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NB Distressed Debt (NBDD)

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Thursday 15 April, 2021

NB Distressed Debt

Annual Financial Report

RNS Number : 5119V
NB Distressed Debt Invest. Fd. Ltd
15 April 2021
 

NB DISTRESSED DEBT INVESTMENT FUND LIMITED

2020 ANNUAL Report

 

audited CONSOLIDATED Financial Statements

For the year ended 31 December 2020

 

 

COMPANY OVERVIEW | Features

Features

 

NB Distressed Debt Investment Fund Limited (the "Company")

The Company is a closed-ended investment company incorporated and registered in Guernsey on 20 April 2010 with registration number 51774 . The Company is governed under the provisions of the Companies (Guernsey) Law, 2008 (as amended) (the "Law"), and the Registered Collective Investment Scheme Rules 2018 issued by the Guernsey Financial Services Commission ("GFSC"). It is a non-cellular company limited by shares and has been declared by the GFSC to be a registered closed-ended collective investment scheme. The Company trades on the Specialist Fund Segment ("SFS") of the London Stock Exchange ("LSE").

The Company is a member of the Association of Investment Companies (the "AIC") and is classified within the Debt - Loans & Bonds Category.

 

Alternative Investment Fund Manager ("AIFM") and Manager

 

Investment management services are provided to the Company by Neuberger Berman Investment Advisers LLC (the "AIFM") and Neuberger Berman Europe Limited (the "Manager"), collectively the "Investment Manager". The AIFM is responsible for risk management and discretionary management of the Company's Portfolio and the Manager provides, amongst other things, certain administrative services to the Company.

 

Share Capital

 

At 31 December 2020 the Company's share capital comprised the following1:

 

Ordinary Share Class ("NBDD")

15,382,770 Ordinary Shares, none of which were held in treasury.

 

Extended Life Share Class ("NBDX")

80,545,074 Extended Life Shares, none of which were held in treasury.

 

New Global Share Class ("NBDG")

41,116,617 New Global Shares, none of which were held in treasury.

 

1 In addition the Company has two Class A Shares in issue. Further information is provided in the Capital Structure section of this report below

 

For the purposes of efficient portfolio management, the Company has established a number of wholly-owned subsidiaries domiciled in the US, the Cayman Islands and Luxembourg. All references to the Company in this document refer to the Company together with its wholly-owned subsidiaries.

 

Non-Mainstream Pooled Investments

 

The Company currently conducts its affairs so that the shares issued by the Company can be recommended by Independent Financial Advisers to ordinary retail investors in accordance with the Financial Conduct Authority's ("FCA") rules in relation to non-mainstream pooled investment ("NMPI") products and intends to continue to do so for the foreseeable future.

 

The Company's shares are excluded from the FCA's restrictions which apply to NMPI products.

 

Company Numbers

 

Ordinary Shares

LSE ISIN code: GG00BDFZ6F78

Bloomberg code: NBDD: LN

 

Extended Life Shares

LSE ISIN code: GG00BMY71631

Bloomberg code: NBDX:LN

 

New Global Shares

LSE ISIN code: GG00BMY71748

Bloomberg code: NBDG:LN

 

Legal Entity Identifier

YRFO7WKOU3V511VFX790

 

Website

www.nbddif.com

 

Capital Structure  

 

The Company's share capital consists of three different share classes, all of which are in the harvest period: the Ordinary Share Class; the Extended Life Share Class; and the New Global Share Class. These share classes each have different capital return profiles and, in one instance a different geographical remit. In addition, the Company has two Class A Shares in issue. While the Company's share classes are all now in harvest, returning capital to shareholders, the Company's corporate umbrella itself has an indefinite life to allow for flexibility for the Company to add new share classes if demand, market opportunities and shareholder approval supported such a move, although the Company has no current plans to create new share classes. Each share class is considered in turn below.

 

Ordinary Share Class

 

NBDD was established at the Company's launch on 10 June 2010 with a remit to invest in the global distressed debt market with a focus on North America. The investment period of NBDD expired on 10 June 2013.

 

Voting rights:   Yes

Denomination:  US Dollars

Hedging:  Portfolio hedged to US Dollars

Authorised share capital:  Unlimited

Par value:   Nil

 

Extended Life Share Class

 

A vote was held at a class meeting of NBDD shareholders on 8 April 2013 where the majority of shareholders voted in favour of a proposed extension.

 

Following this meeting and with the NBDD shareholders' approval of the extension, on 9 April 2013 a new Class, NBDX, was created and the NBDX Shares were issued to 72% of initial NBDD investors who elected to convert their NBDD Shares to NBDX Shares. NBDX had a remit to invest in the global distressed debt market with a focus on North America. The investment period of NBDX expired on 31 March 2015.

 

Voting rights:   Yes

Denomination:  US Dollars

Hedging:  Portfolio hedged to US Dollars

Authorised share capital:   Unlimited

Par value:   Nil

 

New Global Share Class

 

NBDG was created on 4 March 2014 and had a remit to invest in the global distressed market with a focus on Europe and North America. The investment period of NBDG expired on 31 March 2017.

 

Voting rights:   Yes

Denomination:  Pound Sterling

Hedging:  Unhedged portfolio

Authorised share capital:   Unlimited

Par value:   Nil

 

Class A Shares

 

The Class A Shares are held by a trustee pursuant to a purpose trust established under Guernsey law. Under the terms of the Trust Deed the Trustee holds the Class A Shares for the purpose of exercising the right to receive notice of general meetings of the Company but the Trustee shall only have the right to attend and vote at general meetings of the Company when there are no other Shares of the Company in issue.

 

Voting rights:   No

Denomination:  US Dollars

Authorised share capital:   10,000 Class A Shares

Par value:   US Dollar $1

 

Business Model 

 

Principal Activities and Structure

 

The principal activity of the Company is to carry out business as an investment company. The Directors do not envisage any changes in this activity for the foreseeable future.

 

The chart below sets out the ownership, organisational and investment structure of the Company.

 

INVESTMENT STRUCTURE OF THE COMPANY

 

[For Investment Structure of the Company, click on, or paste the following link into your web browser, to view page 1 in the associated PDF document]

 

http://www.rns-pdf.londonstockexchange.com/rns/5119V_1-2021-4-14.pdf

 

1 Further information on the Company's capital structure can be found above.

2 Further information on the Company's investment management arrangements can be found in the Strategic Report below.

 

 

Investment Objective

 

The Company's primary objective is to provide investors with attractive risk-adjusted returns through long-biased, opportunistic exposure to stressed, distressed and special situation credit-related investments while seeking to limit downside risk by, amongst other things, focusing on senior and senior secured debt with both collateral and structural protection.

 

Investment Policy

 

The investment period of each share class has expired. During the investment period, the Investment Manager sought, in accordance with the Investment Policy, to identify mis-priced or otherwise overlooked securities or assets that had the potential to produce attractive absolute returns while seeking to limit downside risk through collateral and structured protection where possible.

 

The Ordinary Shares, Extended Life Shares and New Global Shares (collectively the "Portfolios") are biased toward stressed and distressed debt securities secured by hard asset collateral in accordance with the Investment Policy. When investing on behalf of the Company, the Investment Manager focused on companies with significant tangible assets which were judged likely to maintain long-term value through a restructuring. The Investment Manager avoided "asset-light" companies, as their values tend to depreciate in distressed scenarios, and also aimed to concentrate on companies with stressed balance sheets whose low implied enterprise value multiples, often calculated using currently depressed cash flows, offered a discount to comparable market valuations.

 

What is Distressed Debt?

 

Distressed debt generally refers to the financial obligations of a company that is either already in default, under bankruptcy protection, or in distress and heading toward default. Distressed debt often trades at a significant discount to its par value and may present investors with compelling opportunities to profit if there is a recovery in the business. Typically, when a company experiences financial distress or files for bankruptcy protection, the original debt holders often sell their debt securities or claims to a new set of investors at a discount. These investors often try to influence the process by which the issuer restructures its obligations or implements a plan to turn around its operations. These investors may also inject new capital into a distressed company in the form of debt or equity in order to prevent the company from going into liquidation or to aid the company in carrying out a restructuring plan. Investors in distressed debt typically must not only assess the issuer's ability to improve its operations but also whether the restructuring process is likely to result in a meaningful recovery to the investors' class of claims.

 

 

Distressed debt can be performing or non-performing. Performing debt is defined as debt that maintains its contractual obligations relating to interest and/or principal payments and can be debt that has yet to default or even debt that is under bankruptcy protection. Non-performing debt is defined as debt that does not continue to meet its financial obligations.

 

There are several different strategies related to investing in distressed debt. These strategies differ mainly in the types of securities that investors purchase, the life of a fund and its investment period, and a fund's expected returns. Four strategic categories include: (i) senior/senior secured debt strategies; (ii) control/private equity strategies; (iii) junior debt strategies; and (iv) capital structure arbitrage strategies. During the investment periods of the Portfolios, the Investment Manager focused on implementing a senior/senior secured debt strategy in which it invested primarily in secured debt with strong collateral value and structural protection. The Investment Manager has also invested in control positions and non-control positions with the objective of acquiring a blocking position on behalf of the Portfolios.

 

Investing in secured debt at the top of the capital structure is, in the opinion of the Investment Manager, towards the more conservative end of the distressed debt strategy risk spectrum due to the support from the value of the underlying collateral. Additionally, secured debt holders often have the ability to foreclose on the assets securing their claim and to drive the restructuring process. The typical holding period for investments in this type of strategy is at least six months and can be more than three years.

 

Typical Life Cycle of a Distressed Debt Investment

 

[For Investment Structure of the Company, click on, or paste the following link into your web browser, to view page 2 in the associated PDF document]

 

http://www.rns-pdf.londonstockexchange.com/rns/5119V_1-2021-4-14.pdf

 

Further information on the Company's investment process can be found in the Company's most recent prospectuses which are available on the Company's website at www.nbddif.com under the "Investor Information" tab.

 

1 Negotiations can take place within bankruptcy or creditors can negotiate with the company to agree on a pre-packaged bankruptcy whereby the plan of reorganisation is negotiated before the company files for bankruptcy protection (this has become more common).

 

 

Distributions to Shareholders

 

Income

 

In order to benefit from an exemption to the United Kingdom ("UK") offshore fund rules, all income from the Company's Portfolio (after deduction of reasonable expenses) must be paid to investors. To meet this requirement the Company will pay out by way of dividend, in respect of each share class, all net income received on investments of the Company attributable to such share class, as appropriate.

 

It is not anticipated that income from the Portfolios will be material and therefore any income distributions by way of dividend will be on an ad-hoc basis. However, the Company monitors the need to distribute such income annually (less allowable expenses under the NMPI rules) in order to continue to be excluded from the FCA's restrictions which apply to non-mainstream investment products. The exact amount of such income distribution by way of dividend in respect of any class of shares will be variable depending on the amounts of income received by the Company attributable to such share class and will only be paid in accordance with applicable law at the relevant time, including the   Companies (Guernsey) Law, 2008 (as amended) (the "Law") and, in particular, will be subject to the Company passing the solvency test contained in the Law at the relevant time. The amount of income distributions by way of dividend paid in respect of one class of shares may be different from that of another class.

 

Capital

 

Following the expiry of the Portfolios' investment periods, the capital proceeds attributable to the corresponding share class as determined by the Directors and in accordance with the articles of incorporation (the "Articles"), will, at such times and in such amounts as the Directors shall in their absolute discretion determine, be distributed to shareholders of that class pro rata to their respective holdings of the relevant shares.

 

Any capital return will only be made by the Company in accordance with the Articles of the Company and applicable law at the relevant time, including the Law (and, in particular, will be subject to the Company passing the solvency test contained in the Law at the relevant time).

 

Towards the end of the Portfolios' respective harvest periods, a residual amount will be retained in accordance with regulatory requirements until such time as the relevant share class may be liquidated or its assets otherwise disposed of at the discretion of the Board.

 

Gearing

 

The Company will not employ leverage or gearing for investment purposes. The Company may, from time to time, use borrowings for share buybacks and short-term liquidity purposes, including bridging purposes, prior to the sale of investments. Save for such bridging borrowings the Directors will restrict borrowing, with respect to each share class, to an amount not exceeding 10 percent of the NAV of the share class at the time of drawdown. 

 

The Company does not currently have any borrowings. Derivatives may be used for the purposes of efficient portfolio management and to hedge risk within the Portfolios. In addition, from time to time the Company may also invest in such derivatives for investment purposes.

 

 

2020 PERFORMANCE REVIEW | Financial Highlights

Financial Highlights

Key Figures

At 31 DECEMBER 2020

Ordinary

Share Class

Extended Life Share Class

New Global  Share Class1

Aggregated

Net Asset Value ("NAV") ($ millions)

13.0

63.5

31.9

108.4

NAV per Share ($)

0.8420

0.7889

0.7767

-

Share Price ($)

0.720

0.480

0.63561

-

NAV per Share (£)

-

-

0.5682

-

Share Price (£)

-

-

0.465

-

Premium /(Discount) to NAV per Share

(14.49%)

(39.16%)

(18.16%)

-

Portfolio of Distressed Investments ($ millions)

9.9

55.6

30.8

96.3

Cash and Cash Equivalents ($ millions)

3.6

9.1

0.9

13.6

Total Expense Ratio ("TER")2

2.89%

2.68%

2.76%

-

Ongoing Charges 3

2.42%

2.36%

2.39%

-

 

 

 

 

 

At 31 December 2019

Ordinary

Share Class

Extended Life Share Class

New Global  Share Class1

Aggregated

Net Asset Value ("NAV") ($ millions)

14.0

105.8

79.3

199.1

NAV per Share ($)

0.9086

0.9266

1.1047

-

Share Price ($)

0.845

0.735

0.94321

-

NAV per Share (£)

-

-

0.8339

-

Share Price (£)

-

-

0.712

-

Premium /(Discount) to NAV per Share

(7.00%)

(20.68%)

(14.62%)

-

Portfolio of Distressed Investments ($ millions)

13.2

102.8

76.8

192.8

Cash and Cash Equivalents ($ millions)

1.9

1.6

2.4

5.9

Total Expense Ratio ("TER")2

2.15%

2.21%

2.31%

-

Ongoing Charges 3

2.10%

2.11%

2.14%

-

 

 

 

 

 

 

1 Stated in US Dollars, the £ price as at 31 December 2020 and 31 December 2019 converted to US Dollars using respective year end exchange rate.

2 The TERs represent the Company's management fees and all other operating expenses, as required by US Generally Accepted Accounting Principles ("US GAAP"), expressed as a percentage of average net assets.

3 In the year to 31 December 2020, the Company's Ongoing Charges were 2.38%. This figure is based on an expense figure for the year to 31 December 2020 of $3,198,067. This figure, which has been prepared in accordance with AIC guidance represents the Company's management fees and all other operating expenses, excluding finance costs payable, expressed as a percentage of average net assets. No performance fees were payable as at 31 December 2020. The Ongoing Charges by share class are disclosed above.

 

 

Summary of Value in Excess of Original Capital Invested

 

At 31 December 2020

Ordinary
Share Class ($)

Extended Life
Share Class ($)

New Global
Share Class (£)

Original Capital Invested

(124,500,202)

(359,359,794)

(110,785,785)

Total Capital Distributions

129,627,394

259,844,033

42,460,798

Total Income Distributions 1

3,166,835

14,896,010

2,685,521

Distributions as % of Original Capital

107%

76%

41%

Total Buybacks

-

12,112,379

10,924,963

NAV

12,952,965

63,540,650

23,363,139

Total of NAV Plus Capital and Income Returned ("Value")

145,747,194

350,393,072

79,434,421

Value in Excess of Original Capital Invested

21,246,992

(8,966,722)

(31,351,364)

Value as % of Original Capital Invested

117%

98%

72%

 

At 31 December 2019

Ordinary
Share Class ($)

Extended Life
Share Class ($)

New Global
Share Class (£)

Original Capital Invested

(124,500,202)

(359,359,794)

(110,785,785)

Total Capital Distributions

129,627,394

236,873,855

24,473,845

Total Income Distributions 1

3,166,835

14,896,010

2,685,521

Distributions as % of Original Capital

107%

70%

25%

Total Buybacks

-

10,255,281

9,346,306

NAV

13,976,415

105,771,674

59,862,782

Total of NAV Plus Capital and Income Returned ("Value")

146,770,644

367,796,820

96,368,454

Value in Excess of Original Capital Invested

22,270,442

8,437,026

(14,417,331)

Value as % of Original Capital Invested

118%

102%

87%

 

1 By way of dividend

 

A detailed breakdown of the Company's distributions is provided on the Company's website at www.nbddif.com under "Investor Information", "Capital Activity".

 

 

2020 PERFORMANCE REVIEW | Chairman's Statement

 

Chairman's Statement

 

 

Dear Shareholder,

 

The year ended 31 December 2020 was one of unprecedented global economic and social disruption with a profound human impact. Notwithstanding this unparalleled backdrop, I am pleased to report that the Company has navigated these waters with no operational impact, in large due to the operational resilience of our Investment Manager and service providers.

 

We did, of course, suffer financial setbacks but were able to deliver further capital distributions to the shareholders of the NBDX and NBDG share classes consistent with the well-established and orderly realisation of the portfolios. The process of realisation has slowed as we have continued with this disciplined approach. With each share class in its harvest period, we continue to seek to balance the pace of exits and the value achieved for shareholders as we return capital to our investors. As a reminder, the Ordinary class shareholders will no longer receive capital distributions until such time as all final assets attributable to them have been realised to ensure compliance with UK regulations.

 

Company Performance

 

As at 31 December 2020, the Company had returned a total of $132.8m or 106.7% of NBDD investors' original capital of $124.5m, $274.8m or 76.5% of NBDX investors' original capital of $359.4m and £45.2m or 40.8% of NBDG investors' original capital of £110.8m. Additionally, $1.9m was spent on buying back NBDX shares and £1.6m was spent on buying back NBDG shares in a manner accretive to net asset value ("NAV").

 

On 17 June 2020, we announced a further capital distribution of $10.5m to our NBDX shareholders and £10.5m to our NBDG shareholders which was paid on 10 July 2020.

 

Securing the balance between the pace of exits and the value for shareholders is an active exercise. In many instances, assets will need intense management to realise their full potential. In response to the market improvements post the March lows the Investment Manager realised all the remaining holdings of listed equities so as to safeguard against any further market declines. The Board continues to monitor all costs to ensure that they are appropriate as we are conscious that shareholders may be concerned about the impact of costs on a reducing portfolio during the harvest period as evidenced by the increased Total Expense Ratios reported herein. We would like to remind our investors that our TERs continue to increase as the NAV decreases through capital distributions as some expenses of the Company are fixed, representing a higher portion of costs year on year.

 

On 16 November 2020 we announced in our quarterly Factsheet that we would discontinue the buyback programme. The buyback programme was intended to narrow the discount, during the investment period. Going forward, we will make cash distributions to our Shareholders from investment realisations and not through buybacks. 

 

During the year, we appointed Jeffries International Limited as sole corporate broker and financial adviser to the Company with effect from 14 September 2020.

 

On 27 October 2020, we were pleased to announce that the Investment Manager was waiving its entitlement to any Base Fee calculated in respect of any cash and cash equivalents held by the Company that is solely attributable to the account of the Ordinary Shares, with such waiver having taken effect as at 1 October 2020. This decision was made because the Ordinary Shares cannot make any further distributions (given the 10% withholding limit) until a final distribution is paid at the end of the Share Class's life and also due to the delay in realising the remaining investments. Further, we were delighted to announce on 18 March 2021, that the Investment Manager had waived all fees across the Ordinary Share Class, Extended Life Share Class and New Global Share Class with immediate effect. The fee waiver recognises that it is taking longer than expected to fully realise the Company's assets due to a number of factors, including the COVID-19 pandemic, as we outlined in our most recent quarterly update. A partial fee waiver on the smallest share class, NBDD, was already in place as noted above, but this has been replaced with a full fee waiver on all three share classes to reduce costs for shareholders. The Investment Manager remains committed to the Company and the orderly realisation of remaining assets.

 

Annual General Meeting ("AGM") Results

 

As described in our interim accounts, the Board put its income distribution policy to a shareholder vote by way of a separate resolution at the 2020 AGM, which was approved. We will continue to put our income distribution policy to a shareholder vote at each annual general meeting. The income distribution policy is set out in the Distributions to Shareholders section above. I would like to remind shareholders that such distributions occur on an ad-hoc basis and are not expected to be material, nor equal to all share classes.

 

We view the AGM as a very important event and would urge all shareholders to use their votes. I would hope that shareholders will contact us ahead of the AGM to raise any concerns they may have and would draw your attention to comments I make below on aspects of governance.

 

Board Composition, Independence and Diversity

 

Cognisant of the time remaining for the realisation of all the portfolios in the next couple of years and final distributions to shareholders as soon as possible thereafter, the Board considers that its size and composition remains optimal and in the best interests of our shareholders. Messrs Legge and Vakil reviewed my own position as Chairman and they believe it is prudent and in the best interests of shareholders to continue to have the depth of experience of a longer serving director on the Board and both agreed that they consider me to remain independent. To that end, I will remain as Chairman if re-elected at the next AGM. I am pleased to report that the Board appointed Stephen Vakil as the Senior Independent Director effective 1 January 2020.

