directors examine the revenue forecast quarterly and consider the yield on the Portfolio and the amount available for distribution; and
· The Board considers the peer group performance of other income funds at each quarterly Board meeting.
Management Arrangements
Investment Management Arrangements
On 17 July 2014, the Company, the Manager and the AIFM made certain classificatory amendments to their contractual arrangements for the purposes of the European Commission's Directive on Alternative Investment Fund Managers (the "AIFM Directive"). The Sub Investment Management Agreement was terminated on 17 July 2014 and Neuberger Berman Investment Advisers LLC, which was the Sub Investment Manager, was appointed as the AIFM per the amended and restated Investment Management Agreement ("IMA") dated 17 July 2014. Under this agreement, the AIFM is responsible for risk management and day-to-day discretionary management of the Company's Portfolios (including un-invested cash). The risk management and discretionary portfolio management functions are performed independently of each other within the AIFM structure. The AIFM is not required to, and generally will not, submit individual investment decisions for approval by the Board. The Manager, Neuberger Berman Europe Limited, was appointed under the same IMA to provide, amongst other things, certain administrative services to the Company. Please refer to Note 3 for details of fee entitlement.
The IMA can be terminated either by the Company on one hand or the Investment Manager, on the other, but in certain circumstances, the Company would be required to pay compensation to the Investment Manager of six months' management charges. No compensation is payable if notice of termination of more than six months is given.
Administration and Custody Agreement
Effective 1 March 2015, the Company entered into an Administration and Sub-Administration Agreement with U.S. Bancorp Fund Services (Guernsey) Limited ("U.S. Bancorp") and Quintillion Limited, a wholly-owned subsidiary of U.S. Bancorp. Under the terms of the agreement, Sub-Administration services are delegated to Quintillion Limited (the "Sub-Administrator"). U.S. Bank National Association (the "Custodian") was appointed custodian to the Company effective 1 March 2015.
See Note 3 for details of fee entitlement.
Company Secretarial and Registrar Arrangements
During 2016, company secretarial services were provided by C.L. Secretaries Limited, a wholly owned subsidiary of Carey Commercial Limited. Registrar services are provided by Capita Registrars (Guernsey) Limited.
See Note 3 for details of fee entitlement.
Related Party Transactions
The receipt of dividends by the Directors and the contracts between the Investment Manager and the Directors are the only related party transactions currently in place. Other than fees payable in the ordinary course of business, there have been no material transactions with these related parties, which have affected the financial position or performance of the Company in the financial year.
Further details on related party transactions can be found under Note 4 to the Financial Statements.
DIRECTORS
William Frewen (Chairman)
William Frewen is a resident of the United Kingdom and has extensive experience in the fixed income sector. William worked in a number of roles at Chemical Bank, Credit Suisse First Boston Limited and HSBC Bank plc from 1984 to 1998 before becoming head of Fixed Income Trading and deputy head of Capital Markets at Nomura International plc from 1998 to 2001. He served as the Non-Executive Chairman of Playgolf Holdings plc from 2004 to 2007, a company that was admitted to AIM in 2004 under his chairmanship. William also acted as a consultant to Man Group plc from 2005 to 2006 before becoming an executive member of the board and head of Fixed Income at Thread needle Asset Management from 2007 to 2010.
Sandra Platts (Chairman of the Management Engagement Committee and the Remuneration and Nomination Committee)
Sandra Platts is a resident of Guernsey and is a non-executive Director of Investec Bank (C.I.) Limited, UK Commercial Property Trust Limited and Starwood European Finance Partners Limited. Sandra was Managing Director of Kleinwort Benson in Guernsey and Chief Operating Officer for Kleinwort Benson Private Banking Group (UK and Channel Islands). She also held Directorships of the Kleinwort Benson Trust Company and Operating Boards, retiring from Kleinwort Benson boards in 2010. Sandra holds a Masters in Business Administration and The Certificate in Company Direction from the Institute of Directors.
Richard Battey (Chairman of the Audit and Risk Committee and Senior Independent Director)
Richard Battey is a resident of Guernsey and is a non-executive Director and Chairman of the Audit and Risk Committee of AcenciA Debt Strategies Limited, Better Capital PCC Limited, Juridica Investments Limited, Pershing Square Holdings Limited, Princess Private Equity Holding Limited and Prospect Japan Fund Limited. He is a Fellow of the Institute of Chartered Accountants in England and Wales having qualified with Baker Sutton & Co. in London in 1977. Richard has been a non-executive Director of a number of investment companies and funds since leaving CanArgo Energy Corporation in 2006 where he was Chief Financial Officer. Prior to that role, he spent 27 years with the Schroder Group. Richard was a Director of Schroders (C.I.) Limited in Guernsey from April 1994 to December 2004 where he served as Finance Director and Chief Operating Officer. He was a Director of a number of the Schroder Group's Guernsey companies covering banking, investment management, trusts, insurance and private equity administration, retiring from his last Schroder Directorship in December 2008.
Rupert Dorey
Rupert Dorey is a resident of Guernsey and has over 30 years of experience in financial markets. Mr Dorey was at Credit Suisse First Boston Limited for 17 years from 1988 to 2005 where he specialised in credit related products, including derivative instruments where his expertise was principally in the areas of debt distribution, origination and trading, covering all types of debt from investment grade to high yield and distressed debt. He held a number of senior positions at Credit Suisse First Boston Limited, including establishing Credit Suisse First Boston Limited 's high yield debt distribution business in Europe, fixed income credit product coordinator for European offices and head of UK Credit and Rates Sales. Since 2005 he has been acting in a Non-Executive Directorship capacity for a number of Hedge Funds, Private Equity & Infrastructure Funds, for both listed and unlisted vehicles. Rupert is a former President of the Guernsey Chamber of Commerce and is a member of the Institute of Directors.
DIRECTORS' REPORT
The Directors present their Report and Financial Statements of the Company and their Report for the year ended 31 December 2016.
Share Capital
Current Share Capital
The share capital of the Company consists of: (a) an unlimited number of shares which upon issue the Directors may classify as U.S. Dollar Shares, Sterling Shares or Euro Shares or as shares of such other classes as the Directors may determine; (b) an unlimited number of B Shares which upon issue the Directors may classify as B Shares of such classes denominated in such currencies as the Directors may determine; (c) an unlimited number of C Shares which upon issue the Directors may classify as C Shares of such classes denominated in such currencies as the Directors may determine.
The number of shares in issue at 31 December 2016 was as follows:
Sterling Ordinary Shares 1,090,614,330*
U.S. Dollar Ordinary Shares 41,242,736**
*of which 75,000,000 were held in treasury
**of which 2,972,627 were held in treasury
The number of shares in issue at the latest practicable date prior to publication of this report was as follows:
Sterling Ordinary Shares 1,090,785,213*
U.S. Dollar Ordinary Shares 41,679,510**
* of which 75,000,000 are held in treasury
** of which 2,222,627 are held in treasury
Share Repurchases
At the Annual General Meetings ("AGMs") of the Company held in June 2015 and June 2016, the Directors were granted the general authority to purchase in the market up to 14.99% of the Ordinary Shares of each class in issue (as at 17 June 2015 and 15 June 2016 respectively). This authority will expire at the AGM to be held on 14 June 2017. Pursuant to this authority, and subject to the Law and the discretion of the Directors, the Company may purchase Ordinary Shares of a particular class in the market on an ongoing basis with a view to addressing any imbalance between the supply of and demand for Ordinary Shares of such class, thereby increasing the NAV per Ordinary Share of that class and assisting in controlling the discount to NAV per Ordinary Share of that class in relation to the price at which the Ordinary Shares of such class may be trading.
During the year to 31 December 2016, the Company repurchased, in 182 tranches, 146,186,848 Sterling Ordinary Shares to be held in treasury and 44,574,446 Sterling Ordinary Shares for cancellation* representing 17.49% of the Sterling Ordinary Shares in issue as at 31 December 2016.
During the year to 31 December 2016, the Company repurchased, in 56 tranches, 2,970,000 U.S. Dollar Ordinary shares to be held in treasury and 1,078,600 U.S. Dollar Ordinary Shares for cancellation* representing 9.71% of the U.S. Dollar Ordinary Shares in issue as at 31 December 2016.
Since the year end and up to the latest practicable date prior to publication of this report the Company has not repurchased any Sterling Ordinary shares or U.S. Dollar Ordinary shares.
*Between 7-9 March 2016 the Company repurchased shares for cancellation.
The Directors intend to seek annual renewal of this authority from shareholders.
Share Issuances
Since the year end and up to the latest practicable date prior to publication of this report the Company's shares have traded between a discount of 5.75% and a premium of 1.05% for the Sterling Ordinary shares and between a premium of 0.11% and 6.49% for the U.S. Dollar Ordinary Shares. As a result of this the Board has sold out of treasury 1.4m U.S. Dollar Ordinary Shares at an average weighted premium of 3.03%.
Share Conversions
The Company offers a monthly conversion facility pursuant to which shareholders may elect to convert some or all of their shares of a class into shares of any other class. During the year to 31 December 2016, shareholders elected to convert 1,453,907 Sterling Ordinary Shares into U.S. Dollar Ordinary Shares and 12,044,553 U.S. Dollar Ordinary Shares into Sterling Ordinary Shares. Since the year end and up to the latest practicable date prior to publication of this report, shareholders have elected to convert 468,849 Sterling Ordinary Shares into U.S. Dollar Ordinary Shares and 790,261 U.S. Dollar Ordinary Shares into Sterling Ordinary Shares.
Dividends
The Company pays dividends to shareholders equal to the cash income it receives less its running costs paid in that year, subject to the solvency test prescribed by the Law. Distributions are made by way of dividends with respect to each calendar quarter. Dividends are paid in the currency of the class of shares in respect of which the dividend was declared.
The Articles also permit the Directors, in their absolute discretion, to offer a scrip dividend alternative to shareholders when a cash dividend is declared from time to time. In the event a scrip dividend is offered, an electing Shareholder is issued new, fully paid up shares (or shares reissued from treasury) pursuant to the scrip dividend alternative, calculated by reference to the higher of (i) the prevailing average mid-market quotation of the shares on the Daily Official List of the LSE over five trading days; or (ii) the NAV per share, at the relevant time. The scrip dividend alternative is available only to those shareholders to whom shares might lawfully be marketed by the Company. The Directors' intention is not to offer a scrip dividend at any time that the shares trade at a material discount to the NAV per Share. On 21 December 2015, due to the prevailing discount at that time, the Board decided to replace the scrip dividend alternative with a Dividend Re-investment Plan ("DRIP"), whereby shareholders have the option to re-invest their cash dividend in the Company's shares on an efficient basis.
The below table sets out the quarterly dividends paid by the Company that relate to 2016 performance:
|
Period |
Date Declared |
Payment Date |
Dividend per Sterling Share |
Dividend per U.S. Dollar Share |
|
|
|
|
|
|
|
Quarter ended 31 March 2016 - Ordinary Shares |
5 April 2016 |
25 May 2016 |
£0.01030 |
$0.01030 |
|
Quarter ended 30 June 2016 - Ordinary Shares |
6 July 2016 |
19 August 2016 |
£0.01080 |
$0.01080 |
|
Quarter ended 30 September 2016 - Ordinary Shares |
5 October 2016 |
17 November 2016 |
£0.0109 |
$0.0110 |
|
Quarter ended 31 December 2016 - Ordinary Shares |
5 January 2017 |
17 February 2017 |
£0.0085 |
$0.0086 |
Substantial Share Interests
Based upon information deemed reliable as provided by the Company's registrar, as at 9 March 2017, the following shareholders owned 5% or more of the issued shares of the Company.
|
Shareholder |
No. of Sterling Ordinary Shares |
No. of U.S. Dollar Ordinary Shares |
Percentage of Share Class (%) |
|
LYNCHWOOD NOMINEES LIMITED 2006420 ACCT |
81,457,158
|
1,108,123 |
7.47% 2.70% |
|
BBHISL NOMINEES LIMITED 129481 ACCT |
64,928,403 |
|
5.95% |
|
BNY (OCS) NOMINEES LIMITED |
62,164,934
|
4,795,633 |
5.70% 11.70% |
|
RATHBONE NOMINEES LIMITED |
39,922,677 |
|
3.66% |
*shareholdings within the U.S. Dollar Ordinary Share Class are greater than 5% of the U.S. Dollar Ordinary share in issue but do not have 5% in aggregate of the Company's issued share capital
Notifications of Shareholdings
In the year to 31 December 2016 the Company had been notified in accordance with Chapter 5 of the DTR (which covers the acquisition and disposal of major shareholdings and voting rights), of the following voting rights as a shareholder of the Company. When more than one notification has been received from any shareholder, only the latest notification is shown. For non-UK issuers, the thresholds prescribed under DTR 5.1.2 for notification of holdings commence at 5%. Notifications received by the Company below 5% are included here for completeness only.
|
Shareholder |
Number of Sterling Ordinary Shares |
Number of U.S. Dollar Ordinary Shares |
Percentage of total voting rights (%) |
|
Newton Investment Management Limited |
57,601,018 |
2,085,872 |
4.95% |
|
Ballie Gifford & Co |
N/A |
N/A |
<5.0% |
|
FIL Limited |
61,244,877 |
N/A |
5.62% |
|
The Royal Bank of Scotland Group Plc |
86,621,967 |
N/A |
5.07% |
|
HSBC Holdings Plc |
89,385,218 |
N/A |
5.37% |
Since the year-end, one notification was received by the Company
|
|
Number of Sterling Ordinary Shares |
Number of U.S. Dollar Ordinary Shares |
Percentage of total voting rights (%) |
|
Brewin Dolphin Limited |
146,585,299 |
2,316,775 |
8.95% |
Directorship Disclosures in Public Companies Listed on Recognised Stock Exchange
|
Company Names |
Exchange(s) |
|
|
|
|
Mr William Frewen |
|
|
Armadale Capital Plc |
AIM, London |
|
|
|
|
Mrs Sandra Platts |
|
|
Sequoia Economic Infrastructure Income Fund Limited |
London |
|
UK Commercial Property Trust Limited |
London |
|
|
|
|
Mr Richard Battey |
|
|
AcenciA Debt Strategies Limited |
London |
|
Juridica Investments Limited |
AIM, London |
|
Princess Private Equity Holding Limited |
London |
|
Better Capital PCC Limited |
London |
|
Prospect Japan Fund Limited |
London |
|
Pershing Square Holdings Limited |
Euronext, Amsterdam |
|
|
|
|
Mr Rupert Dorey |
|
|
Tetragon Financial Group Ltd Limited |
Euronext, Amsterdam |
|
Tetragon Financial Group Master Fund Limited |
Euronext, Amsterdam |
|
AP Alternative Assets LP, AAA Guernsey Limited |
Euronext, Amsterdam |
|
Partners Group Global Opportunities Limited |
Irish Stock Exchange |
|
M&G General Partner Inc, Episode LLP & Episode Inc. |
Irish Stock Exchange |
|
International Public Partnerships Ltd |
London |
Certain of the Directors maintain additional directorships in companies that are not listed on any recognised stock exchange. Details may be obtained from the Company Secretary.
Life of the Company
The Company does not have a fixed life. However, under Article 51 of the Company's Articles, the Directors are required to propose an Ordinary Resolution at each annual general meeting of the Company, commencing in the year 2018, that the Company continues its business as a closed-ended investment company. The first Continuation Resolution, which fell due on or before the third anniversary of Admission, was passed on 19 March 2014. The second Continuation Resolution fell on 5 April 2017, being before the sixth anniversary of Admission and was also duly passed.
If a Continuation Resolution is not passed, the Directors are required to put proposals to shareholders for the restructuring or reorganisation of the Company.
Anti-Bribery and Corruption Policy
The Board of the Company has a zero tolerance approach to instances of bribery and corruption. Accordingly, it expressly prohibits any Director or associated persons, when acting on behalf of the Company, from accepting, soliciting, paying, offering or promising to pay or authorise any payment, public or private, in the United Kingdom or abroad to secure any improper benefit for themselves or for the Company. The Investment Manager has also adopted a zero tolerance approach to instances of bribery and corruption.
The Board insists on strict observance with these same standards by its service providers in their activities for the Company and continues to refine its process in this regard.
Employees and Socially Responsible Investment
The Company has a management contract with the Investment Manager. It has no employees and all of its Directors are non-executive, with day-to-day activities being carried out by third parties. There are therefore no disclosures to be made in respect of employees. The Company's main activities are carried out by Neuberger Berman, which is a signatory of the Principles of Responsible Investment and has an ongoing commitment to strengthening and refining its environmental, social and governance approach. An overview of Neuberger Berman's Principal's for Responsible Investment is detailed on its website at www.nb.com/pages/public/en-gb/principles-for-responsible-investment.aspx.
Global Greenhouse Gas Emissions
The Company has no significant greenhouse gas emissions to report from its operations for the year to 31 December 2016 (2015 - none), nor does it have responsibility for any other emissions producing sources.
Gender Metrics
The Board consists of three men and one woman. More information on the Board's consideration of diversity is given in the Corporate Governance Report.
The Modern Slavery Act 2015 ("MSA")
The MSA requires companies to prepare a slavery and human trafficking statement for each financial year of the organisation. As the Company has no employees and does not supply goods or services, the MSA does not directly apply to it. The MSA requirements more appropriately relate to the Investment Manager which is a signatory of the Principles of Responsible Investment (please see "Employees and Socially Responsible Investment" above) which include social factors such as working conditions, including slavery and child labour.
Disclosure of Information to the Auditor
The Directors who were members of the Board at the time of approving this report are listed in the Directors section of the Financials Statements. Each of those Directors confirms that:
· to the best of his or her knowledge and belief, there is no information relevant to the preparation of their report of which the auditor is unaware; and
· he or she has taken all steps a director might reasonably be expected to have taken to be aware of relevant audit information and to establish that the Company's auditor is aware of that information.
For and on behalf of the Board
William Frewen
Chairman
5 April 2017
CORPORATE GOVERNANCE REPORT
Applicable Corporate Governance Codes
The Board of the Company has considered the principles and recommendations of the AIC Code of Corporate Governance (the "AIC Code"), by reference to the AIC Corporate Governance Guide for Investment Companies (the "AIC Guide"), both published in February 2013 and last amended in July 2016. The AIC Code, as explained by the AIC Guide, addresses all the principles set out in the UK Code as well as setting out additional principles and recommendations on issues that are of specific relevance to the Company.
The Board considers that reporting against the principles and recommendations of the AIC Code, and by reference to the AIC Guide (which incorporates the UK Code), will provide better information to shareholders. Copies of the AIC Code and the AIC Guide can be found at www.theaic.co.uk.
On 1 January 2012, the Guernsey Financial Services Commission's ("GFSC") "Finance Sector Code of Corporate Governance" came into effect. The GFSC has stated in its Code that companies, which report against the UK Code or the AIC Code, are deemed to meet their Code, and need take no further action.
Corporate Governance Statement
Throughout the year ended 31 December 2016 the Company has complied with the recommendations of the AIC Code and the relevant provisions of the UK Code, except where explanations have been provided.
For the reasons set out in the AIC Guide, and as explained in the UK Code, the Board considers the following provisions are not relevant to the position of the Company, being an externally managed investment company. In particular, all of the Company's day-to-day management and administrative functions are outsourced to third parties. As a result, the Company has no executive directors, employees or internal operations. The Company has therefore not reported further in respect of the following provisions of the following provisions:
· the role of the chief executive
· executive directors' remuneration
· internal audit function
The Directors believe that this Annual Report and Financial Statements ("Annual Report") presents a fair, balanced and understandable assessment of the Company's position and prospects, and provides the information necessary for shareholders to assess the Company's performance, business model and strategy.