 

While the Board believes it is currently in the best interests of shareholders for the Company not to refresh the Board or implement a formal succession plan, for the reasons given above, the long-term outlook for the Company (as an umbrella structure) is unknown. Any future capital raise would change this picture and be preceded by a process of board refreshment. Naturally, we would seek to appoint directors as needed to replace a key vacant position should it arise.

 

We recognise that this approach does not strictly accord with best practice but hope that shareholders will support it as a pragmatic approach to the current situation.

 

While we currently have no female members on the Board, we maintain our strong belief in the value of diversity in the boardroom and recognise its importance. As I have already noted, we will continue to assess the Board's composition, considering the needs of the Company and the benefits to shareholders. We welcome shareholder engagement and discussion on board composition and diversity, as with all aspects of our governance.

 

Brexit

 

As previously reported in our interim report, Brexit has not impacted our operations or Portfolios in any material manner, and there is no significant impact from the trade deal agreed between the UK and EU. Shareholders are reminded that the NBDD and NBDX Portfolios are US Dollar denominated and any non-US exposure is hedged back to the US Dollars and that NBDG, on the other hand, is a Pound Sterling denominated, but unhedged, share class with a broader geographic remit than the other two share classes.

 

COVID-19

 

The world has experienced unprecedented times as a result of the COVID-19 pandemic and the values of many of our assets have been negatively affected. I am pleased to be able to report that our key service providers have continued to provide services to the Company throughout the pandemic and thank them for their efforts in maintaining our operational resilience .

 

The various valuation methodologies we use to value your portfolio's holdings have been reviewed and we consider that they remain appropriate for determining values at any given point in time.

 

As global virus outbreaks continue to occur, the COVID-19 virus remains the primary issue for investors. The outbreaks and calls for additional lockdowns diminish near term virus containment hopes, while also restricting behaviour and curtailing more robust economic activity. Nevertheless, the development and implementation of vaccines has provided reason for optimism. Given these circumstances, the longer-term financial impact on our assets remains difficult to predict. Despite the uncertainty, the Investment Manager remains committed to realising the investments in an orderly manner. However, the timing of the orderly realisation of some assets is less certain and the quantum of the proceeds therefrom is difficult to predict.

 

Our objectives remain the same; to maximise the benefit to investors during this harvest period and to continue to provide updated information regarding asset values.

 

Outlook

 

The Ordinary class of shares will be the first to commence the final wind up process, followed by the Extended share class and then the New Global share class. As is normally the case with investment companies, as opposed to those with commercial undertakings, this does not currently have any material impact on the Company's ability to continue as a going concern or remain viable. However, the whole process must be managed in a way that ensures compliance with UK regulations.

 

The Extended and Global classes will continue to distribute until their net assets are reduced to approximately $35m and £9m respectively. In certain cases, the cash associated with these share classes will need to remain in underlying corporate vehicles while tax and other matters relating to those vehicles are concluded. We will keep investors appraised of developments in respect of the remaining assets.

 

We had previously indicated that we expected the final distribution of the Ordinary share class to be made during 2020, but the delay to the realisation of the final assets owing to the ongoing global pandemic has delayed this expectation to 2021. The wind up of the other two classes will take a little longer but we hope to complete the realisation process in the next couple of years. As noted earlier, upheaval in financial markets and global economic uncertainty may impact these timings and we will keep shareholders updated via the quarterly fact sheets.

 

On behalf of the Board, I would like to thank our longstanding shareholders for your support of our Company. We look forward to updating you further on investment realisations throughout the remainder of the year.

 

 

John Hallam

Chairman

14 April 2021

 

 

2020 PERFORMANCE REVIEW | Investment Manager's Report

 

Investment Manager's Report

 

Ordinary Share Class

 

Summary

 

The NAV per share decreased by 7.3% for the year ended 2020. We continued to see significant volatility in the markets due to the spread of COVID-19 and its impact on global growth expectations. The long-term effects of COVID-19 on the global economy remain unknown. With the sale of the public equities in the first half of the year, the remaining investments await realisation events. The Investment Manager is committed to realising the investments in a timely manner and winding down the share class as soon as practicable, but there is one asset we are working through which will determine the final distribution date. The Investment Manager is evaluating options to wind down the share class.

 

Portfolio Update

 

NBDD ended the year with a NAV per share of $0.8420 compared to $0.9086 at end of 2019. The NAV decrease was principally driven by lower prices in the investments in light of the COVID-19 crisis and realised losses in exits of public equities. At 31 December 2020, 60% of NBDD's NAV was invested in distressed assets, and $5M in US Government securities which represented a further 40% of NAV, with minimal cash net of payables (see table below). Cash balances will continue to increase as assets are realised, subject to variations in collateral cash, but as noted previously cannot be distributed until the final liquidation of the share class. The portfolio consisted of 6 issuers across 5 sectors. The largest sector concentrations were in containers & packaging, surface transportation and financial intermediaries.

   

Cash Analysis

 

Balance Sheet - Cash

$3.6m

Collateral cash

($3.1m)

Other payables

($0.0m)

Total available cash

$0.5m

 

 

Notable events below describe activity in the investments during 2020:

 

· During the year, Exide Technologies filed for Chapter 11 bankruptcy due to the global shutdown and COVID-19. The company sold its US operations and lenders credit are bidding for the European business. The valuation impact was a $1.1m unrealised loss. The magnitude of the unrealised loss is due to the decline in business operations as well as the decision to not reorganise and sell off the business units.

· NBDD completed the exit of all public equities in early 2020 in view of the market uncertainties at that time.

· The Financial Intermediary investment received approval to make first distribution on surplus notes in July 2020 and received approval in the fourth quarter to make another distribution in early 2021 as a result of which the Company will receive $110K.

  

Significant Price Movement during 2020 (approximately 1% of NBDD NAV or $130,000)

 

INDUSTRY

 INSTRUMENT

 TOTAL RETURN
 (US DOLLARS MILLIONS)

COMMENT

Containers & packaging

Private Equity

2.09

 

Improvement in profitability on strong end-market demand

Containers & packaging

Private Equity

0.29

Improvement in profitability on strong end-market demand

Auto Components

Private Equity

(1.15)

COVID-19 related restructuring due to liquidity shortfall

Financial Intermediaries

Private Note

(0.14)

COVID-19 impacted underlying asset performance

 

 

Exits

 

During the year, we saw five exits, which generated a total return of $ (7.6m) and generated net cash inflows of $ 13.6m. This brings the total number of exits since inception in NBDD to 50, with a total return of $35.8m. Detailed descriptions of the exits are at the end of this report.

 

Partial Realisations

 

The partial realisations generated a net realised gain of $8.8m over the life of the fund. Detailed descriptions of the partial realisations are at the end of this report.

 

Distributions

 

To date, $132.8m or 107% of original capital has been distributed to investors in the form of capital distributions via redemptions and income dividends. Total value to investors including NAV and all distributions paid is $145.7m (117% of original capital). For regulatory reasons, the final 10% of the total return (NAV plus cumulative distributions) in respect of any class of participating shares in NBDDIF will be returned to shareholders with a final compulsory redemption of all of the outstanding shares of that class. Our intent is to wind down the share class as soon as practicable but there is one asset, we are working through which will determine the final distribution date. We will continue to update investors as we gain clarity on the realisations.

 

Extended Life Share Class

Summary

 

The NAV per share decreased by 14.9% for the year ended 2020. During the year, we saw significant volatility in the markets due to the spread of COVID-19 and its impact on global growth expectations and economic recovery. The effects of COVID-19 on the global economy and timeframe for recovery remain unknown. With the sale of the public equities in the first half of the year, the remaining investments await realisation events. The Investment Manager is committed to realising the investments in a timely manner and winding down the share class as soon as practicable.

 

Portfolio Update

 

NBDX ended the year with a NAV per share of $0.7889 compared to $0.9266 at end of 2019. At 31 December 2020, 96% of NBDX's NAV was invested in distressed assets, and $2.8M in US Government securities which represented a further 4% of NAV with a minimal of cash net of payables (see table below). Cash balances will continue to increase as assets are realised, subject to variations in collateral cash, but as noted previously cannot be distributed until the final liquidation of the share class. The NAV per share decreased 14.9% during the year principally due to losses in public equities and unrealised losses in the existing portfolio with the impact of COVID-19. With the exit of the public equities, the NBDX portfolio consists of 13 issuers across 9 sectors. The largest sector concentrations were in surface transportation, containers & packaging, shipping, lodging & casinos, and financial intermediaries.

 

Cash Analysis

 

Balance Sheet - Cash

$9.1m

Collateral cash

($8.5m)

Other payables

($0.3m)

Total available cash

$0.3m

 

Notable events below describe activity in the investments during 2020:

· During the period, Exide Technologies filed for Chapter 11 bankruptcy due to the global shutdown and COVID-19. The company does not expect to reorganise and has begun a sales process for the various business units. The valuation impact was a ($9.7m) unrealised loss. The magnitude of the unrealised loss is due to the decline in business operations as well as the decision not to reorganise and sell off the business units.

· The Company completed the exit of 11 investments.  All but one exit related to equity investments, in view of the market uncertainties in early 2020.  

· The Financial Intermediary investment received approval to make first distribution on surplus notes in July 2020 and received approval in the fourth quarter to make another distribution in early 2021 as a result of which the Company will receive $1.37m.

 

Significant Price Movements during 2020 (approximately 1% of NBDX NAV or $640,000)

 

INDUSTRY

 INSTRUMENT

 TOTAL RETURN
 (US DOLLARS MILLIONS)

COMMENT

 Containers & packaging

 Private Equity

5.38

Improvement in profitability on strong end-market demand

 Containers & packaging

 Private Equity

0.76

Improvement in profitability on strong end-market demand

 Auto Components

 Private Equity

(9.78)

COVID-19 related restructuring due to liquidity shortfall

 Shipping

 Bank Debt Investments

(2.67)

Lower dry bulk asset values

 Financial Intermediaries

 Private Note

(1.73)

COVID-19 impacted underlying asset performance

 

 

Exits

 

In 2020 we saw eleven exits for NBDX, which generated a total return of $(51.5m) and generated net cash inflows of $46.2m. This brings the total number of exits since inception in NBDX to 67 with total return of $63.7m. Detailed descriptions of the exits are at the end of this report.

 

Partial Realisations

 

The partial realisations generated a net realised gain of $22.7m over the life of the Company. Detailed descriptions of the partial realisations are at the end of this report. 

 

Distributions

 

During 2020, NBDX approved distributions of $23m bringing total distributions to date (dividends, redemptions and buy-backs) of $287.0m or 80% of original capital. Total value to investors including NAV and all distributions paid is $350.4m or 98% of original capital. With the uncertainty as to how long the economic downturn will last, certain realisations in NBDX have been delayed. For regulatory reasons, the final 10% of total return in respect of any class of participating shares in NBDDIF will be returned to shareholders with the final compulsory redemption of all of the outstanding shares of that class. The Investment Manager is committed to realising the investments in a timely manner to distribute cash to investors as soon as possible.

 

Share Buybacks

 

During 2020, NBDX purchased 3.7m of its own shares under the buyback programme at a cost of $1.9m and a weighted average discount of 33%. The shares have been cancelled.

  

Global Share Class

 Summary

The NAV per share decreased by 31.9%. We continued to see significant volatility in the markets due to the spread of COVID-19 and its impact on global growth expectations and economic recovery. The effects of COVID-19 on the global economy remain unknown. With the sale of the public equities in the first half of the year, the remaining investments await realisation events. The Investment Manager is committed to realising the investments in a timely manner and winding down the share class as soon as practicable.

 

Portfolio Update

NBDG ended 2020 with a NAV per share of £0.5682 compared to £0.8339 at the end of 2019. At 31 December 2020, 90% of NBDG's NAV was invested in distressed assets, and $2M in US Government securities which represented a further 7% of NAV (including cash receivables and net payables held in subsidiaries) with 3% held in cash (see table below). NAV per share decreased 31.9% during the year principally due to losses in public equities and unrealised losses in the existing portfolio with the impact of COVID-19. With the exit of the public equity investments, the portfolio consisted of 7 issuers across 6 sectors. The largest sector concentrations were in lodging & casinos, commercial mortgage, surface transportation and shipping.

 

Cash Analysis

 

Balance Sheet - Cash

$0.9m

Cash held in wholly-owned subsidiary accounts

$0.0m

Other payables

($0.1m)

Total available cash

$0.8m

 

 

Notable events involving NBDG's investments during 2020 are below :

· During the period, Exide Technologies filed for Chapter 11 bankruptcy due to the global shutdown and COVID-19. The company does not expect to reorganise and has begun a sales process for the various business units. The valuation impact was a (£4.0m) unrealised loss. The magnitude of the unrealised loss is due to the decline in business operations as well as the decision to not reorganise and sell off the business units.

· The Company completed the exit of all public equities in early 2020 in view of the market uncertainties at that time.

 

Significant Price Movements during 2020 (approximately 1% of NBDG NAV or £230,000)

 

INDUSTRY

 INSTRUMENT

 TOTAL RETURN
 (US DOLLARS MILLIONS)

COMMENT

Auto Components

Private Note

(4.06)

COVID-19 related restructuring due to liquidity shortfall

Lodging & Casinos

Bank Debt Investments/Private Equity

(1.51)

Hotel closed due to COVID-19

Shipping

Bank Debt Investments

(1.08)

Lower dry bulk asset values

 

 

Exits

 

During 2020, we saw eleven exits, which generated a total return of £ (15.2m) and generated net cash inflows of £46.9m. This brought the total number of exits since inception to 30 with a total return of £ (7.2m). Detailed descriptions of the exits are at the end of this report.

 

Partial Realisations

 

There were no partial realisations in NBDG during 2020.

 

Distributions

 

During 2020, the Company made £18.0m capital distributions via redemption of shares, which brings total distributions to date (dividends, redemptions and buy-backs) of £56.1m or 51% of original capital. Total value to investors including NAV and all distributions paid is £79.4m or 72% of original capital. With the uncertainty as to how long the economic downturn will last, certain realisations in NBDG have been delayed. For regulatory reasons, the final 10% of total return in respect of any class of participating shares in NBDDIF will be returned to shareholders with the final compulsory redemption of all of the outstanding shares of that class. The Investment Manager is committed to realising the investments in a timely manner to distribute cash to investors as soon as possible.

 

Share Buybacks

 

During 2020, NBDG purchased 3.0m shares under the buyback programme at a cost of £1.6m and weighted average discount of 19%. The shares have been cancelled.

 

Summary of Exits across all Share Classes

 

The total exits during 2020 can be summarised as follows:

· NBDD - Five exits

· NBDX - Eleven exits

· NBDG - Eleven exits

 

Exits experienced from inception to date were as follows:

NBDD 50 exits with a total return of $35.6m, IRR 1 of 10% and ROR of 19% 

NBDX 67 exits with a total return of $63.4m, IRR 1 of 5% and ROR of 10%

NBDG 30 exits with a total return of £ (7.27m), IRR 1 of (5) % and ROR of (6) %

 

The annualised internal rate of return ("IRR") 1    is computed based on the actual dates of the cash flows of the security (purchases, sales, interest and principal pay downs), calculated in the base currency of each portfolio. The Rate of Return ("ROR") 1 represents the change in value of the security (capital appreciation, depreciation and income) as a percentage of the purchase amount. The purchase amount can include multiple purchases. Total Return represents the inception to date gain/loss on an investment.

 

Exit L (Exit 20 for NBDG and Exit 56 for NBDX)

 

 

Exit L

Exit

 

Cash Invested

(millions)

 

Cash Received

(millions)

 

Total Return

(millions)

 

 

IRR

 

 

ROR

 

Months Held

NBDG

20

£1.5

£0.2

(£1.3)

(32.3) %

(85.2) %

59

NBDx

56

$5.7

$0.7

($5.0)

(34.2) %

(87.1) %

59

 

1   Defined under Alternative Performance Measures ("APMs") in the Strategic Report below

 

Exit M (Exit 21 for NBDG and Exit 57 for NBDD)

 

 

Exit M

Exit

 

Cash Invested

(millions)

 

Cash Received

(millions)

 

Total Return

(millions)

 

 

IRR

 

 

ROR

 

Months Held

NBDG

21

£1.6

£0.6

(£1.0)

(29.2) %

(62.4) %

59

NBDX

57

$1.7

$0.5

($1.2)

(30.5) %

(68.9) %

59

 

Exit N (Exit 46 for NBDD and Exit 58 for NBDX)

 

 

Exit N

Exit

 

Cash Invested

(millions)

 

Cash Received

(millions)

 

Total Return

(millions)

 

 

IRR

 

 

ROR

 

Months Held

NBDD

46

$2.0

$1.6

($0.4)

(23.3) %

(21.0) %

84

NBDX

58

$5.1

$4.0

($1.1)

(23.3) %

(21.0) %

84

 

 

Exit O (Exit 22 for NBDG and 60 for NBDX)

 

 

Exit O

Exit

 

Cash Invested

(millions)

 

Cash Received

(millions)

 

Total Return

(millions)

 

 

IRR

 

 

ROR

 

Months Held

NBDG

22

£8.8

£3.4

(£5.4)

(44.2) %

(61.1) %

64

NBDX

60

$7.5

$2.3

($5.2)

(52.9) %

(69.9) %

64

 

 

Exit P (Exit 24 for NBDG, exit 47 for NBDD and Exit 62 for NBDX)

 

 

Exit P

Exit

 

Cash Invested

(millions)

 

Cash Received

(millions)

 

Total Return

(millions)

 

 

IRR

 

 

ROR

 

Months Held

NBDG

24

£7.2

£1.9

(£5.3)

(23.1) %

(73.2) %

71

NBDD

47

$3.0

$1.6

($1.4)

(7.1) %

(45.1) %

111

NBDX

62

$10.1

$4.8

($5.3)

(9.1) %

(52.5) %

111

 

 

 

 

 

 

 

 

Exit Q (Exit 25 for NBDG and Exit 63 for NBDX)

 

 

Exit Q

Exit

 

Cash Invested

(millions)

 

Cash Received

(millions)

 

Total Return

(millions)

 

 

IRR

 

 

ROR

 

Months Held

NBDG

25

£6.2

£5.6

(£0.6)

(2.1) %

(9.4) %

75

NBDX

63

$10.1

$6.8

($3.3)

(7.7) %

(32.1) %

75

 

 

 

 

 

 

 

 

Exit R (Exit 26 for NBDG)

 

 

Exit R

Exit

 

Cash Invested

(millions)

 

Cash Received

(millions)

 

Total Return

(millions)

 

 

IRR

 

 

ROR

 

Months Held

NBDG

26

£1.3

£0.8

(£0.5)

(20.1) %

(39.6) %

44

 

Exit S (Exit 27 for NBDG and Exit 64 for NBDX)

 

 

Exit S

Exit

 

Cash Invested

(millions)

 

Cash Received

(millions)

 

Total Return

(millions)

 

 

IRR

 

 

ROR

 

Months Held

NBDG

27

£5.8

£9.6

£3.8

11.8%

66.4%

74

NBDX

64

$3.2

$4.9

$1.7

9.0%

53.8%

74

 

Exit T (Exit 28 for NBDG and Exit 65 for NBDX)

 

 

Exit T

Exit

 

Cash Invested

(millions)

 

Cash Received

(millions)

 

Total Return

(millions)

 

 

IRR

 

 

ROR

 

Months Held

NBDG

28

£5.4

£4.5

(£0.9)

(3.4) %

(16.5) %

74

NBDX

65

$11.8

$6.8

($5.0)

(9.0) %

(41.8) %

80

 

 

Exit U (Exit 29 for NBDG, exit 48 for NBDD and Exit 66 for NBDX)

 

 

Exit U

Exit

 

Cash Invested

(millions)

 

Cash Received

(millions)

 

Total Return

(millions)

 

 

IRR

 

 

ROR

 

Months Held

NBDG

29

£9.1

£6.7

(£2.4)

(13.5) %

(26.8) %

68

NBDD

48

$1.0

$0.3

($0.7)

(26.6) %

(66.3) %

85

NBDX

66

$19.6

$6.1

($13.5)

(28.4) %

(69.0) %

85

 

 

Exit V (Exit 30 for NBDG and Exit 49 for NBDD)

 

 

Exit V

Exit

 

Cash Invested

(millions)

 

Cash Received

(millions)

 

Total Return

(millions)

 

 

IRR

 

 

ROR

 

Months Held

NBDG

30

£12.8

£12.0

(£0.8)

(3.7) %

(6.0) %

76

NBDD

49

$8.8

$7.9

($0.9)

(3.4) %

(9.5) %

111

 

Exit W (Exit 50 for NBDD and Exit 67 for NBDX)

EXIT W

EXIT

CASH INVESTED (MILLIONS)

CASH RECEIVED (MILLIONS)

TOTAL RETURN (MILLIONS)

IRR

 ROR

MONTHS HELD

NBDD

50

£6.5

£2.1

($4.4)

(53.8) %

(67.3) %

91

NBDX

67

$16.7

$5.5

($11.2)

(50.5) %

(66.9) %

99

  

Exit X (Exit 23 for NBDG and Exit 61 for NBDX)

EXIT X

EXIT

CASH INVESTED (MILLIONS)

CASH RECEIVED (MILLIONS)

TOTAL RETURN (MILLIONS)

IRR

 ROR

MONTHS HELD

NBDG

23

£2.40

£1.50

($0.9)

(40.8) %

(38.9) %

65

NBDX

61

$6.4

$3.7

($2.7)

(43.6) %

(41.2) %

65

  

Summary of Partial Realisations across all Share Classes

All partial realisations currently in the portfolio are reported as at 31 December 2020 and it should be noted that their IRR and ROR are likely to be different at the time of the final exit. These were the following partial realisations:

 

· NBDD - Two

· NBDX - Two

· NBDG - None

 

 

Partial Realisation B: NBDD and NBDX

 

NBDD and NBDX invested $7.1m to purchase first lien secured bank debt with attached private equity of an international packaging company. The debt was repaid in full shortly after the purchase with the receipt of $5.8m and the Company retained the equity, receiving dividends of $1.7m during the holding period. During the second quarter the company's sale to a complementary packaging company was announced. NBDX and NBDD elected to receive sale proceeds in cash and newly created shares in the acquirer for a combined value of $4.0m. In the third quarter of 2017, the Company received $1.5m cash as part of the sale proceeds from the disposal completed at the end of the second quarter of 2017 and $1.0m for partial redemption of new shares received in the acquirer. The company's operating performance declined due to raw material price increases. The current value of the private equity position is $1.8m generating a total return of $4.7m as of 31 December 2020. IRR was 27% and ROR was 66% with a holding period of 98 months at 31 December 2020.