The Company complies with the corporate governance statement requirements pursuant to the FCA's DTR by virtue of the information included in the Corporate Governance section of the Annual Report together with information contained in the Strategic Review and the Directors' Report.
Our Governance Framework
|
Chairman
William Frewen
Responsibilities:
The leadership, operation and governance of the Board, ensuring effectiveness, and setting the agenda for the Board.
More details are provided below.
|
||
|
The Board Members of NB Global Floating Rate Income Fund Limited:
William Frewen (Chairman), Sandra Platts, Richard Battey and Rupert Dorey - all independent non-executive Directors
Responsibilities:
Overall conduct of the Company's business and setting the Company's strategy.
More details are provided below.
|
||
|
Audit and Risk Committee
Members:
Richard Battey (Chairman) Rupert Dorey William Frewen Sandra Platts
Responsibilities:
The provision of effective governance over the appropriateness of the Company's financial reporting including the adequacy of related disclosures, the performance of the external auditor, and the management of the Company's systems of internal financial and operating controls and business risks.
More details in the Audit And Risk Committee Report.
|
Management Engagement Committee
Members:
Sandra Platts (Chairman) Richard Battey Rupert Dorey William Frewen
Responsibilities:
To review performance of all service providers (including the Investment Manager).
More details in the Management Engagement Committee Report.
|
Remuneration and Nomination Committee
Members:
Sandra Platts (Chairman) Richard Battey Rupert Dorey William Frewen
Responsibilities:
To ensure the Board comprises individuals with the necessary skills, knowledge and experience to ensure that the Board is effective in discharging its responsibilities and oversight of all matters relating to corporate governance, and to review the on-going appropriateness and relevance of the remuneration policy.
More details in the Remuneration and Nomination Committee Report.
|
Board Independence and Composition
The Board, chaired by William Frewen who is responsible for its leadership and for ensuring its effectiveness in all aspects of its role, currently consists of four non-executive Directors. The biographical details of the Directors holding office at the date of this report are listed in the Directors section of the Financial Statements, and demonstrate a breadth of investment, accounting and professional experience. Mr Battey as Chairman of the Audit and Risk Committee acts as Senior Independent Director when necessary. However, the Board considers that all the Directors have different qualities and areas of expertise on which they may lead where issues arise and to whom concerns can be conveyed. The balance and independence of the Board is kept under review by the Remuneration and Nomination Committee, details of which can be found in the Remuneration and Nomination Committee Report.
The Chairman and all Directors are all currently independent of the Company's Investment Manager, the Company Secretary, the Administrator and Sub-Administrator. The Directors consider that there are no factors, as set out in the AIC Code, which compromise the Directors' independence and that they all contribute to the affairs of the Company in an adequate manner. The Board reviews the independence of all Directors annually and is re-assessed at each Board meeting.
The Company Secretary, C.L. Secretaries Limited, a wholly owned subsidiary of Carey Group, through its representative acts as Secretary to the Board and Committees and in doing so it:
· assists the Chairman in ensuring that all Directors have full and timely access to all relevant documentation;
· organises induction of new Directors; and
· is responsible for ensuring that the correct Board procedures are followed and advises the Board on corporate governance matters.
Directors' Appointment
No Director has a service contract with the Company. Directors have agreed letters of appointment with the Company, copies of which are available for review by shareholders at the Registered Office and will be available at the 2017 AGM. William Frewen, Richard Battey and Sandra Platts have served since incorporation of the Company. Rupert Dorey has served since 1 March 2015. Any Director may resign in writing to the Board at any time.
In accordance with the AIC Code, as a FTSE 250 company, all Directors will be subject to re-election annually by shareholders. The Remuneration and Nomination Committee reviewed the independence, contributions and performance of all Directors during the 2016 Board Evaluation process and have determined that it is in the best interests of the Company to propose that all Directors are proposed for re-election.
Tenure of Non-Executive Directors
The Board has adopted a policy on tenure that is considered appropriate for an investment company. The Board does not believe that length of service, by itself, leads to a closer relationship with the Investment Manager or necessarily affects a Director's independence. The Board's tenure and succession policy seeks to ensure that the Board is well balanced and will be refreshed from time to time by the appointment of new Directors with the skills and experience necessary to replace those lost by Directors' retirements. The Board seeks to encompass relevant past and current experience of various areas relevant to the Company's business.
Directors are expected to devote such time as is necessary to enable them to discharge their duties. Other business relationships, including those that conflict or may potentially conflict with the interests of the Company, are taken into account when appointing Board members and are monitored on a regular basis.
The dates of appointment of all Directors are provided in the Directors' Remuneration Report and a summary on shareholder elections is provided below.
|
|
Date first elected by shareholders |
Years from first election to 2017 AGM |
Considered to be independent by the Board |
|
William Frewen |
June 2012 |
5 |
Yes |
|
Sandra Platts |
June 2012 |
5 |
Yes |
|
Richard Battey |
June 2012 |
5 |
Yes |
|
Rupert Dorey |
June 2015 |
2 |
Yes |
Re-election of Directors
William Frewen, Richard Battey, Rupert Dorey and Sandra Platts submit themselves for re-election at the AGM to be held on 14 June 2017. The Remuneration and Nomination Committee confirmed to the Board that the contributions made by the Directors offering themselves for re-election at the 2017 AGM continue to be effective and that the Company should support their re-election.
Board Diversity
The Board considers that its members have a balance of skills and experience which are relevant to the Company. The Board supports the recommendations of the Davies Report and believes in the value and importance of diversity in the boardroom but it does not consider it is appropriate or in the interests of the Company and its shareholders to set prescriptive targets for gender or nationality on the Board. At 31 December 2016 the Board had 25% female representation. The Board continues to focus on encouraging diversity of business skills and experience, recognising that Directors with diverse skills sets, capabilities and experience gained from different backgrounds enhance the Board.
Board Responsibilities
The Board meets at least four times each year and deals with the important aspects of the Company's affairs including the setting and monitoring of investment strategy, and the review of investment performance. The Investment Manager takes decisions as to the purchase and sale of individual investments, in line with the investment policy and strategy set by the Board. The Investment Manager together with the Company Secretary, Administrator and Sub-Administrator also ensures that all Directors receive, in a timely manner, all relevant management, regulatory and financial information relating to the Company and its portfolio of investments. Representatives of the Investment Manager attend each Board meeting, enabling Directors to question any matters of concern or seek clarification on certain issues. Matters specifically reserved for decision by the full Board have been defined and a procedure adopted for Directors in the furtherance of their duties to take independent professional advice at the expense of the Company. This is available on the Company's website www.nbgfrif.com.
Conflict of Interests
Directors are required to disclose all actual and potential conflicts of interest to the Board as they arise for consideration and the Board may impose restrictions or refuse to authorise conflicts if deemed appropriate. The Directors have undertaken to notify the Company Secretary as soon as they become aware of any new potential conflicts of interest that would need to be approved by the Board. Only Directors who have no material interest in the matter being considered will be able to participate in the Board approval process.
It has also been agreed that the Directors will advise the Chairman and the Company Secretary in advance of any proposed external appointment.
None of the Directors had a material interest in any contract, which is significant to the Company's business. The Directors' Remuneration Report provides information on the remuneration and interests of the Directors. The Directors' Report details Directors' appointments on other listed companies.
Performance Evaluation
The performance of the Board, its committees and the Directors was reviewed by the Remuneration and Nomination Committee in November 2016 by means of an internal questionnaire. The Company Secretary collated the results of the questionnaires and the consolidated results were reviewed and discussed by the Board, as lead by the Chairman of the Remuneration and Nomination Committee. No areas of concern were raised.
As a result of the suggestions made in this year's Board performance evaluation, the Board has agreed:
· That all Directors are considered independent;
· All Directors should be proposed for reappointment at the 2017 AGM; and
· The Board composition was diverse and appropriate in regards to skills, number, experience and gender.
In addition, the Remuneration and Nomination Committee (excluding Mr Frewen) reviewed the performance of the Chairman in his role led by the Chairman of the Remuneration and Nomination Committee. All Directors are members of the Remuneration and Nomination Committee and as such it is not considered necessary for the SID to lead the discussions, as all Directors participate. The independence of all Directors was also considered. The Chairman reviews each individual Directors' contribution.
The Board intends to appoint an external consultant to conduct an externally facilitated review in 2017, and will continue to review its procedures, its effectiveness and development in the year ahead.
Induction/Information and Professional Development
Directors are provided, on a regular basis, with key information on the Company's policies, regulatory requirements and its internal controls. Regulatory and legislative changes affecting Directors' responsibilities are advised to the Board as they arise along with changes to best practice from, amongst others, the Company Secretary and the Auditor. Advisers to the Company also prepare reports for the Board from time to time on relevant topics and issues. In addition, Directors attend relevant seminars and events to allow them to continually refresh their skills and knowledge and keep up with changes within the investment company industry. The Chairman reviewed the training and development needs of each Director during the annual Board evaluation process, and is satisfied that all Directors actively keep up to date with industry developments and issues.
When a new Director is appointed to the Board, he/she will be provided with all relevant information regarding the Company and his/her duties and responsibilities as a Director. In addition, a new Director will also spend time with representatives of the Investment Manager in order to learn more about their processes and procedures.
Independent Advice
The Board recognises that there may be occasions when one or more of the Directors feels it is necessary to take independent legal advice at the Company's expense. A procedure has been adopted to enable them to do so, which is managed by the Company Secretary.
Indemnities
To the extent permitted by the Law, the Company's Articles provide an indemnity for the Directors against any liability except such (if any) as they shall incur by or through their own breach of trust, breach of duty or negligence. Each Director has an Instrument of Indemnity with the Company.
During the year, the Company has maintained insurance cover for its Directors and Officers under a Directors' and Officers' liability insurance policy.
Relationship with the Investment Manager, Company Secretary, Administrator and Sub-Administrator
The Board has delegated various duties to external parties including the management of the investment portfolio, the custodial services (including the safeguarding of assets), the registration services and the day-to-day company secretarial, administration and accounting services. Each of these contracts was entered into after full and proper consideration by the Board of the quality and cost of services offered, including the control systems in operation in so far as they relate to the affairs of the Company.
The Board receives and considers reports regularly from the Investment Manager, Administrator, Sub-Administrator and Company Secretary along with ad hoc reports and information supplied to the Board as required. The Investment Manager takes decisions as to the purchase and sale of individual investments. The Investment Manager, Company Secretary, Administrator and Sub-Administrator also ensure that all Directors receive, in a timely manner, all relevant management, regulatory and financial information. Representatives of the Investment Manager, Company Secretary, Administrator and Sub-Administrator attend each Board meeting enabling the Directors to probe further on matters of concern. A formal schedule of matters specifically reserved for decision by the full Board has been defined and is reviewed annually, and a procedure adopted for Directors, in the furtherance of their duties, to take independent professional advice at the expense of the Company within certain parameters. The Directors have access to the advice and service of the corporate Company Secretary through its appointed representative who is responsible to the Board for ensuring that Board procedures are followed and that applicable rules and regulations are complied with. The Board, the Investment Manager, Company Secretary, Administrator and Sub-Administrator operate in a supportive, co-operative and open environment.
Shareholder Engagement
The Board believes that the maintenance of good relations with shareholders is important for the long-term prospects of the Company. It has, since admission, sought engagement with shareholders. Where appropriate the Chairman, and other Directors are available for discussion about governance and strategy with shareholders and the Chairman ensures communication of shareholders' views to the Board. The Board receives feedback on the views of shareholders from its Corporate Brokers and the Investment Manager, and shareholders are welcome to contact the Chairman, Senior Independent Director or any other Director at any time via the Company Secretary.
During the year the Company continued quarterly investor update calls, which can be accessed via conference call or WebEx, details are published via an RIS. The update calls are also made available on the Company's website at www.nbgfrif.com. The Board also welcomes the opportunity to meet with investors on a one-to-one basis, upon request.
The Chairman of the Remuneration and Nomination Committee will consult with shareholders should it be proposed to increase the current aggregate limit of annual Director's fees as set out in the Company's Articles of Incorporation.
The Board believes that the AGM provides an appropriate forum for shareholders to communicate with the Board, and encourages participation. All Directors will attend the 2017 AGM. There is an opportunity for individual shareholders to question the Chairman of the Board, the Senior Independent Director, the Audit and Risk Committee, the Management Engagement Committee and the Remuneration and Nomination Committee at the AGM.
The Annual and Interim Reports, monthly fact sheet and monthly holdings are available to provide shareholders with a clear understanding of the Company's activities and its results. This information is supplemented by the daily calculation and publication on the London Stock Exchange of the NAV of the Company's Ordinary Shares. The Board is informed of relevant promotional documents issued by the Investment Manager. All documents issued by the Company can be viewed on the website, www.nbgfrif.com.
2017 AGM
The 2017 AGM will be held in Guernsey on 14 June 2017. The Notice for the AGM sets out the ordinary and special resolutions to be proposed at the meeting. Separate resolutions are proposed for each substantive issue.
It is the intention of the Board that the Notice of AGM be issued to shareholders so as to provide at least twenty working days' notice of the meeting. Shareholders wishing to lodge questions in advance of the meeting and specifically related to the resolutions proposed are invited to do so by writing to the Company Secretary at the registered office address given in the Contact Details of The Advisers. At other times, the Company Secretary responds to letters from shareholders on a range of issues.
Voting on all resolutions at the AGM is on a poll. The proxy votes cast, including details of votes withheld are disclosed to those in attendance at the meeting and the results are published on our website and announced via a RIS Service. Where the Board considers that a significant number of votes have been lodged against a proposed resolution, the Board intends to identify those shareholders and further understand their views.
Board Meetings
The Board meets at least quarterly. Certain matters are considered at all quarterly board meetings including the performance of the investments, NAV and share price and associated matters such as asset allocation, risks, strategy, marketing and investor relations, peer group information and industry issues. Consideration is also given to administration and corporate governance matters, and where applicable, reports are received from the board committees.
Directors unable to attend a board meeting are provided with the board papers and can discuss issues arising in the meeting with the Chairman or another non-executive Director.
Attendance at scheduled meetings of the Board and its committees in the 2016 financial year
|
|
Board |
Ad-hoc Board Meetings |
Audit and Risk Committee |
Remuneration and Nomination Committee |
Management Engagement Committee |
|
Number of meetings during the year |
4 |
8 |
3 |
1 |
1 |
|
William Frewen* |
4 |
0 |
2 |
1 |
1 |
|
Rupert Dorey |
4 |
4 |
3 |
1 |
1 |
|
Richard Battey |
4 |
5 |
3 |
1 |
1 |
|
Sandra Platts |
4 |
6 |
3 |
1 |
1 |
* It is not deemed cost effective for the Company for Mr Frewen to travel to Guernsey for the ad-hoc meetings to approve dividends in line with the Company's dividend policy; he does, however, attend all quarterly board meetings.
Board Committees
The Board has established an Audit and Risk Committee, a Management Engagement Committee and a Remuneration and Nomination Committee with defined terms of reference and duties. Further details of these committees can be found in their reports. The terms of reference for each committee can be found on the Company's website www.nbgfrif.com.
The Board has not established an Inside Information Committee as a quorum of the Board will review and determine inside any information and any delay to the disclosure thereof to meet the requirements of the EU Market Abuse Regulations.
For and on behalf of the Board
William Frewen
Chairman
5 April 2017
AUDIT AND RISK COMMITTEE REPORT
Membership
Richard Battey - Chairman (Independent non-executive Director)
Sandra Platts (Independent non-executive Director)
Rupert Dorey (Independent non-executive Director)
William Frewen* (Company Chairman and independent non-executive Director)
* The Board believes it is appropriate for the Company Chairman to be a member of the Audit and Risk Committee as he is an independent non-executive Director.
Key Objectives
The provision of effective governance over the appropriateness of the Company's financial reporting including the adequacy of related disclosures, the performance of the external auditor, and the management of the Company's systems of internal financial and operating controls and business risks.
Responsibilities
· Reviewing the Company's financial results announcements, Financial Statements and monitoring compliance with relevant statutory and listing requirements;
· Reporting to the Board on the appropriateness of the Company's accounting policies and practices including critical accounting policies and practices;
· Advising the Board on whether the Audit and Risk Committee believes the Annual Report, taken as a whole, is fair, balanced and understandable and provides the information necessary for shareholders to assess the Company's performance, business model and strategy;
· Overseeing the relationship with the external auditor;
· Considering the financial and other implications on the independence of the auditor arising from any non-audit services to be provided by the auditor;
· Analysis of key procedures adopted by the Company's service providers;
· Reporting to the Board on the effectivenss of the Company's risk management framework; and
· Compiling a report on its activities to be included in the Company's Annual Report.
The Audit and Risk Committee members have a wide range of financial and commercial expertise necessary to fulfil the Audit and Risk Committee's duties. The Chairman of the Audit and Risk Committee is a Fellow of the Institute of Chartered Accountants in England and Wales, and has recent and relevant financial experience, as required by the AIC Code. Therefore the Board has designated him as its financial expert on the Audit and Risk Committee.
Audit and Risk Committee Meetings
The Audit and Risk Committee meets at least three times a year. Only members of the Audit and Risk Committee and the Secretary of the Audit and Risk Committee have the right to attend Audit and Risk Committee meetings. However, representatives of the Investment Manager, Administrator and Sub-Administrator will be invited to attend Audit and Risk Committee meetings on a regular basis and other non-members may be invited to attend all or part of the meeting as and when appropriate and necessary. The Company's external auditor, PricewaterhouseCoopers CI LLP ("PwC") is also invited to each meeting. The Chairman of the Audit and Risk Committee also met separately with PwC without the Investment Manager being present.
Main Activities during the Year
The Audit and Risk Committee assists the Board in carrying out its responsibilities in relation to financial reporting requirements, risk management and the assessment of internal financial and operating controls. It also manages the Company's relationship with the external auditor. Meetings of the Audit and Risk Committee generally take place prior to a Company Board meeting. The Audit and Risk Committee reports to the Board as part of a separate agenda item, on the activity of the Audit and Risk Committee and matters of particular relevance to the Board in the conduct of their work.
The Audit and Risk Committee reviews the effectiveness of the Company's risk management framework in relation to the investment policy; assessment of the risks involved in the Company's business and how they are controlled and monitored by the Investment Manager; monitors and reviews the effectiveness of the risk management function of the Investment Manager, Administrator and the Sub-Administrator; reviews the risks associated with the valuation of investments; and reviews the Company's procedures concerning prevention and detection of fraud and to review the Company's arrangements for regulatory compliance.
The Board requested that the Audit and Risk Committee advise them on whether it believes the Annual Report, taken as a whole, is fair, balanced and understandable and provides the information necessary for shareholders to assess the Company's performance, business model and strategy.
The Audit and Risk Committee's terms of reference were updated during the year and can be found on the Company's website www.nbgfrif.com.
At its three meetings during the year, the Audit and Risk Committee focused on:
Financial Reporting
The primary role of the Audit and Risk Committee in relation to financial reporting is to review with the Investment Manager, Company Secretary, Administrator, Sub-Administrator and PwC the appropriateness of the half-year and annual Financial Statements concentrating on, amongst other matters:
· The quality and acceptability of accounting policies and practices;
· The clarity of the disclosures and compliance with financial reporting standards and relevant financial and governance reporting requirements;
· Material areas in which significant judgements have been applied or there has been discussion with the external auditor;
· The review of the Viability Statement included in the Strategic Report;
· Whether the Annual Report, taken as a whole, is fair, balanced and understandable and provides the information necessary for shareholders to assess the Company's performance, business model and strategy; and
· Any correspondence from regulators in relation to the quality of our financial reporting.
To aid its review, the Audit and Risk Committee considers reports from the Investment Manager, Company Secretary, Administrator, Sub-Administrator and also reports from the external auditor on the outcomes of their half-year review and annual audit.
Significant Issues
In relation to the Annual Report for the year ended 31 December 2016, the following significant issue was considered by the Audit and Risk Committee:
Significant issue How the Issue was Addressed
1. The valuation of the Company's investments The Audit and Risk Committee analysed the Investment portfolio of the Company in terms of investment mix, fair value hierarchy and valuation. As explained in Note 5 the majority of the investment portfolio is at Level 2 of the fair value hierarchy which requires market corroborated inputs for the calculation of fair value. The Audit and Risk Committee discussed in depth with the Investment Manager the appropriateness and robustness of the multi-sourced pricing information used. The members of the Audit and Risk Committee had meetings with PwC, where the audit findings were reported. PwC did not notify the Audit and Risk Committee of any reportable differences between the valuations used by the Company or custodian confirmation of holdings and the work performed during the testing process. Based on the above review and analysis the Audit and Risk Committee confirmed that they were satisfied with the valuation of the investments.
Internal Controls and Risk Management
The Audit and Risk Committee has established a process for identifying, evaluating and managing any major risks faced by the Company. The process is subject to regular review by the Board and accords with the UK Code.
The Audit and Risk Committee is responsible overall for the Company's system of internal financial and operating controls and for reviewing its effectiveness. However, such a system is designed to manage rather than eliminate risks of failure to achieve the Company's business objectives and can only provide reasonable and not absolute assurance against material misstatement or loss.
The Audit and Risk Committee receives reports from the Investment Manager on the Company's risk evaluation process and reviews changes to significant risks identified. The Board has undertaken a full review of the Company's business risks, which have been analysed and recorded in a risk report, which is reviewed and updated regularly. The Board receives each quarter from the Investment Manager a formal report which details the steps taken to monitor the areas of risk including those that are not directly the responsibility of the Investment Manager and which reports the details of any known internal control failures.
The Investment Manager has established an internal control framework to provide reasonable but not absolute assurance on the effectiveness of the internal controls operated on behalf of its clients. The effectiveness of the internal controls is assessed by the Investment Manager's compliance and risk department on an ongoing basis.
The Board's assessment of the Company's principal risks and uncertainties is set out in the Principal Risks and Risk Management section of the Financial Statements.
External Audit
The effectiveness of the external audit process is dependent on appropriate audit risk identification at the start of the audit cycle. The Audit and Risk Committee received a detailed audit plan from PwC identifying their assessment of the significant audit risks. For the 2016 financial year the significant audit risks identified were in relation to the risk of management override of controls and the risk of fraud in revenue recognition. These significant risks were tracked through the year and the Audit and Risk Committee challenged the work performed by the auditor to test both the risk of management override of controls and the risk of fraud in revenue recognition. In addition, the Audit and Risk Committee focused on understanding the work performed over the valuation of investments. The Audit and Risk Committee assess the effectiveness of the audit process in addressing these matters through the reporting received from PwC at both the half-year and year-end. In addition, the Audit and Risk Committee seeks feedback from the Investment Manager, Company Secretary, the Administrator and Sub-Administrator on the effectiveness of the audit process. For the 2016 financial year, the Audit and Risk Committee was satisfied that there had been appropriate focus and challenge on the significant and other key areas of audit risk and assessed the quality of the audit process to be good.
During the year, the Committee performed its annual review of the independence, effectiveness and objectivity of the external auditor and considered the Financial Reporting Council's ("FRC") Audit Quality Review of PwC's previous audit work. The Committee concluded that the effectiveness of the external auditor and the audit process were satisfactory and recommended to the Board the reappointment of PwC as external auditor for the 2017 financial year.
Appointment and Independence
The Audit and Risk Committee considers the reappointment of PwC, including the rotation of the audit partner, and assesses their independence on an annual basis. PwC is required under Ethical Standards to rotate the audit partner responsible for the audit every five years. The current audit partner has overseen the audit of the Company for the four financial years to 31 December 2016. PwC has been the Company's statutory auditor since its stock exchange listing in 2011 and has to date audited all six financial years to 31 December 2016. The Company is incorporated in Guernsey, and therefore despite being listed on the Main Market of the London Stock Exchange and being in the FTSE350 Index, it is not required to comply with The Statutory Audit Services for Larger Companies Market Investigation (Mandatory Use of Competitive Tender Processes and Audit Committee Responsibilities) Order 2014 (the "Order") which came into force in the UK on 1 January 2015. The Audit and Risk Committee does however keep these developments under review when determining policy on audit tendering and therefore the Company will seek to comply with the provisions of the Order. In the past the Company has been guided by the UK Corporate Governance Code as to the recommendation to put the external audit out to tender at least every ten years. As this year is the sixth for publishing the Company's Annual Report and the Company has not yet completed a competitive tender process for auditor appointments, the Company is presently minded that it will complete such a tender process in respect of the audit of the financial statements for the year ended 31 December 2020. The Company presently believes that this is in the best interests of shareholders in view of the quality and level of service presently being provided by PwC. Having carried out a review of the performance of PwC for this current financial reporting period, it is currently expected that PwC will remain in office and a resolution to reappoint them for the 2017 audit will therefore be proposed at the AGM.
In its assessment of the independence of the external auditor, the Audit and Risk Committee receives details of any relationships between the Company and PwC that may have a bearing on their independence and receives confirmation that the external auditor is independent of the Company.
The Audit and Risk Committee approved the fees for audit services for 2016 after a review of the level and nature of work to be performed, and after being satisfied by PwC that the fees were appropriate for the scope of the work required.
Non Audit Services
To safeguard the objectivity and independence of the external auditor from becoming compromised, the Audit and Risk Committee has a formal policy governing the engagement of the external auditor to provide non-audit services. No material changes have been made to this policy during the year. The external auditor and the Directors have agreed that all non-audit services require the pre-approval of the Audit and Risk Committee prior to commencing any work. Fees for non-audit services are tabled annually so that the Audit and Risk Committee can consider the impact on external auditor's objectivity.
The external auditor was remunerated £120,102 for the services rendered in 2016. Of this amount, £87,040 was in relation to the year-end audit and £33,062 was in relation to the procedures performed in respect to the half-year review. No non-audit services were undertaken by PwC for the Company during the year.
The Audit and Risk Committee is satisfied with the effectiveness of the audit provided by PwC, and is satisfied with their independence. The Audit and Risk Committee has therefore recommended to the Board that PwC be reappointed as external an auditor for the year ending 31 December 2017, and to authorise the Directors to determine their remuneration. The auditor, PwC, has indicated willingness to continue in office. Accordingly, a resolution proposing the reappointment of PwC as our external auditor will be put to the shareholders at the 2017 AGM. There are no contractual obligations restricting the Audit and Risk Committee's choice of external auditor and we do not indemnify our external auditor.
Audit and Risk Committee Evaluation
The Audit and Risk Committee's activities formed part of the Board evaluation performed in the year. Details of this process can be found under "Performance evaluation".
Richard Battey
On behalf of the Audit and Risk Committee
5 April 2017
MANAGEMENT ENGAGEMENT COMMITTEE ("MEC") REPORT
Membership
Sandra Platts - Chairman (Independent non-executive Director)
Richard Battey (Independent non-executive Director)
Rupert Dorey (Independent non-executive Director)
William Frewen (Company Chairman and independent non-executive Director)
Key Objectives
To review performance of all service providers (including the Investment Manager).
Responsibilities
· To annually review the performance, relationships and contractual terms of all service providers (including the Investment Manager);
· Review and make recommendations on any proposed amendment to the Investment Management Agreement; and
· To review the performance of, and contractual arrangements with the Investment Manager including:
§ Monitor and evaluate the Investment Manager's investment performance and, if necessary providing appropriate guidance;
§ To consider whether an independent appraisal of the Investment Manager's services should be made;
§ To consider requiring the Investment Manager to provide attribution and volatility analyses and considering whether these should be published;
§ Review the level and method of remuneration and the notice period, using peer group comparisons; and
§ To ensure that the Investment Manager has a sound system of risk management and internal controls and that these are maintained to safeguard shareholders' investment and the Company's assets.
MEC Meetings
Only members of the MEC and the Secretary have the right to attend MEC meetings. However, representatives of the Investment Manage, Administrator and Sub-Administrator may be invited by the MEC to attend meetings as and when appropriate.
Main Activities during the Year
The MEC met once during the year and reviewed the performance, relationships and contractual terms of all service providers as at 16 November 2016 including the Investment Manager. The MEC reviewed the terms of reference for the MEC and considered that they remained appropriate. The terms of reference are available on the Company's website www.nbgfrif.com.
Continued Appointment of the Investment Manager and other Service Providers
The Board reviews investment performance at each Board meeting and a formal review of all service providers is conducted annually by the MEC.
As a result of the 2016 annual review it is the opinion of the Directors that the continued appointment of the current Investment Manager and other service providers on the terms agreed is in the interest of the Company's shareholders as a whole. The Board considers that the Investment Manager has extensive investment management resources and wide experience in managing investments and is satisfied with the quality and competitiveness of the fee arrangements of the Company's other service providers.
Sandra Platts
On behalf of the Management Engagement Committee
5 April 2017
REMUNERATION AND NOMINATION COMMITTEE ("RNC") REPORT
Membership
Sandra Platts - Chairman (Independent non-executive Director)
Richard Battey (Independent non-executive Director)
Rupert Dorey (Independent non-executive Director)
William Frewen (Company Chairman and independent non-executive Director)
Key Objectives
To ensure the Board comprises individuals with the necessary skills, knowledge and experience to ensure that it is effective in discharging its responsibilities and oversight of all matters relating to corporate governance, and to review the on-going appropriateness and relevance of the remuneration policy.
Responsibilities
· Determine the remuneration of the Directors;
· Prepare an annual report on Directors' remuneration;
· Considers the need to appoint external remuneration consultants;
· Regularly reviews and makes recommendations in relation to the structure, size and composition of the Board including the diversity and balance of skills, knowledge and experience, and the independence of the non-executive Directors;
· Oversees the performance evaluation of the Board, its committees and individual Directors (see Corporate Governance Report);
· Reviews the tenure of each of the non-executive Directors;
· Leads the process for identifying and making recommendations to the Board regarding candidates for appointment as Directors, giving full consideration to succession planning and the leadership needs of the Company;
· Makes recommendations to the Board on the composition of the Board's committees; and
· Is responsible for the oversight of all matters relating to corporate governance, bringing any issues to the attention of the Board.
RNC Meetings
Only members of the RNC and the Secretary have the right to attend RNC meetings. However, representatives of the Investment Manager, Administrator and Sub-Administrator are invited by the RNC to attend meetings as and when appropriate. In the event of matters arising concerning either an individual's membership of the Board or their remuneration, they would absent themselves from the meeting as required and another independent non-executive Director would take the chair if this applied to the RNC Chairman.
Main Activities during the Year
The RNC met once during the year and considered succession planning and replenishment of the Board. The RNC also reviewed the results of the annual internal board evaluation and considered that the balance of skills, experience, independence and knowledge of the Company was appropriate.
The terms of reference for the RNC have incorporated the changes to the UK Corporate Governance Code 2014 and the AIC Code 2016. The terms of reference remain appropriate and are available on the Company's website at www.nbgfrif.com.
The Board's diversity policy was agreed in March 2012. The Board supports the recommendations of the Davies Report and believes in and values the importance of diversity, including gender, to the effective functioning of the Board. At 31 December 2016, the Board had 25% female representation. The Board continues to focus on encouraging diversity of business skills and experience, recognising that Directors with diverse skills sets, capabilities and experience gained from different backgrounds enhance the Board.
A detailed "Directors' Remuneration Report" to shareholders from the RNC on behalf of the Board, is contained in the below Directors' Remuneration Report.
Sandra Platts
On behalf of the Remuneration and Nomination Committee
5 April 2017
DIRECTORS' REMUNERATION REPORT
Annual Statement
This report meets the relevant rules of the Listing Rules of the FCA and the AIC Code and describes how the Board has applied the principles relating to Directors' remuneration. An ordinary resolution to ratify this report will be proposed at the AGM on 14 June 2017.
Directors' Fees
The Company paid the following fees to the Directors for the year ended 31 December 2016:
Single total figure for Directors for 2016:
|
Element |
Fees £ |
Other Fees £ |
Total £ |
Total US$ |
|
William Frewen |
45,000 |
- |
45,000 |
64,043 |
|
Richard Battey |
40,000 |
- |
40,000 |
57,145 |
|
Sandra Platts |
40,000 |
- |
40,000 |
57,145 |
|
Rupert Dorey |
35,000 |
- |
35,000 |
50,611 |
The Company paid the following fees to the Directors for the year ended 31 December 2015:
|
Element |
Fees £ |
Other Fees £ |
Total £ |
Total US$ |
|
William Frewen |
45,000 |
- |
45,000 |
66,326 |
|
Richard Battey |
40,000 |
- |
40,000 |
58,956 |
|
Sandra Platts |
40,000 |
- |
40,000 |
58,956 |
|
Rupert Dorey* |
29,167 |
- |
29,167 |
42,989 |
*Rupert Dorey was appointed as a Director of the Company on 1 March 2015.
No other remuneration or compensation was paid or is payable by the Company during the year to any of the Directors, other than reimbursed travel expenses of $9,721 (31 December 2015: $46,623).
Directors' fees for the Luxembourg Subsidiaries amounted to $31,945 for the year ended 31 December 2016 (2015: $32,487). None of the Company's Directors are directors of the Luxembourg subsidiaries.
Please refer to Note 4 for more details on Directors' remuneration.
Changes to the Board
There were no changes to the Board during the year.
Remuneration Policy
The determination of the Directors' fees is a matter dealt with by the RNC and the Board. The RNC considers the remuneration policy annually to ensure that it remains appropriately positioned. Directors will review the fees paid to the boards of directors of similar investment companies. No Director is to be involved in decisions relating individual aspects of his or her own remuneration, however the Board as a whole sets the level of directors' fees.
No Director has a service contract with the Company and Directors' appointments may be terminated at any time by one month's written notice with no compensation payable at termination.
The Company's policy is for the Directors to be remunerated in the form of fees, payable quarterly in arrears. No Director has any entitlement to a pension, and the Company has not awarded any share options or long-term performance incentives to any of the Directors. No element of the Directors' remuneration is performance related.
Directors are authorised to claim reasonable expenses from the Company in relation to the performance of their duties.
The Company's policy is that the fees payable to the Directors should reflect the time spent by the Board on the Company's affairs and the responsibilities borne by the Directors and should be sufficient to enable high calibre candidates to be recruited. During the year ended 2016, the policy was for the Chairman of the Board and Chairman of the other Committees to be paid a higher fee than the other Directors in recognition of their more onerous roles and more time spent. The Board may amend the level of remuneration paid within the limits of the Company's Articles.
The Company's Articles limit the aggregate fees payable to the Board of Directors to a total of £500,000 per annum. The Chairman of the Remuneration and Nomination Committee may consult with principal shareholders of the Company should it be proposed to exceed the aggregate limit.
Directors' Fees Policy
|
Objective |
Operation |
Maximum Potential Value |
Performance Metrics Used
|
|
To recognize time spent and the responsibilities borne and to attract high caliber candidates who have the necessary experience and skills |
Directors' fees are set by the Remuneration and Nomination Committee
Annual fees are paid quarterly in arrears
Fees are reviewed annually and against those for Directors in companies of similar scale and complexity
Fees were last reviewed in November 2016
Directors do not receive benefits and do not participate in any incentive or pension plans |
Current fee levels are shown in the remuneration report
The Company's Articles of Incorporation limit the aggregate fees payable to the Board of Directors to a total of £500,000 per annum |
Directors are not remunerated based on performance and are not eligible to participate in any performance related arrangements |
Service Contracts and Policy on Payment for Loss of Office
Directors are appointed with the expectation that they will stand for annual re-election. William Frewen, Richard Battey and Sandra Platts have served since incorporation of the Company. Rupert Dorey was appointed on 1 March 2015. Any Director may resign in writing with one month's notice to the Board at any time. Directors' appointments are reviewed during the annual board evaluation.
No Director has a service contract with the Company. Directors have agreed letters of appointment with the Company.
In accordance with the AIC Code William Frewen, Richard Battey, Sandra Platts and Rupert Dorey will offer themselves for re-election by shareholders at the AGM to be held on 14 June 2017. The names and biographies of the Directors holding office at the date of this report are listed in the Directors section of the Financial Statements. All of the Directors are subject to annual re-election.
William Frewen, Richard Battey and Sandra Platts were appointed on 10 March 2011 and were re-elected as Directors at the AGM held on 15 June 2016. Rupert Dorey was elected as a Director at the AGM held on 15 June 2016 being the first AGM following his appointment.
Copies of the Director's letters of appointment are available for inspection by shareholders at the Company's Registered Office, and are available at the AGM. The dates of their letters of appointment are shown below.
Dates of Directors' Letters of Appointment
|
|
Date of Letter of Appointment |
|
William Frewen |
10 March 2011 |
|
Richard Battey |
10 March 2011 |
|
Rupert Dorey |
1 March 2015 |
|
Sandra Platts |
10 March 2011 |
Directors' Interests
The Company has not set any requirements or guidelines for Directors to own shares in the Company. The beneficial interests of the Directors and their connected persons in the Company's shares are shown in the table below:
|
|
31 December 2016 Sterling Ordinary Shares |
31 December 2015 Sterling Ordinary Shares |
|
William Frewen |
9,895 |
9,895 |
|
Richard Battey |
30,077 |
30,077 |
|
Rupert Dorey |
20,000 |
20,000 |
|
Sandra Platts |
10,069 |
10,069 |
Annual Report on Remuneration
Single Total Figure of Remuneration For Directors.
The Company paid the following fees to the Directors for the year ended 31 December 2016.
|
|
Board Fee 2016 US$ |
Board Fee 2015 US$ |
Other Fees 2016 US$ |
Other Fees 2015 US$ |
Total 2016 US$ |
Total 2015 US$ |
|
William Frewen Chairman Member of Audit and Risk Committee Member of Remuneration and Nomination Committee Member of Management Engagement Committee
|
64,043 |
66,326 |
- |
- |
64,043 |
66,326 |
|
Richard Battey Chairman of the Audit and Risk Committee Member of Remuneration and Nomination Committee Member of Management Engagement Committee
|
57,145 |
58,956 |
- |
- |
57,145 |
58,956 |
|
Sandra Platts Chairman of the Remuneration and Nomination Committee Chairman of the Management Engagement Committee Member of Audit and Risk Committee
|
57,145 |
58,956 |
- |
- |
57,145 |
58,956 |
|
Rupert Dorey Member of Remuneration and Nomination Committee Member of Audit and Risk Committee Member of Management Engagement Committee
|
50,611 |
42,989 |
- |
- |
50,611 |
42,989 |
|
Total |
229,152 |
227,227 |
- |
- |
229,152 |
227,227 |
Advisors to the Remuneration and Nomination Committee
The Remuneration and Nomination Committee has not sought the advice or services by any outside person in respect of its consideration of the Directors' remuneration.