 

 

 

B

 

 

Effective Period

 

Cash Invested

(millions)

Cash Received to Date

(millions)

 

Value of Residual Investment

(millions)

 

Total Return

(millions)

 

 

IRR

 

 

ROR

 

 

MonthS Held

NBDD

H1 2017

$2.0

$2.8

$0.5

$1.3

27%

66%

98

NBDX

H1 2017

$5.1

$7.2

$1.3

$3.4

27%

66%

98

 

 

Partial Realisation C: NBDD and NBDX

  

NBDD and NBDX invested $9.2m in preferred equity certificates ("PECs") and private equity of a European packaging company. The PECs were retired in full in 2015 and the company paid dividends on the equity during the holding period. Cash received to date is $23.2m. In the second quarter, the company announced it was purchasing another complementary packaging company (Partial Realisation B, above) and completing a recapitalisation to refinance existing debt, provide cash for the acquisition and pay a dividend to shareholders. The company's operating performance declined due to raw material price increases. The current value of the private equity position is $12.9m, generating a total return of $26.9m as at 31 December 2020. IRR was 54% and ROR was 291% with a holding period of 101 months at 31 December 2020.

 

 

 

C

 

 

Effective Period

 

Cash Invested

(millions)

Cash Received to Date

(millions)

 

Value of Residual Investment

(millions)

 

Total Return

(millions)

 

 

IRR

 

 

ROR

 

 

Months Held

NBDD

H1 2017

$2.6

$6.5

$3.6

$7.5

54%

291%

101

NBDX

H1 2017

$6.6

$16.7

$9.3

$19.4

54%

291%

101

 

 

 

Neuberger Berman Investment Advisers LLC  Neuberger Berman Europe Limited

14 April 2021  14 April 2021

 

 

2020 PERFORMANCE REVIEW | Portfolio Information

 

Portfolio Information

 

Ordinary Share Class

 

Top 51 Holdings at 31 December 2020

 

 

Holding

 

Sector

Purchased Instrument

 

Status

 

Country

% of NAV

 

Primary Asset

1

Specialty Packaging

Post-Reorg Equity

Post-Reorg

Luxembourg

28%

Manufacturing Plant and Equipment

2

Surface Transport

Trade Claim

Defaulted

Brazil

21%

Municipal Claim

3

Financial Intermediaries

Secured Notes

Post-Reorg

US

5%

Cash & Securities

4

Specialty Packaging

Post-Reorg Equity

Post-Reorg

Luxembourg

4%

Manufacturing Plant and Equipment

5

Building & Development

Secured Loan

Defaulted

US

1%

Land

Total

 

 

 

 

59%

 

 

 

 

[For Investment Structure of the Company, click on, or paste the following link into your web browser, to view page 3 in the associated PDF document]

 

  http://www.rns-pdf.londonstockexchange.com/rns/5119V_1-2021-4-14.pdf

 

Extended Life Share Class

 

Top 10 Holdings at 31 December 2020

 

 

Holding

 

Sector

Purchased Instrument

 

Status

 

Country

% of NAV

 

Primary Asset

1

Specialty Packaging

Post-Reorg Equity

Post-Reorg

Luxembourg

15%

Manufacturing Plant and Equipment

2

Shipping

Secured Loan / Private Equity

Post-Reorg

Marshall Islands

14%

Ships

3

Financial Intermediaries

Secured Notes

Defaulted

US

12%

Cash and Securities

4

Surface Transport

Trade Claim

Defaulted

Brazil

11%

Municipal Claim

5

Commercial Mortgage

Secured Loan

Defaulted

Netherlands

9%

Commercial Real Estate

6

Lodging & Casinos

Secured Notes

Post-Reorg

US

7%

Hotel/Lodging Real Estate and Casino

7

Surface Transport

Secured Loan

Defaulted

Spain

7%

Concession

8

Oil & Gas

Post-Reorg Equity

Post-Reorg

US

7%

Ethanol Plant

9

Lodging & Casinos

Secured Loan

Defaulted

US

6%

Hotel/Lodging Real Estate and Casino

10

Auto Components

Secured Loan

Post-Reorg

US

4%

Manufacturing Plant and Equipment

Total

 

 

 

 

92%

 

 

[For Investment Structure of the Company, click on, or paste the following link into your web browser, to view page 4 in the associated PDF document]

 

http://www.rns-pdf.londonstockexchange.com/rns/5119V_1-2021-4-14.pdf

 

New Global Share Class

 

Top 71 Holdings at 31 December 2020

 

 

Holding

 

Sector

Purchased Instrument

 

Status

 

  Country

% of NAV

 

Primary Asset

1

Lodging & Casino

Secured Loan / Private Equity

Current

Spain

27%

Hotel/Casino

2

Commercial Mortgage

Secured Loan

Defaulted

Netherlands

22%

Commercial Real Estate

3

Surface Transportation

Secured Loan

Defaulted

Spain

15%

Legal Claim

4

Shipping

Secured Loan / Private Equity

Post-Reorg

Marshall Islands

11%

Ships

5

Lodging & Casino

Secured Notes

Defaulted

US

7%

Hotel/Casino

6

Oil & Gas

Private Equity

Post-Reorg

US

6%

Ethanol Plant

7

Auto Components

Secured Loan

Post-Reorg

US

3%

Manufacturing Plant

Total

 

 

 

 

91%

 

 

[For Investment Structure of the Company, click on, or paste the following link into your web browser, to view page 5 in the associated PDF document]

 

http://www.rns-pdf.londonstockexchange.com/rns/5119V_1-2021-4-14.pdf

 

1 Global Share Class holds seven investments by issuer

 

  

2020 PERFORMANCE REVIEW | Strategic Report

Strategic Report

 

Since 31 March 2017, the Portfolios have all been in their respective harvest period. As such this strategic report is presented in the context of the current positioning of the Portfolios in their lifecycle. The Company's corporate umbrella itself has an indefinite life to allow for flexibility for the Company to add new share classes if demand, market opportunities and shareholder approval supported such a move, although the Company has no current plans to create new share classes.

 

Principal and Emerging Risks and Risk Management

 

The Board is responsible for the Company's system of internal financial and operating controls and for reviewing its effectiveness. The Board uses the Company's risk matrix as its core element in establishing the Company's system of internal financial and reporting controls. The Board has carried out a robust assessment of the Company's emerging and principal risks and uncertainties including those that would threaten its business model, future performance, solvency or liquidity. The principal risks, which have been identified, and the steps taken by the Board to mitigate these areas are as follows:

 

RISK

MITIGATION

 

 

Investment Activity and Performance

An unsuccessful investment strategy may result in underperformance against the Company's objectives. This might be due to the skills of the Investment Manager falling short in its selection of sectors or issues in which to invest and its management of the restructurings/reorganisations which can ensure their success.

The Board has managed these risks by ensuring a diversification of investments, although the level of diversification will diminish as the respective Portfolios liquidate their positions during their harvest periods. Please see "Principal Risks Specific to Harvest Periods" below. The Investment Manager operates in accordance with the investment limits and restrictions policy set out in the Company's Investment Policy and Objectives and as further determined by the Board. The Directors review the limits and restrictions on a regular basis and the Administrator monitors adherence to the limits and restrictions every month and will notify any breaches to the Board. The Investment Manager provides the Board with management information including performance data and reports, and the Corporate Broker provides shareholder analyses. The Directors monitor the implementation and results of the investment process with the Investment Manager at each Board meeting and monitor risk factors in respect of the Portfolios. Investment strategy is reviewed at each meeting.

 

Principal Risks Associated with Harvest Periods

There can be a significant period between the date the Company makes an investment and the date that any gain or loss on such investment is realised. Further, towards the end of the Portfolios' respective harvest periods, a residual amount is required to be retained for each share class in accordance with regulatory requirements until such time that all assets can be liquidated and returned to shareholders.

 

 

As capital is returned through compulsory partial redemptions and buybacks, the number of assets and shares in a Portfolio will diminish which in turn may lead to an increased TER and reduced liquidity in a Portfolio's shares.

 

The Board has ensured that the Investment Manager has operated in accordance with the investment limits and restrictions policy set out in the Company's Investment Policy and Objectives, although it acknowledges that the diversification of Portfolio investments will diminish as the Portfolios liquidate their positions and return capital to shareholders. The Board also receives regular updates on the status of the Portfolios' investments and anticipated realisation dates.

 

The Board monitors the Company's expenses on a regular basis and ensures that contracts with the Investment Manager and other service providers are at competitive rates. The Board also notes that the Company's key expenses, such as the management fee, will diminish in line with a reduction of assets.

 

The Company retains the services of its broker, Jefferies International Limited 1 to, amongst other things, enhance liquidity in the underlying shares.

 

 

1 Stifel Nicolaus Europe Limited until 13 September 2020

 

 

Level of Premium or Discount

A discount or premium to NAV can occur for a variety of reasons, including market conditions and the extent to which investors undervalue the management activities of the Investment Manager or discount its valuation methodology and judgement.

While the Directors may seek to mitigate any discount or premium to NAV per share through discount management mechanisms, such as buybacks or share issuance, there can be no guarantee that they will do so or that such mechanisms will be successful and the Directors accept no responsibility for any failure of any such strategy to effect a reduction in any discount or premium.

 

Market Price Risk

Market price risk is the potential for changes in the value of an investment or Portfolio. The market value of investments may vary because of a number of factors including, but not limited to, the financial condition of the underlying borrowers, the industry in which a borrower operates, general economic or political conditions, interest rates, the condition of the debt trading markets and certain other financial markets, developments or trends in any particular industry and changes in prevailing interest rates.

 

Further details on market price risk are provided in Note 4 below.

 

 

The Board has, over the Investment Periods of the various share classes, ensured that the Investment Manager has operated in accordance with the Company's investment guidelines. The Directors monitor the status of the Portfolio investments with the Investment Manager at each quarterly Board meeting and monitor risk factors in respect of the Portfolios.

 

 

Fair Valuation of Illiquid Assets

With respect to investments that do not have a readily ascertainable market quotation in an active market, the Investment Manager will value such investments at fair value and such valuations will be inherently uncertain. Because of the inherent uncertainty and subjectivity in determining the fair value of investments that do not have a readily ascertainable market quotation in an active market, the fair value of the Company's investments as determined in good faith by the Investment Manager may differ significantly from the values that would have been used had a ready market existed for such investments. The reliability of the NAV calculations published by the Company will be impacted accordingly.

With respect to investments comprised in the Company's Portfolios that do not have a readily available market quotation, such as unquoted investments or investments which are listed but deemed to be illiquid, the Investment Manager values such investments at fair value on each NAV calculation date in accordance with its customary valuation methods, policies and procedures. Further information on the Company's valuation process can be found in Note 2(g) under "Investment Transactions, investment income/expenses and valuation", and Note 2(f), "Fair Value of Financial Instruments", of the Audited Consolidated Financial Statements (the "Financial Statements").

 

The Board monitors, reviews and challenges the Company's fair valued assets on a regular basis to ensure compliance with the agreed methodology. The Board reviews the Investment Manager's internal review process.

 

Accounting, Legal and Regulatory

The Company must comply with the provisions of the Law, and since its shares trade on the SFS, the Company is required to comply with the FCA's Disclosure Guidance and Transparency Rules ("DTRs"). A breach of the legislation could result in the Company and/or the Directors being fined or subject to criminal proceedings and the suspension of the Company's shares to trading on the SFS.

 

 

The Board relies on the Company Secretary and the Company's advisers to ensure adherence to the Guernsey legislation and the DTRs. The Investment Manager, Company Secretary and the Administrator, are contracted to provide investment, company secretarial, administration and accounting services through qualified professionals.

 

Operational

Disruption to, or the failure of, either the Investment Manager's or the Administrator's accounting, dealings or payment systems, or the records of the custodian could lead to a loss of assets and prevent the accurate reporting or monitoring of the Company's financial position.

 

 

 

 

Details of how the Board monitors the services provided by the Investment Manager and the Administrator, and the key elements designed to provide effective internal controls are explained further in the internal controls section of the Corporate Governance Report which is set out below.

Emerging Risks

 

The Board undertakes a quarterly assessment of all risks on a forward-looking basis, and in discussion with the Investment Manager identifies emerging risks in addition to assessing expected changes to existing risks as discussed above. The Board assesses the likelihood and impact of emerging risks. The Board will discuss and agree appropriate mitigation or management of emerging risks as relevant to those emerging risks. Such examples of emerging risks identified in the year included, the emergence of COVID-19, climate related risks and the issuance of new regulations, new risks associated with the Brexit trade deal and the results of the US presidential election. Emerging risks are managed through discussion of the likelihood and impact at each quarterly Board meeting. Should an emerging risk be determined to have any potential impact on the Company, appropriate mitigating measures and controls are agreed. Whilst COVID-19 was identified as an emerging risk, it has been discussed on a quarterly basis as a continued risk, it is however not a principal risk. The Board have actively monitored its service providers for operational resilience and the impact of COVID-19 on the portfolio which is discussed in the Chairman's Statement above.

 

Going Concern

 

The Company's principal activities are set out in the Business Model section above. The financial position of the Company is set out in the Consolidated Statement of Assets and Liabilities below. In addition, note 4 to the Financial Statements includes the Company's objectives, policies and processes for managing its capital, its financial risk management and its exposures to credit risk and liquidity risk.

 

The Directors have undertaken a rigorous review of the Company's ability to continue as a going concern including reviewing the on-going cash flows and the level of cash balances, the likely liquidity of investments and any income deriving from those investments as of the reporting date as well as taking into consideration the impacts of COVID-19 and have determined that the Company has adequate financial resources to meet its liabilities as they fall due. The Directors therefore have a reasonable expectation that the Company has adequate resources to continue in operational existence for the twelve months from the date these accounts are signed and the foreseeable future. Thus, they continue to adopt the going concern basis of accounting in preparing the Financial Statements and confirm that they have been prepared in accordance with Guidance on the Going Concern Basis of Accounting and Reporting on Solvency and Liquidity Risks, published by the FRC.

 

The going concern statement required by the 2019 AIC Code of Corporate Governance (the "AIC Code") is set out in the "Directors' Responsibilities Statement" below.

 

Viability Statement

 

In accordance with provision 8.2 paragraph 36 of the AIC Code of Corporate Governance, published in February 2019 (the "AIC Code"), the Directors have assessed the future prospects of the Company. In making their assessment the Directors have considered the Company's status as an investment entity, its investment objectives, the principal and emerging risks it faces, its current position and the time period over which its assets are likely to be realised.

 

In their assessment of the viability of the Company over the forthcoming two years, being the expected time to realisation of the final assets, the Directors have carried out a robust assessment of the emerging risks, principal risks and uncertainties the Company faces, as detailed in the Strategic Report above. These risks include the timing of asset realisations during the Portfolios' harvest periods, the Company's income and expenditure projections, and the expected cash flows arising in particular from capital distributions to shareholders. The Directors noted that such distributions may be restricted if the interest and dividend income generated in the Portfolios is not sufficient to meet operational expenses.

 

As part of their review, the Directors carried out a series of stress tests under different scenarios which assumed a significant fall in income and asset levels and a corresponding increase in expenses and were satisfied with the results of this analysis. The Directors have performed a quantitative and qualitative analysis that included the Company's income and expenditure projections and the fact that the Company's investments can be expected to be sold, within a reasonable timeframe, to meet future funding requirements if necessary. As part of this assessment, the Directors reviewed a series of stress test scenarios carried out by the Investment Manager, which included an assumption of a significant (60%) fall in income and no reduction in expenses, and were satisfied that the Company would continue to be viable financially.

 

The Directors have concluded that there is a reasonable expectation that the Company will be able to continue in operation and meet its liabilities as they fall due over the remaining life of each of its three share classes, which the Directors consider to be the two year period to 31 December 2022. However, the Directors noted that the prospects for the Company, which has an indefinite life, are subject to change should the Company add new share classes to its structure before the existing Portfolios' assets are fully realised.

 

Key Performance Indicators

 

In order to measure the success of the Company in meeting its objectives and to evaluate the performance of the Investment Manager, the Directors take into account the following performance indicators:

 

· Returns and NAV - At each meeting the Board reviews and compares against other debt-orientated investment companies and various indices the performance of the Portfolios as well as the NAV, income and share price of each share class. To assist in this review the Board considers formal reports from both the Investment Manager and brokers which assess the performance of the asset class and look at trading activity. The Investment Manager also provides an in-depth analysis of the holdings within the Portfolios;

 

· Discount/premium to NAV - At each Board meeting, the Board monitors the level of the Company's discount or premium to NAV per share class and reviews the average discount/premium for other debt-orientated investment companies. The Company publishes a NAV per share on a daily basis through the official newswire of the London Stock Exchange. The Company's Extended Life Shares traded between a discount of 20.8% and 46.8% with an average discount of 33.0 %. The Company's New Global Shares traded between a discount of 8.3% and 22.4 % with an average discount of 19.5 %. The Company's Ordinary Share Class did not trade at a discount during the year ended 31 December 2020.

 

· Ongoing Charges - In the year to 31 December 2020, the Company's Ongoing Charges were 2.38%. This figure is based on an annual expense figure for the year of $3,198,067. This figure, which has been prepared in accordance with AIC guidance represents the Company's management fees and all other operating expenses, excluding finance costs payable, expressed as a percentage of average net assets. No performance fees were payable as at 31 December 2020. The Ongoing Charges by share class are disclosed in the Financial Highlights section above.

 

•   Total Expense Ratio ("TER") - In the year to 31 December 2020, the Company's TER was 2.72%. This figure is based on an annual expense figure for the year of $3,662,388. This figure which has been prepared in accordance with the US Generally Accepted Accounting Principles ("US GAAP") methodology, represents the annual percentage reduction in shareholder returns as a result of recurring operational expenses including any performance fee. No performance fees were payable as at 31 December 2020. The TERs by share class are disclosed in the Financial Highlights above.

 

Alternative Performance Measures ("APMs")

 

Alternative Performance Measures ("APMs") included in the Annual Financial Report and Financial Statements which require further clarification have been considered by the Board. An APM is defined as a financial measure of historical or future financial performance, financial position, or cash flows, other than a financial measure defined or specified in the applicable financial reporting framework. APMs may not have a standard meaning prescribed by US GAAP and therefore may not be comparable to similar measures presented by other entities. APMs included in the Annual Report and Financial Statements are deemed to be as follows:

 

Alternative performance

measures

 

 

PURPOSE and/or description

 

 

CALCULATION

Internal Rate of Return ("IRR")

 

The IRR is calculated by first calculating the net present value (NPV), being (Today's value of the expected future cash flows) - (Today's value of invested cash). The IRR is a determination of what discount rate would cause the net present value (NPV) of an investment to be $0.

 

 

Rate of Return ("ROR")

 

The RoR is the net gain or loss on an investment over a specified time period, expressed as a percentage of the investment's initial cost.

 

It is calculated by taking the difference between the current (or expected) value and original value, divided by original value and multiplied by 100.

 

Opening NAV per share  (A)

Closing NAV per share (B)

Rate of Return = (B-A)/A

Total Expense Ratio ("TER")

 

The TER is Management fees and all other operating expenses expressed as a percentage of average net assets during the year.

 

Annualised charges (A) 

Average undiluted net asset value in the period (B)

 

Total Expense Ratio (%) = (A)/(B)

 

On-going charges

 

On-going Charges are calculated to the AIC Methodology, which is a measure, expressed as a percentage of NAV, of the regular, recurring costs of the Company. "On-going charges are those expenses of a type which are likely to recur in the foreseeable future, whether charged to capital or revenue, and which relate to the operation of Company, excluding the costs of acquisition/disposal of investments, financing charges and gains/losses arising on investments. Ongoing charges are based on costs incurred in the year as being the best estimate of future costs".

 

Ongoing charges (%) = (A)/(B)

Annualised ongoing charges (A) 

Average undiluted net asset value in the period (B)

 

Net Asset Value per share ("NAV")

 

The NAV per share represents the net assets attributable to equity shareholders divided by the number of shares in issue, excluding any shares held in treasury.

The NAV per Ordinary Share is published daily. This APM relates to past performance and is used to assess performance.

 

 

Total Return

 

Total return is expressed as a percentage of the amount invested and represents the amount of value our investors earn from a security over a specific period.

 

Original Investment cost (A)

Current Investments value (B)

 

Total Return = (B-A)/A

 

Ratio of Total Value to original capital

Ratio of Total Value to original capital is a total of NAV plus capital returned to investors expressed as a percentage of the original amount invested since inception.

 

Total Capital Distributions (A)

Total Income Distributions (B)

Total Buybacks (C)

Current NAV (D)

 

Total of NAV Plus Capital Returned, where (E) = A+B+C+D

 

Original Capital Invested (F)

 

Ratio of Total Value to original capital (%) = E/F

 

(Discount) or Premium to NAV

 

The share price of an Investment Company is derived from buyers and sellers trading their shares on the stock market. This price is not identical to the NAV. If the share price is lower than the NAV per share, the shares are trading at a discount. This could indicate that there are more sellers than buyers. Shares trading at a price above the NAV per share, are said to be at a premium. This is expressed as a percentage. 

 

NAV per share (NBDD)  (A) 

Share price per share (NBDD)  (B) 

 

NBDD (Discount) or Premium = (B-A)/A

 

NAV per share (NBDX)  (A) 

Share price per share (NBDX)  (B) 

 

NBDX (Discount) or Premium = (B-A)/A

 

NAV per share (NBDG)  (A) 

Share price per share (NBDG)  (B) 

 

NBDG (Discount) or Premium = (B-A)/A

 

 

 

Management Arrangements

 

Investment Management Agreement

 

On 17 July 2014, the Company, the Manager and the AIFM made certain classificatory amendments to their contractual arrangements for the purposes of compliance with the European Commission's Directive on Alternative Investment Fund Managers (the "AIFM Directive"). The Sub-Investment Management Agreement was terminated on 17 July 2014 and   Neuberger Berman Investment Advisers LLC, which was the Sub-Investment Manager, was appointed as the AIFM per the amended and restated Investment Management Agreement ("IMA") dated 17 July 2014. The IMA was further amended and restated on 31 December 2017. Under this agreement, the AIFM is responsible for risk management and day-to-day discretionary management of the Company's Portfolios (including un-invested cash). The risk management and discretionary portfolio management functions are performed independently of each other within the AIFM structure. The AIFM is not required to, and generally will not, submit individual investment decisions for approval by the Board. The Manager, Neuberger Berman Europe Limited, was appointed under the same IMA to provide, amongst other things, certain administrative services to the Company. Please refer to Note 6 below for details of fee entitlement.

 

The IMA can be terminated either by the Company on one hand or the Investment Manager on the other, but in certain circumstances, the Company would be required to pay compensation to the Investment Manager of six months' management charges. No compensation is payable if notice of termination of more than six months is given. Effective 1 October 2020 the Investment Manager waived its fee on cash in relation to the NBDD share class. Effective 18 March 2021, the Investment Manager waived its entitlement to all fees from the Company.

 

Administration and Custody Agreement

 

Effective 1 March 2015, the Company entered into an Administration and Sub-Administration Agreement with U.S. Bank Global Fund Services (Guernsey) Limited ("USBG") and U.S. Bank Global Fund Services (Ireland) Limited ("USBI") a wholly-owned subsidiary of USBG. Under the terms of the agreement, Sub-Administration services are delegated to USBI (the "Sub-Administrator"). US Bank National Association (the "Custodian") was appointed custodian to the Company effective 1 March 2015. See Note 6 below for details of fee entitlement.

 

On 1 June 2018 the Company entered into an Amendment to the Administration and Sub-Administration agreement to reflect the requirements of the General Data Protection Regulation (EU) 2016/679 ("GDPR") and the Data Protection (Bailiwick of Guernsey) Law, 2017, as amended from time to time.

 

Company Secretarial and Registrar Arrangements

 

Effective 20 June 2017, company secretarial services are provided by Carey Commercial Limited. Registrar services are provided by Link Market Services (Guernsey) Limited.

 

See Note 6 below for details of fee entitlement.

 

Related Party Transactions

 

The contracts with the Investment Manager and Directors are the only related party transactions currently in place. Other than fees payable in the ordinary course of business there have been no material transactions with these related parties which have affected the financial position or performance of the Company in the financial year.

 

For information on performance fees and Directors' fees please refer to Note 6 below.

 

For and on behalf of the Board,

 

 

John Hallam                                                             Christopher Legge

Chairman  Director

14 April 2021                                                                                             14 April 2021

 

 

GOVERNANCE | Directors

 

Directors

 

John Hallam (Chairman)

 

John Hallam is a fellow of the Institute of Chartered Accountants in England and Wales and qualified as an accountant in 1971. Previously, Mr Hallam was a partner at PricewaterhouseCoopers and retired in 1999 after 27 years with the firm in Guernsey and in other countries. He is a director of Real Estate Credit Investment Limited and a number of other financial services companies, some of which are listed on recognised exchanges. Mr Hallam served for many years as a member and latterly chairman of the GFSC, from which he retired in 2006.

  

Michael J. Holmberg

Michael J. Holmberg, Managing Director of Neuberger Berman, joined the NB Group in 2009. Mr Holmberg is the head of distressed portfolio management. Prior to joining NB Group, Mr Holmberg founded Newberry Capital Management LLC in 2006 and before that he founded and managed Ritchie Capital Management's Special Credit Opportunities Group. He was also a managing director at Strategic Value Partners and Moore Strategic Value Partners. He began investing in distressed and credit oriented strategies as a portfolio manager at Continental Bank/Bank of America, where he established the bank's global proprietary capital account. Mr Holmberg received a BA in economics from Kenyon College and an MBA from the University of Chicago.

Christopher Legge (Chairman of the Audit Committee)

 

Chris Legge is a Guernsey resident and worked for Ernst & Young in Guernsey from 1983 to 2003. Having joined the firm as an audit manager in 1983, he was appointed a partner in 1986 and managing partner in 1998. From 1990 to 1998, he was head of Audit and Accountancy and was responsible for the audits of a number of banking, insurance, investment fund, property fund and other financial services clients. He also had responsibility for the firm's training, quality control and compliance functions. He was appointed managing partner for the Channel Islands region in 2000 and merged the business with Ernst & Young LLP in the United Kingdom. He retired from Ernst & Young in 2003. Chris currently holds a number of non-executive directorships in the financial services sector including several Guernsey investment companies which are listed in the UK and where he also chairs the Audit Committee. He is an FCA and holds a BA (Hons) in Economics from the University of Manchester.

 

Stephen Vakil (Chairman of the Management Engagement Committee and Chairman of the Remuneration Committee and Senior Independent Director)

 

After graduating with a BSc in economics from Bath University in 1983, Stephen Vakil joined L Messel & Co and moved to Chase Manhattan in 1987 to focus on private client portfolio management. In 1989, he left to join Foster & Braithwaite where he established the research function and subsequently became a director. Following Foster & Braithwaite's merger with Quilter Goodison to form Quilter & Co in 1996, Mr Vakil was given responsibility for the London investment teams, the research department and marketing function. He was made a managing director in 2001. Having played a key role in a number of corporate transactions, Mr Vakil left Quilter Cheviot in 2013. He is an Associate of the Society of Investment Professionals.  

 

  

GOVERNANCE | Directors' Report

Directors' Report

 

The Directors present their report and Financial Statements of the Company and their report for the year ended 31 December 2020. 

 

Share Capital

 

The number of shares in issue at 31 December 2020 was as follows:

Class A Shares      2

Ordinary Shares    15,382,770

Extended Life Shares    80,545,074

New Global Shares    41,116,617

 

Share Buybacks

 

At the Annual General Meeting ("AGM") of the Company held on 25 June 2020, the Directors were granted the general authority to purchase in the market up to 14.99% of the Ordinary Shares, 14.99% of the Extended Life Shares and 14.99% of the New Global Shares in issue (as at 25 June 2020). The latest authority will expire at the AGM to be held on 24 June 2021. Pursuant to this authority, and subject to the Law and the discretion of the Directors, the Company may purchase shares of any of its classes in the market on an ongoing basis with a view to addressing any imbalance between the supply of and demand for such shares, thereby increasing the NAV per share of the shares and assisting in controlling the share price discount to NAV per share.

 

During the year, 3,661,822 Extended Life Shares and 3,035,833 New Global Shares were repurchased by the Company for immediate cancellation for gross consideration of $1,857,123 and £1,578,657 respectively. There were no buybacks of the Company's Ordinary Shares in 2020. As noted in the Chairman's Statement above, on 16 November 2020 the Company announced in its quarterly Factsheet that the share buyback programme was discontinued. The buyback programme was intended to narrow the discount, if any, during the investment period. At this point of the harvest period, the priority, based on investor feedback, is the return of capital. The Directors intend to seek annual renewal of this authority from Shareholders to retain flexibility.

 

Distributions

 

The Company will, from time to time, pay out income distributions by way of dividend in respect of each share class in accordance with the Company's dividend policy as set out below. In addition, any capital proceeds attributable to a share class (as determined by the Directors in accordance with the Articles), will, at such times and in such amounts as the Directors shall in their absolute discretion determine, be distributed to shareholders of that class pro rata to their respective holdings of the relevant shares. Further information on the Company's income and capital distribution policies can be found in the Distributions to Shareholders section above.

 

Dividend Policy

 

As set out in the Company's Prospectus, the Company will pay out in respect of each class of shares an income distribution by way of dividend, comprising all net income received on investments of the Company attributable to such class of shares. It is not anticipated that income from the portfolio will be material and therefore any dividends may be on an ad-hoc basis. It is a requirement of an exception to the United Kingdom offshore fund rules that all income from the Company's Portfolio (after deduction of reasonable expenses) is to be paid to investors. This policy should ensure that this requirement will be met. The exact amount of such dividend in respect of any class of Shares will be variable depending on the amounts of income received by the Company attributable to such class of Shares and will only be made available in accordance with applicable law at the relevant time, including the Law (and, in particular, will be subject to the Company passing the solvency test contained in the Law at the relevant time). Furthermore, the amount of dividends paid in respect of one class of shares may be different from that of another class. This policy will be put to a shareholder vote by way of separate resolution at the 2021 AGM.

 

Distributions made during the year

 

Set out below are details of the distributions made during the year.

 

Income distribution by way of dividend

 

There was no dividend due for the period ending 31 December 2020.

 

Capital distributions by way of a compulsory partial redemption

 

 

Ordinary Share Class

Extended Life Share Class

New Global Share Class

Date

Distribution Amount

Number of Shares

Per Share Amount

Distribution Amount

Number of Shares

Per Share Amount

Distribution Amount

Number of Shares

Per Share

Amount

19 March 2020

-

-

-

4,986,260

5,434,023

$0.9176

-

-

-

18 May 2020

-

-

-

7,491,958

9,536,606

$0.7856

7,493,478

11,206,038

£0.6687

30 June 2020

-

-

-

10,491,960

14,969,269

$0.7009

10,493,475

16,429,427

£0.6387

                     

 

Substantial Share Interests

 

Based upon information deemed to be reliable as provided by the Company's registrar as at 31 March 2021, the following shareholders owned 5% or more of the issued shares of the Company.

 

 

 

Substantial Shareholders

 

No. of Ordinary Shares

 

No. of Extended Life Shares

 

No. of New Global Shares

Percentage of Share Class (%)

Harewood Nominees Limited 4046320 ACCT

12,711,139

-

-

82.63

Prudential Client HSBC GIS Nominee (UK) Limited PAC ACCT

-

-

12,308,287

29.94

Prudential Client HSBC GIS Nominee (UK) Limited PAC ACCT

-

14,345,466

-

17.81

State Street Nominees Limited OM04 ACCT

-

7,152,574

-

8.88

State Street Nominees Limited OM04 ACCT

-

-

5,619,249

13.67

BNY(OCS) Nominees Limited

-

7,907,693

-

9.82

Nortrust Nominees Limited

-

-

3,830,779

9.32

Citibank Nominees (Ireland) Designated Activity Company CLRLUC ACCT

-

7,286,998

-

9.05

HSBC Global Custody Nominee (UK) Limited 898873 ACCT

-

-

3,559,990

8.66

Lynchwood Nominees 2006420 ACCT

-

6,195,233

-

7.69

Roy Nominees Limited 802644 ACCT

-

-

2,858,259

6.95

Nortrust Nominees Limited GSYA ACCT

-

-

2,500,000

6.08

 

 

 

 

 

Note: shareholdings may be greater than 5% in the share class but may not be 5% in aggregate of the Company's issued share capital.

 

 

Notifications of Shareholdings

 

In the year to 31 December 2020 the Company has been notified in accordance with Chapter 5 of the DTR (which covers the acquisition and disposal of major shareholdings and voting rights), of the following voting rights as a shareholder of the Company. When more than one notification has been received from any shareholder, only the latest notification is shown. For non-UK issuers, the thresholds prescribed under DTR 5.1.2 for notification of holdings commence at 5%. Class A shares do not hold voting rights.

 

 

 

Shareholder 1

 

Number of Shares

Percentage of total voting rights (%)

City of Bradford Met District Council (West Yorkshire Pension Fund)

3,270,047

4%

M&G Plc

16,876,142 NBDX

12,308,287 NBDG

11.98%

8.74%

 

Since the year end at the date of this report, there have been no notifications received by the Company.

 

 

Directorship Disclosures in Public Companies (as at 2 March 2021)

 

Company Names

Exchange(s)

Mr John Hallam

 

Investec Premier Funds PCC Limited

The International Stock Exchange ("TISE")

NB Distressed Debt Investment Fund Limited

SFS, London

Real Estate Credit Investments Limited

London

Ruffer Multi Strategies Fund Limited

Euronext Dublin

Ruffer Illiquid Multi Strategies Fund 2015 Limited

TISE

 

 

Mr Michael Holmberg

 

NB Distressed Debt Investment Fund Limited

SFS, London

 

 

Mr Christopher Legge

 

NB Distressed Debt Investment Fund Limited

SFS, London

Sherborne Investors (Guernsey) B Limited

SFS, London

Sherborne Investors (Guernsey) C Limited

SFS, London

Twenty Four Select Monthly Income Fund Limited

London

 

 

Mr Stephen Vakil

 

NB Distressed Debt Investment Fund Limited

SFS, London

The Property Hub REIT PLC

TISE

 

 

Anti-Bribery and Corruption Policy

 

The Board of the Company has a zero tolerance approach to instances of bribery and corruption. Accordingly, it expressly prohibits any Director or associated persons, when acting on behalf of the Company, from accepting, soliciting, paying, offering or promising to pay or authorise any payment, public or private, in the United Kingdom or abroad to secure any improper benefit for them or for the Company. The Investment Manager has also adopted a zero tolerance approach to instances of bribery and corruption.

 

The Board insists on strict observance with these same standards by its service providers in their activities for the Company and continues to refine its process in this regard. The Company's policy is available on its website at www.nbddif.com/corporate_governance.html

 

Criminal Facilitation of Tax Evasion Policy

 

The Board of the Company has a zero tolerance commitment to preventing persons associated with it from engaging in criminal facilitation of tax evasion. The Board has satisfied itself in relation to its key service providers that they have reasonable provisions in place to prevent the criminal facilitation of tax evasion by their own associated persons and will not work with service providers who do not demonstrate the same zero tolerance commitment to preventing persons associated with it from engaging in criminal facilitation of tax evasion. The Company's policy is available on its website at www.nbddif.com/corporate_governance.html .

 

General Data Protection Regulation

 

The Company takes privacy and security of your information seriously and will only use such personal information as set out in the Company's privacy notice which can be found on the Company's website at: https://www.nbddif.com/pdf/NB_Privacy_Notice_2020.pdf  

 

COVID-19

 

As global virus outbreaks continue to occur, the COVID-19 virus remains a primary issue. The outbreaks and calls for additional lockdowns diminish near term virus containment hopes, while also restricting behaviour and curtailing more robust economic activity. Given these circumstances, the longer-term financial impact on the Company's assets remains difficult to predict. Despite the uncertainty, the Investment Manager remains committed to realising the investments in an orderly manner. However, the timing of the orderly realisation of some assets is less certain and the quantum of the proceeds therefrom is difficult to predict.

 

Employees and Socially Responsible Investment

 

The Company has a management contract with the Investment Manager. It has no employees and all of its Directors are non-executive, with day-to-day activities being carried out by third parties. There are therefore no disclosures to be made in respect of employees. The Company's main activities are carried out by Neuberger Berman, which is a signatory of the Principles of Responsible Investment and has an ongoing commitment to strengthening and refining its environmental, social and governance approach. An overview of Neuberger Berman's Principles for Responsible Investment is detailed on its website at www.nb.com/pages/public/en-gb/principles-for-responsible-investment.aspx .

 

Global Greenhouse Gas Emissions

 

The Company has no significant greenhouse gas emissions to report from its operations for the year to 31 December 2020 (2019 - none), nor does it have responsibility for any other emissions producing sources.

 

Climate Change

 

In 2019, the Board identified activism relating to climate change as an emerging risk. The Board is conscious of its own impact on the environment, despite being an investment company with no employees, and has committed, on a going forward basis, to offset its carbon-emissions arising from the air travel by the members of the Board undertaking Company related business. In addition, the Board makes extensive use of teleconferencing facilities thus limiting the amount of travel, all board papers are produced and hosted digitally via a dedicated board web-portal and the Company makes relevant enquiries to our key service providers during face-to-face meetings about their initiatives and attitudes to climate change. In respect to the Company's investments, as an example, the three publicly traded shipping companies have all invested in modern, more fuel efficient vessels while selling or scrapping older, less efficient assets. These companies, as well as the private shipping investments, have worked to comply with the new environmentally friendly International Maritime Organization regulations that require either the use of cleaner fuel or the installation of scrubbers on each vessel to prevent the emission of sulphur oxide into the atmosphere.

  

Gender Metrics

 

The current Board members are male. More information on the Board's consideration of diversity is given in the Corporate Governance Report below.

 

The Modern Slavery Act 2015 ("MSA")

 

The MSA requires companies to prepare a slavery and human trafficking statement for each financial year of the organisation. As the Company has no employees and does not supply goods or services, the MSA does not directly apply to it. The MSA requirements more appropriately relate to the Investment Manager which is a signatory of the Principles of Responsible Investment (please see "Employees and Socially Responsible Investment" above) which include social factors such as working conditions, including slavery and child labour .   The MSA of the Investment Manager is available on its website at NB.com.

 

Employee Engagement & Business Relationships

 

The Company conducts its core activities through third-party service providers and does not have any employees. The Board recognises the benefits of fostering strong business relationships with its key service providers and seeks to ensure each is committed to the performance of their respective duties to a high standard and, where practicable, that each provider is motivated to adding value within their sphere of activity. Details on the Board's approach to service provider engagement and performance review are contained in the Management Engagement Committee Report.

 

Disclosure of Information to Auditors

 

The Directors who were members of the Board at the time of approving this report are listed in the Directors section above. Each of those Directors confirms that:

 

· to the best of his or her knowledge and belief, there is no information relevant to the preparation of their report of which the auditors are unaware; and

 

· he or she has taken all steps a director might reasonably be expected to have taken to be aware of relevant audit information and to establish that the Company's auditors are aware of that information.

 

 

For and on behalf of the Board.

 

 

John Hallam                                                             Christopher Legge

Chairman Director

14 April 2021       14 April 2021

 

 

 

GOVERNANCE | Corporate Governance Report

Corporate Governance Report

 

Applicable Corporate Governance Codes

 

As the Company is listed on the SFS it is only required to follow the GFSC code of corporate governance (the "Code"), applicable to Guernsey companies. However, the Board has chosen to follow the AIC Code of Corporate Governance published in February 2013 and last amended in February 2019 (the "AIC Code"). The AIC Code addresses all the principles set out in the Code as well as setting out additional principles and recommendations on issues that are of specific relevance to the Company .

 

On 1 January 2012, the GFSC's "Finance Sector Code of Corporate Governance" came into effect and was amended in February 2016 . The GFSC has stated in its Code that companies which report against the UK Corporate Governance Code (the "UK Code") or the AIC Code are deemed to meet their Code, and need take no further action.

 

The Board of the Company has considered the principles and recommendations of the 2019 AIC Code.

 

The Board considers that reporting against the principles and recommendations of the AIC Code will provide more relevant information to shareholders. Copies of the AIC Code can be found at www.theaic.co.uk.

 

Corporate Governance Statement

 

Throughout the year ended 31 December 2020 the Company has complied with the recommendations of the AIC Code and the relevant provisions of the UK Code, except where explanations have been provided.

 

The Directors believe that this Annual Report and Audited Financial Statements, presents a fair, balanced and understandable assessment of the Company's position and prospects, and provides the information necessary for shareholders to assess the Company's performance, business model and strategy.

 

The Company complies with the corporate governance statement requirements pursuant to the FCA's DTRs by virtue of the information included in the Corporate Governance section of the Annual Report together with information contained in the Strategic Report and the Directors' Report.