Statement of Voting at AGM
At the last AGM, votes on the remuneration report were cast as follows:
|
|
For Number |
Against Number |
Withheld Number |
|
2016 Remuneration Report |
842,522,432 |
92,950 |
0 |
Sandra Platts
On behalf of the Remuneration and Nomination Committee
5 April 2017
DIRECTORS' RESPONSIBILITIES STATEMENT
The Directors are responsible for preparing the Financial Statements for each financial year, which give a true and fair view, in accordance with applicable Guernsey Law and US Generally Accepted Accounting Principles ("US GAAP"), of the state of affairs of the Company and of the profit or loss for the period. In preparing those Financial Statements, the Directors are required to:
· Select suitable accounting policies and apply them consistently;
· Make judgements and estimates that are reasonable and prudent;
· State whether applicable accounting standards have been followed, subject to any material departures disclosed and explained in the Financial Statements; and
· Prepare the Financial Statements on the going concern basis unless it is inappropriate to presume that the Company will continue in business.
The Directors confirm that they have complied with the above requirements in preparing the Financial Statements.
The Directors are responsible for keeping proper accounting records, which disclose with reasonable accuracy at any time the financial position of the Company and to enable them to ensure that the Financial Statements comply with the Law. The Directors are also responsible for safeguarding the assets of the Company and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities.
The Directors of the Company have elected to prepare consolidated financial statements for the Company for the year ended 31 December 2016 as the parent of the Group in accordance with Section 244(5) of the Law. They are not required to prepare individual financial statements for NB Global Floating Rate Income Fund Limited in accordance with Section 243 of the Law for the financial year.
So far as the Directors are aware, there is no relevant audit information of which the Company's auditor is unaware. Each Director has taken all the steps that he or she ought to have taken as a Director, in order to make himself or herself aware of any relevant audit information and to establish that the Company's auditor is aware of that information.
The Directors confirm to the best of their knowledge that:
· The Financial Statements which have been prepared in conformity with US GAAP give a true and fair view of the assets, liabilities, financial position and loss of the Company, and the undertakings included in the consolidation taken as a whole as required by DTR 4.1.12R and are in compliance with the requirements set out in the Law; and
· The Annual Report includes a fair review of the information required by DTR 4.1.8R and DTR 4.1.11R, which provides an indication of important events and a description of principal risks and uncertainties which face the Company.
The maintenance and integrity of the Company's website is the responsibility of the Directors; the work carried out by the auditor does not involve consideration of these matters and, accordingly, the auditor accepts no responsibility for any changes that may have occurred to the Financial Statements since they were initially presented on the website.
Legislation in Guernsey governing the preparation and dissemination of consolidated financial statements may differ from legislation in other jurisdictions.
By order of the Board
William Frewen Richard Battey
Chairman Director
5 April 2017 5 April 2017
INDEPENDENT AUDITOR'S REPORT
INDEPEnDENT Auditor's Report to the members of nb gLOBAL FLOATING RATE INCOME FUND Limited
Report on the audit of the consolidated financial statements
Our opinion
In our opinion, the consolidated financial statements give a true and fair view of the consolidated financial position of NB Global Floating Rate Income Fund Limited (the "Company") and its subsidiaries (together "the Group") as at 31 December 2016, and of their consolidated financial performance and their consolidated cash flows for the year then ended in accordance with accounting principles generally accepted in the United States of America and have been properly prepared in accordance with the requirements of The Companies (Guernsey) Law, 2008.
What we have audited
The Group's consolidated financial statements comprise:
● the consolidated statement of assets and liabilities as at 31 December 2016;
● the consolidated condensed schedule of investments as at 31 December 2016;
● the consolidated statement of operations for the year then ended;
● the consolidated statement of changes in net assets for the year then ended;
● the consolidated statement of cash flows for the year then ended; and
● the notes to the consolidated financial statements, which include a summary of significant accounting policies.
Basis for opinion
We conducted our audit in accordance with International Standards on Auditing ("ISAs"). Our responsibilities under those standards are further described in the Auditor's responsibilities for the audit of the consolidated financial statements section of our report.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.
Independence
We are independent of the Group in accordance with the International Ethics Standards Board for Accountants' Code of Ethics for Professional Accountants ("IESBA Code"). We have fulfilled our other ethical responsibilities in accordance with the IESBA Code.
Our audit approach
Overview
|
|
Materiality ● Overall Group materiality was $25.321 million which represents approximately 2.0% of overall Group net assets |
|
Audit scope ● We performed an audit of the complete financial information of the Guernsey and Luxembourg components of the Group. ● The components where we performed full scope audit procedures accounted for 100% of total net assets, net investment income and net realised and unrealised loss. |
|
|
Key audit matters ● Valuation of investments |
Audit scope
As part of designing our audit, we determined materiality and assessed the risks of material misstatement in the consolidated financial statements. In particular, we considered where the directors made subjective judgements; for example, in respect of significant accounting estimates that involved making assumptions and considering future events that are inherently uncertain. As in all of our audits, we also addressed the risk of management override of internal controls, including among other matters, consideration of whether there was evidence of bias that represented a risk of material misstatement due to fraud.
We tailored the scope of our audit in order to perform sufficient work to enable us to provide an opinion on the consolidated financial statements as a whole, taking into account the structure of the Group, the accounting processes and controls, and the industry in which the Group operates.
The Company is based in Guernsey with two underlying subsidiaries located in Luxembourg and engages Neuberger Berman Europe Limited (the 'Manager') to manage its assets. The consolidated financial statements are a consolidation of the Company and both of the underlying subsidiaries.
We conducted our audit of the consolidated financial statements from information provided by Quintillion Limited (the 'Sub-Administrator') to whom US Bancorp Fund Services (Guernsey) Limited (the 'Designated Manager and Administrator') has, with the consent of the directors, delegated the provision of certain administrative functions.
Scoping was performed at the Group level, irrespective of whether the underlying transactions took place within the Company or within either of the subsidiaries. The transactions relating to the Company and the subsidiaries are maintained by the Sub-Administrator on a single consolidated general ledger and therefore we were not required to engage with component auditors from another PwC global network firm operating under our instructions. Our testing was therefore performed on a consolidated basis using thresholds which are determined with reference to the overall Group performance materiality and the risks of material misstatement identified.
We conducted our audit work both in Guernsey and on site at the Sub-Administrator in Dublin and we tailored the scope of our audit taking into account the types of investments within the Group and the involvement of the third parties referred to above, together with their accounting processes and controls.
As noted in the overview, the components of the Group where we performed full scope audit procedures accounted for 100% of Group total net assets, net investment income and net realised and unrealised loss.
Materiality
The scope of our audit was influenced by our application of materiality. An audit is designed to obtain reasonable assurance whether the financial statements are free from material misstatement. Misstatements may arise due to fraud or error. They are considered material if individually or in aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of the consolidated financial statements.
Based on our professional judgement, we determined certain quantitative thresholds for materiality, including the overall Group materiality for the consolidated financial statements as a whole as set out in the table below. These, together with qualitative considerations, helped us to determine the scope of our audit and the nature, timing and extent of our audit procedures and to evaluate the effect of misstatements, both individually and in aggregate on the financial statements as a whole.
|
Overall Group materiality |
$25.321 million |
|
How we determined it |
2.00% of overall Group net assets |
|
Rationale for the materiality benchmark |
We believe overall Group net assets to be the appropriate basis for determining materiality since the primary consideration for investors is asset preservation, over and above income generation. The key statistic used for periodic reporting to investors is total return, which is a calculation comprising both movements in the valuation of the portfolio and the income generated from the portfolio. |
We agreed with the Audit Committee that we would report to them misstatements identified during our audit above $1.266 million, as well as misstatements below that amount that, in our view, warranted reporting for qualitative reasons.
Key audit matters
Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the consolidated financial statements of the current period. These matters were addressed in the context of our audit of the consolidated financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters.
|
Key audit matter |
How our audit addressed the Key audit matter |
|
Valuation of investments As detailed in Note 5, the investment portfolio at the year-end was valued at $1,256.9 million, comprising floating rate senior secured loans of $1,213.9 million and fixed and floating rates bonds of $43.0 million. We focussed on the valuation of this investment portfolio because it represents the principal element of the net asset value as disclosed on the consolidated statement of assets and liabilities. |
· The internal control environment in place at the Sub-Administrator over the valuation of the investment portfolio and the production of the net asset value for the Group was understood and evaluated. · We assessed the accounting policy for investment valuation for compliance with accounting standards, performed testing to check that investment valuation had been accounted for in accordance with the stated accounting policy and determined that the accounting policy complied with accounting standards and had been consistently applied. · We tested the valuation of the investment portfolio of floating rate senior secured loans and fixed and floating rate bonds by independently agreeing the prices used in the valuation to a range of third party providers. No misstatements were identified which required reporting to those charged with governance. · Back testing was performed for a sample of floating rate senior secured loan disposals to compare the sales transaction price to the most recently recorded valuation provided by the third party pricing provider prior to the disposal, which provided additional evidence over the reliability of the valuation data from the third party providers engaged in the valuation process. We also assessed the overall appropriateness of management's decision to engage the specific third party pricing providers to assist with the investment portfolio valuation, based on their competency and objectivity. No matters were noted which required reporting to those charged with governance. · An assessment was made to determine whether the Manager used any estimation techniques in determining the valuation of any securities in the investment portfolio. We identified no indication that such techniques had been used. |
Other information
The directors are responsible for the other information. The other information comprises the company overview section, the financial highlights, the chairman's statement, the investment manager's report, the strategic report, the directors' report, the corporate governance report, the audit and risk committee report, the management engagement committee report, the remuneration and nomination committee report, the directors' remuneration report, the directors' responsibilities statement and the section detailing the contact details of the advisers (but does not include the consolidated financial statements and our auditor's report thereon).
Other than as specified in our report, our opinion on the consolidated financial statements does not cover the other information and we do not express any form of assurance conclusion thereon.
In connection with our audit of the consolidated financial statements, our responsibility is to read the other information identified above and, in doing so, consider whether the other information is materially inconsistent with the consolidated financial statements or our knowledge obtained in the audit, or otherwise appears to be materially misstated. If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report in this regard.
Responsibilities of directors for the consolidated financial statements
The directors are responsible for the preparation of the consolidated financial statements that give a true and fair view in accordance with accounting principles generally accepted in the United States of America, the requirements of Guernsey law and for such internal control as the directors determine is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error.
In preparing the consolidated financial statements, the directors are responsible for assessing the Group's ability to continue as a going concern, disclosing, as applicable, matters relating to going concern and using the going concern basis of accounting unless the directors either intend to liquidate the Group or to cease operations, or have no realistic alternative but to do so.
Auditor's responsibilities for the audit of the consolidated financial statements
Our objectives are to obtain reasonable assurance about whether the consolidated financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor's report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with ISAs will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these consolidated financial statements.
As part of an audit in accordance with ISAs, we exercise professional judgment and maintain professional scepticism throughout the audit. We also:
● Identify and assess the risks of material misstatement of the consolidated financial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control.
● Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Group's internal control.
● Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by the directors.
● Conclude on the appropriateness of the directors' use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Group's ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor's report to the related disclosures in the consolidated financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor's report. However, future events or conditions may cause the Group to cease to continue as a going concern.
● Evaluate the overall presentation, structure and content of the consolidated financial statements, including the disclosures, and whether the consolidated financial statements represent the underlying transactions and events in a manner that achieves fair presentation.
● Obtain sufficient appropriate audit evidence regarding the financial information of the entities or business activities within the Group to express an opinion on the consolidated financial statements. We are responsible for the direction, supervision and performance of the Group audit. We remain solely responsible for our audit opinion.
We communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit.
We also provide those charged with governance with a statement that we have complied with relevant ethical requirements regarding independence, and to communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, related safeguards.
From the matters communicated with those charged with governance, we determine those matters that were of most significance in the audit of the consolidated financial statements of the current period and are therefore the key audit matters. We describe these matters in our auditor's report unless law or regulation precludes public disclosure about the matter or when, in extremely rare circumstances, we determine that a matter should not be communicated in our report because the adverse consequences of doing so would reasonably be expected to outweigh the public interest benefits of such communication.
Report on other legal and regulatory requirements
Under The Companies (Guernsey) Law, 2008 we are required to report to you if, in our opinion:
● we have not received all the information and explanations we require for our audit;
● proper accounting records have not been kept; or
● the consolidated financial statements are not in agreement with the accounting records.
We have no exceptions to report arising from this responsibility.
We have nothing to report in respect of the following matters which we have reviewed:
● the directors' statement set out in the Strategic Report in relation to going concern. As noted in the directors' statement, the directors have concluded that it is appropriate to adopt the going concern basis in preparing the financial statements. The going concern basis presumes that the Group has adequate resources to remain in operation, and that the directors intend it to do so, for at least one year from the date the financial statements were signed. As part of our audit we have concluded that the directors' use of the going concern basis is appropriate. However, because not all future events or conditions can be predicted, these statements are not a guarantee as to the Group's ability to continue as a going concern;
● the directors' statement that they have carried out a robust assessment of the principal risks facing the Group and the directors' statement in relation to the longer-term viability of the Group. Our review was substantially less in scope than an audit and only consisted of making inquiries and considering the directors' process supporting their statements; checking that the statements are in alignment with the relevant provisions of the UK Corporate Governance Code; and considering whether the statements are consistent with the knowledge acquired by us in the course of performing our audit; and
● the part of the Corporate Governance Statement relating to the Group's compliance with the ten further provisions of the UK Corporate Governance Code specified for our review.
This report, including the opinion, has been prepared for and only for the members as a body in accordance with Section 262 of The Companies (Guernsey) Law, 2008 and for no other purpose. We do not, in giving this opinion, accept or assume responsibility for any other purpose or to any other person to whom this report is shown or into whose hands it may come save where expressly agreed by our prior consent in writing.