 

Our Governance Framework

 

Chairman:   John Hallam

 

Responsibilities:

 

The leadership, operation and governance of the Board, ensuring effectiveness, and setting the agenda for the Board.

 

More details are provided in the Corporate Governance Report below.

 

Senior Independent Director:   Stephen Vakil

 

Responsibilities:

 

The Senior Independent Director's ("SID") role is to work closely with the chairman, acting as a sounding board and providing support, acting as an intermediary for other directors as and when necessary. The SID is available to shareholders and other non-executives to address any concerns or issues they feel have not been adequately dealt with through the usual channels of communication (i.e. through the chairman, other directors or Investment Management executives). The SID is also responsible, along with the non-executive Directors, for review of the chairman's performance and carrying out succession planning for the chairman's role as deemed appropriate. The SID is available to attend meetings with all shareholders to obtain a balanced understanding of their issues and concerns. A memo is available on the Company's website https://www.nbddif.com/pdf/Memorandum_on_the_Duties_of_the_26_August_2020.pdf .

 

 

The Board members of NB Distressed Debt Investment Fund Limited

 

John Hallam (Chairman) - independent non-executive Director

Christopher Legge and Stephen Vakil - independent non-executive Directors

Michael Holmberg - non-executive Director

 

Responsibilities:

 

Overall conduct of the Company's business and setting the Company's strategy.

 

More details are provided below.

 

AUDIT COMMITTEE

MANAGEMENT ENGAGEMENT COMMITTEE

 

Members:

 

Christopher Legge (Chairman)

Stephen Vakil

 

 

Members:

 

Stephen Vakil (Chairman)

John Hallam

Christopher Legge  

 

Responsibilities:

 

The provision of effective governance over the appropriateness of the Company's financial reporting including the adequacy of related disclosures, the performance of the external auditor, and the management of the Company's systems of internal controls and business risks.

 

More details are provided in the Audit Committee Report below.

 

Responsibilities:

 

To review the performance of all service providers (including the Investment Manager)

 

More details are provided in the Management Engagement Committee Report below.

 

REMUNEration Committee

inside information COMMITTEE

 

Members:

 

Stephen Vakil (Chairman)

John Hallam

Christopher Legge 

 

 

Members:

 

John Hallam

Michael Holmberg

Christopher Legge

Stephen Vakil

 

Responsibilities:

 

To review the on-going appropriateness and relevance of the remuneration policy.

 

More details are provided in the Remuneration Committee below.

 

Responsibilities:

 

To identify inside information and monitor the disclosure and control of inside information.

 

More details are provided in the Inside Information Committee below.

 

 

Board Independence and Composition

 

The biographical details of the Directors holding office at the date of this report are listed in the Directors' report above and demonstrate a breadth of investment, accounting and professional experience.

 

Whilst in April 2020 John Hallam had served on the Board for over ten years, the Board remains satisfied that John Hallam continues to exercise independent judgement, and that retaining the depth of knowledge of the Company held by John is in the best interests of the Company as a whole, given the current position of the Company.

 

John Hallam, Christopher Legge and Stephen Vakil are considered independent from the Investment Manager. Michael Holmberg is deemed not independent as he is employed by a Neuberger Berman group company.

 

The Board believes that Mr Holmberg brings a significant amount of experience and expertise to the Board; however, as a non-independent Director, Mr Holmberg does not sit on the Audit Committee, Remuneration Committee or the Management Engagement Committee and is not involved in any matters discussed by the Board concerning the evaluation of the performance of the Investment Manager.

 

The Directors review their independence annually.

 

The Company Secretary through its representative acts as Secretary to the Board and Committees and in doing so it:

 

· assists the Chairman in ensuring that all Directors have full and timely access to all relevant documentation;

· will organise induction of new Directors; and

· is responsible for ensuring that the correct Board procedures are followed and advises the Board on corporate governance matters.

 

Directors' Appointment

 

No Director has a service contract with the Company. Directors have agreed letters of appointment with the Company, copies of which are available for review by shareholders at the Registered Office and will be available at the 2021 AGM. The length of service of each Director is shown in the Directors' Remuneration Report below. Any Director may resign in writing to the Board at any time.

 

The Board has formal, rigorous and transparent procedures for the appointment of additional directors. Candidates are identified and selected on merit against objective criteria and with due regard to the benefits of diversity on the Board, including gender. The Board undertakes a broad search which includes obtaining lists of potential candidates from a variety of sources leading to agreed short-lists. Interviews are then held with potential candidates. The skills, experience and time availability of each candidate is considered by the Board with due regard to the skills and experience necessary to replace those lost by retirements or otherwise considered desirable to strengthen the Board. Short-listed candidates are invited to meet the Chairman and the Investment Manager and feedback is provided to the Board prior to selection.

 

In accordance with the AIC Code all current Directors offer themselves for re-election at the 2021 AGM of the Company; John Hallam, Michael Holmberg, Christopher Legge and Stephen Vakil were re-elected as Directors at the AGM on 25 June 2020. The names and biographies of the Directors holding office at the date of this report are listed in the Directors' Report above.

 

Tenure of Non-Executive Directors

 

The Board has adopted a policy on tenure that is considered appropriate for an investment company. Mr Hallam has served as a director of the Company for over ten years. The Board does not believe that length of service, by itself, leads to a closer relationship with the Investment Manager or necessarily affects a Director's independence. The Board has sought to appoint Directors with past and current experience of various areas relevant to the Company's business. The Board agreed to adopt an amended tenure and succession policy in February 2018 which is reflective of the Board's belief that it is not in the best interests of shareholders to replenish the Board at the current time when the long-term outlook of the umbrella of the Company is unknown, save for the appointment of directors to fill a key vacant position with due regard to the skills and experience necessary to replace those lost by Directors' retirements.

 

Directors are expected to devote such time as is necessary to enable them to discharge their duties. Other business relationships, including those that conflict or may potentially conflict with the interests of the Company, are taken into account when appointing Board members and are monitored on a regular basis.  

 

Re-election of Directors

 

John Hallam, Michael Holmberg, Christopher Legge and Stephen Vakil have confirmed their intention to submit themselves for re-election at the next AGM to be held on 24 June 2021.

 

The Board recognises that the Portfolios are now in their harvest periods and, as such, it believes that it is in the best interests of shareholders and the Company to maintain the current Board composition for the time being in order to benefit from the Directors' technical knowledge and experience of managing the Company's affairs as the assets continue to wind down. The Board confirmed that the contributions made by the Directors offering themselves for re-election at the AGM on 25 June 2020 continue to be effective and that the Company should support their re-election.

 

The dates of appointment of all Directors are provided in the Directors' Remuneration Committee Report below.

 

Board Diversity

 

The Board considers that its members have a balance of skills and experience which are relevant to the Company. The Board notes the Davies Report, Hampton-Alexander Review and the Parker Review, and believes in the value and importance of diversity in the boardroom but it does not consider it is appropriate or in the interests of the Company and its shareholders to set prescriptive targets for gender, ethnicity, nationality or any other criterion of representation on the Board. At 31 December 2020, the Board members were male. The Board continues to focus on encouraging diversity of business skills and experience, recognising that directors with diverse skills sets, capabilities and experience gained from different backgrounds enhances the Board but has no current plans to refresh the Board.

 

Board Responsibilities

 

The Board reviews all aspects of the Company's affairs including the setting and monitoring of investment strategy and the review of investment performance. With the Portfolios now in their harvest periods, the Investment Manager takes decisions as to the sale of individual investments, in line with the investment policy and strategy set by the Board. The Investment Manager together with the Company Secretary and Administrator also ensures that all Directors receive, in a timely manner, all relevant management, regulatory and financial information relating to the Company and its portfolio of investments. Representatives of the Investment Manager attend each Board meeting, enabling the Directors to question any matters of concern or seek clarification on certain issues. Matters specifically reserved for decision by the full Board have been defined and a procedure adopted for Directors in the furtherance of their duties to take independent professional advice at the expense of the Company. This is available on the Company's website www.nbddif.com .

 

Conflict of Interests

 

Directors are required to disclose all actual and potential conflicts of interest to the Board as they arise and the Board may impose restrictions or refuse to authorise conflicts if deemed appropriate. The Directors have undertaken to notify the Company Secretary as soon as they become aware of any new potential conflicts of interest that would need to be approved by the Board. Only Directors who have no material interest in the matter being considered will be able to participate in the Board approval process. 

 

It has also been agreed that the Directors will advise the Chairman and the Company Secretary in advance of any proposed external appointment. 

 

None of the Directors had a material interest in any contract, which is significant to the Company's business during the year ended 31 December 2020, except Michael Holmberg, an employee of the Neuberger Berman Group of which the Investment Manager is a part.

 

The Directors' Remuneration Report below provides information on the remuneration and interests of the Directors.

 

Performance Evaluation

 

The performance of the Board, its Committees and the Directors, including the Chairman, was reviewed by the Board on 26 August 2020, by means of an internal questionnaire. The Company Secretary collated the results of the questionnaires and the consolidated results were reviewed and discussed by the Board and by the Remuneration Committee. The Chairman reviewed each individual Director's contribution.

 

The 2020 evaluation concluded that:

 

· the performance of the Board, its committees, the Chairman and each of the Directors continues to be effective;

· Mr Hallam, Mr Legge and Mr Vakil are unanimously considered independent;

· all current Directors should be proposed for re-election at the 2021 AGM; and

· the Board was considered to have an appropriate mix of skills and experience.

 

The Board intends to conduct another internal board evaluation in August 2021, and will continue to review its procedures, its effectiveness and development in the year ahead.

 

The Directors noted that all three share classes were currently in harvest phase and agreed that, due to the position of the Company, it was not beneficial or necessary to incur the costs of an externally facilitated external evaluation. The Directors agreed that if the Company's life were extended, further consideration would be given to an externally facilitated evaluation and therefore agreed to keep this position under review.

 

The Remuneration and Nomination Committee (excluding John Hallam) led by the Chairman of the Remuneration and Nomination Committee reviewed the Chairman. It was agreed that the Chairman was well-regarded by the other Board members and that he provided excellent depth of knowledge of the Company. In addition, the Chairman has actively offered himself to meet with shareholders over the year.

 

Induction/Information and Professional Development

 

Directors are provided, on a regular basis, with key information on the Company's policies, regulatory requirements and its internal controls. Regulatory and legislative changes affecting Directors' responsibilities are advised to the Board as they arise along with changes to best practice by, amongst others, the Company Secretary and the Auditor. Advisers to the Company also prepare reports for the Board from time to time on relevant topics and issues. In addition, Directors attend relevant seminars and events to allow them continually to refresh their skills and knowledge and keep up with changes within the investment company industry. The Chairman reviewed the training and development needs of each Director during the annual Board evaluation process. The Chairman confirmed that all directors actively kept up to date with industry developments and issues.

 

Independent Advice

 

The Board recognises that there may be occasions when one or more of the Directors feels it is necessary to take independent legal advice at the Company's expense. A procedure is set out in the Directors' letters of appointment to enable them to do so.

 

Indemnities

 

To the extent permitted by the Law, the Company's Articles provide an indemnity for the Directors against any liability except such (if any) as they shall incur by or through their own breach of trust, breach of duty or negligence. Each Director has an Instrument of Indemnity with the Company.

 

During the year, the Company has maintained insurance cover for its Directors and Officers under a Directors' and Officers' liability insurance policy. 

 

Relationship with the Investment Manager, Company Secretary, Administrator and Sub-Administrator

 

All of the Company's management and administration functions are delegated to external parties including the management of the investment Portfolios, the custodial services (including the safeguarding of assets), the registration services and the day-to-day company secretarial, administration and accounting services. Each of these contracts was entered into after full and proper consideration by the Board of the quality and cost of services offered, including the control systems in operation in so far as they relate to the affairs of the Company. The Management Engagement Committee is responsible for the oversight of service providers.

 

The Board receives and considers reports regularly from the Investment Manager and ad hoc reports and information are supplied to the Board as required. With the Portfolios now in their harvest periods, the Investment Manager takes decisions as to the sale of individual investments. The Investment Manager, Company Secretary, Administrator and Sub-Administrator also ensure that all Directors receive, in a timely manner, all relevant management, regulatory and financial information. Representatives of the Investment Manager, Administrator and Sub-Administrator attend each Board meeting enabling the Directors to probe further into matters of concern.

 

The Directors have access to the advice and service of the corporate Company Secretary through its appointed representative who is responsible to the Board for ensuring that Board procedures are followed and that applicable rules and regulations are complied with. The Board, the Investment Manager, Company Secretary, the Administrator and Sub-Administrator operate in a supportive, co-operative and open environment.

 

Shareholder Engagement

 

The Board believes that the maintenance of good relations with shareholders is important for the long term prospects of the Company. It has, since admission, sought engagement with investors. Where appropriate, the Chairman, and other Directors are available for discussion about governance and strategy with major shareholders and the Chairman ensures communication of shareholders' views to the Board. The Board receives feedback on the views of shareholders from its Corporate Broker ("Broker") and the Investment Manager, and shareholders are welcome to contact the Directors at any time via the Company Secretary by email at: [email protected]

 

The Directors believe that the AGM provides an appropriate forum for shareholders to communicate with the Board and encourages participation. There is an opportunity for individual shareholders to question the Chairman of the Board, the Audit Committee, Management Engagement Committee, Remuneration Committee and Inside Information Committee at the AGM. The Board also welcomes the opportunity to meet with investors on a one-to-one basis, upon request.

 

The Board assesses the results of AGMs and will consider whether there is a significant number of votes not lodged in favour of a resolution. Where the Board considers that a significant number of votes have not been lodged in favour of a resolution, an immediate announcement will be made and further disclosures will be made in the next Annual Report. The Broker and the Investment Manager will seek feedback from investors. In addition to this the Broker and the Investment Manager will provide the Board with feedback that has been received from investors about the performance of the Company and the Investment Manager.

 

Key Stakeholder Groups

 

The Company identifies its key stakeholder groups as follows:

 

Shareholders

All Board decisions are made with the Company's success in mind, which is ultimately for the long-term benefit of our shareholders.

 

Service Providers

Our service providers' relationships are vital to our overall success, so as a Board we carefully consider the selection of, and engagement and continued relationship with our key service providers being the Investment Manager, Administrator, Custodian, Broker, Legal Advisers, Registrar, Auditor and Company Secretary.

 

The Board recognises the benefits of fostering strong business relationships with its key service providers and seeks to ensure each is committed to the performance of their respective duties to a high standard and, where practicable, that each provider is motivated to adding value within their sphere of activity.

 

The Board has delegated various duties to external parties including the management of the investment portfolio, the custodial services (including the safeguarding of assets), the registration services and the day-to-day company secretarial, administration and accounting services. Each of these contracts was entered into after full and proper consideration by the Board of the quality and cost of services offered, including the control systems in operation in so far as they relate to the affairs of the Company.

 

The Board continues to have regular face-to-face meetings with all key service providers.

 

Stakeholders and Section 172

 

Whilst directly applicable to UK domiciled companies, the intention of the AIC Code is that matters set out in section 172 of the UK Companies Act, 2006 are reported. The following disclosures offer some insight into how the Board uses its meetings as a mechanism for discharging its duties under Provision 5 of the AIC Code, including the breadth of matters it discussed and debated during the year and the key stakeholder groups that were central to those discussions. The Board's commitment to maintaining the high-standards of corporate governance recommended in the AIC Code, combined with the directors' duties enshrined in Company law, the constitutive documents, the Disclosure Guidance and Transparency Rules, and Market Abuse Regulation, ensures that shareholders are provided with frequent and comprehensive information concerning the Company and its activities via the Company's website and Regulatory Information Service ("RIS") announcements on the London Stock Exchange such as the quarterly factsheets. 

 

Each Board meeting follows a carefully tailored agenda agreed in advance by the Board and Company Secretary. A typical meeting will comprise reports on current financial and operational performance from the Administrator, market update from the Broker, portfolio performance from the Investment Manager, with regulatory and governance updates from the Company Secretary and where required, a detailed deep dive into an area of particular strategic importance or concern. Through oversight and control, we have in place suitable policies to ensure the Company maintains high standards of business conduct, treats customers fairly, and employ high standards of corporate governance.

 

Whilst the primary duty of the Directors is owed to the Company as a whole, the Board considers as part of its decision making process the interests of all stakeholders. Particular consideration being given to the continued alignment between the activities of the Company and those that contribute to delivering the Board's strategy, which include the Investment Manager, Administrator, and the Company Secretary.

 

The Annual Report, Key Information Documents and quarterly fact sheets are available to provide shareholders with a clear understanding of the Company's activities and its results. This information is supplemented by the daily calculation and publication via a Regulatory Information Service of the net asset value of the Company's Ordinary Shares, Extended Life Shares and New Global Shares. All documents issued by the Company can be viewed on the Company's website at www.nbddif.com .

 

The Board respects and welcomes the views of all stakeholders. Any queries or areas of concern regarding the Company's operations can be raised with the Company Secretary.

 

2021 AGM

 

The 2021 AGM will be held in Guernsey on 24 June 2021. The notice for the AGM will set out the ordinary and special resolutions to be proposed at the meeting. Separate resolutions are proposed for each substantive issue. Shareholders wishing to lodge questions in advance of the meeting and specifically related to the resolutions proposed are invited to do so by writing to the Company Secretary at the address given in the Additional Information section below.

 

Voting on all resolutions at the AGM will be on a poll. The proxy votes cast, including details of votes withheld are disclosed to those in attendance at the meeting and the results are published on the Company's website and announced via a Regulatory Information Service. Where a significant number of votes have been lodged against a proposed resolution (being greater than 20%), in accordance with the AIC Code published in February 2019, it is the Board's policy that the Board will identify those shareholders and further understand their views to address the concerns of the Company's shareholders. There were no significant votes cast against the resolutions proposed at the 2020 AGM.

 

COVID-19 and Stay at Home Measures

The Directors wish to reassure shareholders that the Company has considered the potential for impact on the AGM of the COVID-19 pandemic and restrictive measures in place as at the date of posting this Notice. At the time of writing, "stay at home" measures are in place in Guernsey and it is possible that restrictions around travel, both within and to and from the island, and public gatherings may remain in force on the scheduled date of the AGM, which could mean that it is not practicable to physically convene the AGM at the intended time and venue. The Board feels it is important to proceed with the AGM, noting that alternative practical arrangements may be required, such as an adjournment and possibly a change of time and venue. The Directors will continue to consider the latest instructions from relevant authorities in conjunction with guidance available from professional and regulatory bodies to ensure the AGM is held in accordance with its statutory requirements and with the Company's Articles. May we finally take this opportunity to encourage shareholders to use the online proxy appointment facilities, rather than requesting a paper proxy card, as in the current circumstances we cannot guarantee that there will be staff at the office of the Registrar to receive post.

 

Board Meetings

 

The Board meets at least four times a year. Certain matters are considered at all Board meetings including Portfolio composition and asset realisation strategy, capital repayments and income distributions by way of dividend, NAV and share price performance and associated matters such as asset allocation, risks, strategy, marketing and investor relations, peer group information and industry issues. Consideration is also given to administration and corporate governance matters, where applicable reports are received from Board committees.

 

Directors unable to attend a board meeting are provided with the board papers and can discuss issues arising in an informal meeting with the Chairman or another non-executive Director.

 

The Chairman is responsible for ensuring the Directors receive complete information in a timely manner concerning all matters which require consideration by the Board. Through the Board's ongoing shareholder engagement and the reports produced by each key service provider, the Directors are satisfied that sufficient information is provided so as to ensure such matters are taken into consideration as part of the Board's decision-making process.

 

Attendance at scheduled meetings of the Board and its committees in the 2020 financial year

 

 

Board

Audit Committee

MANAGEMENT Engagement Committee

Remuneration Committee

INSIDE INFORMATION COMMITTEE

Number of meetings during the year

5

3

1

1

1

John Hallam

5

n/a

1

1

1

Christopher Legge

5

3

1

1

1

Michael Holmberg

5

n/a

n/a

n/a

0

Stephen Vakil

5

3

1

1

1

 

In addition to these meetings, 8 ad-hoc board and board committee meetings were held during the year for various matters, primarily of an administrative nature including, but not limited to, distributions. These meetings were attended by those Directors available at the time.

 

Board Committees

 

The Board has established an Audit Committee, Management Engagement Committee, Remuneration Committee and an Inside Information Committee with defined terms of reference and duties. Further details of these committees can be found in their respective reports below.

The terms of reference for each committee can be found on the Company's website at www.nbddif.com .

 

The Board feels that due to the size and structure of the Company, establishing a Nomination Committee is unnecessary and that the Board as a whole will consider matters relating to appointment of Directors.

 

For and on behalf of the Board.

 

 

John Hallam                                                             Christopher Legge

Chairman                                                                 Director

14 April 2021     14 April 2021

 

 

GOVERNANCE | Audit Committee Report

 

Audit Committee Report

 

Membership

 

Christopher Legge - Chairman  (Independent non-executive Director)

Stephen Vakil  (Senior Independent non-executive Director)

 

 

Key Objectives

 

The Audit Committee aims to ensure effective governance over the appropriateness of the Company's financial reporting including the adequacy of related disclosures, the performance of the external auditor, and the management of the Company's systems of internal controls and business risks.

 

Responsibilities

 

· reviewing the Company's financial results announcements and Financial Statements and monitoring compliance with relevant statutory and listing requirements;

· reporting to the Board on the appropriateness of the Company's accounting policies and practices including critical accounting policies and practices;

· advising the Board on whether the Audit Committee believes the Annual Report and Financial Statements, taken as a whole, is fair, balanced and understandable and provides the information necessary for shareholders to assess the Company's performance, business model and strategy;

· overseeing the relationship with the external auditor;

· considering the financial and other implications of the independence of the auditors arising from any non-audit services to be provided by the auditor;

· reviewing the effectiveness of the Company's risk management framework, taking into account the reports on the internal controls of the Company's service providers;

· considering the nature and extent of the significant risks the Company faces in achieving its strategic objectives; and

· compiling a report on the Audit Committee's activities to be included in the Company's Annual Report.

 

Audit Committee Meetings

 

The Audit Committee meets at least three times a year with only its members and the Audit Committee Secretary having the right to attend. However, other Directors and representatives of the Investment Manager and Administrator will be invited to attend such meetings on a regular basis and other non-members may be invited to attend all or part of the meeting as and when appropriate and necessary. The Company's independent auditor, KPMG Channel Islands Limited ("KPMG"), is also invited on a regular basis.

 

The Audit Committee determines, in conjunction with KPMG, whether it is necessary for it to meet the auditors without the Investment Manager or other service providers being present.

 

Main Activities during the year

 

The Audit Committee assisted the Board in carrying out its responsibilities in relation to financial reporting requirements, risk management and the assessment of internal controls. It also manages the Company's relationship with the external auditor. Meetings of the Committee generally take place prior to a Company Board meeting. The Audit Committee reports to the Board as part of a separate agenda item on its activities and matters of particular relevance to Board members in the conduct of their work.

 

The Board requested that the Audit Committee advise them on whether it believes the Annual Report, taken as a whole, is fair, balanced and understandable and provides the information necessary for shareholders to assess the Company's performance, business model and strategy and the Audit Committee confirmed this to be the case.

 

The Audit Committee's terms of reference were updated during the year and can be found on the Company's website www.nbddif.com .

 

At its four meetings during the year, the Committee focused on:

 

Financial Reporting

 

The primary role of the Audit Committee in relation to financial reporting is to review with the Investment Manager, Administrator and the external auditor the appropriateness of the Annual Financial Statements concentrating on, amongst other matters:

 

· the quality and acceptability of accounting policies and practices;

· the clarity of the disclosures and compliance with financial reporting standards and relevant financial and governance reporting requirements;

· material areas in which significant judgements have been applied or there has been discussion with the external auditor;

· the viability of the Company, taking into account the principal and emerging risks it faces;

· whether the Annual Report and Financial Statements, taken as a whole, is fair, balanced and understandable and provides the information necessary for shareholders to assess the Company's performance, business model and strategy; and

· any correspondence from regulators in relation to financial reporting.

 

To aid its review, the Audit Committee considered reports from the Investment Manager, Administrator, Sub-Administrator, Company Secretary and also reports from the external auditor on the outcomes of their half-year review and annual audit.

 

The members of the Audit Committee had meetings with KPMG, where their findings in respect of both the Interim Review and the Annual Audit were reported.

 

Significant Issues

 

In relation to the Annual Report and Financial Statements for the year ended 31 December 2020, the significant issue considered by the Audit Committee was the valuation of the Company's investments.

 

The Committee received a report from the Investment Manager on the valuation of the Portfolios and on the assumptions used in valuing the Portfolios. It analysed the investment Portfolios of the Company in terms of investment mix, fair value hierarchy and valuation and held detailed discussions with the Investment Manager regarding the methodology and procedures used in valuing the Portfolios.

 

The Committee discussed in depth with KPMG their approach to testing the appropriateness and robustness of the valuation methodology applied by the Investment Manager to the Company's Portfolios. KPMG did not report any significant differences between the valuations used by the Company and the results of the work performed during their testing process. Based on their above review and analysis the Audit Committee confirmed that it is satisfied with the valuation of the investments.

 

Internal Controls and Risk Management

 

The Audit Committee has established a process for identifying, evaluating and managing any major risks faced by the Company. The process is subject to regular review by the Board and accords with the AIC Code.

 

The Audit Committee has overall responsibility for the Company's system of internal financial and operating controls and for reviewing its effectiveness. However, such a system is designed to manage rather than eliminate risks of failure to achieve the Company's business objectives and can only provide reasonable and not absolute assurance against material misstatement or loss.

 

The Board has undertaken a full review of the Company's business risks, which have been analysed and recorded in a risk matrix, which is updated regularly and is formally reviewed at each quarterly Board meeting. The Board receives, each quarter, a formal report from the Investment Manager which details the steps taken to monitor and manage the areas of risk including those that are not directly the responsibility of the Investment Manager and which reports the details of any known internal control failures. 

 

The Company itself does not have an internal audit function, but instead relies on the internal audit functions and departments of the Investment Manager. The Committee was satisfied that this function provided significant control to help mitigate the risks to the Company.

 

In addition, the Audit Committee annually receives and reviews Internal Controls reports from independent sources, in respect of the Administrator, Sub-Administrator, Registrar, Custodian and Investment Manager. 

 

The Investment Manager has established an internal control framework to provide reasonable but not absolute assurance on the effectiveness of the internal controls operated on behalf of its clients. The effectiveness of the internal controls is assessed by the Investment Manager's compliance and risk department on an ongoing basis.

 

The Board's assessment of the Company's principal risks is set out in the Strategic Report above.

 

By means of the procedures set out above, the Audit Committee confirms that it has reviewed the effectiveness of the Company's system of internal controls for the year ended 31 December 2020 and to the date of approval of this Annual Report and that no concerns have been noted.

 

External Audit

 

The effectiveness of the external audit process is dependent on appropriate audit risk identification at the start of the audit cycle. The Audit Committee received a detailed audit plan from KPMG, identifying their assessment of these significant risks. For the 2020 financial year the significant risk identified was in relation to the valuation of investments. This risk is tracked through the year and the Committee has considered the work done by the auditor to challenge management's assumptions and estimates around these areas. The Committee has assessed the effectiveness of the audit process in addressing these matters through the reports received from KPMG at both the half-year and year end. In addition, the Committee has sought feedback from the Investment Manager , the Administrator and Sub-administrator on the effectiveness of the audit process. For the 2020 financial year the Committee is satisfied that there had been appropriate focus and challenge on the primary areas of audit risk and assessed the quality of the audit process to be appropriate.

 

The Audit Committee considers the re-appointment of the external auditor, including the rotation of the audit partner, and assesses their independence on an annual basis. The external auditor is required to rotate the audit partner responsible for the Company audit every five years. The Company's current audit partner, Barry Ryan, took over the role as lead audit engagement partner in 2019.

 

KPMG has been the Company's external auditor since its stock exchange listing in 2010 (10 years). The Company has not formally tendered the audit since then. The Audit Committee would normally consider putting the Company's audit out to tender at least every ten years (with the maximum duration of a continuous audit engagement being twenty years) and has given consideration to doing so this coming year. However it concluded that, given the current expectation of the wind down of the Company share classes, it was not in the best interests of the Company to do so.

 

In its assessment of the independence of the auditor, the Audit Committee receives details of any relationships between the Company and KPMG that may have a bearing on their independence and receives confirmation from them that they are independent of the Company.

 

The Audit Committee approved the fees for audit services for 2020 after a review of the level and nature of work to be performed. The Board was satisfied that the fees were appropriate for the scope of the work required.

 

Non-Audit Services

 

To safeguard the objectivity and independence of the external auditor from becoming compromised, the Audit Committee has a policy governing the engagement of the external auditor to provide non-audit services. The Committee made amendments to this policy in April 2017 in order to voluntarily adopt certain provisions of the FRC's Revised Ethical Standard 2016 relating to non-audit services as it applies to E.U. public interest entities. In 2020, in light of the life cycle of the Company, the Audit Committee recommended to the Board that the policy in respect to non-audit services be updated to remove the provision of a cap on non-audit services of 70% of the average of the audit fees in the last three years and the Board approved the updated policy. The Audit Committee must be advised by the commissioning entity/person, and by the audit firm, of all assignments undertaken by the external auditors that fall within the pre-approved categories as soon as practicable.

 

All non-audit services require prior approval by the Audit Committee. In respect of each calendar year the Audit Committee monitors the provision of non-audit services by receiving at least half yearly a list of the non-audit services provided (and expected to be provided) by the external auditor in that calendar year, and the fees involved, so that the Audit Committee can consider the impact on auditors' objectivity. The Audit Committee's policy on the Independence of External Auditor (including the provision of non-audit services) is available on its website at www.nbddif.com .

 

Auditor's Remuneration 

 

31 December 2020

 

(£)

Audit

170,000

Taxation 1 compliance & consulting services

67,000

Audit related services (review of interim report)

33,000

Total   

270,000

 

1 with effect from 1 January 2021, taxation compliance and consulting services will be provided by PricewaterhouseCoopers LLP.

 

Appointment and Independence

 

The Committee noted that for the year ended 31 December 2020 non-audit fees did not exceed audit fees.

 

In light of the growing focus on non-audit fees the Committee has enhanced its scrutiny to ensure that it is comfortable, on an ongoing basis that the nature of the non-audit work commissioned does not impinge on audit independence. The Committee did not consider that tax compliance and tax consultancy services undertaken in 2020 presented a conflict as the services provided were all assessed as permissible prior to the commencement of the work and did not impact the audit work performed by the audit team.

 

The Investment Manager has responsibility for preparing and approving all tax calculations and tax returns. The output is not relied upon by the audit team and the performance of these services is led by a tax partner who is independent of the audit team. Those tax services are subject to separate terms of engagement to that of the audit engagement.

 

The Audit Committee has therefore recommended to the Board that KPMG be reappointed as external auditor for the year ended 31 December 2020, and to authorise the Directors to determine their remuneration. Accordingly, a resolution proposing the reappointment of KPMG as the Company's auditor will be put to the shareholders at the 2021 AGM on 24 June 2021.

 

There are no contractual obligations restricting the Committee's choice of external auditor and the Company does not indemnify the external auditor.

 

The Committee's activities formed part of the Board evaluation performed in the year. Details of this process can be found under "Performance evaluation" above. The Committee was satisfied that it had undertaken its duties efficiently and effectively.

 

 

Christopher Legge

On behalf of the Audit Committee

14 April 2021

 

 

GOVERNANCE | Management Engagement Committee Report

Management Engagement Committee Report

 

Membership

 

Stephen Vakil - Chairman  (Senior Independent non-executive Director)

John Hallam                                                            (Chairman of the Company and Independent non-executive Director)

Christopher Legge                                                        (Independent non-executive Director)

 

Key Objectives

 

To review performance of all service providers (including the Investment Manager).

 

Responsibilities

 

· To review annually the performance, relationships and contractual terms of all service providers (including the Investment Manager);

· Review and make recommendations on any proposed amendment to the Investment Manager Agreement ("IMA");

· To review the performance of, and contractual arrangements with the Investment Manager including:

Monitor and evaluate the Investment Manager's performance and, if necessary, provide appropriate guidance;

To consider whether an independent appraisal of the Investment Manager's services should be made;

To review the level and method of remuneration and notice period, using peer group comparisons (where available); and

To ensure that the Investment Manager has a sound system of risk management and internal controls and that these are maintained to safeguard shareholders' investment and the Company's assets.

 

Committee Meetings

 

Only members of the Management Engagement Committee and the Secretary have the right to attend Committee meetings. However, representatives of the Investment Manager and Administrator may be invited by the Committee to attend meetings as and when appropriate.

 

Main Activities during the year

 

The Management Engagement Committee met once during the year and reviewed performance, standard and value for money of the Company's service providers and the Investment Manager. The Management Engagement Committee reviewed the contractual terms, disaster recovery and business continuity arrangements, information security arrangements, details of anti-bribery and corruption policies, anti-facilitation of tax evasion policies, and the level of professional indemnity insurance of all service providers as at 24 November 2020, including the Investment Manager. On 13 September 2020, Jefferies International Limited was appointed as corporate broker.

 

The Management Engagement Committee reviewed the Terms of Reference for the Committee and considered that they remained appropriate.

 

Continued Appointment of the Investment Manager and Other Service Providers

 

The Board reviews investment performance at each Board meeting and the performance of the Company's service providers are reviewed annually as part of the Management Engagement Committee's annual review.

 

Taking into consideration supplementary guidance issued by the AIC in 2020 which described certain measures by which investment companies may assess the relationship with the manager, in November 2020 the Board undertook an enhanced qualitative assessment of the performance of the Investment Manager. The feedback from this assessment confirmed that the Investment Manager's focus remained on the performance of their core duties, and that there existed a high level of congruence between the duties of the Investment Manager and the objectives of the Company. The Board does not consider it necessary to obtain an independent appraisal of the Investment Manager's services.

 

Continued Appointment of the Investment Manager and Other Service Providers (continued)

 

As a result of the 2020 annual review it is the opinion of the Directors that the continued appointment of the current service providers, including the Investment Manager, on the terms agreed is in the best interests of the Company's shareholders as a whole. The Investment Manager has extensive investment management resources and wide experience in managing investment companies.

 

 

Stephen Vakil

On behalf of the Management Engagement Committee

14 April 2021

 

 

GOVERNANCE | Inside Information Committee Report

Inside Information Committee Report

 

Membership

 

John Hallam  (Chairman of the Company and Independent non-executive Director)

Michael Holmberg  (non-executive Director)

Christopher Legge                                 (Independent non-executive Director)

Stephen Vakil  (Senior Independent non-executive Director)

 

Key Objectives

 

To identify inside information and monitor the disclosure and control of inside information.

 

Responsibilities

 

· Identify inside information as it arises;

· Review and prepare project insider lists as required; and

· Consider the need to announce or to delay the announcement of inside information.

 

Committee Meetings

 

Only members of the Inside Information Committee and the Secretary have the right to attend Inside Information Committee meetings. However, representatives of the Investment Manager and Administrator may be invited by the Inside Information Committee to attend meetings as and when appropriate.

 

Main Activities During the year

 

The Inside Information Committee met once in the year on 25 February 2020 and the Inside Information Committee reviewed its Terms of Reference, the Company's policies and procedures for inside information and personal dealing. There was no update made on the Inside Information Committee's terms of reference in 2020 and it was agreed that the policies and procedures remained relevant and accurate.

 

There were no delays to the disclosure of information during the year.

 

 

John Hallam

On behalf of the Inside Information Committee

14 April 2021

  

 

GOVERNANCE | Remuneration Committee Report

Remuneration Committee Report

 

Membership

 

Stephen Vakil - Chairman              (Senior Independent non-executive Director)

John Hallam  (Chairman of the Company and Independent non-executive Director)

Christopher Legge  (Independent non-executive Director)

 

Key Objectives

 

To review the ongoing appropriateness and relevance of the Company's remuneration policy.

 

Responsibilities

 

· Determine the remuneration of the Directors;

· Prepare an Annual Report on Directors' remuneration;

· Consider the need to appoint external remuneration consultants; and

· Oversee the performance evaluation of the Board; its committees and individual directors.

 

Committee Meetings

 

Only members of the Remuneration Committee and the Secretary have the right to attend Remuneration Committee meetings. However, representatives of the Investment Manager and Administrator may be invited by the Remuneration Committee to attend meetings as and when appropriate.

 

Main Activities During the year

 

The Remuneration Committee met once during the year and reviewed the Director's remuneration. The Remuneration Committee's terms of reference were updated during the year and can be found on the Company's website www.nbddif.com .

 

The Remuneration Committee considered the Directors' Remuneration and agreed that the current policy remained appropriate.

 

A detailed Directors' Remuneration report to shareholders from the Remuneration Committee is contained below.

 

 

Stephen Vakil

On behalf of the Remuneration Committee

14 April 2021

 

 

GOVERNANCE | Directors' Remuneration Report

Directors' Remuneration Report

 

Annual Statement

 

The following report describes how the Board has applied the principles relating to Directors' remuneration. An ordinary resolution to ratify this report will be proposed at the AGM to be held on 24 June 2021. 

 

Directors' Fees

 

The Company paid the following fees to the Directors for the year ended 31 December 2020:

 

 

 

Role

TOTAL Board Fees ($)

TOTAL Board Fees (£)

John Hallam

Chairman 

60,000

10,000

Michael Holmberg1

non-executive Director

-

-

Christopher Legge

non-executive Director and Chairman of the Audit Committee

50,000

10,000

Stephen Vakil

 

non-executive Director, Chairman of the Remuneration Committee and Chairman of Management Engagement Committee

45,000

10,000

Total

 

155,000

30,000

 

The Company paid the following fees to the Directors for the year ended 31 December 2019:

 

 

 

Role

TOTAL Board Fees ($)

TOTAL Board Fees (£)

John Hallam

Chairman 

60,000

10,000

Michael Holmberg1

non-executive Director

-

-

Christopher Legge

non-executive Director and Chairman of the Audit Committee

50,000

10,000

Christopher Sherwell2

non-executive Director

45,000

10,000

Stephen Vakil

 

non-executive Director, Chairman of the Remuneration Committee and Chairman of Management Engagement Committee

45,000

10,000

Total

 

200,000

40,000

 

1 Michael Holmberg has waived his right to Director fees.

2 Christopher Sherwell stepped down as a Director on 31 December 2019.

 

No other remuneration was paid or payable by the Company during the year to any of the Directors, other than travel expenses of $1,056 (2019: $1,318).

 

Remuneration Policy

 

The determination of the Directors' fees is a matter dealt with by the Board. The Board considers the remuneration policy annually to ensure that it remains appropriately positioned. The Board reviewed the fees paid to the boards of similar investment companies. No Director is involved in decisions relating to his or her own remuneration.

 

No Director has a service contract with the Company and Director's appointments may be terminated at any time with no compensation payable at termination.

 

The Company's policy is for the Directors to be remunerated in the form of fees, payable quarterly in arrears. No Director has any entitlement to a pension and the Company has not awarded any share options or long-term performance incentives to any of the Directors. No element of the Directors' remuneration is performance related.

 

Directors are authorised to claim reasonable expenses from the Company in relation to the performance of their duties. The Company's policy is that the fees payable to the Directors should reflect the time spent by the Board on the Company's affairs and the responsibilities borne by the Directors and should be sufficient to enable high calibre candidates to be recruited. The policy is for the Chairman of the Board and Chairman of the Audit Committee to be paid a higher fee than the other Directors in recognition of their more onerous roles and additional time spent performing their duties. The Board may amend the level of remuneration paid within the limits of the Company's Articles. In 2017, the Board recognised that its remuneration policy needed to be reviewed to reflect the changing status of the Company as the existing Portfolios are realised as follows:

 

 

 

Company Fee (USD)

 

NBDD Fee (USD)

 

NBDX Fee (USD)

 

NBDG Fee (GBP)

 

Total

(USD)

 

Total

(GBP)

Chairman

40,000

10,000

10,000

10,000

60,000

10,000

Audit Committee Chairman

30,000

10,000

10,000

10,000

50,000

10,000

Other Directors

25,000

10,000

10,000

10,000

45,000

10,000

 

Directors' Fees Policy

 

Objective

 

Operation

Maximum Potential Value

Performance Metrics Used

To recognise time spent and the responsibilities borne and to attract high calibre candidates who have the necessary experience and skills.

Directors' fees are set by the Board.

 

Annual fees are paid quarterly in arrears.

 

Fees are reviewed annually and against those for Directors in companies of similar scale and complexity.

 

Fees were last reviewed in November 2020. 

 

Directors do not receive benefits and do not participate in any incentive or pension plans.

Current fee levels are shown in the remuneration report.

 

 

Directors are not remunerated based on performance and are not eligible to participate in any performance related arrangements.

 

Service Contracts and Policy on Payment of Loss of Office

 

The Directors' appointments are not subject to any duration or limitation. Any Director may resign in writing at any time. Directors' appointments are reviewed during the annual Board evaluation. No Director has a service contract with the Company. Directors have agreed letters of appointment with the Company. 

 

As detailed in the Corporate Governance Report above, all of the independent non-executive Directors are re-elected at the first AGM after their appointment and are then subject to annual re-election. The names and biographies of the Directors holding offices at the date of this report are listed in the Directors' Report above. 

 

Dates of Directors' Letters of Appointment

 

Copies of the Directors' letters of appointment are available for inspection by shareholders at the Company's Registered Office and will be available at the AGM. The dates of their letter of appointments are shown below.

 

 

Date of Letter of Appointment

John Hallam

20 April 2010 (amended on 8 May 2018)

Michael Holmberg

21 April 2010 (amended on 22 August 2018)

Stephen Vakil

5 February 2016 (amended on 8 May 2018)

Christopher Legge

17 April 2018

 

Directors' Interests

 

The Company has not set any requirements or guidelines for Directors to own shares in the Company. The beneficial interests of the Directors and their connected persons in the Company's shares at 8 March 2021 are shown in the table below:

 

 

Director

No. of Ordinary Shares

No. of Extended Life Shares

No. of New Global Shares

Total No. of

Shares

John Hallam

-

73,753

49,450

123,203

Michael Holmberg

-

32,563

51,698

84,261

Christopher Legge

-

-

-

-

Stephen Vakil

-

-

26,974

26,974

 

Advisors to the Remuneration Committee

 

The Remuneration Committee has not sought the paid advice or professional services by any outside person in respect of its consideration of the Directors' remuneration. The Remuneration Committee sought input from Neuberger Berman Europe Limited ("NBEL") and the Brokers during its deliberations of the remuneration policy.