John Roche
For and on behalf of PricewaterhouseCoopers CI LLP
Chartered Accountants and Recognised Auditor
Guernsey, Channel Islands
5 April 201
CONSOLIDATED STATEMENT OF ASSETS AND LIABILITIES
As at 31 December 2016 (Expressed in U.S. Dollars)
|
|
Notes |
31 December 2016 |
31 December 2015 |
|
Assets |
|
$ |
$ |
|
Investments, at fair value (2016: cost of $1,262,575,676, 2015: cost of $1,818,256,912) |
5 |
1,256,886,223 |
1,715,009,535 |
|
|
|
|
|
|
Cash and cash equivalents: |
|
|
|
|
- Sterling |
|
10,271,118 |
23,070,349 |
|
- Euro |
|
20,030,923 |
13,386,247 |
|
- U.S. Dollar |
|
28,527,585 |
43,678,399 |
|
Total cash and cash equivalents |
|
58,829,626 |
80,134,995 |
|
|
|
1,315,715,849 |
1,795,144,530 |
|
Other assets: |
|
|
|
|
Receivables for investments sold |
|
17,394,802 |
39,438,655 |
|
Interest receivable |
|
4,777,061 |
7,018,000 |
|
Other receivables and prepayments |
|
93,369 |
74,689 |
|
Derivative assets |
|
15,225,146 |
468,544 |
|
|
|
37,490,378 |
46,999,888 |
|
|
|
|
|
|
Total assets |
|
1,353,206,227 |
1,842,144,418 |
|
|
|
|
|
|
Liabilities |
|
|
|
|
Payables for investments purchased |
|
84,256,725 |
88,842,683 |
|
Payables to Investment Manager and affiliates |
3 |
2,365,325 |
3,378,212 |
|
Derivative liabilities |
5 |
- |
33,603,715 |
|
Accrued expenses and other liabilities |
3 |
541,645 |
1,346,955 |
|
Total liabilities |
|
87,163,695 |
127,171,565 |
|
|
|
|
|
|
Total assets less liabilities |
|
1,266,042,532 |
1,714,972,853 |
|
|
|
|
|
|
Share capital |
9 |
1,690,371,848 |
1,934,737,971 |
|
Accumulated reserves |
|
(424,329,316) |
(219,765,118) |
|
Total net assets |
|
1,266,042,532 |
1,714,972,853 |
|
31 December 2016 |
Net Asset Value |
Number of Shares |
NAV per Share |
|
U.S. Dollar shareholding |
|
|
|
|
- Ordinary Shares |
37,814,352 |
38,270,109 |
0.9881 |
|
|
|
|
|
|
Sterling shareholding |
|
|
|
|
- Ordinary Shares |
993,993,590 |
1,015,614,330 |
0.9787 |
|
|
|
|
|
|
Sterling shareholding (in USD) |
|
|
|
|
- Ordinary Shares |
1,228,228,180 |
1,015,614,330 |
1.2093 |
The Financial Statements were approved and authorized for issue by the Board of Directors on 5 April 2017, and signed on its behalf by:
|
|
|
|
|
William Frewen |
|
Richard Battey |
|
Chairman |
|
Director |
CONSOLIDATED CONDENSED SCHEDULE OF INVESTMENTS
As at 31 December 2016 (Expressed in U.S. Dollars)
|
|
Cost |
Fair Value |
Fair Value as % of Net Assets |
|
|
$ |
$ |
|
|
Portfolio of investments |
|
|
|
|
Financial investments |
|
|
|
|
Floating rate senior secured loans |
1,220,170,197 |
1,213,873,452 |
95.88 |
|
Fixed rate bonds |
6,416,388 |
6,410,344 |
0.51 |
|
Floating rate bonds |
35,989,091 |
36,602,427 |
2.89 |
|
Total financial investments |
1,262,575,676 |
1,256,886,223 |
99.28 |
|
|
|
|
|
|
Total portfolio of investments |
1,262,575,676 |
1,256,886,223 |
99.28 |
|
Forwards |
|
|
|
|
U.S. Dollar to Euro |
|
4,074,462 |
0.32% |
|
Sterling to U.S. Dollar |
|
11,564,568 |
0.91% |
|
U.S. Dollar to Sterling |
|
(148,744) |
(0.01%) |
|
Euro to Sterling |
|
(94,613) |
(0.01%) |
|
Euro to U.S. Dollar |
|
(170,527) |
(0.01%) |
|
|
15,225,146 |
1.20% |
|
|
As at 31 December 2016 |
Cost |
Fair Value |
Fair Value as % of Net Assets |
|
|
$ |
$ |
|
|
Geographic diversity of investment portfolio |
|
|
|
|
North America |
1,119,704,474 |
1,119,421,012 |
88.42 |
|
Australia/Oceania |
4,070,889 |
4,148,949 |
0.33 |
|
Europe |
138,800,313 |
133,316,262 |
10.53 |
|
|
1,262,575,676 |
1,256,886,223 |
99.28 |
As at 31 December 2015
(Expressed in U.S. Dollars)
|
|
Cost |
Fair Value |
Fair Value as % of Net Assets |
|
|
$ |
$ |
|
|
Portfolio of investments |
|
|
|
|
Financial investments |
|
|
|
|
Floating rate senior secured loans |
1,731,526,854 |
1,636,279,673 |
95.41 |
|
Fixed rate bonds |
20,995,808 |
18,941,703 |
1.10 |
|
Floating rate bonds |
65,734,250 |
59,788,159 |
3.49 |
|
Total financial investments |
1,818,256,912 |
1,715,009,535 |
100.00 |
|
|
|
|
|
|
Total portfolio of investments |
1,818,256,912 |
1,715,009,535 |
100.00 |
|
Forwards |
|
|
|
|
U.S. Dollar to Euro |
|
(41,093) |
(0.00) |
|
Sterling to U.S. Dollar |
|
(35,174,950) |
(2.05) |
|
U.S. Dollar to Sterling |
|
2,081,691 |
0.12 |
|
Euro to U.S. Dollar |
|
(819) |
0.00) |
|
|
|
(33,135,171) |
(1.93) |
|
|
Cost |
Fair Value |
Fair Value as % of Net Assets |
|
|
$ |
$ |
|
|
Geographic diversity of investment portfolio |
|
|
|
|
North America |
1,610,452,329 |
1,522,961,203 |
88.80 |
|
Australia / Oceania |
16,978,974 |
12,546,553 |
0.73 |
|
Europe |
190,825,609 |
179,501,779 |
10.47 |
|
|
1,818,256,912 |
1,715,009,535 |
100.00 |
As at 31 December 2016
(Expressed in U.S. Dollars)
|
|
31 December 2016 |
31 December 2015 |
||
|
Industry diversity of Investment Portfolio |
Cost ($) |
Fair Value ($) |
Cost ($) |
Fair Value ($) |
|
|
|
|
|
|
|
Aerospace & Defence |
6,010,397 |
6,072,357 |
14,460,494 |
13,824,176 |
|
Air Transport |
14,994,162 |
15,097,483 |
13,045,566 |
12,906,699 |
|
Automotive |
13,099,656 |
13,154,487 |
15,365,520 |
15,064,712 |
|
Broadcast Radio and Television |
30,573,209 |
27,289,619 |
50,339,926 |
42,236,587 |
|
Business Equipment & Services |
150,945,338 |
150,244,072 |
213,306,918 |
203,831,063 |
|
Building & Development |
44,749,026 |
45,156,117 |
67,500,426 |
66,896,657 |
|
Cable & Satellite Television |
85,850,028 |
83,782,756 |
106,571,956 |
100,139,679 |
|
Chemicals & Plastics |
28,161,440 |
28,123,140 |
51,756,550 |
49,883,530 |
|
Conglomerates |
3,200,104 |
3,202,547 |
5,066,865 |
5,001,279 |
|
Containers & Glass Products |
81,055,964 |
81,141,060 |
109,863,504 |
107,237,924 |
|
Cosmetics/Toiletries |
- |
- |
2,698,345 |
2,685,382 |
|
Drugs |
69,848,569 |
70,837,534 |
48,671,778 |
47,510,155 |
|
Ecological Services & Equipment |
10,761,054 |
10,897,919 |
12,507,519 |
12,220,584 |
|
Electronics/Electrical |
107,678,600 |
106,903,155 |
130,791,787 |
124,016,321 |
|
Energy |
2,241,650 |
2,289,800 |
- |
- |
|
Equipment Leasing |
2,264,131 |
2,269,040 |
- |
- |
|
Financial Intermediaries |
63,967,235 |
64,387,402 |
134,552,390 |
126,846,725 |
|
Food Products |
21,853,184 |
20,349,684 |
24,033,541 |
22,055,988 |
|
Food Service |
22,181,347 |
22,640,245 |
13,110,754 |
13,121,113 |
|
Food/Drug Retailers |
11,386,389 |
11,250,561 |
23,046,480 |
22,780,423 |
|
Health Care |
89,463,601 |
88,429,140 |
132,702,488 |
129,604,321 |
|
Home Furnishings |
- |
- |
11,079,666 |
11,015,393 |
|
Hotels & Casinos |
76,179,702 |
78,303,694 |
164,545,616 |
160,508,425 |
|
Industrial Equipment |
50,180,235 |
49,284,624 |
81,061,029 |
75,489,595 |
|
Insurance |
8,009,796 |
8,100,203 |
12,551,126 |
11,663,886 |
|
Leisure Goods/Activities/Movies |
38,591,122 |
38,979,267 |
51,765,232 |
49,253,953 |
|
Nonferrous Metals/Minerals |
- |
- |
1,577,226 |
1,508,157 |
|
Oil & Gas |
15,787,271 |
17,026,476 |
27,632,895 |
13,209,814 |
|
Publishing |
5,423,978 |
5,503,203 |
28,195,132 |
27,641,895 |
|
Real Estate |
844,138 |
844,544 |
- |
- |
|
Retailers (except food and drug) |
62,415,601 |
60,059,477 |
89,635,684 |
81,031,018 |
|
Steel |
11,535,856 |
11,669,916 |
30,858,354 |
23,961,671 |
|
Surface Transport |
6,893,898 |
6,914,697 |
10,165,070 |
10,108,918 |
|
Telecommunications/Cellular Communications |
56,584,506 |
55,980,742 |
68,913,714 |
63,692,380 |
|
Utilities |
69,844,489 |
70,701,262 |
70,883,361 |
68,061,112 |
|
|
1,262,575,676 |
1,256,886,223 |
1,818,256,912 |
1,715,009,535 |
As at 31 December 2016, issuers with the following investments comprised of greater than 1% of NAV (Excluding cash):
|
Securities |
Country |
Industry |
Fair Value |
% |
|
|
|
|
|
|
|
VALEANT PHARMACEUTICALS |
|
|
33,740,844 |
2.67% |
|
Valeant Pharmaceuticals T/L - F1 |
Canada |
Drugs |
33,740,844 |
2.67% |
|
|
|
|
|
|
|
FIRST DATA CORPORATION |
|
|
25,146,475 |
1.98% |
|
First Data T/L (2021C New Dollar) |
United States |
Business Equipment & Services |
19,811,573 |
1.56% |
|
First Data 2022 C Dollar T/L |
United States |
Business Equipment & Services |
5,334,902 |
0.42% |
|
|
|
|
|
|
|
TXU |
|
|
19,703,064 |
1.55% |
|
TXU/TCEH 10/16 Cov-Lite TLB |
United States |
Utilities |
11,768,911 |
0.93% |
|
TXU Energy 1L TL-DIP |
United States |
Utilities |
5,250,015 |
0.41% |
|
TXU/TCEH 10/16 Cov-Lite TLC |
United States |
Utilities |
2,684,138 |
0.21% |
|
|
|
|
|
|
|
AVAGO TECHNOLOGIES |
|
|
18,738,885 |
1.48% |
|
Avago Technologies Tl |
Cayman Islands |
Electronics/Electrical |
18,738,885 |
1.48% |
|
|
|
|
|
|
|
CHS/COMMUNITY HEALTH INCREMENTAL |
|
|
16,637,580 |
1.32% |
|
CHS/Community Health Incremental 2021 Term H Loan |
United States |
Health Care |
9,502,553 |
0.75% |
|
CHS/Community Health Incremental 2019 Term G Loan |
United States |
Health Care |
6,043,947 |
0.48% |
|
CHS/Community Health Community Health Systems 1L TL-F1 (First-Lien) |
United States |
Health Care |
1,091,080 |
0.09% |
|
|
|
|
|
|
|
ENERGY TRANSFER EQUITY |
|
|
15,510,094 |
1.23% |
|
Energy Transfer Equity Tranche B T/L (First-Lien) |
United States |
Oil & Gas |
10,103,973 |
0.80% |
|
Energy Transfer Equity T/L C 12/02/2019 |
United States |
Oil & Gas |
5,406,121 |
0.43% |
|
|
|
|
|
|
|
INTELSAT JACKSON |
|
|
14,692,419 |
1.16% |
|
Intelsat Jackson T/L B2 30/06/2019 |
Luxembourg |
Telecommunications/Cellular Communications |
14,692,419 |
1.16% |
|
|
|
|
|
|
|
INFORMATION RESOURCES |
|
|
13,731,458 |
1.08% |
|
Information Resources Inc. T/L B 26/09/2020 |
U.S.A |
Business Equipment & Services |
8,664,989 |
0.68% |
|
Information Resources Inc. (Symphony IRI Group Inc.) |
U.S.A |
Business Equipment & Services |
5,066,469 |
0.40% |
|
|
|
|
|
|
|
ENDO PHARMA |
|
|
13,489,003 |
1.07% |
|
Endo Pharma T/L B-1 |
United States |
Drugs |
13,489,003 |
1.07% |
|
|
|
|
|
|
|
BASS PRO SHOPS |
|
|
12,676,368 |
1.00% |
|
Bass Pro Shops 1L TL-B |
United States |
Retailers (except food and drug) |
8,543,700 |
0.67% |
|
Bass Pro Shops Tranche B-1 T/L (First-Lien) |
United States |
Retailers (except food and drug) |
4,132,668 |
0.33% |
|
|
|
|
|
|
|
REYNOLDS GROUP |
|
|
12,641,463 |
1.00% |
|
Reynolds Group (aka Beverage Packaging) T/L B-1 1st Lien |
United States |
Containers & Glass Products |
12,641,463 |
1.00% |
|
|
|
|
|
|
|
|
|
|
196,707,653 |
15.54% |
31 December 2015
As at 31 December 2015, issuers with the following investments comprised of greater than 1% of NAV:
|
Securities |
Country |
Industry |
Fair Value |
% |
|
NUMERICABLE |
|
|
34,419,144 |
2.01% |
|
Numericable Altice Tlb (First-Lien) Eur |
United States |
Cable & Satellite Television |
11,823,328 |
0.69% |
|
YPSO Holding SA TL B11L 21/05/2020 |
United States |
Cable & Satellite Television |
6,474,234 |
0.38% |
|
YPSO Holding SA TL B1 EUR 21/05/2020 |
France |
Cable & Satellite Television |
5,607,058 |
0.33% |
|
Numericable B4 (2014) |
France |
Cable & Satellite Television |
5,663,656 |
0.33% |
|
Numericable U.S. Llc Term Loan B2 |
France |
Cable & Satellite Television |
4,850,868 |
0.28% |
|
|
|
|
|
|
|
AVAGO TECHNOLOGIES |
|
|
29,434,329 |
1.71% |
|
Avago Technologies 1L Tl-B1 |
United States |
Electronics/Electrical |
27,138,990 |
1.58% |
|
Avago Technologies 1L Tl-B1 Euro (First-Lien) |
European Union |
Electronics/Electrical |
2,295,339 |
0.13% |
|
|
|
|
|
|
|
VALEANT PHARMACEUTICALS |
|
|
28,005,025 |
1.63% |
|
Valeant Pharmaceuticals Term Loan - F1 |
Canada |
Drugs |
28,005,025 |
1.63% |
|
|
|
|
|
|
|
SCIENTIFIC GAMES |
|
|
26,920,057 |
1.57% |
|
Scientific Games T/L B-2 17/09/2021 |
United States |
Lodging & Casinos |
17,674,867 |
1.03% |
|
Scientific Games Tl B 24/05/2020 |
United States |
Lodging & Casinos |
9,245,190 |
0.54% |
|
|
|
|
|
|
|
FIRST DATA CORPORATION |
|
|
25,179,730 |
1.46% |
|
First Data Corp T/L 24/03/2017 |
United States |
Financial Intermediaries |
9,516,578 |
0.55% |
|
First Data Corp T/L C 24/03/2018 |
United States |
Financial Intermediaries |
7,397,603 |
0.43% |
|
First Data Cor 2018B New T/L 21/10/2017 |
United States |
Financial Intermediaries |
3,156,925 |
0.18% |
|
First Data Corporation Term B |
United States |
Financial Intermediaries |
5,108,624 |
0.30% |
|
|
|
|
|
|
|
PETSMART |
|
|
21,169,320 |
1.23% |
|
Petsmart Inc Term Loan B US |
United States |
Retailers |
21,169,320 |
1.23% |
|
|
|
|
|
|
|
MOHEGAN |
|
|
20,185,551 |
1.18% |
|
Mohegan Tribal Gaming T/L B 19/11/2019 |
United States |
Lodging & Casinos |
20,185,551 |
1.18% |
|
|
|
|
|
|
|
ADVANTAGE SALES AND MARKETING |
|
|
18,882,209 |
1.11% |
|
Advant Sal&Markt T/L B Dd 11/07/2021 |
United States |
Business Equipment & Services |
12,963,441 |
0.76% |
|
Advant Sal&Markt T/L 2Nd Lien 15/07/2022 |
United States |
Business Equipment & Services |
5,918,768 |
0.35% |
|
|
|
|
|
|
|
BERLIN PACKAGING |
|
|
18,037,123 |
1.05% |
|
Berlin Pckg 1St Ln Cov-Lt T/L 24/09/2021 |
United States |
Containers & Glass Products |
11,318,173 |
0.66% |
|
Berlin Pack Llc T/L 2Nd Lien 11/09/2022 |
United States |
Containers & Glass Products |
6,718,950 |
0.39% |
|
|
|
|
|
|
|
CABLEVISION SYSTEMS CORPORATION |
|
|
17,954,320 |
1.05% |
|
Cablevision Systems Corp Tlb (First-Lien) |
United States |
Cable & Satellite Television |
17,954,320 |
1.05% |
|
|
|
|
|
|
|
UNIVISION COMMUNICATIONS |
|
|
17,863,755 |
1.04% |
|
Univision Communications T/L C 01/03/2020 |
United States |
Broadcast Radio and Television |
15,086,144 |
0.88% |
|
Univision Com Re T/L 1St Lien 01/03/2020 |
United States |
Broadcast Radio and Television |
2,777,611 |
0.16% |
|
|
|
|
|
|
|
WALTER INVESTMENT MANAGEMENT CORPORATION |
|
|
17,590,862 |
1.03% |
|
Walter Inv Mang Corp New T/L 11/12/2020 |
United States |
Financial Intermediaries |
17,590,862 |
1.03% |
|
|
|
|
|
|
|
COMMUNITY HEALTH INCREMENTAL |
|
|
17,541,357 |
1.02% |
|
Chs/Community Health Incremental 2021 Term H |
United States |
Health Care |
11,404,519 |
0.66% |
|
Chs/Community Health Incremental 2019 Term G |
United States |
Health Care |
6,136,838 |
0.36% |
|
|
|
|
|
|
|
MITCHELL INTERNATIONAL |
|
|
17,318,566 |
1.01% |
|
Mitchell Intl Inc T/L B 01/10/2020 |
United States |
Business Equipment & Services |
10,452,267 |
0.61% |
|
Mitchell Intl Inc T/L 01/10/2021 |
United States |
Business Equipment & Services |
6,866,299 |
0.40% |
|
|
|
|
|
|
|
|
|
|
310,501,348 |
18.10% |
As at 31 December 2016, the below were the largest 50 investments based on the NAV:
|
Securities |
Country |
Industry |
Fair Value |
% |
|
Valeant Pharmaceuticals T/L - F1 |
Canada |
Drugs |
33,740,844 |
2.67% |
|
First Data T/L (2021C New Dollar) |
United States |
Business Equipment & Services |
19,811,573 |
1.56% |
|
Avago Technologies Tl |
Cayman Islands |
Electronics/Electrical |
18,738,885 |
1.48% |
|
Intelsat Jackson T/L B2 30/06/2019 |
Luxembourg |
Telecommunications/Cellular Communications |
14,692,419 |
1.16% |
|
Endo Pharma T/L B-1 |
United States |
Drugs |
13,489,003 |
1.07% |
|
Reynolds Group (Aka Beverage Packaging) T/L B-1 1St Lien |
United States |
Containers & Glass Products |
12,641,463 |
1.00% |
|
Emerald Expositions Hldg Tl B 12/06/2020 |
United States |
Leisure Goods/Activities/Movies |
12,280,768 |
0.97% |
|
TXU/Tceh 10/16 Cov-Lite Tlb |
United States |
Utilities |
11,768,911 |
0.93% |
|
Scientific Games T/L B-2 17/09/2021 |
United States |
Hotels & Casinos |
11,271,791 |
0.89% |
|
Petsmart Inc 1L Tl-B (First Lien) |
United States |
Retailers (except food and drug) |
11,005,905 |
0.87% |
|
Iasis Hlthcare Corp T/L B 03/05/2018 |
United States |
Health Care |
10,732,579 |
0.85% |
|
Cablevision Systems Corp 1L Tl-B (First-Lien) |
United States |
Cable & Satellite Television |
10,217,556 |
0.81% |
|
Energy Transfer Equity Tranche B T/L (First-Lien) |
United States |
Oil & Gas |
10,103,973 |
0.80% |
|
Burger King Corporation Term B (First-Lien) 30/09/2021 |
Canada |
Food Service |
9,968,943 |
0.79% |
|
Dynegy Holdings Inc 1L Tl-B |
United States |
Utilities |
9,928,505 |
0.78% |
|
Univision Communication T/L C 01/03/2020 |
United States |
Broadcast Radio And Television |
9,895,718 |
0.78% |
|
Pharmaceutical Product Development Inc. T/L B |
United States |
Drugs |
9,757,039 |
0.77% |
|
Charter Communications Operating 5/16 Tli |
United States |
Cable & Satellite Television |
9,592,959 |
0.76% |
|
Wide Open West Finance Llc 1L Tl-B |
United States |
Cable & Satellite Television |
9,507,862 |
0.75% |
|
Chs/Community Health Incremental 2021 Term H Loan |
United States |
Health Care |
9,502,553 |
0.75% |
|
Presidio Inc T/L B |
United States |
Business Equipment & Services |
9,442,600 |
0.75% |
|
Tpf Ii Power Llc T/L B 11/09/2021 |
United States |
Utilities |
9,236,910 |
0.73% |
|
99 Cents Only Stores T/L 11/01/2019 |
United States |
Retailers (except food and drug) |
9,216,903 |
0.73% |
|
Walter Inv Mang Corp New T/L 11/12/2020 |
United States |
Financial Intermediaries |
9,056,480 |
0.72% |
|
Cowlitz Tribal Gaming Authority Term Loan B |
United States |
Hotels & Casinos |
8,992,913 |
0.71% |
|
On Semiconductor 1L Tl B |
United States |
Electronics/Electrical |
8,748,268 |
0.69% |
|
Bway Corporation 1L Tl-B (First-Lien) |
United States |
Containers & Glass Products |
8,735,720 |
0.69% |
|
Information Res Inc T/L B 26/09/2020 |
United States |
Business Equipment & Services |
8,664,989 |
0.68% |
|
Formula One Hldgs Ltd T/L 31/07/2021 |
Luxembourg |
Leisure Goods/Activities/Movies |
8,634,970 |
0.68% |
|
Verallia Sa 1L Tl-B Eur |
France |
Containers & Glass Products |
8,585,594 |
0.68% |
|
Bass Pro Shops 1L Tl-B |
United States |
Retailers (except food and drug) |
8,543,700 |
0.67% |
|
Level 3 Communications T/L B4 15/01/2020 |
United States |
Telecommunications/Cellular Communications |
8,471,719 |
0.67% |
|
Berlin Pckg 1St Ln Cov-Lt T/L 24/09/2021 |
United States |
Containers & Glass Products |
8,220,577 |
0.65% |
|
HCA Inc. Term Loan B |
United States |
Health Care |
8,213,308 |
0.65% |
|
Michaels Stores T/L B1 |
United States |
Retailers (except food and drug) |
8,191,333 |
0.65% |
|
Twin River Mgt Grp T/L B 1L 30/06/2020 |
United States |
Hotels & Casinos |
8,133,685 |
0.64% |
|
Dtz Term B |
United States |