 

 

Stephen Vakil 

On behalf of the Remuneration Committee

14 April 2021  

 

 

GOVERNANCE | Directors' Responsibilities Statement

Statement of Directors' responsibilities in respect of the Annual Report and the Financial Statements

The directors are responsible for preparing the Annual Report and financial statements in accordance with applicable law and regulations. 

Company law requires the directors to prepare financial statements for each financial year.  Under that law they are required to prepare the financial statements in accordance with accounting principles generally accepted in the United States of America and applicable law.

Under company law the directors must not approve the financial statements unless they are satisfied that they give a true and fair view of the state of affairs of the Company and of its profit or loss for that period.  In preparing these financial statements, the directors are required to:

 

· select suitable accounting policies and then apply them consistently; 

· make judgements and estimates that are reasonable, relevant and reliable; 

· state whether applicable accounting standards have been followed, subject to any material departures disclosed and explained in the financial statements; and 

· assess the Company's ability to continue as a going concern, disclosing, as applicable, matters related to going concern; and 

· use the going concern basis of accounting unless liquidation is imminent.

The directors confirm that they have complied with the above requirements in preparing the financial statements.

The directors are responsible for keeping proper accounting records that are sufficient to show and explain the Company's transactions and disclose with reasonable accuracy at any time the financial position of the Company and enable them to ensure that its financial statements comply with the Companies (Guernsey) Law, 2008.  They are responsible for such internal control as they determine is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error, and have general responsibility for taking such steps as are reasonably open to them to safeguard the assets of the Company and to prevent and detect fraud and other irregularities. 

The directors of the Company have elected to prepare consolidated financial statements for the Company for the year ended 31 December 2020 as the parent of the Group in accordance with Section 244(5) of the Law.

The directors are responsible for the maintenance and integrity of the corporate and financial information included on the company's website.  Legislation in Guernsey governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions. 

The directors who hold office at the date of approval of this Director's Report confirm that so far as they are aware, there is no relevant audit information of which the Company's auditor is unaware, and that each Director has taken all the steps they ought to have taken as a director to make themselves aware of any relevant audit information and to establish that the Company's auditor is aware of that information.

 

Responsibility statement of the directors in respect of the Annual Report  

We confirm that to the best of our knowledge:

 

· the financial statements, prepared in accordance with the applicable set of accounting standards, give a true and fair view of the assets, liabilities, financial position and profit or loss of the company; and 

· the Annual Report includes a fair review of the development and performance of the business and the position of the issuer, together with a description of the principal risks and uncertainties that they face. 

We consider the Annual Report and accounts, taken as a whole, is fair, balanced and understandable and provides the information necessary for shareholders to assess the Company's position and performance, business model and strategy.

  

 

John Hallam                                                           Christopher Legge

Chairman  Director

14 April 2021                                                                                             14 April 2021

 

 

GOVERNANCE | Independent Auditor's Report 

Independent Auditor's Report to the Members of NB Distressed Debt Investment Fund Limited  

 

Our opinion is unmodified

 

We have audited the consolidated financial statements of NB Distressed Debt Investment Fund Limited (the "Company") and its subsidiaries (together, the "Group"), which comprise the consolidated statement of assets and liabilities including the consolidated condensed schedule of investments as at 31 December 2020, the consolidated statements of operations, changes in net assets and cash flows for the year then ended, and notes, comprising significant accounting policies and other explanatory information.

In our opinion, the accompanying consolidated financial statements:

· give a true and fair view of the financial position of the Group as at 31 December 2020, and of the Group's financial performance and cash flows for the year then ended;

· are prepared in conformity with U.S. generally accepted accounting principles; and

· comply with the Companies (Guernsey) Law, 2008.

Basis for opinion

 

We conducted our audit in accordance with International Standards on Auditing (UK) ("ISAs (UK)") and applicable law. Our responsibilities are described below. We have fulfilled our ethical responsibilities under, and are independent of the Company and Group in accordance with, UK ethical requirements including FRC Ethical Standards, as applied to listed entities. We believe that the audit evidence we have obtained is a sufficient and appropriate basis for our opinion.

Key audit matters: our assessment of the risks of material misstatement

 

Key audit matters are those matters that, in our professional judgment, were of most significance in the audit of the consolidated financial statements and include the most significant assessed risks of material misstatement (whether or not due to fraud) identified by us, including those which had the greatest effect on: the overall audit strategy; the allocation of resources in the audit; and directing the efforts of the engagement team. These matters were addressed in the context of our audit of the consolidated financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters.  In arriving at our audit opinion above, the key audit matter was as follows (unchanged from 2019):

                                                                  The risk:                                                          Our response     

Valuation of Investments at fair value ("Investments")

$96,283,120; (2019: $192,864,208)

Refer to the Audit Committee Report above, the Consolidated Schedule of Investments below, Note 2 Summary of Accounting policies and note 2(f) Fair Value of Financial Instruments

 

Basis:

The Group's investment portfolio is carried at fair value in conformity with US generally accepted accounting principles. It represents a significant proportion (89% (2019: 97%)), and is the principal driver, of the Group's net asset value.

The Group's holdings in unquoted equity and debt investments and quoted equity and debt investments, representing 36% of the fair value of investments, are valued at their bid price using broker quotes (including use of single broker quotes) or third party pricing service providers (the "Price Quotes").

Where no Price Quotes are available or they may not be representative of fair value, the Group will utilise the resources of the Investment Manager to augment its own fair value analysis

Our audit procedures included:

Control evaluation:

We assessed the design and implementation of the control in place over the valuation of Investments.

Challenging managements' assumptions and inputs including use of KPMG valuation specialists:

For investments where market quotes were available, we obtained prices from third party data sources and pricing vendors. We assessed their reliability through checking the frequency of the pricing, the number of independent quotes available and the range of the quoted prices, in order to derive an independent reference price.

 

 

to determine the most appropriate fair value for such investments (the "Internally Generated Valuations"). 64% of the fair value of Investments were valued using Internally Generated Valuations.

Risk :

The valuation of the Group's investments is considered a significant area of our audit, given that it represents the majority of the net assets of the Group.

The valuation risk for both the Internally Generated Valuations and single broker quoted investment valuations incorporate both a risk of fraud and error given the significance of estimates and judgments that may be involved in the determination of fair value.

For a selection of the Internally Generated Valuations and single broker quoted investments, chosen on the basis of their fair value, we performed, as applicable, the following procedures with the support of our KPMG valuation specialists:

· We assessed the appropriateness of the valuation approach and methodology applied to each investment and where relevant, derived an independent reference price;

· We compared the assumptions used in the valuation to observable market data or supporting documentation;

· We corroborated significant inputs used to supporting documentation; and

· We assessed the effect of the investee entity's financial performance upon the fair value.

Assessing disclosures:

We also considered the Group's disclosures (Note 2(b)) in relation to the use of estimates, the Group's valuation of investments policies (Note 2(f)) and fair value of financial instruments (Note 2(f)) for compliance with US generally accepted accounting principles.

 

 Our application of materiality and an overview of the scope of our audit

 

Materiality for the consolidated financial statements as a whole was set at $2,160,000, determined with reference to a benchmark of Group net assets of $108,429,859 of which it represents approximately 2.0% (2019: 2.0%).

In line with our audit methodology, our procedures on individual account balances and disclosures were performed to a lower threshold, performance materiality, so as to reduce to an acceptable level the risk that individually immaterial misstatements in individual account balances add up to a material amount across the consolidated financial statements as a whole. Performance materiality for the Group was set at 75% (2019: 75%) of materiality for the consolidated financial statements as a whole, which equates to $1,620,000. We applied this percentage in our determination of performance materiality because we did not identify any factors indicating an elevated level of risk.

We reported to the Audit Committee any corrected or uncorrected identified misstatements exceeding $108,000, in addition to other identified misstatements that warranted reporting on qualitative grounds. 

Our audit of the Group was undertaken to the materiality level specified above, which has informed our identification of significant risks of material misstatement and the associated audit procedures performed in those areas as detailed above. 

The group team performed the audit of the Group as if it was a single aggregated set of financial information. The audit was performed using the materiality level set out above and covered 100% of total Group net decrease in net assets resulting from operations and total Group assets and liabilities.

Going concern

 

The directors have prepared the consolidated financial statements on the going concern basis as they do not intend to liquidate the Group or the Company or to cease their operations, and as they have concluded that the Group and the Company's financial position means that this is realistic. They have also concluded that there are no material uncertainties that could have cast significant doubt over their ability to continue as a going concern for at least a year from the date of approval of the consolidated financial statements (the "going concern period").

In our evaluation of the directors' conclusions, we considered the inherent risks to the Group and the Company's business model and analysed how those risks might affect the Group and the Company's financial resources or ability to continue operations over the going concern period. The risk that we considered most likely to affect the Group and the Company's financial resources or ability to continue operations over this period was availability of capital to meet operating costs and other financial commitments.

We considered whether this risk could plausibly affect the liquidity in the going concern period by comparing severe, but plausible downside scenarios that could arise from this risk against the level of available financial resources indicated by the Company's financial forecasts.

We considered whether the going concern disclosure in note 2(a) to the financial statements gives a full and accurate description of the directors' assessment of going concern.

Our conclusions based on this work:

· we consider that the directors' use of the going concern basis of accounting in the preparation of the consolidated financial statements is appropriate;

· we have not identified, and concur with the directors' assessment that there is not, a material uncertainty related to events or conditions that, individually or collectively, may cast significant doubt on the the Group and the Company's ability to continue as a going concern for the going concern period; and

· we found the going concern disclosure in the notes to the consolidated financial statements to be acceptable.

However, as we cannot predict all future events or conditions and as subsequent events may result in outcomes that are inconsistent with judgements that were reasonable at the time they were made, the above conclusions are not a guarantee that the Group and the Company will continue in operation.

Fraud and breaches of laws and regulations - ability to detect

Identifying and responding to risks of material misstatement due to fraud

 

To identify risks of material misstatement due to fraud ("fraud risks") we assessed events or conditions that could indicate an incentive or pressure to commit fraud or provide an opportunity to commit fraud. Our risk assessment procedures included:

· enquiring of management as to the Group's policies and procedures to prevent and detect fraud as well as enquiring whether management have knowledge of any actual, suspected or alleged fraud;

· reading minutes of meetings of those charged with governance; and

· using analytical procedures to identify any unusual or unexpected relationships.

 

As required by auditing standards, and taking into account possible incentives or pressures to misstate performance and our overall knowledge of the control environment, we perform procedures to address the risk of management override of controls, in particular the risk that management may be in a position to make inappropriate accounting entries, and the risk of bias in accounting estimates such as valuation of single broker quoted investments and Internally Generated Valuations.

On this audit we do not believe there is a fraud risk related to revenue recognition because the Group's revenue streams are simple in nature with respect to accounting policy choice, and are easily verifiable to external data sources or agreements with little or no requirement for estimation from management. We did not identify any additional fraud risks.

We performed procedures including:

· identifying journal entries and other adjustments to test based on risk criteria and comparing the identified entries to supporting documentation;

· incorporating an element of unpredictability in our audit procedures; and

· assessing significant accounting estimates for bias

Further detail in respect of valuation of single broker quoted investments and Internally Generated Valuations is set out in the key audit matter section of in this report.

Identifying and responding to risks of material misstatement due to non-compliance with laws and regulations

 

We identified areas of laws and regulations that could reasonably be expected to have a material effect on the consolidated financial statements from our general commercial and sector experience and through discussion with management (as required by auditing standards), and from inspection of the Group's regulatory and legal correspondence, and discussed with management the policies and procedures regarding compliance with laws and regulations. As the Group is regulated, our assessment of risks involved gaining an understanding of the control environment including the entity's procedures for complying with regulatory requirements.

The Group is subject to laws and regulations that directly affect the consolidated financial statements including financial reporting legislation and taxation legislation and we assessed the extent of compliance with these laws and regulations as part of our procedures on the related financial statement items.

The Group is subject to other laws and regulations where the consequences of non-compliance could have a material effect on amounts or disclosures in the consolidated financial statements, for instance through the imposition of fines or litigation or impacts on the Group and the Company's ability to operate. We identified financial services regulation as being the area most likely to have such an effect, recognising the regulated nature of the Group's activities and its legal form. Auditing standards limit the required audit procedures to identify non-compliance with these laws and regulations to enquiry of management and inspection of regulatory and legal correspondence, if any. Therefore if a breach of operational regulations is not disclosed to us or evident from relevant correspondence, an audit will not detect that breach.

Context of the ability of the audit to detect fraud or breaches of law or regulation

 

Owing to the inherent limitations of an audit, there is an unavoidable risk that we may not have detected some material misstatements in the consolidated financial statements, even though we have properly planned and performed our audit in accordance with auditing standards. For example, the further removed non-compliance with laws and regulations is from the events and transactions reflected in the consolidated financial statements, the less likely the inherently limited procedures required by auditing standards would identify it. 

In addition, as with any audit, there remains a higher risk of non-detection of fraud, as this may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal controls. Our audit procedures are designed to detect material misstatement. We are not responsible for preventing non-compliance or fraud and cannot be expected to detect non-compliance with all laws and regulations.

Other information

 

The directors are responsible for the other information. The other information comprises the information included in the annual report but does not include the consolidated financial statements and our auditor's report thereon. Our opinion on the consolidated financial statements does not cover the other information and we do not express an audit opinion or any form of assurance conclusion thereon.

In connection with our audit of the consolidated financial statements, our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the consolidated financial statements or our knowledge obtained in the audit, or otherwise appears to be materially misstated. If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report in this regard.

We have nothing to report on other matters on which we are required to report by exception

 

We have nothing to report in respect of the following matters where the Companies (Guernsey) Law, 2008 requires us to report to you if, in our opinion:

· the Company has not kept proper accounting records; or

· the consolidated financial statements are not in agreement with the accounting records; or

· we have not received all the information and explanations, which to the best of our knowledge and belief are necessary for the purpose of our audit.

 

Respective responsibilities

 

Directors' responsibilities

 

As explained more fully in their statement set out above, the directors are responsible for: the preparation of the consolidated financial statements including being satisfied that they give a true and fair view; such internal control as they determine is necessary to enable the preparation of consolidated financial statements that are free from material misstatement, whether due to fraud or error; assessing the Group and Company's ability to continue as a going concern, disclosing, as applicable, matters related to going concern; and using the going concern basis of accounting unless liquidation is imminent.

Auditor's responsibilities

 

Our objectives are to obtain reasonable assurance about whether the consolidated financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue our opinion in an auditor's report. Reasonable assurance is a high level of assurance, but does not guarantee that an audit conducted in accordance with ISAs (UK) will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of the consolidated financial statements. 


A fuller description of our responsibilities is provided on the FRC's website at www.frc.org.uk/auditorsresponsibilities .

The purpose of this report and restrictions on its use by persons other than the Company's members as a body

This report is made solely to the Company's members, as a body, in accordance with section 262 of the Companies (Guernsey) Law, 2008.  Our audit work has been undertaken so that we might state to the Company's members those matters we are required to state to them in an auditor's report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the Company and the Company's members, as a body, for our audit work, for this report, or for the opinions we have formed.

 

Barry Ryan

For and on behalf of KPMG Channel Islands Limited

Chartered Accountants and Recognised Auditors

Guernsey

14 April 2021

 

FINANCIAL STATEMENTS | Consolidated Statement of Assets and Liabilities

 

Consolidated Statement of Assets and Liabilities

 

(EXPRESSED IN US DOLLARS EXCEPT WHERE STATED OTHERWISE)

31 December 2020

 

31 December 2019

Assets

 

 

 

Investments at fair value (2020: cost of $130,252,550; 2019: cost of $248,770,370)

96,283,120

 

192,864,208

Forward currency contracts

653,125

 

-

Warrants (2020: cost of $Nil; 2019: cost of $752,955)

-

 

153

Cash and cash equivalents

2,035,320

 

5,379,726

Restricted Cash:

 

 

 

  Forward currency contracts Collateral

630,000

 

430,000

  Total return swap Collateral

10,970,000

 

-

 

110,571,565

 

198,674,087

Other assets

 

 

 

Interest receivables

258,913

 

707,187

Receivables for investments sold

783,764

 

895,182

Other receivables and prepayments

33,872

 

643,658

Withholding tax receivable

  421,788

 

-

Total assets

112,069,902

 

200,920,114

 

 

 

 

Liabilities

 

 

 

Credit default swap (2020: cost of $67,076; 2019: cost of $99,945)

54,306

 

77,983

Total return swap (2020: cost of $Nil)

1,222,546

 

-

Forward currency contracts

1,979,765

 

890,781

Accrued expenses and other liabilities

249,238

 

406,717

Payables to Investment Manager and affiliates

134,188

 

493,060

Total liabilities

3,640,043

 

1,868,541

 

 

 

 

Net assets

108,429,859

 

199,051,573

 

 

 

 

Net assets attributable to Ordinary Shares (shares 2020: 15,382,770;

 2019: 15,382,770)

12,952,965

 

13,976,415

Net asset value per Ordinary Share

0.8420

 

0.9086

 

 

 

 

Net assets attributable to Extended Life Shares (shares 2020: 80,545,074;

2019: 114,146,794)

63,540,650

 

105,771,674

Net asset value per Extended Life Share

0.7889

 

0.9266

 

 

 

 

Net assets attributable to New Global Shares (shares 2020: 41,116,617;

2019: 71,787,915)

£23,363,139

 

£ 59,862,782

Net asset value per New Global Share

£0.5682

 

£0.8339

 

 

 

 

Net assets attributable to New Global Shares (USD equivalent)

  31,936,244

 

79,303,484

Net asset value per New Global Share (USD equivalent)

  0.7767

 

1.1047

 

 

The Financial Statements were approved and authorised for issue by the Board of Directors on 14 April 2021, and signed on its behalf by:

 

  

John Hallam  Christopher Legge

Chairman  Director

 

 

The accompanying notes below are an integral part of the Financial Statements.

  

 

FINANCIAL STATEMENTS | Consolidated Statement of Operations

 

Consolidated Statement of Operations

 

(EXPRESSED IN US DOLLARS)

 

31 December 2020

 

 

31 December 2019

Income

 

 

 

 

 

Interest income

 

4,826,798

 

 

7,775,446

Dividend income net of withholding tax (2020:3,372; 2019: 278,886)

 

271,866

 

 

662,028

Other income

 

-

 

 

85,026

 

 

5,098,664

 

 

8,522,500

 

 

 

 

 

 

Expenses

 

 

 

 

 

Investment management fee

 

1,952,064

 

 

3,428,612

Professional and other expenses

 

1,336,429

 

 

1,117,163

Administration fee

 

123,097

 

 

211,457

Loan administration and custody fees

 

55,840

 

 

183,623

Directors' fees and expenses

 

194,960

 

 

253,482

 

 

3,662,390

 

 

5,194,337

 

 

 

 

 

 

Net investment income

 

1,436,274

 

 

3,328,163

 

 

 

 

 

 

Realised and unrealised gain/(loss) from investments and foreign exchange

 

 

 

 

 

Net realised loss on investments, credit default swap, warrants, total return swap and forward currency transactions

 

(64,163,138)

 

 

(29,423,579)

Net change in unrealised gain on investments, credit default swap, warrants. total return swap and forward currency transactions

 

21,059,253

 

 

15,533,893

Income taxes from net realised/unrealised (loss)/gain on investments

 

(7,172)

 

 

220,197

 

 

 

 

 

 

 

 

 

 

 

 

Realised and unrealised loss from investments and foreign exchange

 

(43,111,057)

 

 

(13,669,489)

 

 

 

 

 

 

Net decrease in net assets resulting from operations

 

(41,674,783)

 

 

(10,341,326)

 

 

 

 

 

 

 

 

The accompanying notes below are an integral part of the Financial Statements.