Building & Development |
8,088,336 |
0.64% |
|
Datatel-Sophia Lp Tl B (First-Lien) |
United States |
Electronics/Electrical |
8,040,274 |
0.64% |
|
Syniverse Holdings T/L 10/04/2019 |
United States |
Telecommunications/Cellular Communications |
7,921,118 |
0.63% |
|
Talen Energy Supply Llc 4.625% 07/15/19 Sr:144A |
United States |
Utilities |
7,598,950 |
0.60% |
|
Zebra Technologies 1L T-B (First-Lien) |
United States |
Electronics/Electrical |
7,523,920 |
0.59% |
|
Berry Plastics Tl |
United States |
Containers & Glass Products |
7,391,542 |
0.58% |
|
Dj Orthopedics Llc Tranche B-1 T/L (First-Lien) |
United States |
Health Care |
7,013,498 |
0.55% |
|
Multiplan Inc. T/L B |
United States |
Health Care |
7,004,501 |
0.55% |
|
Jeld-Wen Inc T/L 1 Usd |
United States |
Building & Development |
6,884,458 |
0.54% |
|
Acosta Holdco Inc T/L 13/08/2021 |
United States |
Business Equipment & Services |
6,679,632 |
0.53% |
|
Rexnord Corp 1L Tl-B |
United States |
Industrial Equipment |
6,592,044 |
0.52% |
|
Husky Injection Molding T/L 30/06/2021 |
Canada |
Industrial Equipment |
6,587,802 |
0.52% |
|
Citycenter Holdings Llc T/L B 09/10/2020 |
United States |
Hotels & Casinos |
6,583,301 |
0.52% |
|
Dell T/L B |
United States |
Electronics/Electrical |
6,551,149 |
0.52% |
|
|
|
|
498,199,443 |
39.36% |
As at 31 December 2015, the below were the largest 50 investments based on the NAV:
|
Securities |
Country |
Industry |
Fair Value |
% |
|
Valeant Pharmaceuticals T/ L - F1 04/01/2022 |
Canada |
Drugs |
28,005,025 |
1.63 |
|
Avago Technologies 1L T/L-B1 (First-Lien) 11/11/2022 |
Cayman Islands |
Electronics/Electrical |
27,138,990 |
1.58 |
|
PetSmart Inc T/L B 03/11/2022 |
United States |
Retailers |
21,169,320 |
1.23 |
|
Mohegan Tribal Gaming T/L B 19/11/2019 |
United States |
Hotels & Casinos |
20,185,551 |
1.18 |
|
Cablevision Systems Corp T/L B (First-Lien) 15/04/2016 |
United States |
Cable & Satellite Television |
17,954,320 |
1.05 |
|
Scientific Games T/L B-2 17/09/2021 |
United States |
Hotels & Casinos |
17,674,867 |
1.03 |
|
Walter Inv. Man. Corp T/L 11/12/2020 |
United States |
Financial Intermediaries |
17,590,862 |
1.03 |
|
Univision Communication T/L C 01/03/2020 |
United States |
Broadcast Radio and Television |
15,086,144 |
0.88 |
|
Virgin Media T/L E 07/06/2023 |
United Kingdom |
Cable & Satellite Television |
14,793,702 |
0.86 |
|
Pharmaceutical Product Development Inc. T/L B 29/02/2016 |
United States |
Health Care |
14,741,783 |
0.86 |
|
Acosta Holdco Inc T/L 13/08/2021 |
United States |
Business Equipment & Services |
14,531,882 |
0.85 |
|
Rite Aid Corp T/L 2nd Lien 11/06/2021 |
United States |
Food/Drug Retailers |
14,505,927 |
0.85 |
|
The Serm Co 1st Ln Cov T/L 25/06/2021 |
United States |
Business Equipment & Services |
14,482,682 |
0.84 |
|
Bway Intermediate Co Inc T/L 07/08/2020 |
United States |
Containers & Glass Products |
14,137,693 |
0.82 |
|
Emerald Expositions Hldg T/L B 12/06/2020 |
United States |
Leisure Goods/Activities/Movies |
14,113,831 |
0.82 |
|
Level 3 Communications T/L B4 15/01/2020 |
United States |
Telecommunication/Cellular Communications |
14,005,201 |
0.82 |
|
Zebra Technologies Corp T/L 30/09/2021 |
United States |
Electronics/Electrical |
13,879,625 |
0.81 |
|
Endo Pharma T/L B 09/26/2022 |
United States |
Drugs |
13,692,411 |
0.80 |
|
Burger King Corporation T/L B 30/09/2021 |
Canada |
Food Service |
13,121,113 |
0.77 |
|
Twin River Mgt Grp T/L B 1L 30/06/2020 |
United States |
Hotels & Casinos |
12,983,630 |
0.76 |
|
Advant Sal & Markt T/L B DD 11/07/2021 |
United States |
Business Equipment & Services |
12,963,441 |
0.76 |
|
Station Casinos Llc T/L B 25/02/2020 |
United States |
Hotels & Casinos |
12,572,770 |
0.73 |
|
Springer Sci & Bus Med T/L B3 14/08/2020 |
Germany |
Publishing |
12,572,051 |
0.73 |
|
Fmg Res (Aug06) Pty Lc Nw T/L 30/06/2019 |
Australia |
Steel |
12,546,553 |
0.73 |
|
Jeld - Wen Inc T/L B 09/09/2021 |
United States |
Building & Development |
12,275,770 |
0.72 |
|
Formula One Hldgs Ltd T/L 31/07/2021 |
Luxembourg |
Leisure Goods/Activities/Movies |
12,256,440 |
0.71 |
|
Intelsat Jackson T/L B2 30/06/2019 |
Luxembourg |
Telecommunication/Cellular Communications |
12,169,321 |
0.71 |
|
Citycenter Holdings Llc T/L B 09/10/2020 |
United States |
Hotels & Casinos |
11,985,139 |
0.70 |
|
Dell Inc T/L B 24/03/2020 |
United States |
Electronics/Electrical |
11,909,444 |
0.69 |
|
Cumulus Media Holdings T/L B 18/12/2020 |
United States |
Broadcast Radio and Television |
11,876,146 |
0.69 |
|
Energy Fut Int Hldg Dip T/L 12/19/2016 |
United States |
Utilities |
11,858,404 |
0.69 |
|
Numericable Altice T/B (First-Lien) EUR 01/30/2023 |
France |
Cable & Satellite Television |
11,823,328 |
0.69 |
|
Iasis Hlthcare Corp T/L B 03/05/2018 |
United States |
Health Care |
11,797,565 |
0.69 |
|
Amscan Holdings Inc. T/L B (First-Lien) 08/19/2022 |
United States |
Retailers |
11,729,498 |
0.68 |
|
Filtration Gr Co T/L (First-Lien) 13/11/2020 |
United States |
Industrial Equipment |
11,625,589 |
0.68 |
|
99 Cents Only Stores T/L 11/01/2019 |
United States |
Retailers |
11,488,636 |
0.67 |
|
Community Health Incremental T/L H 01/27/2021 |
United States |
Health Care |
11,404,519 |
0.66 |
|
Berlin Pckg (First-Lien) COV-LT T/L 24/09/2021 |
United States |
Containers & Glass Products |
11,318,173 |
0.66 |
|
Immucor Inc T/L B2 19/08/2018 |
United States |
Health Care |
11,027,384 |
0.64 |
|
Spin Holdco Inc T/L 30/11/2019 |
United States |
Retailers (except food and drug) |
10,811,650 |
0.63 |
|
Information Res Inc T/L B 26/09/2020 |
United States |
Business Equipment & Services |
10,670,227 |
0.62 |
|
La Frontera Generation T/L 30/09/2020 |
United States |
Utilities |
10,634,442 |
0.62 |
|
DTZ T/L B 11/04/2021 |
United States |
Building & Development |
10,575,051 |
0.62 |
|
Citco III LTD T/L B 16/04/2018 |
United States |
Financial Intermediaries |
10,566,688 |
0.62 |
|
Michaels Stores Inc T/L B 01/02/2020 |
United States |
Retailers |
10,512,595 |
0.61 |
|
Brand ENR & INF SER Inc T/L B 22/11/2020 |
United States |
Business Equipment & Services |
10,481,260 |
0.61 |
|
Mitchell Intl Inc T/L B 01/10/2020 |
United States |
Business Equipment & Services |
10,452,267 |
0.61 |
|
Aristocrat Leisure T/L B 31/10/2021 |
United States |
Hotels & Casinos |
10,404,098 |
0.61 |
|
Kronos Incremental T/L 30/10/2019 |
United States |
Business Equipment & Services |
10,372,839 |
0.60 |
|
Datatel-Sophia LP TL B (First-Lien) 09/10/2022 |
United States |
Electronics/Electrical |
10,116,482 |
0.59 |
|
|
|
|
676,592,329 |
39.44% |
CONSOLIDATED STATEMENT OF OPERATIONS
For the year ended 31 December 2016 (Expressed in U.S. Dollars)
|
|
1 January 2016 to 31 December 2016 |
1 January 2015 to 31 December 2015 |
|
|
$ |
$ |
|
Income |
|
|
|
Interest income (net of withholding taxes, 2016: $Nil; 2015: $Nil ) |
67,802,475 |
85,020,107 |
|
Other income from investments |
1,047,152 |
1,887,346 |
|
Total income |
68,849,627 |
86,907,453 |
|
|
|
|
|
Expenses |
|
|
|
Investment management and services |
10,664,024 |
13,959,247 |
|
Administration and professional fees |
2,544,696 |
1,801,969 |
|
Directors' fees and travel expenses |
258,827 |
279,807 |
|
Total expenses |
13,467,547 |
16,041,023 |
|
|
|
|
|
Net investment income |
55,382,080 |
70,866,430 |
|
|
|
|
|
Realised and unrealised gains and losses |
|
|
|
Net realised loss on investments |
(52,229,039) |
(28,216,093) |
|
Net realised loss on derivatives |
(288,288,255) |
(102,456,812) |
|
Total net realised loss |
(340,517,294) |
(130,672,905) |
|
|
|
|
|
Net change in unrealised appreciation/(depreciation) on investments |
97,557,925 |
(47,887,136) |
|
Net change in unrealised appreciation on derivatives |
48,360,316 |
18,342,698 |
|
Total net unrealised appreciation/(depreciation) |
145,918,241 |
(29,544,438) |
|
|
|
|
|
Realised and unrealised loss on foreign currency |
(2,123,380) |
(4,373,332) |
|
|
|
|
|
Net realised and unrealised loss |
(196,722,433) |
(164,590,675) |
|
|
|
|
|
Net decrease in net assets resulting from operations |
(141,340,353) |
(93,724,245) |
CONSOLIDATED STATEMENT OF CHANGES IN ASSETS
For the year ended 31 December 2016 (Expressed in U.S. Dollars)
|
|
|
Ordinary Shares ($) |
Total ($) |
|
|
|
|
|
|
Net assets as at 1 January 2016 |
|
1,714,972,853 |
1,714,972,853 |
|
Dividends |
|
(63,223,857) |
(63,223,857) |
|
Share buybacks |
|
(244,366,111) |
(244,366,111) |
|
Net decrease in net assets resulting from operations |
|
(141,340,353) |
(141,340,353) |
|
Net assets as at 31 December 2016 |
|
1,266,042,532 |
1,266,042,532 |
31 December 2015 (Expressed in U.S. Dollars)
|
|
|
Ordinary Shares ($) |
Total ($) |
|
|
|
|
|
|
Net assets as at 1 January 2015 |
|
1,950,175,572 |
1,950,175,572 |
|
Scrip issue |
|
1,657,755 |
1,657,755 |
|
Dividends |
|
(74,489,003) |
(74,489,003 ) |
|
Share buybacks |
|
(68,647,226) |
(68,647,226) |
|
Net decrease in net assets resulting from operations |
|
(93,724,245) |
(93,724,245) |
|
Net assets as at 31 December 2015 |
|
1,714,972,853 |
1,714,972,853 |
CONSOLIDATED STATEMENT OF CASH FLOW
For the year ended 31 December 2016 (Expressed in U.S. Dollars)
|
|
1 January 2016 to 31 December 2016 |
1 January 2015 to 31 December 2015 |
|
|
$ |
$ |
|
Cash flows from operating activities: |
|
|
|
Net decrease in net assets resulting from operations |
(141,340,353) |
(93,724,245) |
|
Adjustment to reconcile net increase/(decrease) in net assets resulting from operations to net cash provided by operating activities: |
|
|
|
Net realised loss on investments |
52,229,039 |
28,216,093 |
|
Net change in unrealised (appreciation)/depreciation on investments and derivatives |
(145,918,242) |
29,544,438 |
|
Changes in receivables for investments sold |
22,043,853 |
23,176,247 |
|
Changes in interest receivable |
2,240,939 |
4,594,370 |
|
Changes in other receivables and prepayments |
(18,680) |
10,268 |
|
Changes in payables for investments purchased |
(4,585,958) |
(4,147,795) |
|
Changes in payables to Investment Manager and affiliates |
(1,012,887) |
(326,827) |
|
Changes in accrued expenses and other liabilities |
(805,310) |
807,899 |
|
Purchase of investments |
(981,314,788) |
(1,061,002,337) |
|
Sale of investments |
1,484,766,986 |
1,247,782,688 |
|
Net cash provided by operating activities |
286,284,599 |
174,930,799 |
|
|
|
|
|
|
|
|
|
Cash flows from financing activities: |
|
|
|
Share buybacks |
(244,366,111) |
(68,647,226) |
|
Dividends paid |
(63,223,857) |
(72,831,259) |
|
|
|
|
|
Net cash used in financing activities |
(307,589,968) |
(141,478,485) |
|
|
|
|
|
Net (decrease) / increase in cash and cash equivalents |
(21,305,369) |
33,452,314 |
|
|
|
|
|
Cash and cash equivalents at beginning of the year |
80,134,995 |
46,682,681 |
|
|
|
|
|
Cash and cash equivalents at end of the year |
58,829,626 |
80,134,995 |
The accompanying notes form an integral part of the Consolidated Financial Statements
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 31 December 2016
NOTE 1 - DESCRIPTION OF BUSINESS
The Company is a closed-ended investment company incorporated and registered in Guernsey with registered number 53155. It is a non-cellular company limited by shares and has been declared by the Guernsey Financial Services Commission to be a registered closed-ended collective investment scheme. On 20 April 2011 the Company was admitted to the Official List of the U.K. Listing Authority with a premium listing trading on the Main Market of the LSE.
On 30 September 2011, the Company raised an additional $187 million by means of a Placing and Offer for Subscription of C Shares and were admitted to trading on the Main Market of the London Stock Exchange on 5 October 2011. On 21 March 2013 and 24 October 2013 the Company raised an additional $550 million and $705 million by means of a Placing and Offer for Subscription of C Shares and were admitted to trading on the Main Market of the London Stock Exchange on 26 March 2013 and 29 October 2013 respectively. On 22 July 2013, through a tap issue, the Company raised gross proceeds of $69 million. The Sterling C Shares issued on 21 March 2013 were converted into 360,521,605 Sterling Ordinary Shares on 16 July 2013 and the Sterling Ordinary Shares issued on 24 October 2013 were converted into 421,103,481 Sterling Ordinary on 21 January 2014.
At the AGM of the Company held in June 2016, the Directors were granted the general authority to purchase in the market up to 14.99% of the Ordinary Shares of each class in issue (as at 15 June 2016). This authority will expire at the next AGM in 2017. Pursuant to this authority, and subject to the Law and the discretion of the Directors, the Company may purchase shares of any of its classes in the market on an on-going basis with a view to addressing any imbalance between the supply of and demand for such shares, thereby increasing the NAV per share of the shares and assisting in managing the discount to NAV per share of the shares in relation to the price at which the shares of such class may be trading.
The Company re-purchased 190,761,294 Sterling Ordinary Shares in 182 tranches between 1 January 2016 and 31 December 2016, 44,574,446 of which were repurchased for cancellation and 146,186,848 were held in treasury. The Company also re-purchased 4,048,600 U.S. Dollar Ordinary Shares in 56 tranches between 1 January 2016 and 31 December 2016, of which 1,078,600 were repurchased for cancellation and 2,970,000 were held in treasury.
On the 9 March 2016, the Company cancelled 58,609,241 Sterling Ordinary Shares held in treasury. On 11 April 2016 the Company cancelled 43,111,620 Sterling Ordinary Shares held in treasury. This represented approximately 4.73% and 3.64% of the Company's issued Sterling Ordinary Shares respectively.
The Company's investment objective is to provide its shareholders with regular dividends, at levels that are sustainable, whilst preserving the capital value of its investment portfolio, utilising the investment skills of the Investment Manager to pursue its investment objective, the Company invests mainly in floating rate senior secured loans issued in U.S. Dollars, Sterling and Euros by primarily North American and European Union corporations, partnerships and other business issuers. These loans will at the time of investment often be non-investment grade. The Company considers debt instruments to be non-investment grade if, at the time of investment, they are rated below the four highest categories (AAA, AA, A and BAA) by at least two independent credit rating agencies or, if unrated, are deemed by the Investment Manager to be of comparable quality.
For the purposes of efficient portfolio management, the Company has established a wholly-owned Luxembourg incorporated subsidiary, NB Global Floating Rate Income Fund (Lux) 1 S.à.r.l. which in turn holds a wholly-owned subsidiary, NB Global Floating Rate Income Fund (Lux) 2 S.à.r.l. All references to the Company in this document refer to the Company and its wholly owned Luxembourg subsidiaries. The directors of these companies are unrelated to the Directors of the Company.
The Company's share capital is denominated in Pound Sterling and U.S. Dollars and consists of U.S. Dollar Ordinary Shares and Sterling Ordinary Shares as at 31 December 2016.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of preparation
The accompanying Consolidated Financial Statements have been presented on a going concern basis and on the accrual basis of accounting in conformity with United States generally accepted accounting principles ("US GAAP"). The Company is regarded as an Investment Company and it follows the accounting and reporting requirements of the FASB ASC 946. The Board believes that the underlying assumptions are appropriate and that the Company's Consolidated Financial Statements therefore present a true and fair financial position.
Basis of consolidation
The Financial Statements comprise the financial statements of the Company and its wholly owned subsidiary undertakings as at 31 December 2016. The subsidiaries are NB Global Floating Rate Income Fund (Lux) 1 S.à.r.l. which in turn holds a wholly-owned subsidiary, NB Global Floating Rate Income Fund (Lux) 2 S.à.r.l. The Company and all its wholly owned subsidiaries have United States Dollars as their functional and reporting currency. The results of the subsidiary undertakings are included in the Consolidated Statement of Operations.
All intra-group balances, transactions, income and expenses are eliminated in full.
Use of estimates
The preparation of Financial Statements in conformity with US GAAP requires that the Directors make estimates and assumptions that affect the application of policies and reported amounts of assets and liabilities, income and expenses. Such estimates and associated assumptions are generally based on historical experience and various other factors that are believed to be reasonable under the circumstances, and form the basis of making the judgments about attributing values of assets and liabilities that are not readily apparent from other sources. Actual results may vary from such accounting estimates in amounts that may have a material impact on the financial information of the Company.
Revenue recognition
Interest earned on debt instruments is accounted for net of applicable withholding taxes and is recognised as income over the terms of the loans. Discounts received or premiums paid in connection with the acquisition of loans are amortised into interest income using the effective interest method over the contractual life of the related loan. If a loan pays off 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.
Cash and cash equivalents
The Company's cash and cash equivalents comprise cash in hand and demand deposits and highly liquid investments 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 insignificant risk of changes in value.
Valuation of investments
The Company carries investments on its Consolidated Statement of Assets and Liabilities at fair value in accordance with US GAAP, with changes in fair value recognised within the Consolidated Statement of Operations in each reporting period. Quoted investments are valued according to their bid price as 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. Asset backed securities are valued according to their bid price. 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 Investment Manager determines the valuation based on the Investment Manager's fair valuation policy. The overall criterion for fair value is a price at which the securities involved would change hands in a transaction between a willing buyer and a willing seller, neither being under compulsion to buy or sell and both having the same knowledge of the relevant facts.
Consistent with the above criterion, the following criteria are considered when applicable:
· Valuation of other securities by the same issuer for which market quotations are available;
· Reasons for absence of market quotations;
· The credit quality of the issuer and the related economics;
· Recent sales prices and/or bid and ask quotations for the security;
· Value of similar securities of issuers in the same or similar industries for which market quotations are available;
· Economic outlook of the industry;
· Issuer's position in the industry;
· The financial information of the issuer; and
· The nature and duration of any restriction on disposition of the security.
Derivative financial instruments
The Company may, from time to time, hold derivative financial instruments for the purposes of hedging foreign currency exposure. These derivatives are measured at fair value in accordance with US GAAP, with changes in fair value recognised within the Consolidated Statement of Operations in each reporting period.
Depending on the product and the terms of the transaction, the fair value of the over the counter (OTC) derivative products, such as foreign exchange contracts, can be modelled taking into account the counterparties' credit worthiness and using a series of techniques, including simulation models.
Many pricing models do not entail material subjectivity because the methodologies employed do not necessitate significant judgments and the pricing inputs are observed from actively quoted markets. The forward exchange contracts valued by the Company using pricing models fall into this category and are categorised within level 2 of the fair value hierarchy.
As shares are denominated in U.S. Dollars and Pound Sterling and investments are denominated in U.S. Dollars, Euro or Sterling holders of any class of shares are subject to foreign currency fluctuations between the currency in which such shares are denominated and the currency of the investments made by the Company. Consequently, the Investment Manager seeks to engage in currency hedging between the U.S. Dollar and any other currency in which the assets of the Company or a class of shares is denominated, subject to suitable hedging contracts such as forward currency exchange contracts being available in a timely manner and on terms acceptable to the Investment Manager, in their sole and absolute discretion.
Note 5 details the gross and net derivative asset and liability position by contract type and the amount for those derivative contracts for which netting is permissible under US GAAP. The derivative assets and liabilities have been netted where an enforceable master netting arrangement is in place.
Realised gains and losses on investments
All investment transactions are recorded 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 first in, first out ("FIFO") cost method.
Operating expenses
Operating expenses are recognised on an accruals basis. Operating expenses include amounts directly or indirectly incurred by the Company as part of its operations.
Buybacks cost
Any costs incurred by a share buyback will be charged to that share class.
Currency translation
Monetary assets and liabilities denominated in a currency other than U.S. Dollars are translated into U.S. Dollar equivalents using spot rates as at the reporting year end date. On initial recognition, a foreign currency transaction is recorded and translated at the spot exchange rate at the transaction date. Non-monetary assets and liabilities are translated at the historic exchange rate. There were no non-monetary assets held during the year. Transactions during the year, including purchases and sales of securities, income and expenses, are translated at the rate of exchange prevailing on the date of the transaction. The rates of exchange against U.S. Dollars at 31 December 2016 were 1.23565 USD: 1GBP and 1.05475 USD: 1EUR (31 December 2015: 1.473900 USD: 1GBP and 1.086300 USD: 1EUR).
NOTE 3 - AGREEMENTS AND RELATED PARTIES
Investment Management Agreement
The Board is responsible for managing the business affairs of the Company but delegated certain functions to the Investment Manager under the Investment Management Agreement ("the Agreement") dated 18 March 2011.
The Manager of the Company is Neuberger Berman Europe Limited (which is a related party), an indirectly wholly owned subsidiary of NB Group. On 17 July 2014, the Company, the Manager and Neuberger Berman Investment Advisers LLC (which was the Sub Investment Manager) made certain classificatory amendments to the Agreement for the purposes of the AIFM Directive.
The Sub-Investment Management Agreement was terminated on 17 July 2014 and the Sub-Investment Manager was appointed as the AIFM per the amended and restated IMA dated 17 July 2014. The Manager, Neuberger Berman Europe Limited, was appointed under the same agreement. In accordance with the terms of the IMA, the Manager shall pay a fee to the AIFM out of the investment Management fee received from the Company. The Company does not pay any fees to the AIFM.
The AIFM is responsible for risk management and the discretionary management of the assets held in the Company's portfolio and will conduct the day-to-day management of the Company's assets (including un-invested cash). The AIFM is not required to and generally will not submit individual investment decisions for approval by the Board. The Manager provides certain administrative services to the Company.
As per the IMA dated 17 July 2014, the Manager is entitled to a management fee, which shall accrue daily, and be payable quarterly in arrears, at the following rate per annum of the Company's NAV:
On first £1bn of the NAV 0.75%
On £1bn - £2bn of the NAV 0.70%
Any amount greater than £2bn of the NAV 0.65%
For the year ended 31 December 2016, the management fee expense was $10,664,024 (31 December 2015: $13,959,247), of which $2,365,325 (31 December 2015: $3,378,212) was unpaid at the year end.
The Manager is not entitled to a performance fee.
Administration, Custody and Company Secretary Agreement
BNP Paribas Securities Services S.C.A., Guernsey Branch ("BNPP") was the Administrator, Custodian and Designated Manager until 28 February 2015. Effective 1 March 2015, the Company has entered into an Administration and Sub-Administrator agreement with U.S. Bancorp Fund Services (Guernsey) Limited ("Administrator") and Quintillion Limited ("Sub-Administrator"), both wholly owned subsidiaries of U.S. Bancorp. Under the terms of the agreement, Sub-Administration services are delegated to Quintillion Limited.
The Sub-Administrator is responsible, amongst other things, for the day-to-day administration of the Company (including but not limited to the calculation and publication of the estimated daily NAV).
For the period from 1 January 2015 to 28 February 2015, BNPP was entitled to an annual fee, accrued daily and paid monthly in arrears, in accordance with the schedule below and subject to an annual minimum of £100,000.
On first $100m of the NAV 0.08%
On $100m - $250m of the NAV 0.06%
On $250m - $500m of the NAV 0.03%
Any amount greater than $500m of the NAV 0.015%
From 1 March 2015, the Administrator is entitled to an annual fee, accrued daily and paid monthly in arrears, in accordance with the schedule below and subject to an annual minimum of $75,000.
On first $250m of the NAV 0.05%
On $250m - $500m of the NAV 0.04%
On $500m - $1bn of the NAV 0.03%
Any amount greater than $1bn of the NAV 0.02%
For the year ended 31 December 2016, the administration fee was $542,415 (31 December 2015: $617,740) of which $42,704 (31 December 2015: $50,529) was unpaid at the year end.
C.L. Secretaries Limited, a wholly owned subsidiary of Carey Commercial Limited, as Company Secretary is entitled to an annual fee of £78,300 plus out of pocket expenses. At the board meeting held on 15 August 2016 an increase of £15,000 was approved from £63,300.
For the year ended 31 December 2016, the secretarial fee was $202,589, of which $88,733 related to administration of the on-going programme of buybacks, (31 December 2015: $42,745) of which $6,020 (31 December 2015: $1,014) was prepaid at the year-end.
For the period from 1 January 2015 to 28 February 2015, BNPP was entitled to a custodian fee of 0.02 per cent of the market value of the portfolio and a fee of 0.045 per cent per annum on the market value of the loan assets (adjusted to 0.035 per cent per annum if assets exceeded $500m), with a minimum annual fee of £50,000 in respect of portfolio and loan administration.
Effective 1 March 2015, US Bank National Association ("Custodian") became the Custodian of the Company.
From 1 March 2015, the Custodian is entitled to a fee of 0.025 per cent of the Market Value of the portfolio per annum, with a minimum annual fee of $25,000 in respect of portfolio and loan administration.
For the year ended 31 December 2016, the custodian fee was $416,006 (31 December 2015: custodian and loan administration, $411,704) of which $262,470 (31 December 2015: $190,090) was unpaid, all of which was due to US Bank National Association at the year end.
Registrar's Agreement
Capita Registrars (Guernsey) Limited has been appointed as registrar of the Company. The fee charged is at a rate of £2.00 per holder of shares appearing on the registry during the fee period, with a minimum charge per annum of £9,000. For the year ended 31 December 2016, the Registrars fees amounted to $100,061. Of these, $12,868 was unpaid at the year end.
NOTE 4 - RELATED PARTY TRANSACTIONS
Directors
The Directors are related parties and are remunerated for their services at a fee of £35,000 per annum (£45,000 for the Chairman). In addition, the Chairman of the Audit and Risk Committee receives an additional £5,000 for his services in this role. The Chairman of the Management Engagement Committee and the Chairman of the Remuneration Committee receive an additional £2,500 each per annum. The Directors' fee for the two Luxembourg subsidiaries, whose Directors are unrelated to the Guernsey Board members, amounts to €14,700 per annum per subsidiary. Of these, $Nil were prepaid at the year end. For the year ended 31 December 2016, the Guernsey Directors' fees and travel expenses amounted to $238,873 (31 December 2015: $273,850). Of these, $Nil were prepaid at the year end (31 December 2015: $2,074 were unpaid). As at 31 December 2016, Mr Battey, Mrs Platts, Mr Dorey and Mr Frewen had 30,077, 10,069, 20,000 and 9,895 Sterling Ordinary Shares in the Company respectively (31 December 2015: Mr Battey, Mrs Platts and Mr Frewen 30,077,10,069, 20,000 and 9,895 Sterling Ordinary Shares in the Company respectively).
Neuberger Berman Europe Limited and Neuberger Berman Investment Advisers LLC
The contracts with Neuberger Berman Europe Limited and Neuberger Berman Investment Advisers LLC are classified as related party transactions. Other than fees payable in the ordinary course of business and the additional fees disclosed in Note 3, there have been no material transactions with related parties, which have affected the financial position or performance of the Company in the financial period.
NOTE 5 - FAIR VALUE OF FINANCIAL INSTRUMENTS
A financial instrument is defined by FASB ASC 825, Disclosures about Fair Value of Financial Instruments, as cash, evidence of an ownership interest in an entity, or a contract that creates a contractual obligation or right to deliver to or receive cash or another financial instrument from a second entity on potentially favourable terms. Fair value estimates are made at a discrete point in time, based on relevant market data, information about the financial instruments, and other factors.
Fair value was 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 judgment. Accordingly, fair values are not necessarily indicative of the amounts realised on disposition of financial instruments. The use of different market assumptions and/or estimation methodologies may have a material effect on estimated fair value amounts.
The following estimates and assumptions were used at 31 December 2016 to estimate the fair value of each class of financial instruments:
- Valuation of financial investments - The loans and bonds are valued at bid price. 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.
- Cash and cash equivalents - The net realisable value is a reasonable estimate of fair value due to the short-term nature of these instruments.
- Receivables for investments sold - The net realisable value reasonably approximates fair value as they reflect the value at which investments are sold to a willing buyer and settlement period on their balances is short term.
- Interest receivables - The net realisable value reasonably approximates fair value.
- Other receivables and prepayments - The net realisable value reasonably approximates fair value.
- Derivatives - The Company estimates fair values of derivatives based on the latest available forward exchange rates.
- Payables for investments purchased - The net realisable value reasonably approximates fair value as they reflect the value at which investments are purchased from a willing seller and settlement period on their balances is short term.
- Payables to the Investment Manager and affiliates - The net realisable value reasonably approximate fair value.
- Accrued expenses and other liabilities - The net realisable value reasonably approximates fair value.
A fair value hierarchy that prioritises the inputs to valuation techniques used to measure fair value is established under FASB ASC Topic 820. The objective of a fair value measurement is to determine 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 (an exit price). Accordingly, the fair value hierarchy gives the highest priority to valuations based upon unadjusted quoted prices in active markets for identical assets or liabilities (Level 1) and the lowest priority to valuations based upon unobservable inputs that are significant to the valuation (Level 3). The levels of the fair value hierarchy under FASB ASC Topic 820-10-35-39 to 55 are as follows:
The guidance establishes three levels of the fair value hierarchy as follows:
Level 1: price quotations in active markets/exchanges for identical securities;
Level 2: other observable inputs (including but not limited to: quoted prices for similar assets or liabilities in markets that are not active, inputs other than quoted prices that are observable for the assets or liabilities (such as interest rates, yield curves, volatilities, prepayment speeds, loss severities, credit risks and default rates) or other market-corroborated inputs); and
Level 3: unobservable inputs based on the best information available in the circumstance, to the extent observable inputs are not available (including the Company's own assumption used in determining the fair value of investments).
The Company has adopted the authoritative guidance contained in FASB ASC 820-10, Fair Value Measurements and Disclosures, for estimating the fair value of the financial instruments that have calculated NAV per share in accordance with FASB ASC 946-10.
The inputs or methodology used for valuing securities are not necessarily an indication of the risk associated with investing in those securities.
The following table details the Company's financial instruments that were accounted for at fair value as at 31 December 2016.
|
Financial Instruments at Fair Value as at 31 December 2016 |
|||||
|
Financial investments |
|
Level 1 ($) |
Level 2 ($) |
Level 3 ($) |
Total ($) |
|
Floating rate senior secured loans |
|
- |
1,161,742,705 |
52,130,747 |
1,213,873,452 |
|
Fixed rate bonds / corporate loans |
|
- |
6,410,344 |
- |
6,410,344 |
|
Floating rate bonds / corporate loans |
|
- |
36,602,427 |
- |
36,602,427 |
|
Total financial investments |
|
- |
1,204,755,476 |
52,130,747 |
1,256,886,223 |
|
|
|
Level 1 ($) |
Level 2 ($) |
Level 3 ($) |
Total ($) |
|
Balance at start of the year |
|
- |
1,669,812,289 |
45,197,246 |
1,715,009,535 |
|
Purchases during the year |
|
- |
950,168,859 |
31,145,929 |
981,314,788 |
|
Sales during the year |
|
- |
(1,453,052,585) |
(31,714,401) |
(1,484,766,986) |
|
Realised gain on investments |
|
- |
(46,603,485) |
(5,625,554) |
(52,229,039) |
|
Unrealised loss on revaluation |
|
- |
86,491,473 |
11,066,452 |
97,557,925 |
|
Transfer from Level 2 to Level 3 |
|
- |
(54,881,616) |
54,881,616 |
- |
|
Transfer from Level 3 to Level 2 |
|
- |
52,820,541 |
(52,820,541) |
- |
|
Balance at end of the year |
|
- |
1,204,755,476 |
52,130,747 |
1,256,886,223 |
|
Financial Assets |
No of contracts |
|
|
|
|
|
Derivatives (for hedging purposes only) |
15 |
- |
15,225,146 |
- |
15,225,146 |
|
Financial liabilities |
|
|
|
|
|
|
Derivatives (for hedging purposes only) |
15 |
- |
- |
- |
- |
|
Total |
30 |
- |
15,225,146 |
|
15,225,146 |
|
Financial Instruments at Fair Value as at 31 December 2015 |
|||||
|
Financial investments |
|
Level 1 ($) |
Level 2 ($) |
Level 3 ($) |
Total ($) |
|
Floating rate senior secured loans |
|
- |
1,591,082,427 |
45,197,246 |
1,636,279,673 |
|
Fixed rate bonds / corporate loans |
|
- |
18,941,703 |
- |
18,941,703 |
|
Floating rate bonds / corporate loans |
|
- |
59,788,159 |
- |
59,788,159 |
|
Total financial investments |
|
- |
1,669,812,289 |
45,197,246 |
1,715,009,535 |
|
|
|
|
|
|
|
|
|
Level 1 ($) |
Level 2 ($) |
Level 3 ($) |
Total ($) |
|
|
Balance at start of the year |
|
- |
1,977,893,115 |
- |
1,977,893,115 |
|
Purchases during the year |
|
- |
1,051,483,783 |
9,518,554 |
1,061,002,337 |
|
Sales during the year |
|
- |
(1,247,671,303) |
(111,385) |
(1,247,782,688) |
|
Realised loss on investments |
|
- |
(28,215,707) |
(386) |
(28,216,093) |
|
Unrealised loss on revaluation |
|
- |
(45,910,469) |
(1,976,667) |
(47,887,136) |
|
Transfer between Level 2 and Level 3 |
|
- |
(37,767,130) |
37,767,130 |
- |
|
Balance at end of the year |
|
- |
1,669,812,289 |
45,197,246 |
1,715,009,535 |
|
Financial Assets |
No of contracts |
|
|
|
|
|
Derivatives (for hedging purposes only) |
16 |
- |
468,544 |
- |
468,544 |
|
Financial liabilities |
|
|
|
|
|
|
Derivatives (for hedging purposes only) |
16 |
- |
(33,603,715) |
- |
(33,603,715) |
|
Total |
32 |
- |
(33,135,171) |
- |
(33,135,171) |
The Derivatives assets and liabilities are offset in accordance with the guidance in sections 210-20-45 and 815-10-45 to determine the net amounts presented in the Consolidated Statement of Assets and Liabilities. All derivative trades have an enforceable master netting agreement so the net amount based on this is the same as the net amount disclosed in the Consolidated Statement of Assets and Liabilities. As at 31 December 2016, there were two counterparties for the Forwards (31 December 2015: two).
Due to changes in observable inputs, the Company transferred securities from Level 2 to Level 3and from Level 3 to Level 2 of the fair value hierarchy. Level 3 assets are valued using single broker quotes.
The following table presents the impact of derivative instruments on the Consolidated Statement of Operations in conformity with US GAAP.
|
Primary underlying risk |
|
For the year ended 31 December 2016 |
For the year ended 31 December 2015 |
|
|
|
$ |
$ |
|
Net realised (loss)/gain on derivatives |
|
(288,288,255) |
(102,456,812) |
|
Net change in unrealised appreciation/(depreciation) on derivatives |
|
48,360,316 |
18,342,698 |
|
Total |
|
(239,927,939) |
(84,114,114) |
Primary underlying risks (credit risk, liquidity risk and market risk) associated with the derivatives are explained in Note 6.
There is no collateral for forward contracts.
The Company presents the gain or loss on derivatives in the Consolidated Statement of Operations.
The Company uses independent third party vendors to price its portfolio. As part of its valuation process, the Alternative Investment Fund Manager evaluates the number of broker quotes that combine to make up the valuation provided by these vendors and if it believes that the number of broker quotes is not sufficient to ensure a Level 2 price it designates those positions Level 3. As at 31 December 2016 the Alternative Investment Fund Manager designated 16 (31 December 2015:10) of its floating rate senior secured loans and none of its floating rate bonds (31 December 2015:Nil) at Level 3.
NOTE 6 - RISKS
The Company is subject to various risks, including, but not limited to, market risk, foreign exchange risk, credit risk, geographic concentration risk and liquidity risk. The Investment Manager attempts to monitor and manage these risks on an ongoing basis.
Market risk is the potential for changes in the value of investments. Market risk includes interest rate risk, foreign exchange risk and price risk. Interest rate risk primarily results from exposures to changes in the level, slope and curvature of the yield curve, the volatility of interest rates and credit spreads. Floating rate investments, such as senior secured loans, typically receive a fixed coupon, which is linked to a variable base rate, usually LIBOR or EURIBOR. As such income earned will be affected by changes in the variable component albeit downward moves are likely to be capped by the LIBOR/EURIBOR floors that are prevalent in the majority of transactions. The Company invests predominantly in floating rate investments, however, it does have some exposure to fixed rate investments which are subject to interest rate risk through movements in their market price when interest rate change.