 

 

FINANCIAL STATEMENTS |  Consolidated Statement of Changes in Net Assets

 

Consolidated Statement of Changes in Net Assets

 

FOR THE YEAR ENDED 31 DECEMBER 2020

 

(EXPRESSED IN US DOLLARS)

31 December 2020

Ordinary Shares

31 December 2020

Extended Life Shares

31 December 2020

New Global Shares

31 December 2020 Aggregated

Net assets at the beginning of the year

13,976,415

105,771,674

79,303,484

199,051,573

 

 

 

 

 

Net investment (loss)/income

(299,794)

1,141,393

594,675

1,436,274

Net realised loss on investments, credit default swap, warrants and forward currency transactions

(6,838,452)

(33,800,902)

(23,523,784)

(64,163,138)

Net change in unrealised gain/(loss) on investments, credit default swap, warrants and forward currency transactions

6,114,839

15,257,674

(313,260)

21,059,253

Income taxes from net realised/unrealised loss on investments

(43)

(1,913)

(5,216)

(7,172)

Dividends

Nil

Nil

Nil

Nil

Net cost of share buybacks

-

(1,857,098)

(2,017,495)

(3,874,593)

Distributions during the year

-

(22,970,178)

(22,102,160)

(45,072,338)

 

 

 

 

 

Net assets at the end of the year

12,952,965

63,540,650

31,936,244

108,429,859

 

FOR THE YEAR ENDED 31 DECEMBER 2019

 

(EXPRESSED IN US DOLLARS)

31 December 2019

Ordinary Shares

31 December 2019

Extended Life Shares

31 December 2019

New Global Shares

31 December 2019 Aggregated

Net assets at the beginning of the year

22,876,360

148,482,314

97,042,815

268,401,489

 

 

 

 

 

Net investment (loss)/income

(110,368)

2,458,755

979,776

3,328,163

Net realised loss on investments, credit default swap, warrants and forward currency transactions

(1,557,957)

(15,765,042)

(12,100,580)

(29,423,579)

Net change in unrealised gain on investments, credit default swap, warrants and forward currency transactions

650,401

8,847,176

6,036,316

15,533,893

Income taxes from net realised/unrealised gain/(loss) on investments

109,954

241,943

(131,700)

220,197

Dividends

-

(991,400)

-

(991,400)

Net cost of share buybacks

-

(2,026,218)

(926,631)

(2,952,849)

Distributions during the year

(7,991,975)

(35,475,854)

(11,596,512)

(55,064,341)

 

 

 

 

 

Net assets at the end of the year

13,976,415

105,771,674

79,303,484

199,051,573

 

 

The accompanying notes below are an integral part of the Financial Statements.

 

FINANCIAL STATEMENTS | Consolidated Statement of Cash Flows

 

Consolidated Statement of Cash Flows

 

FOR THE YEAR ENDED 31 DECEMBER 2020 AND 31 DECEMBER 2019

 

(EXPRESSED IN US DOLLARS)

 

 

31 December 2020

 

31 December 2019

Cash flows from operating activities:

 

 

 

 

Net decrease in net assets resulting from operations

 

(41,674,783)

 

(10,341,326)

 

 

 

 

 

Adjustment to reconcile net decrease in net assets resulting from operations to net cash flow provided by operations:

 

 

 

 

Net realised loss on investments, credit default swap, warrants, total return swap and forward currency transactions

 

64,163,138

 

29,423,579

Net change in unrealised gain on investments, credit default swap, warrants, total return swap and forward currency transactions

 

(21,059,253)

 

(15,533,893)

Accretion of discount on loans and bonds

 

(97,467)

 

(275,938)

Changes in interest receivable

 

448,274

 

(439,476)

Changes in receivables for investments sold

 

111,418

 

(114,470)

Changes in other receivables and prepayments

 

609,786

 

(266,162)

Change in withholding tax receivable

 

(421,788)

 

2,913,342

Change in deferred taxes

 

-

 

(355,057)

Changes in payables, accrued expenses and other liabilities

 

(516,351)

 

282,269

Cash received on settled forward currency contracts and spot currency contracts

 

2,173,678

 

2,665,608

Capitalised payment in kind

 

(3,940,500)

 

(2,466,500)

Purchase of investments

 

(1,707,076)

 

(10,986,950)

Sale of investments

 

65,059,170

 

66,784,769

Purchase of short term investments 1

 

(46,129,874)

 

(4,034,406)

Sale of short term investments 1

 

39,950,463

 

-

 

 

 

 

 

Net cash provided by operating activities

 

56,968,835

 

57,255,389

 

 

 

 

 

Cash flows from financing activities:

 

 

 

 

Cost of share buybacks

 

(3,874,593)

 

(2,952,849)

Shares redeemed during the year

 

(45,072,338)

 

(55,064,341)

Dividends paid

 

-

 

(991,400)

Net cash used in financing activities

 

(48,946,931)

 

(59,008,590)

 

 

 

 

 

Net increase/(decrease) in cash, cash equivalents and restricted cash

 

8,021,904

 

(1,753,201)

 

 

 

 

 

Cash and cash equivalents at the beginning of the year

 

5,379,726

 

7,596,274

Restricted cash at the beginning of the year

 

430,000

 

-

Effect of exchange rate changes on cash and cash equivalents

 

(196,310)

 

(33,347)

 

 

 

 

 

Cash and cash equivalents at the end of the year

 

2,035,320

 

5,379,726

Restricted cash at the end of the year

 

11,600,000

 

430,000

 

Supplemental cash flow information

 

 

 

$3,705,792 is related to non-cash transactions due to the Exide restructure. This figure is excluded from purchase of investments and sale of investments above.

 

 

1 Short term investments are typically sold or converted to cash within 3 to 12 months

 

 

The accompanying notes below are an integral part of the Financial Statements.

 

 

FINANCIAL STATEMENTS | Consolidated Condensed Schedule of Investments

Consolidated Condensed Schedule of Investments (by financial instrument)

 

 

AT 31 DECEMBER 2020

(EXPRESSED IN US DOLLARS)

Cost

Fair Value

 

Ordinary

Shares

(%)1

 

 

Extended Life

Shares

(%)1

 

 

 

New Global Shares

(%)1

 

 

 

Total Company

(%)1

Portfolio of Distressed Investments

 

 

 

 

 

 

Bank Debt Investments

68,103,787

44,348,976

0.58

36.15

66.71

40.90

Private Equity

18,791,896

26,664,758

31.74

27.86

15.19

24.59

Private Note

33,002,300

15,060,365

4.61

19.09

7.30

13.89

 

 

 

 

 

 

 

Short term Investments

 

 

 

 

 

 

US Treasury Bills

10,354,567

10,209,021

39.61

4.41

7.12

9.42

 

 

 

 

 

 

 

Total Investments

130,252,550

96,283,120

76.54

87.51

96.32

88.80

 

 

 

 

 

 

 

Ordinary Shares

7,905,282

9,913,802

76.54

-

-

9.14

Extended Life Shares

78,752,876

55,603,896

-

87.51

-

51.29

New Global Shares

43,594,392

30,765,422

-

-

96.32

28.37

 

130,252,550

96,283,120

76.54

87.51

96.32

88.80

 

 

 

 

 

 

 

Credit Default Swap

 

 

 

 

 

 

Ordinary Shares

(18,553)

(15,021)

(0.12)

-

-

(0.01)

Extended Life Shares

(48,523)

(39,285)

-

(0.06)

-

(0.04)

 

(67,076)

(54,306)

(0.12)

(0.06)

-

(0.05)

 

 

 

 

 

 

 

Forward Currency Contracts

 

 

 

 

 

 

 Assets

 

 

 

 

 

 

Ordinary Shares

-

181,051

1.40

-

-

0.17

Extended Life Shares

-

472,074

-

0.74

-

0.44

 

-

653,125

1.40

0.74

-

0.61

Liabilities

 

 

 

 

 

 

Ordinary Shares

-

(467,425)

(3.61)

-

-

(0.43)

Extended Life Shares

-

(1,512,340)

-

(2.38)

-

(1.39)

 

-

(1,979,765)

(3.61)

(2.38)

-

(1.82)

 

 

 

 

 

 

 

Total return swap2

 

 

 

 

 

 

Ordinary Shares

-

(341,368)

(2.64)

-

-

(0.31)

Extended Life Shares

-

(881,178)

-

(1.40)

-

(0.81)

 

-

(1,222,546)

(2.64)

(1.40)

-

(1.12)

 

 

1 This is the Fair Value expressed as a percentage of total Company NAV, Ordinary Share NAV, Extended Life Share NAV and New Global Share NAV .

 

2 The trade claim was structured through a fully funded total return swap with a major US financial institution. See Note 3.

 

AT 31 DECEMBER 2019

(EXPRESSED IN US DOLLARS)

Cost

Fair Value

 

Ordinary

Shares

(%)1

 

 

Extended Life

Shares

(%)1

 

 

 

New Global Shares

(%)1

 

 

 

Total Company

(%)1

Portfolio of Distressed Investments

 

 

 

 

 

 

Bank Debt Investments

63,993,341

44,839,681

0.54

23.20

25.50

22.53

Private Equity

60,966,636

39,031,269

21.17

19.57

19.39

19.61

Private Note

44,371,898

28,347,559

6.30

20.81

6.88

14.24

Public Equity

62,363,549

64,453,075

33.83

22.64

45.11

32.38

Trade Claim2

13,032,089

12,149,475

24.31

8.27

-

6.10

 

 

 

 

 

 

 

Temporary Investments

 

 

 

 

 

 

US Treasury Bills

4,042,857

4,043,149

8.22

2.74

-

2.03

 

 

 

 

 

 

 

Total Investments

248,770,370

192,864,208

94.37

97.23

96.88

96.89

 

 

 

 

 

 

 

Ordinary Shares

17,758,457

13,188,939

94.37

-

-

6.63

Extended Life Shares

141,969,927

102,843,628

-

97.23

-

51.66

New Global Shares

89,041,986

76,831,641

-

-

96.88

38.60

 

248,770,370

192,864,208

94.37

97.23

96.88

96.89

 

 

 

 

 

 

 

Credit Default Swap

 

 

 

 

 

 

Ordinary Shares

(28,318)

(22,095)

(0.16)

-

-

(0.01)

Extended Life Shares

(71,627)

(55,888)

-

(0.05)

-

(0.03)

 

(99,945)

(77,983)

(0.16)

(0.05)

-

(0.04)

 

 

 

 

 

 

 

Forward Currency Contracts

 

 

 

 

 

 

 Assets

 

 

 

 

 

 

Ordinary Shares

-

121,184

0.87

-

-

0.06

Extended Life Shares

-

335,899

-

0.32

-

0.17

 

-

457,083

0.87

0.32

-

0.23

Liabilities

 

 

 

 

 

 

Ordinary Shares

-

(280,190)

(2.00)

-

-

(0.14)

Extended Life Shares

-

(1,067,674)

-

(1.01)

-

(0.54)

 

-

(1,347,864)

(2.00)

(1.01)

-

(0.68)

 

 

 

 

 

 

 

  Warrants

 

 

 

 

 

 

Extended Life Shares

478,733

109

-

-

-

-

New Global Shares

274,222

44

-

-

-

-

 

752,955

153

-

-

-

-

 

1 This is the Fair Value expressed as a percentage of total Company NAV, Ordinary Share NAV, Extended Life Share NAV and New Global Share NAV .

 

2 The trade claim was structured through a fully funded total return swap with a major US financial institution.

 

The accompanying notes below are an integral part of the Financial Statements.

 

 

Consolidated Condensed Schedule of Investments

 

Investments with the following issuers comprised greater than 5% of Total Company NAV  

 

31 DECEMBER 2020

(EXPRESSED IN US DOLLARS)

Country

Industry

Nominal

Cost

Fair Value

Ordinary

Shares

(%)1

Extended

Life

Shares

(%)1

New Global Shares

 (%)1

Total Company

(%)1

Securities

 

 

 

 

 

 

 

 

 

Dumas Shipping TL B

(Bank Debt Investments)

Marshall Islands

Shipping

  20,015,014

  19,812,305

  11,081,139

  - 

12.44

9.95

  10.22

Dumas Shipping TL A

(Bank Debt Investments)

Marshall Islands

Shipping

  2,373,118

  2,373,118

  1,313,856

  - 

1.47

1.18

  1.21

Dumas Shipping

(Private Equity)

Marshall Islands

Shipping

  349

  1,003,803

  - 

  - 

-

-

  - 

Package Holdings 1

(Private Note)

Luxembourg

Containers and Packaging

  11,108,610

  - 

  12,841,665

  27.71

  14.56

-

  11.84

Package Holdings 6

(Private Note)

Luxembourg

Containers and Packaging

  2,948,481

  1,893,980

  1,780,718

  3.84

  2.02

-

  1.64

AB Zwolle T/L EUR 01/06/2020

(Bank Debt Investments)

Netherlands

Commercial Mortgage

  18,526,730

  13,646,548

  12,329,248

  - 

8.60

21.49

  11.37

US Treasury N/B 1.500% 02/15/30 (US Treasury Bills)

United States

United States

  9,650,000

  10,354,566

  10,209,021

  39.61 

4.41

7.12

  9.42

Buffalo Thunder Dev Auth 11.000% 12/09/22 SR: Regs

(Private Note)

United States

Lodging & Casinos

  14,001,965

  11,641,233

  7,000,982

  - 

  7.35 

7.30

  6.46

TP Ferro Concesionaria TL 1L 31/03/2016 (Bank Debt Investments)

Spain

Surface Transport

  18,787,735

  18,531,522

  6,896,320

  - 

  5.45 

10.76

  6.36

TP Ferro Concesionaria TP Ferro TL-A  (First-Lien)

(Bank Debt Investments)

Spain

Surface Transport

  1,422,129

  1,422,129

  1,422,129

  - 

1.12

2.23

  1.31

TP Ferro Concesionaria TP Ferro 1L TL-B EUR  (First-Lien) EUR (Bank Debt Investments)

Spain

Surface Transport

  286,335

  329,920

  350,345

  - 

  0.28 

0.55

  0.32

TP Ferro PIK 5A 4/20

(Bank Debt Investments)

Spain

Surface Transport

  252,179

  252,179

  252,179

  - 

0.20

0.39

  0.23

TP Ferro Concesionaria TP Ferro 1L TL-C  (First-Lien)

(Bank Debt Investments)

Spain

Surface Transport

  123,865

  123,865

  123,865

  - 

0.10

0.19

  0.11

White Energy Holding Company Llc (Private Equity)

United States

Oil & Gas

  367

  9,174,989

  6,239,000

  - 

7.01

5.59

  5.75

Aca Fin Guaranty Corp 12-31/12/2019 Frn (Private Note)

United States

Financial Intermediaries

  69,599,357

  11,086,183

  4,175,961

  4.61

5.63

-

  3.85

Aca Fin Gur Sur Non Vt 12-31/12/2019 Frn (Private Note)

United States

Financial Intermediaries

  64,723,682

  10,274,884

  3,883,421

  -

6.11

-

  3.58

Hotel Puerta America Pik TL EUR (Bank Debt Investments)

Spain

Lodging & Casinos

  3,728,985

  4,065,113

  4,562,599

  - 

  - 

14.29

  4.21

Hotel Puerta America

(Private Equity)

Spain

Lodging & Casinos

  934

  3,013,332

  1,983,471

  - 

  - 

6.21

  1.83

Hotel Puerta America Pik Addon EUR (Bank Debt Investments)

Spain

Lodging & Casinos

  1,482,704

  1,609,295

  1,814,163

  - 

  - 

5.68

  1.68

 

 

 

 

120,608,964

88,260,082

75.77

76.75

92.94

81.39

 

 

1 T his is the Fair Value expressed as a percentage of total Company NAV, Ordinary Share NAV, Extended Life Share NAV and New Global Share NAV.

The accompanying notes below are an integral part of the Financial Statements.

 

Investments with the following issuers comprised greater than 5% of Total Company NAV  

 

 

31 DECEMBER 2019

(EXPRESSED IN US DOLLARS)

Country

Industry

Nominal

Cost

Fair Value

Ordinary

Shares

(%)1

Extended

Life

Shares

(%)1

New Global Shares

 (%)1

Total Company

(%)1

Securities

 

 

 

 

 

 

 

 

 

Twin Rivers Worldwide Holdings (Public Equity)

United States

Lodging & Casinos

793,386

6,349,931

20,318,615

-

5.76

17.94

10.21

Dumas Shipping TL B

(Bank Debt Investments)

Marshall Islands

Shipping

17,232,859

16,788,999

13,596,726

-

9.17

4.92

6.83

Dumas Shipping TL A

(Bank Debt Investments)

Marshall Islands

Shipping

2,043,246

2,043,246

1,612,121

-

1.09

0.58

0.81

Torm plc

(Public Equity)

Denmark

Shipping

1,169,202

14,207,442

13,049,678

-

5.80

8.73

6.56

AB Zwolle T/L EUR 01/06/2020 (Bank Debt Investments)

Netherlands

Commercial Mortgage

18,526,730

13,646,548

12,810,493

-

5.37

8.99

6.44

Five Point Holdings LLC-CL A (Public Equity)

United States

Building & Development

1,720,599

23,945,425

11,975,369

15.46

6.03

4.34

6.02

Aleris International Inc

(Private Equity)

United States

Nonferrous Metals/Minerals

589,611

20,100,668

11,202,609

-

5.82

6.35

5.63

Tratex III

(Private Equity)

Brazil

Surface Transport

9

12,015,693

11,092,750

22.18

7.56

-

5.57

Eagle Bulk Shipping Inc

(Public Equity)

United States

Shipping

2,303,182

7,582,125

10,571,605

1.32

4.42

7.20

5.31

Exide Private Common

(Private Equity)

United States

Auto Components

4,913,258

8,210,824

8,598,201

7.73

4.08

4.04

4.32

Exide Technologies 11.000% 10/31/24 SR:REGS

(Private Equity)

United States

Auto Components

6,778,720

6,043,543

6,100,848

0.28

4.09

2.18

3.05

Exide Technologies 11.000% 10/31/24 SR:REGs

(Warrant)

United States

Auto Components

2,810,467

2,505,671

2,388,897

0.11

1.60

0.85

1.20

Exide Technologies Common Stock Escrow

(Bank Debt Investments)

United States

Auto Components

23,389,000

-

2

-

-

-

-

 

 

 

 

133,440,115

123,317,914

47.08

60.79

66.12

61.95

 

1 T his is the Fair Value expressed as a percentage of total Company NAV, Ordinary Share NAV, Extended Life Share NAV and New Global Share NAV.

 

 The accompanying notes below are an integral part of the Financial Statements.

 

Consolidated Condensed Schedule of Investments (by geography)

 

AT 31 DECEMBER 2020

(EXPRESSED IN US DOLLARS)

 

 

Cost

Fair Value

Ordinary

Shares

 (%)1

Extended Life

Shares

(%)1

New Global Shares

(%)1

Total Company

(%)1

 

 

 

 

 

 

 

 

Geographic diversity of Portfolio s

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Portfolio of Distressed Investments

 

 

 

 

 

 

 

France

 

3,705,793

  3,819,904

  0.19

  4.27

  3.39

  3.52

Luxembourg

 

1,893,980

  14,622,383

  31.55

  16.58

  - 

  13.49

Marshall Islands

 

23,189,227

  12,394,995

  - 

  13.91

  11.13

  11.43

Netherlands

 

13,646,548

  12,329,248

  - 

  8.60

  21.49

  11.37

Spain

 

29,347,356

  17,405,071

  - 

  7.14

  40.30

  16.05

United States

 

48,115,080

  25,502,497

  5.19

  32.60

  12.89

  23.52

 

 

 

 

 

 

 

 

Temporary Investments

 

 

 

 

 

 

 

United States

 

10,354,566

10,209,022

39.61

4.41

7.12

9.42

 

 

 

 

 

 

 

 

 

 

130,252,550

96,283,120

76.54

87.51

96.32

88.80

 

1 This is the Fair Value expressed as a percentage of total Company NAV, Ordinary Share NAV, Extended Life Share NAV and New Global Share NAV.

 

 The accompanying notes below are an integral part of the Financial Statements.

 

AT 31 DECEMBER 2019

(EXPRESSED IN US DOLLARS)

 

 

Cost

Fair Value

Ordinary

Shares

 (%)1

Extended Life

Shares

(%)1

New Global Shares

(%)1

Total Company

(%)1

 

 

 

 

 

 

 

 

Geographic diversity of Portfolio s

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Portfolio of Distressed Investments

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Brazil

 

13,032,089

12,149,474

24.31

8.27

-

6.10

Denmark

 

14,207,442

13,049,678

-

5.80

8.73

6.56

Greece

 

357,242

293,876

0.59

0.20

-

0.15

Luxembourg

 

1,893,981

6,115,253

12.23

4.17

-

3.07

Marshall Islands

 

19,836,048

16,144,863

-

10.88

5.84

8.11

Netherlands

 

13,646,548

12,810,493

-

5.37

8.99

6.44

Spain

 

26,822,155

16,158,401

-

3.59

15.58

8.12

United States

 

154,932,009

112,099,021

49.02

56.21

57.74

56.31

 

 

 

 

 

 

 

 

Temporary Investments

 

 

 

 

 

 

 

United States

 

4,042,856

4,043,149

8.22

2.74

-

2.03

 

 

 

 

 

 

 

 

 

 

248,770,370

192,864,208

  94.37

  97.23

  96.88

  96.89

 

1 This is the Fair Value expressed as a percentage of total Company NAV, Ordinary Share NAV, Extended Life Share NAV and New Global Share NAV.

 

The accompanying notes below are an integral part of the Financial Statements.

 

Consolidated Condensed Schedule of Investments (by sector)

 

AT 31 DECEMBER 2020

(EXPRESSED IN US DOLLARS)

Cost

Fair Value

Ordinary

Shares

(%)1

Extended Life

Shares

 (%)1

New Global

Shares

 (%)1

Total Company

(%)1

Industry diversity of Portfolios

 

 

 

 

 

 

Portfolio of Distressed Investments

 

 

 

 

 

 

Auto Components

3,705,793

  3,819,904

  0.19

  4.27

  3.39

  3.52

Building & Development

1,934,272

269,330

  0.58

  0.31

  - 

  0.25