Price risk is the risk that the price of the security will fall. The Investment Manager manages the exposure to price risk by diversifying the portfolio.
Foreign exchange risk arises from various currency exposures, primarily with respect to Pound Sterling and Euro investments and share issue proceeds. The Company makes use of hedging techniques, as part of its risk management strategy, including but not limited to the use of forward exchange contracts to mitigate its exposure to this risk. These instruments involve market risk, credit risk, or both kinds of risks. Risks arise from the possible inability of counterparties to meet the terms of their contracts and from movement in currency and securities values and interest rates.
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 minimize 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 assets other than derivative financial instruments were held by the Custodian. The Custodian segregates the assets of the Company from the Custodian's assets and other Custodian clients. The Investment Manager 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 trades in over-the-counter ("OTC") derivative instruments. 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 nonperformance 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 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.
The Company may invest in a range of bank debt investments and corporate and other bonds. Until such investments are sold or are paid in full at maturity, the Company is exposed to issuer credit risk, relating to whether the issuer will make interest and/or principal payments on their debt obligations.
Geographic Concentration Risk
The Company may invest a relatively large percentage of its assets in issuers located in a single country, a small number of countries, or a particular geographic region. As a result, the Company's performance may be closely aligned with the market, currency or economic, political or regulatory conditions and developments in those countries or that region, and could be more volatile than the performance of more geographically diversified investments.
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 to ensure that the Company maintains sufficient working capital in cash or near cash form so as to be able to meet the Company's ongoing requirements as they fall due.
Participation Commitments
With respect to the senior loans the Company may: 1) invest in assignments; 2) act as a participant in primary lending syndicates; or 3) invest in participations. If a Company purchases a participation of a senior loan interest, the Company would typically enter into a contractual agreement with the lender or other third party selling the participation, rather than directly with the borrower. As such, the Company not only assumes the credit risk of the borrower, but also that of the selling participant or other persons inter positioned between the Company and the borrower. As of 31 December 2016, there were no such outstanding participation commitments in the Company.
Other Risks
Legal, tax and regulatory changes could occur during the term of the Company that may adversely affect the Company. The regulatory environment for alternative investment companies is evolving, and changes in the regulation of investment companies may adversely affect the value of investments held by the Company or the ability of the Company to pursue its trading strategies. The effect of any future regulatory change on the Company could be substantial and adverse. The Board has considered the specific risks faced by the Company as a result of Brexit. At the portfolio level, the Board expects the impact of Brexit to be limited given the hedging arrangements in place and the robust investment process the Investment Manager has always adopted and its positioning in better rated, performing issuers. At the Company level the impact could be felt more directly through volatility of the Company's share price. The Board seeks to mitigate this risk by continuing to address any imbalances in supply and demand of the Company's shares through the use of further share buybacks in line with its stated policy.
NOTE 7 - INCOME TAXES
The Company is exempt from Guernsey tax on income derived from non-Guernsey sources. However, certain of its underlying investments may generate income that is subject to tax in other jurisdictions, principally in the United States. The Company files tax returns for its Luxembourg entities.
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 it has 50% or higher chance 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. This policy also provides guidance on thresholds, measurement, de-recognition, classification, interest and penalties, accounting in periods, disclosure, and transition that intendeds to provide better financial statement comparability among different entities.
As of 31 December 2016, the Company has recorded no liability for net unrecognised tax benefits relating to uncertain tax positions it has taken or expects to take in future tax returns (31 December 2015: Nil).
Note 8 - FINANCIAL HIGHLIGHTS
31 December 2016
|
|
U.S. Dollar Ordinary Share as at 31/12/2016 |
Sterling Ordinary Share as at 31/12/2016 |
|
Per share operating performance |
$ |
£ |
|
Net Asset Value per share at the beginning of the year |
0.9490 |
0.9422 |
|
Shareholder activity during the year |
0.0089 |
0.0094 |
|
|
|
|
|
Income from investment operations (a) |
|
|
|
Net income per share for the year (b) |
0.0376 |
0.0373 |
|
Net realised and unrealised loss from investments |
0.0356 |
0.0357 |
|
Foreign currency translation |
- |
(0.0034) |
|
Total gain from operations |
0.0732 |
0.0696 |
|
Distribution per share during the year |
(0.0430) |
(0.0425) |
|
Net asset value per share at the end of the year |
0.9881 |
0.9787 |
|
Total return* (b) |
|
|
|
Total return* |
8.41% |
8.17% |
|
Ratios to average net assets (b) |
|
|
|
Net investment income |
3.91% |
3.90% |
|
Expenses |
(0.93%) |
(0.95%) |
(a) Average shares outstanding were used for calculation.
(b) An individual shareholder's return may vary from these returns based on the timing of the shareholder's investments in the Company.
*The total return is the NAV return per share plus dividends paid during the year. This figure is for the year to 31 December 2016.
31 December 2015
|
|
U.S. Dollar Ordinary Share as at 31/12/2015 |
Sterling Ordinary Share as at 31/12/2015 |
|
Per share operating performance |
$ |
£ |
|
NAV per share at the beginning of the year |
0.9862 |
0.9770 |
|
Shareholder activity during the year |
(0.0158) |
0.0091 |
|
|
|
|
|
|
|
|
|
Income from investment operations (a) |
|
|
|
Net income per share for the year (b) |
0.0412 |
0.0376 |
|
Net realised and unrealised loss from investments |
(0.0247) |
(0.0891) |
|
Foreign currency translation |
- |
0.0455 |
|
Total gain from operations |
0.0165 |
(0.0060) |
|
Distribution per share during the year |
(0.0379) |
(0.0379) |
|
NAV per share at the end of the year |
0.9490 |
0.9422 |
|
Total return* (b) |
|
|
|
Total return* |
0.08% |
0.32% |
|
Ratios to average net assets (b) |
|
|
|
Net income |
3.76% |
3.91% |
|
Expenses |
(0.84%) |
(0.87%) |
(a) Average shares outstanding were used for calculation.
(b) An individual shareholder's return may vary from these returns based on the timing of the shareholder's investments in the Company.
*The total return is the NAV return per share plus dividends paid during the year. This figure is for the year to 31 December 2015.
NOTE 9 - SHARE CAPITAL
The share capital of the Company consists of an unlimited number of Ordinary Shares of no par value, which upon issue the Directors may classify as:
(i) U.S. Dollar Ordinary Shares, Sterling Ordinary Shares or Euro Ordinary Shares or as shares of such other classes as the Directors may determine;
(ii) B Shares of such classes denominated in such currencies as the Directors may determine; and
(iii) C Shares of such classes denominated in such currencies as the Directors may determine.
The rights attached to the above shares are one vote in respect of each share held and, in the case of a general meeting of all shareholders:
(a) One vote in respect of each U.S. Dollar Ordinary Share held by the shareholder;
(b) 1.6 votes in respect of each Sterling Ordinary Share held by the shareholder; and
(c) In respect of a Share of a class denominated in any currency other than U.S. Dollars or Pound Sterling held by the shareholder, such number of votes per Share of such class as shall be determined by the Directors in their absolute discretion upon the issue for the first time of shares of the relevant class.
The Directors may effect distributions of capital proceeds attributable to the Ordinary Shares to holders of Ordinary Shares by issuing B Shares of a particular class to holders of Ordinary Shares of a particular class pro-rata to their holding of Ordinary Shares of such class.
The B Shares are issued on terms that each B Share shall be compulsorily redeemed by the Company shortly following issue and the redemption proceeds paid to the holders of such B Shares on such terms and in such manner as the Directors may from time to time determine.
The Directors are authorised to issue C Shares of such classes (and denominated in such currencies) as they may determine in accordance with Article 4 and with C Shares of each such class being convertible into Ordinary Shares of such class as the Directors may determine at the time of issue of such C Shares.
The C Shares will not carry the right to attend and receive notice of any general meetings of the Company, nor will they carry the right to vote at such meetings.
The C Shares will be entitled to participate in a winding-up of the Company or on a return of capital in relation to the C share surplus as defined in the Prospectus.
The C Shares will be entitled to receive such dividends as the Directors may resolve to pay to such holders out of the assets attributable to such class of C Shares.
There were no Euro Ordinary Shares in issue as at 31 December 2016 (31 December 2015: No Euro Ordinary Shares).
As at 31 December 2016, there were no C Shares in issue (31 December 2015: No C Shares were in issue).
|
From 1 January 2016 to 31 December 2016 |
|
U.S. Dollar Ordinary Shares |
Sterling Ordinary Shares |
Total |
|
Balance as at 1 January 2015 |
|
52,380,402 |
1,199,095,966 |
1,251,476,368 |
|
Monthly conversions** |
|
(8,444,322) |
4,357,949 |
(4,086,373) |
|
Share buybacks |
|
(5,665,971) |
(187,839,585) |
(193,505,556) |
|
|
|
|
|
|
|
Balance as at 31 December 2016 |
|
38,270,1091 |
1,015,614,3302 |
1,053,884,439 |
|
From 1 January 2015 to 31 December 2015 |
|
U.S. Dollar Ordinary Shares |
Sterling Ordinary Shares |
Total |
|
Balance as at 1 January 2015 |
|
60,166,690 |
1,241,163,626 |
1,301,330,316 |
|
Scrip issue * |
|
65,325 |
1,045,029 |
1,110,354 |
|
Monthly conversions** |
|
(6,496,359) |
4,237,945 |
(2,258,414) |
|
Share buybacks |
|
(1,355,254) |
(47,350,634) |
(48,705,888) |
|
|
|
|
|
|
|
Balance as at 31 December 2015 |
|
52,380,4023 |
1,199,095,9664 |
1,251,476,368 |
Treasury Shares
As at 31 December 2016, the Company held the following Treasury shares.
|
|
|
31 December 2016 |
31 December 2015 |
|
Sterling Ordinary Treasury Shares**** |
|
75,000,000 |
47,350,634 |
|
U.S. Dollar Ordinary Treasury Shares**** |
|
2,972,627 |
1,355,254 |
The shares of no par value had the following issue proceeds net of any issue costs:
1 $
2 $
3 $
4 $
* At the time of each quarterly dividend declaration, the Company offered a scrip dividend alternative for the distribution to those shareholders who wish to receive additional Ordinary Shares in lieu of a cash payment. On 21 December 2015, due to the current discount, the Board decided to replace the Scrip Dividend option with a Dividend Re-investment Plan, whereby the shareholders have the option to re-invest their cash dividend in the Company's shares on an efficient basis.
** The Company offers a monthly conversion facility pursuant to which shareholders may elect to convert some or all of their shares of a class into shares of any other class.
**** The Company has an approved share buyback programme and may elect to buyback ordinary shares at certain times during the year. Any shares purchased under this programmes are held as Treasury shares. During the year, the Company purchased 56 tranches of U.S. Dollar Ordinary Shares with a high price of $0.9425 and a low price of $0.8450, and 182 tranches of Sterling Ordinary Shares with a high price of £0.946 and a low price of £0.8450.
NOTE 10 - SUBSEQUENT EVENTS
There have been no significant events to report since the Company's year end and up to the date of this report.
As of December 2016
NOTE 11 - DIVIDENDS
a) The following dividends were declared for Ordinary and C Shareholders since inception:
|
Period |
Date Declared |
Payment Date |
Dividend per U.S. Dollar Share |
Dividend per Sterling Share |
|
|
|
|
|
|
|
|
|
Period 20 April 2011 to 30 September 2011 |
12 October 2011 |
9 December 2011 |
$0.01486 |
£0.01486 |
|
|
Quarter ended 31 December 2011 |
5 January 2012 |
24 February 2012 |
$0.01187 |
£0.01187 |
|
|
Quarter ended 31 December 2011- C Shares |
5 January 2012 |
24 February 2012 |
$0.00323 |
£0.00323 |
|
|
Quarter ended 31 March 2012 |
12 April 2012 |
25 May 2012 |
$0.01260 |
£0.01260 |
|
|
Quarter ended 30 June 2012 |
5 July 2012 |
24 August 2012 |
$0.01310 |
£0.01310 |
|
|
Quarter ended 30 September 2012 |
3 October 2012 |
23 November 2012 |
$0.01210 |
£0.01210 |
|
|
Quarter ended 31 December 2012 |
9 January 2013 |
22 February 2013 |
$0.01160 |
£0.01160 |
|
|
Quarter ended 31 March 2013 |
8 April 2013 |
24 May 2013 |
$0.01220 |
£0.01220 |
|
|
Quarter ended 30 June 2013 |
4 July 2013 |
16 August 2013 |
$0.01110 |
£0.01110 |
|
|
Quarter ended 30 June 2013- C Shares |
4 July 2013 |
26 July 2013 |
- |
£0.00550 |
|
|
Quarter ended 30 September 2013 |
7 October 2013 |
22 November 2013 |
$0.00890 |
£0.00890 |
|
|
Quarter ended 31 December 2013 |
6 January 2014 |
21 February 2014 |
$0.00940 |
£0.00940 |
|
|
Quarter ended 31 December 2013- C Shares |
6 January 2014 |
7 February 2014 |
- |
£0.00200 |
|
|
Quarter ended 31 March 2014 |
4 April 2014 |
27 May 2014 |
$0.00860 |
£0.00860 |
|
|
Quarter ended 30 June 2014 |
3 July 2014 |
15 August 2014 |
$0.00890 |
£0.00890 |
|
|
Quarter ended 30 September 2014 |
3 October 2014 |
21 November 2014 |
$0.00950 |
£0.00950 |
|
|
Quarter ended 31 December 2014 |
7 January 2015 |
20 February 2015 |
$0.00960 |
£0.00960 |
|
|
Quarter ended 31 March 2015 |
7 April 2015 |
26 May 2015 |
$0.00890 |
£0.00890 |
|
|
Quarter ended 30 June 2015 |
3 July 2015 |
15 August 2015 |
$0.01030 |
£0.01030 |
|
|
Quarter ended 30 September 2015 |
5 October 2015 |
23 October 2015 |
$0.00910 |
£0.00910 |
|
|
Quarter ended 31 December 2015 |
6 January 2016 |
19 February 2016 |
$0.00990 |
£0.00990 |
|
|
Quarter ended 31 March 2016 |
5 April 2016 |
25 May 2016 |
$0.01030 |
£0.01030 |
|
|
Quarter ended 30 June 2016 |
6 July 2016 |
19 August 2016 |
$0.01080 |
£0.01080 |
|
|
Quarter ended 30 September 2016 |
05 October 2016 |
17 November 2016 |
$0.01100 |
£0.01090 |
|
|
Quarter ended 31 December 2016 |
05 January 2017 |
17 February 2017 |
$0.00860 |
£0.00850 |
|
As of 31 December 2016
The Company has issued the following Ordinary Shares under Scrip Dividend Alternative since inception.
|
Period |
Number of U.S. Dollar Ordinary Shares |
Number of Sterling Ordinary Shares |
Rate per U.S. Dollar Ordinary Share |
Rate per Sterling Ordinary Share |
|
|
|
|
|
|
|
Quarter ended 30 September 2011 |
91,565 |
710,833 |
$0.95880 |
£0.96320 |
|
Quarter ended 31 December 2011 |
68,398 |
592,380 |
$0.95300 |
£0.95760 |
|
Quarter ended 31 March 2012 |
84,444 |
14,653 |
$0.99300 |
£1.00020 |
|
Quarter ended 30 June 2012 |
97,572 |
792,651 |
$0.97840 |
£0.97160 |
|
Quarter ended 30 September 2012 |
91,479 |
567,376 |
$1.00400 |
£0.99030 |
|
Quarter ended 31 December 2012 |
29,500 |
821,100 |
$1.02000 |
£1.00650 |
|
Quarter ended 31 March 2013 |
69,213 |
38,805 |
$1.05700 |
£1.05080 |
|
Quarter ended 30 June 2013 |
28,237 |
221,317 |
$1.06700 |
£1.03880 |
|
Quarter ended 30 September 2013 |
58,190 |
365,543 |
$1.03870 |
£1.03360 |
|
Quarter ended 31 December 2013 |
67,590 |
217,354 |
$1.06900 |
£1.04880 |
|
Quarter ended 31 March 2014 |
67,228 |
668,002 |
$1.03950 |
£0.99010 |
|
Quarter ended 30 June 2014 |
27,941 |
341,872 |
$1.00280 |
£0.99390 |
|
Quarter ended 30 September 2014 |
28,942 |
233,785 |
$0.98230 |
£0.97500 |
|
Quarter ended 31 December 2014 |
30,277 |
181,999 |
$0.99520 |
£0.97040 |
|
Quarter ended 31 March 2015 |
23,310 |
202,637 |
$0.99600 |
£0.98790 |
|
Quarter ended 30 June 2015 |
6,507 |
609,773 |
$0.98890 |
£0.98110 |
|
Quarter ended 30 September 2015 |
5,231 |
50,620 |
$0.96770 |
£0.96010 |
Due to the current discount, the Board decided to replace the Scrip Dividend option with a Dividend Re-investment Plan, whereby the shareholders have the option to re-invest their cash dividend in the Company's shares on an efficient basis as explained in Note 9.
NOTE 12 - OTHER
The Company has determined that no accrual or loss contingency is required in the Consolidated Financial Statements.
CONTACT DETAILS OF THE ADVISERS
|
Directors
William Frewen (Chairman) Richard Battey Rupert Dorey Sandra Platts
All c/o the Company's registered office.
|
Registered Office
1st & 2nd Floors, Elizabeth House Les Ruettes Brayes St Peter Port Guernsey GY1 1EW |
|
Alternative Investment Fund Manager
Neuberger Berman Investment Advisers LLC 1290 Avenue of the Americas New York NY 10104United States of America |
Manager
Neuberger Berman Europe Limited 4th Floor, 57 Berkeley Square London United Kingdom W1J 6ER
|
|
Designated Manager and Administrator
U.S. Bancorp Fund Services (Guernsey) Limited 1st Floor, Tudor House La Bordage St Peter Port Guernsey GY1 1DB
|
Sub-Administrator
Quintillion Limited 24/26 City Quay Dublin Ireland
|
|
Custodian and Principal Bankers US Bank National Association 214 North Tryon Street 26th Floor, Charlotte North Carolina 28202 United States of America |
Company Secretary
C.L. Secretaries Limited 1st & 2nd Floors, Elizabeth House Les Ruettes Brayes St Peter Port Guernsey GY1 1EW
|
|
Joint Financial Adviser and Joint Corporate Broker
Stifel Nicolaus Europe Limited 150 Cheapside London United Kingdom EC2V 6ET
|
Joint Financial Adviser and Joint Corporate Broker
Fidante Capital 1 Tudor Street London United Kingdom EC4Y 0AH |
|
Solicitors to the Company (as to English law and U.S. securities law)
Herbert Smith Freehills LLP United Kingdom EC2A 2EG
|
Advocates to the Company (as to Guernsey law)
Carey Olsen Carey House Les Banques St Peter Port Guernsey GY1 4BZ
|
|
Independent Auditor
PricewaterhouseCoopers CI LLP Royal Bank Place 1 Glategny Esplanade St. Peter Port Guernsey GY1 4ND |
Registrar
Capita Registrars (Guernsey) Limited Mont Crevelt House Bulwer Avenue St Sampson Guernsey GY2 4LH
|
This information is provided by RNS
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